Azeri Oil Deals Signal Corruption, Global Witness Says

Companies with obscure ownership structures are benefiting from oil agreements with Azerbaijan’s state energy company, signaling potential conflicts of interest and preferential treatment, rights group Global Witness said.

“Privately owned companies are making millions handling oil that belongs to the Azerbaijani people, yet the identity of their owners is hidden,” Global Witness said in a report on its website. “This opacity poses a credibility problem.”

Azerbaijan, a member of the decade-old Extractive Industries Transparency Initiative, or EITI, pumped about 872,000 barrels of oil a day last year, making it the largest producer in the former Soviet Union after Russia and Kazakhstan, according to BP Plc data. The report threatens to tarnish the reputation of State Oil Co. of Azerbaijan, or Socar, which has ambitions to boost crude and natural-gas exports to Europe.

“Our report raises serious concerns that the Azeri people are not seeing the full benefit of their country’s oil boom,” said Simon Taylor, director of Global Witness. “To stamp out any suspicion, Azerbaijan’s authorities should incorporate the disclosure of the beneficial owners of its extractive and oil trading companies into its EITI process.”

Socar said in the report that it “conforms to all national laws and is in accordance with the practices of internationally known firms.” Nizamaddin Quliyev, a spokesman for the Baku-based producer, declined to comment further when called by Bloomberg News.

Oil Income

Oil and oil products accounted for 95 percent of Azerbaijan’s export revenue in 2011. Global Witness’s report calls into question assertions by the government, ranked among the world’s most corrupt by Berlin-based Transparency International, that its oil and gas income is managed fairly and conforms to EITI standards.

Azerbaijan is central to the European Union’s plans to diversify its energy supply. A BP-led group developing the country’s $25 billion Shah Deniz gas development signed agreements with European buyers in June to sell 10 billion cubic meters of the fuel a year to the region starting in 2018.

“Azerbaijan’s natural resources are vital for both the country and for Europe,” Global Witness said. “As Socar is at the heart of the Azerbaijani oil sector it is therefore important for all parties that this company is well-governed, transparent, accountable, and operated for the benefit of Azerbaijan’s people.”

To contact the reporter on this story: Zulfugar Agayev in Baku at zagayev@bloomberg.net

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net

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