Similar Economies and Different Human Factors
After Azerbaijan signed die first oil agreement with foreign companies (the PSA on the development of the Azeri-Chiraq- Gunashli fields) in September 1994, discussions began both inside and outside the country: what sort of path of future development will the country take? At that point, the press, mentioned Norway as the most suitable example. About 17 years have passed since that time. It is enough to take just a glance at the socio-political and socioeconomic panorama of Azerbaijan during this period to understand what path it has taken. However, in order to see the events more clearly, we will start from a “journey” to Norway.
The Tough Laws of a Cold Country
Norway is. a unitary state based constitutional monarchy and parliamentary democracy the constitution, which was adopted in 1814 and was amended several times later, is still in force in the country. The king is the head of state. The supreme legislative body is a bicameral parliament of 169 members called the Storting. Parliamentary elections are held every 4 years, and candidates are nominated only by political parties. A representative of the political party that gains most votes is elected to the post of chairman of parliament and is appointed prime minister at the same time.
The Norwegian Labor Party won 64 seats in the last parliamentary elections held in 2009, while the remaining 105 man- | dates were gained by six other parties. It should be noted that Norway has long had democratic electoral traditions, and, when large oil fields were discovered in this Country in the early 1970s, society had a well-established experience in statehood. All disputable matters in the country, including economic disputes, are resolved by the Supreme Court. The courts are one of the main attributes of the state and do not depend on anyone. The Norwegian Supreme Court began functioning in 1815.
Land of Fire and Immature
laws Azerbaijan, which regained its independence on 18 October 1991, is a unitary republic. Its constitution was adopted in 1995 and was amended twice. According to the constitution, the head of state is the president. Executive power in the country is the authority of the president. In accordance with the amendments made in 2002, the authorities of the head of state are handed over to the prime minister in cases envisaged, by the constitution. Previously, the main post of the state was taken over by the chairman of the parliament in such cases. Amendments to the constitution in 2009 eliminated the ban that limited the presidency to two terms (5 years each). The next presidential elections in Azerbaijan are to be held in October 2013.
The Azerbaijani parliament – the supreme legislative body – is called the Milli Majlis. The first parliamentary elections during the years of independence were held in 1995. Since then, four parliamentary elections have been held. There are 125 members of parliament. Interestingly, as oil production in Azerbaijan rises, the number of deputies representing the opposition camp declines. If in 1995, there were about 15 opposition MPs, in 2010, opposition forces were not represented in parliament. This shows that a one-party system (the ruling party) is taking shape in the country.
Norway`s population is less than 5 million. The population growth rate is very low. Immigration has been banned since ‘1975. Despite that, Norway allows people facing political, [ethnic, and economic pressures in other countries to live and work in its territory. 78 per cent of the population lives in Durban areas, including more than 20 per cent in the capital Oslo.
The population growth rate in Azerbaijan is high. If in 1991, the country’s population was 7.2 million people, in 2000 it Beached 8 million and in January 2011 – 9 million. At present, the urban population comprises 54.1 per cent. 51.4 per cent of the population are citizens who are below 30. As a result of increasing oil revenues, most of these revenues are spent in the country’s capital Baku while the Absheron peninsula has become a big construction zone. As a result, urbanization soon began to manifest itself. Based on calculations made by the Ministry of Emergencies in 2010, local media reports that in fact, 4.17 million people are living in Baku and the Absheron peninsula (including in the city of Sumgayit). Unemployment is still a problem in Azerbaijan. In this regard, some young people are engaged in seasonal work in neighboring Russia and Turkey.
Norway has managed to gain the achievements that no other country in the world has gained in the equal division of oil revenues among the population and in the maximum elimination of stratification as a result of increasing social welfare ‘ in the country. It is a country with the highest degree of social justice that the capitalist world has ever managed to achieve. «For example, oil and gas revenues are spent mainly in the following fields here: constantly increasing living standards, a healthy lifestyle and an ecologically dean country. Today, all ^Norwegian citizens have the right to high-quality education £ and healthcare services at the expense of the state.
The number of able-bodied people in Norway is around 2 million. More than half of women work 35 hours a week. However, despite that, Norwegians have been getting good. wages for about 30 years, because they have been world leaders in the per capita gross domestic product (more than $ 50,000) for more than 10 years. Of course, care of people prolongs their lives, and the average life expectancy in Norway is now more than 80.
The number of social projects being carried out in Azerbaijan; in recent years is increasing due to growing oil revenues. But this has not yet led to improvements in the social situation of people, because when the government says that our “state budget is socially-oriented”, it means that social facilities (schools, hospitals, kindergartens, etc.) worth approximately 2 billion manats are built and refurbished during a year and the salaries of public sector employees are increasing by 10 percent In a country where state budget expenditure is $ 20 billion, no free or discounted textbooks are printed for secondary school students. In a country where oil revenues are constantly increasing, pensioners and students are not given any discount for using transport. Unfortunately, while increasing budget spending on 27 May, the government once again forgot about such important “social packages”…
Under the Soviets, Azerbaijan was known as a country of long-livers, but according to the official statistics of 2010 the average age in the country was 67 years.
Development of Hydrocarbon Deposits
The development of oil and gas fields in Norway is carried out on the basis of laws. Moreover, this process is very simple. The Oil Law says that “the Norwegian state is the owner of underwater oil deposits and has the exclusive right to manage the raw materials extracted here”. The law also envisages that no-one but the state can develop deposits without a license. It should be noted that this condition also applies to public companies. For example, Statoil and Hydro can engage in exploration and production at deposits only after receiving licenses from appropriate authorities. Consortia for the development of deposits are set, up in Norway. They are open to different companies. However, the operator is selected by the state, and what is more, the operator is not selected based on its largest share. For example, although Norway has a share of 65 per cent in the Ormen Lange project, the operator of the project is Shell, and its share is only 17 per cent. Companies investing in projects pay only license fees to the state. Investments are paid by companies and the state in accordance with their share. During the production period, companies pay only two types of taxes – 50- per-cent special tax and 28-per-cent income tax. In addition, there are taxes for the pollution of the atmosphere (residue from the burning of gas at platforms).
It should be noted that the well-known US company Phillips (now ConocoPhillips) was the first to apply for an exploration license to the Norwegian government. In 1962, it expressed its interest in drilling exploration wells in the North Sea and began to work after receiving a license from Norway in 1965. In five years, different companies drilled 36 exploration wells in the Norwegian shelf and they all turned out to be empty. And finally, the Ekofisk deposit was discovered in December 1969. In 1970, the government set up a special committee on the oil industry. In 1971, the Norwegian parliament approved the concept of the country’s energy policy. It was based on the factors concerning what the government could not do. In other words, it would be better to call it methods of protecting the country from tire negative impact of growing oil revenues in the future. In 1972, Norway’s first state oil company – Statoil – was established. This company received its first license from the government for title development of oil fields in 1981. Currently, the state share in Statoil is 66.4 per cent, and it operates the development of 52 fields. Statoil is one of the world’s 10 largest inter-national oil and gas companies.
The exploitation of the first onshore oil field in Azerbaijan started in 1848, while the first offshore oil field was discovered in 1949. The State Oil Company of Azerbaijan – SOCAR – was established in September 1992. It was founded by the state itself. Currently, SOCAR is developing 35 fields. In 2008, the company began to operate outside of Azerbaijan. SOCAR is now engaged in oil and gas trade in Georgia, Turkey Ukraine and Romania.
Under Azerbaijani law, underground resources belong to the state. Although Azerbaijan is an oil-producing country, it still has no law on oil and gas. After the country signed its first PSA oil contract with foreign companies in 1994 (so far, 33 PSAs have been signed and more than half of them have already closed: in some of them, exploration wells turned out to be empty, some of them were suspended because contractual obligations were not honored, etc.), the government, for some reason, decided to hand over the exploitation of deposits to companies not by issuing licenses, but through negotiations. The state is represented by SOCAR in the negotiations.
In PSA contracts, the Azerbaijani side has never been the operator. Usually, SOCAR, which represents the state, does not make any investment during the period of exploration. All expenses are covered by its foreign partners. During the period of exploration, companies pay income tax (30 per cent) and a tax for the contractual area. During the period of production, they also pay a 25-per-cent profit tax. Although all work done within die framework of PSAs is exempted from the value added tax, companies in Azerbaijan have to pay a social tax (22 per cent).
Norway’s Pension Fund
The Norwegian State Oil Fund was established on 22 June 1990. The founder of the Fund is the Ministry of Finance while the legal entity responsible for the spending of funds is the Investment Department of the Bank of Norway. The Fund receives the state share from the development of oil and gas fields and invests it in foreign securities. The government has no right to use state-owned funds kept at the Fund. However, profits from the management of the Fund’s assets may be transferred to the budget. The Fund’s assets and revenues from management gradually increased. Imagine that Fund’s assets were invested in the shares of 8,000 foreign companies. When the companies experienced a “boom”, the Norwegian fund’s income also increased at a fantastic pace. However, in 2008, the Fund lost more than 90 billion dollars in one year, but in the fourth quarter of 2009, its assets were around 460 billion. In order to prevent the government from getting addicted to the Oil Fund, the parliament adopted a decision in 2001 and recommended that the transfers to the budget should not exceed 4 per cent, of revenues from the management of the fund’s assets. Thus, the Norwegians have been collecting Oil Fund assets for future generations for more than 10 years. Therefore, they renamed the Fund as the “Government Pension Fund Global” in 2006. It has nothing to do with the current generation, and the main purpose is to guarantee a good and prosperous life for citizens of Norway; during the post-oil and gas period.
The State Oil Fund of Azerbaijan
The State Oil Fund of Azerbaijan was established by Presidential Decree No. 240 on 29 December 1999. The statute s of the Fund was approved by Presidential No. Decree 434 on 29 December 2000. After the rules of keeping placing and managing the currency reserves of the Fund were approved by the president’s 19 June 2001 degree No. 511, the Oil Fund began its practical work (note: after the signing of the decree on the creation of the Fund, it took one and a half years for the institution to start working officially).
The main essence of the Oil Fund is to make maximum use of oil revenues and ensure that part of them is preserved for future generations.
The expenses of the Fund are determined by the president of Azerbaijan, and the Fund’s annual budget is also approved by the head of the state. The Fund’s supervisory board holds a meeting twice a year and simply approves documents pre-pared by the head of state. So far, the supervisory board has never objected to anything.
Previously it was planned that Oil Fund spending should not exceed 50 per cent of its revenues. However, according to changes made in September 2004, this limit was raised to 75 per cent. This was explained by the fact that Azerbaijan is developing and needs investments. So far, the Fund has received 60 billion dollars and half of it has been spent.
Despite the fact that 20 per cent of Azerbaijani territory is currently occupied by Armenia, our country is considered to be the leader among CIS countries for its economic performance, Azerbaijan plays an important role as a strategic partner in European energy security projects. This is praiseworthy.
Today, ordinary Azerbaijanis wish to see a democratic society take shape in the country and oil revenues turn into human capital.