AZERBAIJAN - Profile - Gaidar Aliyev

Having assumed power in June 1993, President Aliyev controls Azerbaijan. He tries to decide all things, big and small. This slows decision making as each minister only gets to see the president once every few months. When he is out of the country, "everything stops", says a foreign ambassador posted in Baku. "People hardly even dare to fix a leading toilet without his approval". But Eldar Namazov, one of his close aides, says: "People gravitate towards him because he has such a huge personality".

Aged 75, Aliyev is vigorous and has few thoughts about his mortality, bristling at any discussion of who his successor might be. When asked recently

whether he would run for a second term in October 1998, when the next presidential election is to be held, he said "if the people want it, I will again be elected president". No one doubts he will be re-elected. He has gathered so much power into his own hands that if he were to die suddenly, the country could descend into chaos again.

Aliyev uses the tactics he applied as KGB chief of Baku in the 1970s. While harsh, these tactics have managed to create some degree of stability - the last failed coup attempt was in March 1995 - compared to the chaotic situation before. Between 1991 and June 1993, the country had four changes of government amid much bloodshed. Aliyev has consolidated his hold on power since that ceasefire. The key opposition figures are either in exile or in prison.

Azerbaijan fought a war with Armenia sporadically from 1989, ending in a ceasefire on May 12, 1994. Aliyev has proposed that an oil export pipeline from Baku to Ceyhan (Turkey) passing through Armenia could help speed the process of reaching full peace with the Armenians. But he has said that "a peace treaty can only be concluded after Armenia frees occupied territories and recognises Azerbaijan's borders". Armenia still occupies about 20% of Azerbaijan's territory.

Aliyev's focus is to turn Azerbaijan into a wealthy country rivalling the rich oil producing states of the Arabian peninsula. Under him, Azerbaijan has the greatest number of E&P deals of any of the Caspian countries. He personally closes the oil deals and presides over PSA signing ceremonies in Baku and abroad. He got the Lenkoran/Talysh SPA (Elf, Total, Agip, Deminex, Iran's OIEC & Socar) signed in Paris on Jan. 13, 1997, while he was visiting the French capital. On June 2, 1998, he opened in Baku the 5th Annual Caspian Conference and Caspian Oil and Gas Show and on that occasion he presided over the signing of two PSAs (see Gas Market Trends). BP's new PSA for the Araz (ex-Abikha) offshore block is to be signed in London during his state visit there on July 21.

In dealing with the big powers, major oil companies and the country's neighbours, Aliyev is aware that oil and geo-politics have always been inter- related in Azerbaijan. Hydrocarbons have been produced in Azerbaijan since 1870, with Baku known as "the world's oil capital" in that century. Oil consortia lined up in this country, which is isolated from the major markets, reflect a balance between two blocs competing for influence in the Caspian: the US/Europe and Turkey on one hand, and Russia and Iran on the other. Aliyev is trying to keep good relations with all sides, while the governments between 1991 and June 1993 were viewed as being either pro-US/Turkey or pro- Russia/Iran. Aliyev has had mixed success in trying to please everybody.

He is sometimes perceived by Turkey as being pro-Russia, by Iran as being pro- US/Turkey and by Russia as being against Moscow. But Aliyev has little choice; if Baku leans too much to one side, the country's future political and economic prospects would be bleak.

The challenges facing Aliyev could be seen from the way in which oil consortia were formed. The biggest consortium groups companies from several countries, including the US, called Azerbaijan International Operating Co. (AIOC) and led by BP and Amoco. AIOC has the blessings of Washington, the West European powers, Ankara and Moscow. Initially, Aliyev had intended to give Iran a 5%

share out of Socar's 20% stake in AIOC. But US pressure applied through the consortium members forced Baku to abandon that plan, according to Aliyev in an interview with London's 'Financial Times' of June 8, 1995. He added in the interview that "the Iranians were very offended...but we do not want to complicate our relations with Iran, because we have a common border and we are joint users of the Caspian".

The second consortium, Shah Deniz, excludes US companies because it has an Iranian partner - Oil Industries Engineering & Construction Company (OIEC) - which is vetoed by Washington (see brief profiles of the main E&P consortia in Gas Market Trends).

Another challenge for Aliyev involving tricky regional politics is exporting the oil to be produced by the consortia. Various pipeline routes have been considered, again reflecting the interests of the two main power blocs. Russia wants all Azeri exports to be routed through its own territory. The US prefers the Turkish route. Either side can block proposals by different means: the US/Europe/Turkey bloc control the financing end, while Russia can undermine Baku's efforts to become the hub for Caspian energy supplies to the West by vetoing undersea oil and gas pipeline projects bound for Ceyhan, passing from Kazakhstan and Turkmenistan via Azerbaijan. Iran can challenge Azerbaijan's right to develop offshore oil because the legal status of the southern Caspian Sea is undecided (see OMT). Key players on the Azeri side in this matter are Shahin Aliyev, the president's legal advisor, and Vafa Goulizadeh, his advisor on geo-politics and foreign affairs who says Azerbaijan is set to join the Council of Europe by end-1998.

In trying to overcome his challenges Aliyev would use his vast web of Russian, Azeri and ex-Soviet connections - including Lukoil President Vagit Alekperov, and Azeri businessman Marat Manafov whom he appointed as chief negotiator for E&P deals after taking power in 1993.

Under Aliyev, Baku and AIOC have made an extraordinary effort to promote Western investment in Azerbaijan. Aliyev often leads delegations to the West to attract foreign companies, and is usually accompanied by a number of ministers involved directly or indirectly in the oil sector. London, which has coveted Azeri oil since the British empire days when Baku was the "world's oil capital", is a location of choice for the Azeris. On Nov. 29-30, 1995, for example, Aliyev was accompanied by most key cabinet members at an event in London when Azeri officials and Western investors met to discuss "practical opportunities".

Such gatherings are arranged by Mahmud Mamed-Kuliyev, Baku's ambassador to London and deputy foreign minister, who also sets up meetings between Socar officials and foreign oil companies. One such gathering is being prepared for Nov. 4-7, 1998 on the occasion of Caspian oil conference in London

The Economy Under Aliyev: Economic conditions have improved since Aliyev took power, but not by much. The president retains a centralised view of economics, dating back to his Soviet days. Although he says he supports reform, he does not press too hard for implementation. The same was true of Aliyev's predecessors. One measure which Aliyev has allowed is privatisation, with a law passed in November 1995 to transform state-owned enterprises into joint stock companies.

Azerbaijan has made relatively slow progress towards a market economy since independence from the Soviet Union in 1991. Large state companies still dominate the economy, and basic commodities are subsidised. The country's GDP has shrunk almost 70% since 1991. This trend may begin to be reversed from 1999, when AIOC's oil production is to rise (see Gas Market Trends).