25th Anniversary of Oil & Gas - Contract of the Century

25 Years Equal to the Century The Place to do Business in the Caspian Short-term Pain for Long-Term Gain – SDGs as a Framework Always Remain True to Yourself and Your Internal Culture

Issue 35 Credits A Word From Executive Director of AmCham AmCham Executive Director: Dear members, As this September we celebrate the 25th anniversary of Natavan Mammadova “The Contract of the Century”, this edition of our quarterly magazine is devoted to this remarkable occasion. Editor: This has been one of the strategic contracts in the history of Aykhan Nasibli Azerbaijan, which create positive spillover to regional politics and energy security. Conscious of political and economic Articles contributed by: circumstances back to those days, we all realize that it has not been an easy task to sign this contract. Khoshbakht Yusifzade Well educated and highly skilled people are key for success Bakhtiyar Aslanbayli of any endeavor. This is with a deep gratitude to Mr. Ramin Isayev Khoshbakht Yusifzade, who has been instrumental in development of oil industry Vugar Samadli in our country and witnessed all troublesome process of negotiations. We have a Gunel Farajova pleasure of providing you with a flashback to the memorable history. Farid Isayev The Contract of the Century, which can be considered as a national strategy for success, has been extended for the next 30 years. It carries not only immense Richard V. Smith, Yunis Salayev social and economic impact to the country, but also serves for the energy security Aleksey Tushev, Valida Bashir of the region. Currently, we are aiming to diversify economy. As President H.E. Leyla Novruzova Ilham Aliyev said, the aim is to “turn black gold to human capital”. In line with this statement, uniting almost all key players in oil and non-oil industry under its Advertisers: umbrella, AmCham stands ready to contribute further to the development of both BP oil and non-oil sectors of the economy, by making available to all stakeholders the Azerfon huge knowledge, expertise and experience accumulated in the Chamber. We congratulate all Oil Workers and Azerbaijan for this glorious journey and all the Turkish Airlines achievements we take pride. SOCAR AQS Best regards, Natavan Mammadova Publisher: American Chamber of Commerce in Azerbaijan Editor’s Comment Tel: (+994 12) 497 13 33 Dear friends, dear members. Fax: (+994 12) 497 10 91 Welcome to the next edition of IMPACT Azerbaijan magazine! www.amcham.az www.impact.az September is usually unique with start of education, schools. This September, we celebrate the 25th anniversary of “Contract of the Century”. It has been a special event Advertising opportunities: not only for Azerbaijan, but for the region as well as the Please contact the Editor at energy security, in large. Bearing this in mind, oil and gas [email protected] have always been an exciting topic and a top priority in the national agenda of our country. As a result, being rich in The articles in IMPACT Azerbaijan energy resources paved the way for shifting economy from express the opinions of the authors and the scratch to a new level of development. do not necessarily reflect the position of Within this edition you will be able to read special interviews and articles from the American Chamber of Commerce in leading company representatives and experts. Also, using this opportunity I would Azerbaijan like to thank for our advertisers – Azerfon, Turkish Airlines, BP and SOCAR AQS.

Enjoy reading!

Sincerely, Aykhan contents IN FOCUS 4 26 25 Years Equal to the Century The 2018 BDO 600 CEO and CFO Compensation Trends in The Energy (Oil & Gas) Industry

Khoshbakht Yusifzade Richard V. Smith, STS GES Managing Director First Vice-president, SOCAR BDO Phoenix Office Yunis Salayev, Managing Partner, BDO Azerbaijan 9 The Place to do Business in DEVELOPMENT & EDUCATION the Caspian 29 The Most Popular Industry – Opinion of Youth Bakhtiyar Aslanbayli Vice President for Communications, External Affairs, Strategy & Region, BP Azerbaijan-Georgia-Turkey Aleksey Tushev 12 Chemistry and physics teacher, Dərs Evi SOCAR AQS Continues Innovative Valida Bashir Traditions of Azerbaijani Drilling Math teacher, Dərs Evi Industry OUR PROUDS Ramin Isayev 32 Always Remain True to Yourself CEO, SOCAR AQS and Your Internal Culture 16 A Strong Committment - “Converting Black Gold into Human Capital” Special Interview with Leyla Novruzova GBS Global HR Director Vugar Samadli Chief Executive Officer, Nobel Oil Services AMCHAM AZERBAIJAN 34 19 About Us Short-term Pain for Long-Term Gain – SDGs as a Framework

Special interview with Gunel Farajova 35 Business Events Head of Climate Change and Sustaibility services, EY Azerbaijan and Georgia 22 Technological Disruption in Oil & Gas Industry: Opportunity or a Threat? 36 Amcham Members’ Luncheon

Farid Isayev Director, KPMG in Azerbaijan

2 Issue 35 Where Business Meets

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25 Years Equal to the Century

Khoshbakht Yusifzade First Vice-president SOCAR

the rich oil fields in the Azerbaijani sector of the Caspian Sea together with foreign oil companies wasn’t excluded. Foreign oil companies had already begun negotiations with the Azerbaijani government since 1990. Taking into account the interest of famous foreign companies in the oil fields in the Caspian, the USSR government decided at that time to allocate a certain reservoirs to be used with these companies. At the suggestion of the Caspian Oil and Gas Production Association (PU), the Azerbaijani government announced that it had selected the Azeri field to be operated jointly with foreign companies.According to the decision of the Council of Ministers of the Soviet Socialist Republic of Azerbaijan and the Ministry of Oil and Gas Industry of the USSR dated to January 18, 1991, the Caspian Sea Oil and Gas Company had to establish a joint institution with foreign companies and carry out joint exploration and use of the Azeri field. In order to conduct a tender for the purpose of establishing a BM, an organizational committee of 27 experts was established under the leadership of the First Deputy Minister of Oil and Gas Industry of the USSR, Boris Aleksandrovich Nikiti and Deputy The “Contract of the Century” is remembered Chairman of the State Planning Committee of the Republic of Azerbaijan, Rafik Mirzayev. A package of information on the in his eyes by Khoshbakht Yusifzade, Azeri field was sent to 16 foreign companies, including seven the First Vice President of SOCAR, an American companies in order to participate in the tender. Only 6 companies responded to it. academician, an elder of the Azerbaijani oil The tender commission analyzed the proposals of these industry, who was a party to negotiations on companies and concluded the tender in June 1991. The American company “AMOKO” was declared the winner. At this popular agreement: the same year the delegation of the Republic of Azerbaijan visited the USA in order to inform “AMOKO” about winning Mr. Yusifzade, it is best to congratulate you first at SOCAR the tender, to be closely acquainted with its management on the occasion of the 25th anniversary of the “Contract and activities, as well as, with the US oil industry, especially, of the Century”. Because today you are one of the key exploration and production of offchore oil in this country. I was figures in implementation of this famous contract. How also one of the members of the delegation led by Secretary of did you remember that period? the Central Committee of the Communist Party of Azerbaijan, Thank you. I also want to congratulate all Azerbaijani Fuad Musayev. My travel companions were Natig Aliyev and oil workers on this occasion. So, the fate led us that “The Rauf Bayramov, who was then responsible for the Central Contract of the Century” had taken place in front of my eyes. Committee of the Communist Party of Azerbaijan. It was my Increasing oil production was an urgent issue in the late first trip across the ocean. We were in the US from June 23 to 1980s. The main reason for this was that it was impossible July 5. As we arrived in Houston on June 24, we introduced to work in the deeper part of the Guneshli field, discovered the protocol of the competition committee on the AMOKO’s in 1979, the Chirag discovered in 1985 and the Azeri field winning in tender to Robert Blantona, Vice President of discovered in 1987. It was only possible to work with the the Company (photo 1). During the presentation, we also engineering and technology of that period in the Guneshli commented on the position of the Republic of Azerbaijan field with a depth of up to 200 meters. At such a time, using on “McDermott”, “Unocal”, “Britis Petroleum” and other

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of the groups, the general concept of the “Azeri” field was developed. After my return from Houston, my team continued to work on the feasibility study. In parallel, Americans worked on feasibility studies, too. They completed the work in July 1992. Then they came to Baku and presented the project to us for review. Within a month, our team was thoroughly familiar with the project and expressed their views and suggestions. After some time we were invited back to Houston again. It was necessary to complete the feasibility study of the “Azeri” field. On September 12, 1992, a group of specialists from the State Oil Company of Azerbaijan traveled to Houston. This group I led completed the work on the project of feasibility study of “Azeri” field together with the specialists of “AMOCO” and other western companies. On September 28 of the same

Photo 1: USA, Houston, 1991. The head of the Azerbaijani delegation, Fuad Musayev (on year, the project acceptance protocol was signed. But do not the right) announces that the winner of the tender is AMOCO. have such an idea that as if everything was going smoothly. companies. The second time I visited the United States in No, most issues were resolved only after great disputes. March 1992. The tender for the “Azeri” field and the victory of This time, there was a great progress in commercial matters. “AMOCO” in this tender has already been a history. In its final Until signing the contract, the amount of allocation spending on document, the tender commission also granted “AMOCO” the field and total investment was defined, other economical such authority that as the winner of the tender, this company issues, as well as, the principle of income distribution was may, with the approval of the Government of Azerbaijan, also generally agreed. However, the change of government in involve other companies to work together on the Azeri field, Azerbaijan in 1992 postponed the signing of the contract if necessary. That is why “AMOCO” has invited the tendered with foreign companies on the Azeri field. In September of companies “Unocal” (US), “British Petroleum” (UK), “Statoil” the same year the State Oil Company of the Republic of (Norway) and “McDermott” (USA) to work with the approval Azerbaijan (ARDNS, since 2015 - SOCAR) was established of the Republic. and negotiations with foreign companies were continued. In “AMOKO” has begun the work on studying the field and late 1992, the “Chirag” field in the Azerbaijani sector of the feasibility of the project (TES) since the end of 1991. The Caspian Sea was also involved in the negotiations on the specialists of the company (geologists, geophysicists, drillers, “Azeri” field. Along with Amoko, Penzoil and BP, the Turkish builders, exploiters, ecologists, etc.) visited Baku several Petroleum Anonymous Corporation (TPAO) had also been times to collect information and documents on the “Azeri” involved in the project. However, the agreement considered field. However, the absence of our experts in Houston during to be signed in 1993, June was posponed again. On June the process delayed the work. So in March 1992, a group of 15, 1993, at the request of the people, the national leader Azerbaijani specialists led by me was sent to the central office Heydar Aliyev, who had come to power again in Azerbaijan, of AMOKO in Houston. We joined the process conducted by began to work closely with the recovering and improving oil “AMOCO” and western companies working together (photo industry in order to save the Republic from a catastrophic 2) and started working on a feasibility study for the joint use economic and political situation. At that time it was necessary of the “Azeri” field. This joint work, which lasted three weeks, to choose one of two options for assimilation of reserves of gave positive results. About 80 percent of the feasibility “Azeri”, “Chirag” and “Gunashli” (deep part) fields: either we study had been implemented. As a result of the joint work wait 30-40 years for the financial and economic recovery of our country, or invite foreign oil companies! We had neither the time nor the opportunity to wait for many years. The social and economic situation in the country was intensed. The country’s oil and gas industry was also in a deep crisis. Therefore, urgent measures had to be taken. On the other hand, establishing partnerships with foreign oil companies was a demand of the time, and international practice widely demonstrated its advantages. The problem is that offshore oil production is a risky and demanding investment. Therefore, even the most powerful countries in the world, such as the United States, the United Kingdom, and France, are trying to work together based on the production sharing principle, thus minimize risks as possible as. Azerbaijan could and should use this practice effectively. But there were also forces that opposed foreign oil companies to invest in our country. These Photo 2: USA, 1992. At “AMOKO” Hard work is being done on the feasibility of the “Contract of the Century”. From right: Saleh Abbasov, Arif Nazarov and Khoshbakht Yusifzade forces operated both in the country and abroad. That is why

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the President of Azerbaijan met with oil experts and consulted them. The views of the President and oil workers coincided. It was decided to invite foreign oil companies to our country. Thus, the oil strategy developed by the great leader of Azerbaijan, Heydar Aliyev was launched. The negotiations with foreign companies resumed. The negotiations began in Baku in March 1994 and then continued in Istanbul, Turkey. The final stage of the negotiations was held in Houston, USA. During the negotiations there, it was decided to include a deeper part of the “Guneshli” field along with the “Azeri” and “Chirag” fields. During the 45-day negotiations in Houston from July 21 to September 4, 1994, there were many dramatic moments. The negotiations were hard. Each of the parties defended their position and their own interests. Sometimes the case came to the point where either the opposing side or the Azerbaijani side decided to stop negotiations altogether. Photo 3: Signing Ceremony of “the Contract of the Century” Once the opponent side made a term that the negotiations Azerbaijan. I just want to highlight a few key issues. Politically, would not continue unless Azerbaijan didn’t solve the legal the importance of the agreement is that leading countries status of the Caspian Sea with Russia. Can you imagine what and companies of the world have once again convinced that that meant? As you know, this issue with Russia was solved Azerbaijan is an independent state and a reliable partner, only in 2002 as a result of President Heydar Aliyev’s efforts. where it is possible to work and invest in this country. It’s not by So, if the negotiations in Houston, USA, were suspended in chance thatafter signing this agreement 35 more agreements 1994, we would have to wait seven to eight years. were signed with foreign companies. The economic Mr. Ilham Aliyev, a member of our delegation and then the significance of the contract is that oil production reached from Vice President of Foreign Affairs of the State Oil Company of the lowest level -9 million tons in Azerbaijan’s history in 1997 the Republic of Azerbaijan, informed our great leader about - to 51 million tons in 2010. Thus, oil production increased by the conditions forwarded to us, flew to Washington at his 5.6 times. Currently, most of the oil and gas produced in the instruction, held very useful meetings and solved the issue. country is obtained from the Azeri-Chirag-Gunashli fields. It is It should be noted that the oil specialists in Azerbaijan, who 20 years that the participants of the “Azeri-Chirag-Guneshl”i had just stepped on the path to independence at that time, project have been making a profit from oil. If the profit from had limited experience in negotiating with foreign companies. the sale of oil until 1999 were used to repay the investment, But Mr. Ilham Aliyev, who graduated from the Institute of while since December of that year Azerbaijani “profit oil“ has International Relations in Moscow, got a scientific degree been exported to foreign markets. Until September 1, 2019, and then taught at the Institute knew English and issues 287 million tones of “profit oil” in the share of Azerbaijan was of international law and he communicated directly with our sold in world markets, it is 58% of all produced oil on ACG so partners, found ways to deal with challenging situations, far. Profit oil is increasing year by year. One of the greatest and his ability to handle tension showed itself at the meeting achievements of the “Contract of the Century” is that it was with authorized persons in Washington D.C. Finally, the not limited to the use of the ACG fields. The derivatives of this parties’ willingness to work together and benefit from the rich large project appeared in which the first was the main export oil and gas fields in the Azerbaijani sector of the Caspian Sea prevailed. On September 14, 1994 the Decree of the President of the Republic of Azerbaijan Heydar Aliyev “On the results of negotiations with a consortium of foreign oil companies on joint use of oil fields in the Azerbaijani sector of the Caspian Sea” was announced. On September 20, 1994 in Baku, 11 well-known oil companies from seven countries signed the agreement on joint use of the “Azeri”, “Chirag” and “Guneshli” fields in the Azerbaijani sector of the Caspian Sea and Distribution of Production, afterwards this well-known agreement was called as a “Contract of the Century” (photo 3-4-5). The agreement was approved by the decision of the National Assembly (Parliament) of the Republic of Azerbaijan dated to November 15, 1994 No 924.

In what aspects do you see the importance of signing “the Contract of the Century”? “The Contract of the Century” carried great importance for Photo 4: 1994, Baku. At the first meeting of Steering Committee after signing the Contract of the Century

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Baku-Batumi, Baku-Novorossiysk pipelines and railways, and 396 million tons through the Baku-Tbilisi-Jeyhan pipeline. If there wouldn’t be this pipeline, how could we have exported so much oil to world markets?!

The “Contract of the Century” was signed for 30 years and will expire in 2024. However, as we know, the contract was extended until 2050. How this decision had come out? What will happen after the end of the “Contract of the Century?”- this question was a reason for thinking to us and to our foreign partners.We had a few options. The first option was to continue to cooperate with the Azerbaijan International Operating Company, which is operated by BP. The second thought was that maybe we could work with other foreign companies and sign contracts with them. The third was that we would be able to operate ACG ourselves after 2024. Each of these options was analyzed periodically. Finally, we preferred to continue to work with BP and its partners on the commercial terms we offer. This is because BP and its partners, who have been working at ACG since 1994, became very familiar with these fields and their details. Consultations and negotiations were held with BP. They also expressed their interest in further cooperation. Our negotiations resulted in signing of an amended and restructured agreement on the joint use of the Azeri-Chirag-Guneshli fields on September 14, 2017 at the Heydar Aliyev Center in Baku (photo 6). This contract extended the duration of “the Contract of the Photo 5: September 20, 1994 When the “Contract of the Century” was signed Century” until 2050. The new agreement sets out the most oil pipeline, Baku-Tbilisi-Jeyhan. This pipeline that is a child favorable terms for Azerbaijan. Everyone is already aware of of “The Contract of the Century” put into operation in May 28, that. 2005, its official opening took place in July 13, 2006. I want you to know that if the “Contract of the Century” was the first On the anniversary of the “Contract of the Century” and masterpiece of our national leader Heydar Aliyev, the Baku- the professional holiday of oil workers, we cannot even Tbilisi-Jeyhan export oil pipeline was his second masterpiece. speak of the Shah Deniz epopee. Because without the I would like to mention one thing: there were also people who “Contract of the Century,” there would be no Shah Deniz were against Baku-Tbilisi-Jeyhan export oil pipeline project. too. But now let’s look at it again: by September 1, 2019, up to 554 “Shah Deniz” is the third masterpiece of our great leader million tons of Azerbaijani oil was exported to world markets Heydar Aliyev. If the “Contract of the Century” redefined that of 158 million tons were transported via the Baku-Supsa, Azerbaijan as an oil country, while the discovery of the giant

Photo 6: Signing Ceremony of New Agreement on Azeri-Chirag-Gunashli

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Biography of our Guest Mr. Khoshbakht Yusifzade is the first vice-president of SOCAR. He started his career as a geologist and mining engineer in Baku office of the Oil Industry Ministry of USSR and later he joined the newly-opened office for offshore oil fields development as a senior engineer and head of section. In March 1954, Khoshbakht Yusifzade was appointed to the post of senior geologist in Neft Dashlary (Oil Rocks) and since he has been known as one of the first project managers in offshore oil field development. Since independence of Azerbaijan, he occupied different leadership positions: the first vice-president of the National Group of Companies “Azerineft” and adviser to SOCAR President in 1992-1994, Photo 7: Inauguration of Trans-Anatolian gas pipeline SOCAR Vice President on Geology, Geophysics and Field Shah Deniz field consisting of 1.2 trillion cubic meters of gas Development in 1994-2004, SOCAR First Vice President on from 1999 up to date and 240 million tons of condensate Geology, Geophysics and Field Development in 2004-2016. and successful implementation of the Shah Deniz gas According to the Order issued by President of the Republic of project introduced Azerbaijan as a major exporter of gas to Azerbaijan Ilham Aliyev in 2016, he was appointed to the post the world. Since the beginning of use, more than 110 billion of SOCAR First Vice President. cubic meters of gas and 27 million tons of condensate has Yusifzade is an author of 188 research works, 12 studies and been extracted from the Shah Deniz field. By September 1, 8 inventions which contributed to discovering and exploring 2019, on the “Shah Deniz-1” project Georgia was supplied oil and gas-condensate fields. In 1960, Khoshbakht Yusifzade with 8.7 billion cubic meters of gas and Turkey with 63 billion received Ph.D degree in geology-mineralogy defending thesis cubic meters of gas through South Caucasus Pipeline. Within on oil fields and horizons and useful exploration of oil facilities the “Shah Deniz-2” project, transportation of Azerbaijani gas in south-western part of Neft Dashlary. to Europe and construction of the Southern Gas Corridor Khoshbakht Yusifzade is an Academician of the Azerbaijan for this purpose is the brightest chapter of our modern gas National Academy of Sciences, Honorary Academician of epopee. The Southern Gas Corridor opened at Sangachal the Russian International Engineers Academy, Academician Terminal on May 29, 2018 (photo 7). The President of the of the International Academy of Sciences on Turkic World Republic of Azerbaijan H.E. Ilham Aliyev said in his speech Research, foreign member of the Georgian National Academy at the inauguration ceremony, thanks to the successful of Sciences, member of the presidium of the High Certification implementation of the Southern Gas Corridor project a new Committee under the President of the Republic of Azerbaijan, era began in the life of our country, in development of oil member of the editorial office of the periodicals “Oil Economy of and gas industry. June 12, 2018 in Eskishehir, Turkey, with Azerbaijan”, “New developments in Azerbaijani geophysics”, participation of President of Azerbaijan H.E. Ilham Aliyev, Azerbaijan National Encyclopedia, member of the Azerbaijan President of Turkey H.E. Recep Tayyip Erdogan, the heads of National Committee of Geophysics, Azerbaijan Society of Ukraine, Serbia and Northern Cyprus, 2000 km of Southern Oilmen-Geologists, American Association of Petroleum Gas Corridor – The Trans-Anatolian Natural Gas Pipeline, Geologists, European Association of Geoscientists and also known as TANAP, was inaugurated. Engineers. Thus, the Shah Deniz gas began to be transported to Turkey Yusifzade led the projects on development of more than 20 oil via the South Caucasus export pipeline and TANAP. So and gas fields in Azerbaijani, Turkmen and Russian sectors far, more than 2 billion cubic meters of Shah Deniz gas has of the Caspian Sea, as well as world-renowned “Azeri”, been pumped into the TANAP pipeline. On July 1, 2019, “Chirag” and “Guneshli” fields and played important role in TANAP was fully prepared for transportation of Azerbaijani exploration of “Azeri-Chirag-Guneshli” block, “Ashrafi” (1998), gas to Europe. Construction of next phase of the Southern “Garabagh” (1998), “Shah-Deniz” (1999), “Umid” (2010), Gas Corridor - the Trans-Adriatic Pipeline, also known as “Absheron” (2011) fields. TAP, is almost complete. The 878-kilometers pipeline will Khoshbakht Yusifzade was awarded the highest prizes and pass through Greece and Albania, beneath the Adriatic Sea, titles of honor, as well as “Istiqlal” (Independence) medal in and will get again to onshore at the Italian land and begin to 2000, Order of Glory in 2004 on the occasion of 10 years of transport gas to these countries. the “Contract of the Century”, Medal of Honor and UNESCO Medal in 2010 together with a group of SOCAR experts. Mr. Yusifzade, Thank you for sharing this wonderful His name was added to UNESCO encyclopedia. In 2008 history with us. Khoshbakht Yusifzade was awarded the Gold Star Medal The Republic of Azerbaijan and its oil and gas industry has of the International Academy of Sciences on Turkic World passed through progress equal to a century in 25 years since Research for his contribution to the development of sciences, the signing of the “Contract of the Century”. I am sure that on education and economy in the Turkic world, became “Person this great progress we will still be able to see many victories of the Year” and in 2011 he was awarded the title of Honorary and new bright achievements. Scientist of the Turkic World.

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The Place to do Business in the Caspian

Bakhtiyar Aslanbayli Vice President for Communications, External Affairs, Strategy & Region, BP Azerbaijan-Georgia-Turkey

A model of a fair and transparent partnership The Contact of the Century would set a precedent for others to follow - Azerbaijan was the first country among all the former Soviet Union states to allow a broad international participation in its energy sector while maintaining good terms with the country’s regional neighbors. It became a model framework within which the international oil companies, such as BP would have the confidence to make the major investments necessary to develop the oil and gas resources in an environment, which at the time was viewed as posing considerable risks. The economy, management concepts, methods and processes, technology, and infrastructure needed changes. A new business environment needed to be created. And the country was quick in making plans to bring about the required changes to provide the confidence for foreign partners to embark on multi-billion-dollar investments. These investments would deliver such projects that had the potential The Caspian’s re-birth as one of the world’s to contribute very significantly to building a strong and stable great oil and gas industry hubs started from economy in the country. Having realized this, the country was just one contract that was signed in 1994 when prompt enough to firmly commit to creating an environment Azerbaijan had been an independent state for that would support the establishment by foreign investors of a just three years. profitable and sustainable business in Azerbaijan. This year marks the 25th anniversary of that The government’s plans for building the future of the nation contract - Azerbaijan’s first agreement with were multi-faceted. They covered the country’s intention to take steps towards creation of a business, legal and tax foreign oil majors who were invited to invest in environment which would be supportive, transparent and the development of the country’s huge oil and consistently applied, of an education system that would gas resources in the Caspian. This contract build on the past success and channel capable people into for the joint development of the Azeri-Chirag- business, of a governmental and business culture which Gunashli (ACG) field was later given the name of would reward integrity and performance. “The Contract of the Century” by the then-head All this would not only attract foreign investment and build of state of Azerbaijan, Heydar Aliyev. The name a strong basis for its profitability and sustainability but also was a perfect fit to reflect the deal’s importance boost local businesses. to the country as it marked the start of its new Now after a quarter of century, if asked what has driven the extraordinary successes of the joint development projects independent history as well as the beginning of a in Azerbaijan, one can confidently say – a trustful, fair, and long journey towards the revival of Azerbaijan’s transparent partnership. Now we can say working together oil and gas industry. hand-in-hand, BP and partners have built with the government

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of Azerbaijan and SOCAR one of the most successful Turkey, Greece, and Albania to Italy. public-private business partnerships in the world. And this • It has supported world-class fabrication, training and partnership has led to the full transformation of the country educational facilities, and a generally enhanced national and the region. skill and capability base. • It has stimulated the formation of a competitive local supply chain. A big boost to the economy • It has encouraged the development of highly educated Looking back through the chronology of the past 25 years national engineers and other world-class professionals. of foreign investors’ presence in the region, one can see a • It has generated tens of thousands of local construction colorful map of activities that are marked by numerous unique jobs. and significant milestones based on safe, responsible, and • It has fostered sustainable development in hundreds of efficient operations in the Caspian resulting in great outcomes rural communities that have been helped with capacity- for both the country and its business partners. building, infrastructure, educational, and lucrative Therefore, it is important that we all recognize the remarkable business opportunities. progress that has been achieved not only within the country The scale of the benefits and successes is huge. And they but also in the entire region since the signing of the “Contract all stem from that original commitment made by all parties of the Century.” to working strictly to the requirements and standards of the • It has paved the way for over 30 other production-sharing agreement, and their contribution to advancing these major agreements that followed the first contract involving projects and delivering on the intent of the production-sharing essentially all of the world’s major oil and gas companies. agreements that after signing were enacted into the country’s • It has contributed to a strong and growing economy. law. • It has provided a substantial new revenue stream for the It is hard to believe how much change, transformation, state of Azerbaijan that underpins this economic growth. progress, and growth of a nation can be credited to just • It has made a major contribution to the new commercial one agreement. Even a few of the successes named here links that the county has built with the rest of the world. are sufficient for all parties to take pride in their being part of • It has driven a revitalized world-class offshore history. hydrocarbon production sector and a reliable, safe, and Clearly, much of the credit for this must go to the leadership of environmentally sound onshore oil-export system - the the country, their farsighted oil and gas policy, and the intent of Baku-Tbilisi- Ceyhan pipeline, through which the Caspian the people of Azerbaijan to embrace change, transformation, production is directly transported to the world markets. and growth. • It has created one of the world’s most modern oil and gas We should recognize that none of this would have been processing plants on the shores of the Caspian. possible without the reforms and other significant efforts • It has built investors’ confidence to advance the giant made by the government to create a healthy and enabling Shah Deniz gas and condensate field development environment for foreign and local businesses. We should also project to the stage such that the first-ever gas in the acknowledge the close cooperation between the Government, history of the Caspian should be directly delivered to appropriate ministries, SOCAR, the foreign oil companies and European markets next year via a giant gas value chain their sub-contractors. starting from Azerbaijan and lying across Georgia, As a result, in just a quarter of century, the entire nation has

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positions in BP’s global businesses. This is a clear indication that the country’s human-capital traditions are coming back. Once a hub for developing oilmen and industry professionals for many foreign countries by its oil university, which was a unique leader in the Soviet Union, Azerbaijan is resuming its past success in developing national capabilities. The results are impressive - now look where the country and its non-oil sector are today with the world-class national capacities and human capability that the country is exporting to regional and world markets. The place to do business in the Caspian Investing in diverse areas as well as the development of human capital has been vitally important in absolute terms for the economy but also in relative terms for Azerbaijan to seize the opportunity to become the regional business hub for the Caspian. Since the re-establishment of its independence, Azerbaijan has aimed to differentiate itself as the place to do business in the region, and it has successfully achieved that been transformed and it now is firmly back on track as one of goal. the world’s premier oil and gas producing nations. The story of 25 years of growth and success, of which The industry has grown to make the country a regional hub with Azerbaijan can feel justifiably proud, provides a basis on increasing opportunities for establishing related businesses which the country can build as it looks forward to its own and and creating employment, entering into partnerships and foreign partners’ long-term plans. setting up links with global markets, transferring modern As Azerbaijan’s biggest foreign partner and operator of technology and global expertise, developing a vibrant the country’s major oil and gas development projects, BP services sector for the huge oil and gas projects that deliver believes that business can continue to flourish in this country substantial revenues. and, therefore, together with our partners in ACG and Shah This has provided the country with an opportunity to Deniz we have extended both contracts until mid-century. persistently target diversification in other sectors of the BP sees Azerbaijan as a good place to do business. This is a economy. Huge efforts have been made to re-invest the place where investors can effectively set up businesses and substantial oil revenues to develop the non-oil sector to the companies can operate effectively. level that would support the sustainability of the country’s And the people of Azerbaijan are highly and relevantly rapid economic growth. educated and see business as an attractive, stimulating, and rewarding career opportunity. The most important benefit – a strong Biography of our Guest human capital Mr. Bakhtiyar Aslanbayli is BP’s Vice President for From the start it was clear that a much bigger number Communications, External Affairs, Strategy and Region of jobs would be offered by the service sectors than by covering Azerbaijan, Georgia and Turkey. He is also manufacturing. Therefore, the country placed its focus on overseeing regional ethics and compliance, as well as tax and supporting the development of a vibrant services sector for oil customs teams. and gas and also on targeted diversification in other sectors Prior to this role, Mr. Aslanbayli served as BP’s regional of the economy. director for tax and customs for Azerbaijan, Georgia and In parallel, the country has consistently targeted the Turkey. He joined BP from PricewaterhouseCoopers in 2002 development of a world-class, highly educated and skilled as a Tax Advisor. national professionals and workforce aiming to turn its “oil In addition to professional activities, Mr. Aslanbayli also and gas capital to human capital.” teaches international affairs and energy geopolitics at Baku As Azerbaijan’s long-term partner in the Caspian, we State University, ADA University and Baku Higher Oil School. are proud of what we have accomplished in training and He was a guest lecturer at Harvard Black Sea Security developing Azerbaijani nationals involved in our projects Program in 2014 and 2015, as well as a frequent speaker and operations. In Azerbaijan, we have a genuine success at various international and local conferences. He is the story of developing quite a big army of national professionals author of one book and more than 50 academic articles and who can now compete with international experts and win commentaries. overseas assignments to work for BP’s global businesses Mr. Aslanbayli holds MSc in International Affairs from Baku across the world. Just one example – in 2019 alone about 10 State University. He also completed his PhD studies at the young Azerbaijanis have been appointed to senior leadership Azerbaijan National Academy of Sciences.

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SOCAR AQS Continues Innovative Traditions of Azerbaijani Drilling Industry

Ramin Isayev CEO, SOCAR AQS

successfully expanding and diversifying along the geography, drilling assets and well services dimensions. SOCAR AQS’s strategy for diversified sustainable business growth is primarily inspired by Azerbaijan’s strategy to increase goods and services export. Proud Heritage, Continual Improvement SOCAR AQS LLC was established in 2007. The founders of the joint venture are SOCAR and Absheron Drilling Company (AQS). SOCAR brings more than 170 years of industrial drilling experience and AQS brings advanced technologies and modern management capabilities to the joint venture. Today, SOCAR AQS provides and manages full range of drilling and well services to various clients. The company uses most modern drilling rigs, technological equipment and management systems to provide safe, environmentally- friendly, trouble-free and cost competitive services and solutions to its clients. The company is the first and the only drilling company in the region certified to API Spec Q2 Origins standards, the world-class and most reputable standard in SOCAR AQS was established in 2007 as a joint venture oilfield services industry. between SOCAR and Absheron Drilling Company (AQS), to provide integrated oil well drilling and well services. The purposes of establishing SOCAR AQS were to attract Agile, Fast and Innovative modern technologies and management methods to drill In 11-years of its successful operations, the company safely highly productive oil and gas wells in the Caspian and create drilled, constructed, completed and delivered around 100 a globally competitive turn-key type drilling contractor. high-quality and highly productive wells to its clients within The company started drilling operations with one rig in the the schedule and budget. SOCAR AQS has been the industry Shallow Water Gunashli field in March of 2008. Currently, front-runner and applied several modern technologies first the company continues drilling operations with six rigs on five time in the region to deliver industry records, including but not fixed platforms in four offshore fields in the Caspian and also limited to the following: grows international operations. In 2017, SOCAR AQS won an international tender announced • the first horizontal well by a national drilling company: by BAPEX for drilling of four gas exploration wells in onshore Well 350 was drilled in the Shallow Water Gunashli Field Bangladesh under lump-sum turnkey contract. In 2018, the (SWG) in 60 days, instead of client target of 128 days. company was awarded an engineering contract by DTEK in The well with 3443 m measured depth had the angle of Ukraine. In July of 2018, SOCAR AQS formed a joint venture, 84 degrees, the highest inclination in offshore Azerbaijan; Turan Drilling and Engineering LLC, to work on BP-operated • the fastest well ever drilled into the Fasila formation on fixed platforms in the Caspian. The company did many firsts SWG: Well 352 with the measured depth of 2961 m was in the Azerbaijani oil industry, built strong capabilities and drilled just in 27 days compared to 90 days planned by capacities and I am pleased to say that SOCAR AQS is client. Previous record performance also belonged to

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SOCAR AQS: Well 351 in SWG was drilled in 28 days instead of the client target of 90 days; • SOCAR AQS installed latest generation heavy-duty drilling rig, Drillmec HP 3000 and broke several records in the history of drilling in the Caspian: company successfully set 13 3/8” casing string with the dry weight of 546 tons in one run to the depth of 5,093 m by using this rig. The company broke another record by setting 9 5/8” casing string with dry weight of 393 tons in one run to the depth of 5,620m with the angle of 26 degrees. Both casing strings were successfully cemented and tested; • took core samples from horizon V and horizon VII of HP Bulla field in strict compliance with the highest international standards; • drilled the deepest well in history of SOCAR: Well 16 in Umid field was successfully drilled to the depth of 6810 m. Umid drilling is one of the most complex high-pressure employees, be a preferred partner for our suppliers, respect drilling operations in the world. SOCAR AQS managed our environment, and comply with all safety standards. this drilling under footage turn-key contract and delivered Our timeless efforts in this respect have been graciously to the client the well with full technical integrity. This recognized by our stakeholders. The Caspian European well set another record as the most productive well in Club awarded us the Caspian Energy Prize as the Best SOCAR’s wells portfolio; Drilling Company several years in a row in recognition of • conducted full range of geological and geophysical our contributions to the national oil and gas industry. BP surveys along the whole wellbore in the Umid well 16, recognized SOCAR AQS as the Company of the Year 2015 which is the deepest well in the wells portfolio of SOCAR; for Successful Application of the Modern Technology. • managed to take core samples from the deepest In 2018, the International Association for Continual Education horizons in SOCAR wells: from 6,047-6,064 and 6,037- and Training (IACET PNG) recognized SOCAR AQS as 6,046 meter intervals of the horizon V and then from the “Exemplary Training Company of the Year” for effective 6,653-6,664 meter interval of the horizon VII in the execution of the Student Internship Program based on the highest pressure sections of the Umid field as a result of assessment of the company’s training programs. application of the world-class equipment. The operation SOCAR AQS is the first national oilfield services company to had a 100% success rate; become a member of the UN Global Compact, demonstrating • conducted comprehensive and world-class geological its global commitment to best corporate governance, labor, and geophysical surveys for studying and understanding safety and environmental standards. The company is also the production potential of the West Absheron field, the first and only Azerbaijani organization to join the Global opening a new chapter in the development of this Reporting Initiative, which focuses on transparency and strategically important field for the country. It is worth human rights. mentioning that earlier unproductive wells and sanding In 2017 and 2018 senior drilling crew members and issues rendered this field almost non-economical and management of SOCAR AQS were awarded by His non-operable. SOCAR AQS applied new technologies Excellency Mr. Ilham Aliyev, the President of the Azerbaijan and methods, increasing well productivity by multiples, Republic for their long-term dedication to development of and significantly reduced sanding problems in producing national oil industry and for continued superior performance. wells. All these recognitions motivate us to continue our successful sustainable growth by setting more ambitious targets and The company achieved all these strategic milestones and achieving them. records with no harm to people, to the environment and to the assets, demonstrating one of the best QHSE performance in international drilling industry. We Collaborate With the Leaders SOCAR AQS has always been open to new initiatives and to partnership discussions. The company sees integration SOCAR AQS is a Value for Stakeholders of Azerbaijani drilling industry into global drilling and wells From the first day of its operations, SOCAR AQS aspired to services industry as one of its strategic priorities. We believe become the value for its stakeholders including our clients, that by being receptive to new initiatives, new technology employees, suppliers, industry associations and other players. applications and new partnerships, we can increase safety To achieve this, we knew that we have to deliver impeccable and productivity of our operations, and also continue the drilling and well services performance, be a responsible leading role that Azerbaijani drillers have always played in corporate citizen, support development and training of our the world. In line with this strategy, SOCAR AQS successfully

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New Footprint in the Region In order to contribute to development of world-class national drilling specialists and to share the accumulated experience of Azerbaijani drillers, SOCAR AQS established Baku Drilling School, the first drilling school in country certified to the International Well Control Forum (IWCF) standards. National and international students and specialists willing to improve their drilling skills and get certified can enroll in and complete the IWCF certified training programs of the school. The School is certified to provide all levels of the trainings in Drilling Well Control and Well Intervention Pressure Control. In addition, the school is well equipped and resourced to provide other tailored oil well drilling and well intervention related trainings. SOCAR AQS acquired the state-of-the-art, modern, high- tech Drilling Simulator, so that it can provide full spectrum of world-class applied drilling training programs, first of its kind established a Joint Venture with KCA Deutag in July 2018 in Azerbaijan and in the region. to target existing and future opportunities with IOCs in the Baku Drilling School is aiming at training next generation of Caspian drilling and engineering market. The joint venture drilling professionals for Azerbaijan and for the region. We named Turan Drilling & Engineering Company (A SOCAR strongly believe that by educating future workforce in line AQS and KCA Deutag Company) combines KCA Deutag’s with the best standards of international industry and looming expertise as one of the world’s leading drilling and engineering technological changes, we can significantly improve safety contractors with SOCAR AQS’ unrivalled knowledge, and productivity of operations and also foster the environment experience and infrastructure in the Caspian region. conducive to collaboration and sharing. The Joint Venture is based in Baku, signed its first contract with the BP Exploration (Caspian Sea) Limited (“BP”) in March 2019, and has commenced execution of the drilling Commitment to Corporate Social services in May 2019. The contract has a value of approximately $500 million for the Responsibility firm period, or $700 million including all options, and is for the As a major national drilling company of Azerbaijan, SOCAR operations and maintenance of seven platform drilling rigs on AQS understands that its important role in the economy, installations operated by BP in the Caspian Sea pursuant to in particular in energy sector of the country comes with Product Sharing Agreements. These are the East, West and significant social responsibility obligations. SOCAR AQS Central Azeri, Deepwater Gunashli, West Chirag, Chirag and strongly believes in our sacred responsibility in enhancing Shah Deniz installations. The initial term is for five years with sustainable development by fostering job creation, by two (2) one-year extension options. This contract represents contributing to human progress and by improving our social client recognition of our joint venture’s capability and capacity and natural environment. The company as responsible social to deliver complex projects with the application of the highest citizen is implementing various programs and projects in each industry standards. of the mentioned areas. We create new job opportunities in SOCAR AQS is committed to and spares no effort in further our company by expanding geography and scope of our growing the successful business of Turan JV in Azerbaijan services, implement various youth employment programs and in the region. and employment programs for citizens with special and SOCAR AQS initiated and led establishment of the IADC Caspian Chapter. IADC has served as the collaborative platform for drilling industry for nearly 80 years. Caspian Chapter serves as a forum for operators, drilling contractors, service providers, and equipment suppliers to enhance collaboration, sharing, business development and networking opportunities. To date, the Chapter has over 30 member companies, and has organized a number of workshops on application of new technologies and management methods in the drilling industry. In November 2018, SOCAR AQS joined Massachusetts Institute of Technology Industrial Liaison Program. This partnership allows SOCAR AQS to benefit from rich scientific and research resources at MIT in the fields of material science, nanotechnology and data analytics.

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the First MIT-Azerbaijan Global Startup Lab in Azerbaijan. The startup lab aimed at providing world-class startup accelerator experience to select university students in an effort to contribute to development of the innovation and startup eco- system of the country. As part of the program 6 teams of 30 students in total representing various universities developed their start-ups from an idea stage to the real minimum viable product (MVP) stage which culminated in a Demo Day presentation of all startups. The independent jury selected winners who received financial awards. We are proud to say that several of these startups today successfully develop their business ideas in various prestigious international venues. In line with the preservation and promotion of national cultural values, the company has supported the collection, compilation and publication of Molla Nasreddin’s anecdotes, which is a unique embodiment of the traditional folk culture, in particular the folk philosophy and wisdom. Inspiration for this project came from SOCAR First VP, Academician Khoshbakht Yusifzade and we did this project in collaboration with the Institute of Folklore of the National Academy of Sciences. The Pride of Azerbaijani Drilling Industry different abilities. We empower individuals and communities SOCAR AQS plans to continue its ambitious organic and through our supply chain operations. Diversity and inclusion inorganic growth strategy in the regional and international are guiding principles in dealing with our social environment. markets. We plan to achieve more than 20 percent annual SOCAR AQS also implements energy-saving and green corporate growth going forward. SOCAR AQS is in final technologies wherever and whenever possible. We take stages of negotiations for new drilling projects in the region. active part in various environmental protection projects, for It also plans to expand its services scope to adjacent service example in seaside cleaning project and forestation projects. lines. SOCAR AQS as technology- and labor-intensive oilfield We are committed to continue providing the world class Services Company is putting heavy emphasis on creation services, while complying with the highest QHSE standards and dissemination of knowledge. In line with this, we take and applying the latest technical and management part in implementing programs aimed at development of technologies. We are honored and humbled with the world-class technical education and innovation ecosystem opportunity to contribute to further enhancing and sustaining in Azerbaijan and globally. The Student Scholarship Project, the innovative reputation of the Azerbaijan’s Drilling Industry one of the first social investment projects of our company in partnership with our clients, employees, suppliers and focusing on the knowledge and skills transfer, provides other stakeholders. SOCAR AQS will continue to play its role mentoring and financial support to talented students from in the noble mission of modernization and expansion of the the national technical universities. The students are selected Azerbaijani oil industry. based on their passion to the drilling profession and academic We take the chance and congratulate all oilmen in achievements. Azerbaijani oil industry and Impact readers on the In order to support the students in the economics and business occasion of 20th September Oilmen’s Day and on the 25th administration studies, the company sponsors Azerbaijan Anniversary of signing of the Contract of Century! Business Case Competition, which is a premier competition for talented business and economics students. The company also organizes and implements Student Summer Biography of our Guest Internship Program to provide opportunities for students to Mr. Ramin Isayev is CEO at SOCAR-AQS. Mr. Isayev carries more than 20 years of oil and gas industry experience within obtain practical skills for building career in industry, including international oil and gas sector working for different leading oil and gas sector. Students are involved in real operations companies, including BP, Statoil, SOCAR and KCA DEUTAG. of various business functions of the company, where they He has a degree in physics from Baku State University, MPA get firsthand practical experience in their respective fields. degree from Harvard University, MBA from Massachusetts The company provides select group of interns with future Institute of Technology, Ph.D. in Economics from Oil and employment opportunities after their graduation. Industry University in Azerbaijan. Ramin also lectured at In cooperation with the world’s leading university, various universities in Azerbaijan, published articles and Massachusetts Institute of Technology, the company together books on economics, oil and gas industry, and is frequent with the ADA University has planned, resourced and executed speaker in premier industry events.

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A Strong Committment - “Converting Black Gold into Human Capital” Vugar Samadli Chief Executive Officer, Nobel Oil Services

How the signing of the Contract of the Century influenced Azerbaijan’s oil and gas industry? The contract was a momentous decision taken by the late president Heydar Aliyev and made history by defining the development of the oil sector as the top priority of Azerbaijan’s economic reforms and consolidation in the global market relations. Securing investments by 13 major oil companies representing 8 countries, the contract has broken ground on the three largest oil deposits in the region: “Azeri”, “Chirag” and “Gunashli” (ACG), and has paved the way for transforming Azerbaijan, once again, into one of the hubs of the modern global and regional oil industry. Since the signing of the contract ’s, Azerbaijan has benefited from over $85 billion of investment in the oil & gas sector, producing around 490 (~488 by 2Q 2019) million tons of oil. Today, the oil industry accounts for 80-90% of the total foreign direct investment in the country. The oil and gas revenues of Azerbaijan are expected to reach $ 200 billion and deliver more than $125bn of net profit by 2024. At the same time, cooperation with high-profile international Could you please share your comments about the companies has contributed tremendously to bringing development of oil & gas industry of Azerbaijan? new technologies to the country. Application of modern Oil production has long served as the driving force behind approaches to the drilling industry has enabled the extraction Azerbaijan’s economic growth. Home to the world’s first of enhanced volumes of crude oil and the delivery of high- modern oil well, Baku was the number one oil producer in the quality petrochemicals to the market. world in 1910, when the overall production reached a peak of The signing of the “Contract of the Century” has led to the 11.5 million tons per year. When Azerbaijan became a part of the former Soviet Union, oil had remained a critical commodity for both internal and external industrial growth, accounting for 71.4% percent of the total oil output. However, Azerbaijan’s economy experienced an unprecedented collapse after regaining independence in 1991, as the dissolution of the Soviet Union triggered a critical shift in the domestic market, destabilizing the existing trade management arrangements and consumer relations in the country. As the primary source of economic revenue, oil production had dropped significantly due to obsolete and outdated technology, poor planning, and the lack of investment in the rehabilitation and construction of new wells. The “Contract of the Century,” which was signed in Baku in 1994, described as a significant milestone in Azerbaijan’s modern history, has greatly contributed to the full-fledged modernization of the industry and rapid economic growth.

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What other services would you like to highlight in different segments of the industry? While we are strong in Upstream, we are equally focused on the Midstream and Downstream segments. Among our proven record of accomplishments is the successful delivery of the SOCAR Carbamide Plant project by our subsidiary PROKON as the Main Construction Contractor, working in cooperation with Samsung Engineering Co., Ltd., the EPC Contractor of the project. We are proud of building a local competence with the capacity of delivering large-scale Downstream facilities in the country. Currently, PROKON undertakes other significant construction projects, such as modernization of Heydar Aliyev Baku Oil Refinery aimed to enhance the production capacity and improve refined products. Service portfolio of PROKON also includes small and mid-size EPC projects which among dramatic rise of the oil & gas operations in the country. others comprises several successfully completed offshore Paired with the world-class expertise brought by international gas compressor station projects with (Oil Rocks). companies, the rich experience of the national oil and gas In the light of the growing demand for high-quality oilfield engineers and specialists have nurtured a new generation and equipment maintenance services in Azerbaijan, we of capable oil workforce. The construction of the Baku- have worked to develop a “one-stop shop” approach for the Tbilisi-Ceyhan pipeline has further expedited the growth of entire fleet of mechanical and electrical equipment through Azerbaijan’s oil & gas sector. our subsidiary Global Energy Solutions (GLENSOL). Being a Nobel Oil was established at those times as a private entity unique proposal in the region, this concept ensures provision to accommodate the country’s rapidly growing needs for of convenient and efficient solutions for optimizing customer the energy industry. Throughout its 14 years of operation, operations in terms of improved reliability, availability and the company has evolved extensively, seizing new areas of lead time for repair and costs. demand and bringing sustainable and innovative solutions to GLENSOL also provides services for offshore operations and Azerbaijan’s energy industry. is the first local company in Azerbaijan to deliver hands-on maintenance of top drives both on the customer’s site and in One of the major focus areas of Nobel Oil Services is the workshop, offering major overhaul of complete top drive. drilling. Which achievements in this sphere can you With a qualified team of experts in the field, GLENSOL stands highlight? out as the leading turbomachinery maintenance provider in In the drilling sector, Nobel Oil has founded Absheron the region. Currently, GLENSOL is a maintenance provider for Qazma (AQS), which, together with SOCAR, formed SOCAR BP’s electro motors and valves on export pipelines, offshore AQS. Today, SOCAR AQS is an integrated drilling and well platforms, and oil terminals in the Caspian region. services management company with a proven track record of excellence, serving as a bright example of the local expertise Nobel Oil Services has built successful partnerships with development. SOCAR AQS has so far drilled over 80 highly several international companies. What can you tell us productive wells, including the drilling of a high pressure/high about these cooperation? temperature (HP/HT) well, which is the deepest one delivered In 2015, Nobel Oil Services partnered with the global provider by the national company for SOCAR. of specialist services to the oil & gas industry, Denholm Oilfield SOCAR AQS has delivered a number of firsts in the Services to join forces in the field of fabrication. Today, our history of Shallow Water Gunashli field. The company has JV SDL Nobel professionally delivers a wide range of high- drilled and put on production the first horizontal well with quality services to the local market, including fabrication, a record maximum deviation of 84 degrees and applied site installation, inspection and testing. Recently, SDL Nobel modern whipstock technology, which enabled sidetracking has signed a new 3-year contract with BP on providing the from existing boreholes to rectify operational failures. The abovementioned solutions for the majority of BP’s offshore company’s high technical capacity allows to obtain a full and onshore assets in Azerbaijan. reservoir characterization at the most extreme conditions, for We also specialize in the provision of Engineering, Procurement instance, taking 100% core samples from more than 6,000 m and Construction Management services for offshore projects depth in HP/HT wells. and operations. In partnership with Wood, a global leader in As a majority shareholder of SOCAR AQS, we strive for the delivery of project, engineering and technical services keeping abreast of time and introduce fast, efficient, and safe to energy and industrial markets, we provide support all of solutions into the industry. We are the first local company that BP’s offshore assets, delivering brownfield projects and small has installed the fully automated hydraulic rig in the Caspian engineering modifications. Region, which has been delivering more powerful and For bringing our expertise in the drilling and engineering area, reliable performance while sustaining a substantially reduced we have established a partnership with KCA Deutag, one of environmental impact. the world’s leading drilling and engineering contractors. Turan

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to corruption and bribery through applying best international practices on anti-bribery controls. Our achievement of the ISO 37001:2016 standard results from an extension of effective management and plays a crucial role in the establishment of a solid regulatory compliance structure, ensuring stable and sustainable growth of the company.

What are the plans of Nobel Oil Services in terms of its future development? Along with successfully deploying our operations in Azerbaijan, we are committed to the export-oriented strategy of the government and aim to be actively engaged in the international expansion of our businesses. Thus, we have established our local representation in Aktau, Kazakhstan, and currently provide high standard equipment maintenance Drilling and Engineering Company, which has been formed services there. Additionally, SOCAR AQS is awarded a as a JV between KCA Deutag and our subsidiary SOCAR contract on drilling of two exploration and one appraisal AQS has been awarded a contract by BP for the provision wells in Bangladesh, after winning the international tender of operation and maintenance of seven platform drilling rigs announced by BAPEX. In the near future, we also plan to operated by BP in the Caspian Sea. engage in various activities in Turkey. In line with Nobel Oil’s consistent efforts in the expansion Which benefits reaped by the Contract of the Century do of our operations, we have attracted support from a world- you consider the most significant? renowned consulting company McKinsey & Company. With One of the major advantages the Contract of the Century their counseling, we have developed a comprehensive brought to Azerbaijan’s oil & gas sector is a strong commitment strategy for the successful enlargement of our activities to a to the development of local experts through, as put by the greater area of international coverage. President Ilham Aliyev, “converting black gold into human Aligned with our strategic objectives, we strive for facilitating capital”. Following this tendency at Nobel Oil Services, we the export of our capabilities and applying expertise of local continually implement innovations in the management of human capital outside Azerbaijan with the aim to increase the personnel and give heed to nurturing professionals among flow of foreign currency into the country. locals. We have earned considerable qualifications that enable us to deliver training on specialized disciplines. On the other Biography of our Guest hand, our partnerships with Wood, Denholm Oilfield Services Mr. Vugar Samadli is a professional with over 15 years of and KCA Deutag give the opportunity to establish a working experience in oil & gas industry working for internationally field for sharing recognized international expertise within the recognized companies. newly founded local entities. Our in-depth knowledge of the Vugar Samadli started his career in 2003 in BP being involved local oil & gas industry adds up to efficient operation of these in significant projects. He was soon promoted and took up enterprises. the leading positions in the company. He has then held executive positions at DET-AL Holding and Azelektroterm. What other changes the local oil & gas market has In 2009-2013, Vugar Samadli worked as a regional manager benefited in the wake of the Contract? for Azerbaijan, Georgia and Central Asia countries at John With the involvement of the global oil & gas experts, the local Crane (Smiths Group). In 2013 he took charge of Oil & Gas industry has been able to establish a standard of safe and Proserv and soon went on to lead Global Energy Solutions, responsible conduct of operations. Implementing industry an affiliate of Nobel Oil Services. Effective from 2015, Vugar standards that support cost reductions and minimize the Samadli was appointed as Chief Operating Officer of Nobel environmental impact of operations is crucial for ensuring Oil Services. In consideration of the efforts made for effective the safety and technical integrity in the sector. Nobel Oil management of activities of Nobel Oil Group affiliates and demonstrates an outstanding level of advancement in this valuable contribution to support of the Company’s goals, field within the domestic market, as well. At present, SOCAR Vugar Samadli was appointed to the position of Chief AQS is the only national drilling company in the region Executive Officer of the company. accredited for API Spec Q2 and the first local company Mr. Samadli’s holds B.S.E. in Mechanical Engineering from certified for compliance with ISO 45001:2018 Occupational Middle East Technical University, Turkey and M.S.E. from the Health & Safety Management System. University of Florida, the USA. In addition, he holds a diploma As a parent company, Nobel Oil Services is also the first in Project Management from George Washington University enterprise within the oil and gas industry to obtain an ISO and studied executive MBA with Smith Group. At the same 37001:2016 Anti-Bribery Management Systems (ABMS) time, Vugar Samadli carries out scientific research and is certification in the South Caucasus. Our ABMS certification currently working to defend his dissertation on Chemical- guarantees the prevention, detection and effective response Mechanical Engineering.

18 Issue 35 in focus

Short-term Pain for Long-Term Gain – SDGs as a Framework

Special interview with is that the oil industry has never faced the kind of risk that the Gunel Farajova renewable industry poses to its business model today. For Head of Climate Change and the first time there are competing sources of energy with a Sustaibility services, short-run marginal cost of zero, that are more environmentally EY Azerbaijan and Georgia friendly. For now, oil has a huge flow-rate advantage, but for a limited time. Renewables will be able to replace almost one-third of global oil demand once they reach the necessary scale, probably in the next 20-25 years, may be even sooner. What do you think the future of the oil and gas industry There is very good research by BNP Paribas introducing the is under rising climate change pressure? Is it the end of concept of Energy Return on Capital Invested (EROCI). the industry? The research outlines that “new renewable energy projects in tandem with battery electric vehicles will produce 6 – 7x It is certainly not the end of fossil fuels, but the industry is times more useful energy at the wheels than will oil at USD currently in a transition period. The global energy landscape 60/barrel for gasoline-powered light-duty vehicles, and 3 is changing, the proportion of traditional energy is gradually – 4x times more than will oil at USD 60/barrel for light-duty decreasing, giving way to more widespread use of renewable vehicles running on diesel. The research concluded that energy. However, the share of fossil fuel energy in total global the long-term break-even oil price for gasoline to remain energy use is currently still about 80%, which means the oil competitive as a source of mobility is USD 9 – 10/barrel, and and gas industry still shapes our lives, economies, how we for diesel USD 17 – 19/barrel”. So, it is high time for the fossil work and how we produce our goods. Life as we know it today fuel industry to think about how it can successfully transition would not be possible without oil, and fossil fuels in general. its business to compete with renewables. In fact, proactive We can see how fluctuations in the oil prices affect the global companies do not see transitioning to renewable energy as economy, and when oil prices plummet it results in a deep a threat anymore, rather, they view this trend as a fortunate recession throughout the world. This in its turn leads to social opportunity and have already established strategies on how and economic problems involving the loss of jobs, currency to monetize it. devaluation, and inflation – and we all know how well-being and living standards are highly dependent on economic You mentioned socio-economic problems caused prosperity. Currently the industry is very closely associated by negative externalities of the companies, can you with negative impacts on the environment. I would like to elaborate a little more on that? stress that environment and climate change should not be understood as a separate or abstract presence, rather – we The externalities of the oil and gas industry, and harmful are all part of a unique and whole ecosystem – and when you aspects of producing and collecting oil, such as spills, fracking, impact one element of this ecosystem, it will inevitably be felt emissions and byproducts – contribute to climate change and by other components as well. It’s therefore imperative for the companies operating in the oil and gas industry to adopt sustainability as a philosophy, a modus operandi if you will, and to integrate it into their whole value chain.

You said the industry is currently in a transition period. How much time do you think the transition will take? What will the result of this transition be?

It is hard to say or forecast. One thing is certainly evident, the face of the energy industry will change. It may take a couple of decades, or just a year. Everything is changing very quickly, and the industry should be ready for game changing solutions that technology can bring. The reality

19 in focus

cause environmental disasters. As happened in Alaska in 1989 after the Exxon Valdez oil tanker spilled into Alaska’s Those companies that are waters. This caused a subsequent loss of 26,000 jobs in local tourism and fisheries. Naturally, alcoholism and depression making changes within their rates spiked, and the area began to recover only starting from 2003. This is just one example of how industry can affect structure and making an effort society. So, as I just mentioned, what may seem as solely an environmental problem at first sight does in fact to incorporate sustainability have implications that impact not only the environment, but human lives as well. That’s why when we speak of measures into their whole value climate change, we should keep in mind how disastrous chain, will be well prepared for the consequences of climate change may turn out to be for the whole of humanity. Scientists have already come the change, and will survive. to a 98% consensus on climate change, which means its destabilizing effects on human lives and the environment are However, those who choose to not a matter of debate anymore. Along the obvious physical consequences of climate change, it will inevitably result in ignore social pressure for change, an increase in hunger and water crises, health risks through rising air temperatures and heatwaves, spread of pests and will most likely eventually go out pathogens, and many other consequences. of business. Transitioning to more What can be done to avoid these issues? sustainable operations, although Regulations are tightening on a global scale, and what it may seem like a voluntary will substantially influence the oil and gas industry in the upcoming years is the rise of international oversight with option at first, is the only survival respect to methane and wastewater. And of course, we should not forget renewables. Changes in the ranks of option. OPEC may make the situation even more unpredictable,

especially regarding how the countries manage their energy policies. Those companies that are making changes within their structure and making an effort to incorporate sustainability measures into their whole value chain, will be well prepared for the change, and will survive. However, those who choose to ignore social pressure for change, will most likely eventually go out of business. Transitioning to more sustainable operations, although it may seem like a voluntary option at first, is the only survival option. It will naturally require short-term investments, but it will guarantee long-term success and a social license for operation. According to a new study of turnover in the S&P 500, the lifespan of large, successful companies has never been shorter. This is a reminder of a general principle – companies cannot survive in the long-term without reinventing themselves, which means leaders have to be vigilant for the weakening foundations of unsustainable business models, or the shifting needs of newer generations. In particular, companies operating in the oil and gas industry should be proactive in their approach to managing their ESG risks and sustainability performance in general, since the industry itself is in a transition period, as I already mentioned, and business as usual is not an option anymore. Shell could serve as a good example here. They acknowledge climate change as a financial risk and consider leaving countries that do not reflect this policy.

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owners. One of the best tools to be used by companies is Everything is changing very the SDG Framework, with 17 goals encompassing a diverse range of environmental, economic and social topics. The quickly, and the industry should goals are very clear-cut and comprehensive, and come with ready-to-use targets and indicators that may be adjusted and be ready for game changing used by any organization. All SDGs are relevant and important solutions that technology can for the oil and gas industry considering its wide impact area. Finally, what is your personal view on where we are bring. headed in terms of sustainability?

You mentioned that regulations are inevitable, so do you I believe that in the future, sustainability will be integral to any think Azerbaijan will see a change in regulations, too? company, irrespective of their size or nature of operations. Transformation is inevitable, even for such a seemingly If we look back at the Exxon Valdez incident, that I previously unsustainable industry as oil and gas. MAY BE GREEN mentioned, it resulted in a number of new regulations for the FOSSIL FUEL?...... It might seem utopic at first, but it industry – the biggest of them being that single-hulled tankers is in fact entirely possible if industry players make the had to be replaced with double-hulled tankers. This change conscious choice of integrating sustainability every step was so substantial that, ship owners were given 25 years of the way – into upstream, midstream and downstream to phase out single-hulled tankers. This is indisputable business processes, from exploration to refining and evidence that when there is a problem, there is pressure transportation. Imagine living in a world where we can use for change, and since we are currently witnessing growing energy guilt-free, derived from oil that has zero environmental international pressure due to existing sustainability impact throughout its production and consumption cycle. and climate change problems, it’s only natural that our Of course, education and innovation in technology and government does its part to adapt to the global trends operations are the key here – not only for industries, but in in this respect. In 2016, a National Coordinating Council for everyday lives as well. Sustainable Development was established by a decree of I would also like to stress, we – as consumers – should not the President of Azerbaijan. We are also a signatory to the only expect industries and companies to change. Societies Paris Agreement, and have already submitted an intended have become extremely unsustainable due to increasing nationally-determined contribution (INDC), urging the consumerism, therefore, if we want to make a change, government to take radical measures. Naturally, since the we should start by changing ourselves. Questioning and oil and gas industry accounts for such a considerable role in challenging our choices – in particular, our energy consumption the national economy, it’s inevitable that the pressure will be – would be a good place to start. As I said before, the short- first and foremost felt by companies operating in it, and they run that sacrifices might need to be made, but with the right should be pioneers in demonstrating their commitment to the commitment and enthusiasm, and, most importantly, with the national agenda for achieving the Sustainable Development will to save the Earth for future generations, there will come Goals by 2030. the realization that these sacrifices are not made in vain. Next time you decide to switch off the light in an unoccupied room With all that, where is the best place for companies to or decide to walk somewhere instead of driving, bear in mind start integrating sustainability? that the biggest changes in history have always started with one small step. One of the most common challenges that I encounter during the course of my work is the extremely low level of Biography of our guest awareness among employees of companies. I encourage Ms. Gunel Farajova leads EY’s Climate Change and top management to increase sustainability awareness of Sustainability Services in Azerbaijan and Georgia with almost a their employees and to consciously cultivate a sustainability- decade of successful experience in helping companies become focused culture. It’s important for companies to internalize more socially and environmentally responsible in how they that sustainability is a long-term commitment. However, and conduct business operations. She holds a Master’s degree I believe this to be the golden rule of any business, a focus from the University of Cambridge in “Sustainability Leadership”, on long-term success always implies short-term sacrifices, and MBA from Durham University. Gunel’s expertise covers which in this case might translate into radical organizational sustainability legislation and regulations both in international changes and investments. I would also advise applying a and local context, global transition to low-carbon economy top-down approach to sustainability, where a sustainability within 2030 Transition Agenda, as well as related governance policy and strategy are drafted first, and then relevant short- strategies and roadmaps such as green and circular economy. Her industry experience ranges from oil and gas to financial term, middle-term and long-term targets and objectives are services. She is also the Chairwoman of Sustainable identified and cascaded to relevant departments and task- Development and Corporate Impact Committee of AmCham.

21

in focus

Technological Disruption in Oil & Gas Industry: Opportunity or a Threat? Farid Isayev operators can deploy UAVs to assess emergencies before, or rather than, sending out field personnel. Deploying drones in Director, KPMG in Azerbaijan this way keeps more people out of harm’s way, but still gives operators the site visibility they need to take next steps. Site visibility is the key for oil and gas companies in many non- emergency situations too, like well site inspections. However, traditional methods for getting this visibility are costly and often wasteful. Emerging technologies are transforming industries across the world - and oil and gas industry is no exception. From Artificial Intelligence: In oil and gas industry, AI allows robotics to artificial intelligence, organizations across verticals companies to uncover trends that pinpoint and predict recognize that in order to stay relevant among consumers, inefficiencies. Leveraging AI to improve performance they have to change with the time. Volatility in oil prices operations from C-level to field worker, automate processes, contributed to more and more decision-makers at oil and streamline manual business operations, and connect with IoT gas companies embracing new technologies to streamline devices, makes every arm of the company more efficient and inefficiencies. Unlike many other industries, however, oil profitable. and gas companies have been slow to adopt technological innovations. Among the reasons that oil & gas industry is Cloud Computing: As the oil and gas undergo enormous slow to evolve is down to the fact that capital which was once transformation to the digital infrastructure, cloud computing plentiful has seen a rapid decline and the industry is stuck in will prove to be a powerful engine. The sheer amount of the “old way” of doing things. data companies can harness and further analyze through Yet global Oil & Gas industry is exploring multiple ways to automation, will reduce operational expenses, down well digitize their operations, including digital twins, robotization times, and lessen risk. As more oil and gas companies of physical and intellectual behavior, digitally equipping the integrate cloud computing, this will empower field workers to labor force, and integrating it into the digital ecosystem with optimize production. customers, suppliers and other stakeholders. Modernizing business models and workflows with disruptive tech is an Augmented reality (AR) places digital images on top of important step on the path of achieving and maintaining the real world using AR headsets, smart glasses, phones, sustainability. or tablets. Though AR is most widely known as a gaming Digitization, including robotics and artificial intelligence, are technology, it is becoming more popular in professional currently regarded as primary instruments in enabling long- industries, like oil and gas. Some key industry leaders, such term efficiencies to achieve cash flow improvements. As a as BP and GE already using the tech. AR’s popularity in this result of a potentially unclear digital strategy, the industry sector is growing because it can cut down on waste and is looking at ways to redesign business processes to take expenses while improving employee safety. For one, on- advantage of digital. site technicians can use AR to instantly connect with off-site specialists, significantly reducing travel costs for flying expert to remote facilities. With this use of AR technology, experts Opportunities can guide technicians through tasks with audio and video - The following are top technologies that are considered by or decreasing the possibility of costly or dangerous errors on- already adopted in oil and gas industry. site. AR can also be used to overlay relevant data on the field. Utilizing an AR headset, a field technician can visualize Robotics: This category of technology implies replacement of exactly where a pipeline is located underground to avoid any human resources in areas of increased danger or hazardous sort of breakage or accident during the digging process. conditions, including activities which go beyond human capabilities. For instance, dangerous and repetitive tasks Blockchain: Another recent innovation disrupting many of connecting drill pipes on oil rigs could be named among traditional industries, including oil and gas, is a technology achievements of robotics. that allows digital information to be distributed (but not copied) Drones and UAVs (unmanned aerial vehicles) are also poised efficiently and transparently. Blockchain offers the potential to to play a pivotal role in the oil and gas industry - from improving make all sorts of transactions, not just currency exchange, safety in the field to increasing visibility at drilling sites. Drone more open and secure. It can be used in commodity tracking

24 Issue 35 in focus

and trading. With crude oil being one of the world’s most Despite the rapid speed of technology and innovation globally traded commodities, it is no surprise that the industry pressuring the industry, oil and gas CEO’s see technological requires an infrastructure to track these trades. Traditionally, disruption as more of an opportunity. oil and gas industry relies on overly complicated records to The transition to digital remains a challenge for Oil & Gas track trades. Yet records of this sort are expensive, require companies and CIOs and the industry could benefit from routine maintenance, and can be vulnerable to cyberattacks. more aggressive digital strategies spanning the entire value By contrast, blockchained ledgers are inexpensive and chain, from exploration through production, refining and retail. secure, in addition to not requiring the time-consuming Digital solutions can improve efficiency, decision making maintenance necessary with older solutions. effectiveness and better enable employees with day to day activities. To achieve this, companies should further invest to Virtual reality (VR) differs from AR in a sense that it brings pilot and deploy digital solutions. users into an entirely digital world, instead of just overlaying Even industries that are not traditionally progressive, can no images on top of our own reality. Like AR, VR’s popularity longer afford to oppose change and digital transformation in enterprise organizations is steadily increasing. Today, sustainably. The encouraging news for organizations that a variety of professionals are using this technology - from may have been slow to adapt is that emerging technologies, architects and the construction industry to doctors and including cloud computing, AI, and robotics can be easily marketers. In oil and gas industry VR can be used to make implemented and impact almost immediately. safety training more effective. In high-risk industry as oil and gas, getting employees experience with oil drilling platforms and other highly complex machinery before using them on- site can save lives - as well as time and money. Equally important, Virtual Design & Construction specialists can walk through oil field locations without using VR tools. Many companies already use 3D visualization technologies to assess site risks, improve situational awareness and optimize operational procedures. Taking 3D models into VR can be a powerful next step. Possible Threat The common fear across industry rests with the fact that digitalization of oil & gas sphere creates potential for workers to lose their jobs, which is a recurring fear when it comes to robots. For another reason, oil & gas remains a strategic industry on global economy scale and energy security has become an essential attribute of modern sovereign state. Therefore, any disruption could lead to major repercussions on global scale. Fears over security of digital operations and innovations add up to widespread concerns over sustainability of technological disruption. Yet the balance of considerations for such disruption is continuously swayed towards technological disruption in the said industry. According to latest survey1, Oil & Gas companies are looking to address the following considerations on their digitalization agenda: • From next-generation technologies, Oil & Gas companies Author’s biography are most likely to have invested in the Internet of Things Mr. Farid Isayev is Director at KPMG in Azerbaijan and and robotic process automation. head of Tax & Legal practice. His previous work experience • Oil & Gas companies view having an innovative, includes- commodity trader- Glencore (London), banking and experimental culture as a critical component of success insurance sector in Azerbaijan and another Big4 firm prior to of their digital strategies, with 87% view it as very or quite joining KPMG. Farid’s specialization areas include oil & gas, important. M&As, PPPs, state privatizations and procurement, corporate • The transition to digital remains a challenge for Oil & governance and international contracts. Gas companies and CIOs and the industry could benefit He is also acting vice-president at German-Azerbaijani Foreign from more aggressive digital strategies. To achieve this, Chamber of Commerce and head of AmCham’s Travel, companies should further invest to pilot and deploy Hospitality and Tourism Committee. digital solutions. Mr. Isayev holds an LLB with honors in International Law from Kingston University London and Western University in Baku. 1. The Harvey Nash/KPMG CIO Survey 2018

25 in focus

The 2018 BDO 600 CEO and CFO Compensation Trends in The Energy (Oil & Gas) Industry

Richard V. Smith Yunis Salayev STS GES Managing Director Managing Partner, BDO Phoenix Office BDO Azerbaijan

The oil and gas industry is continuously adapting to external Key takeaways and trends to watch and internal conditions. For example, sudden market shifts Given the need for greater CFO talent retention and including M&A activity, volatility, and tax changes are attraction and the uneven pay landscape, we could see luring some mid-size master limited partnerships to pursue larger performance equity grants over the 2018 and 2019 C-corporation status. Another trend shaping the industry is pressure to attract and retain top-tier talent. pay cycles, closing the delta with peers and maintaining a This has created an environment that challenges compensation sustainable compensation philosophy. committees and corporate leadership and threatens long- term stability. However, despite these significant headwinds, Planning for the future the oil and gas sector manages to sustain long-term growth To stay ahead of these issues, energy organizations and and value creation. Within the energy industry, there have boards should consider strategic compensation issues, been several CEO and CFO changes at the mid-size level, including: with activist investors buying into struggling companies • Shareholder engagement and activism: Spend more and installing new leaders. With uncertainty prevailing, time engaging stakeholders and prepare to face heavier tailored executive compensation structures in the C-suite is scrutiny and more attention from investors and proxy paramount. advisors related to executive pay. Oil and gas producers tend to include more equity in executive • Peer group comparisons and selections: Calibrate on a compensation compared to other industries reviewed in regular basis and consider multiple peer groups using this year’s BDO 600 Compensation study. Additionally, the a regression analysis. Consider more specific financial volatility of a barrel of oil directly impacts the share price of filters related to one- and two-year business plan and be any given company, and therefore has a significant impact on prepared to adjust. CEO and CFO long-term incentive compensation (LTI). • Short and long-term cash and equity plans: Review on The BDO 600 Study illustrates the need for tailored an annual basis and adjust for market volatility. compensation philosophies, strategic alignment, and long- range objectives. Compensation committees are giving greater consideration to the proper mix of short- and long-term ABOUT THE BDO 600 STUDY incentives. While we are seeing more full-value performance The BDO 600 Study examines CEO and CFO shares and higher target awards for short-term incentive compensation plans of 600 middle market public plans in the C-suite, it is particularly noticeable at the CEO companies, reviewing the key components of pay and CFO positions. packages and providing comparisons by title, company For example, CEO pay increased 17 percent over the 2016 size and industry. Companies in the six non-financial and 2017 pay cycles, driven by increases in equity grants, services industries have annual revenues between $100 including options at 23 percent and full-value stock awards at million and $3 billion. Companies in the two financial 21 percent, plus other forms of LTI at roughly 3 percent. The services industries have assets between $100 million pay mix is 47 percent equity and 54 percent cash, including and $6 billion. Data in our 2018 study were extracted base salary and short-term incentive opportunities. from proxy statements that were filed between April On the other hand, CFO pay increased modestly at only 4.7 2017 and March 2018. Consolidated proxy data were percent with increases coming from performance equity, provided by Salary.com. options, and full-value stock awards, plus stronger annual cash incentives.

26 Issue 35 in focus

BDO 600 Study Results in the Energy Industry - CEO

TheaveragetotaldirectcompensationpaidtoenergyindustryCEOsforfiscalyears2017and2016islistedbelow. Historically,energyindustryCFOsreportedthehighestaveragecompensationamongallindustriesincludedinthisstudy.In recentyears,energyindustryCEOcompensationlevelshavefallenbehindrealestateandtechnology.Nonetheless,the averageincreaseinpaywasthehighestofourindustrygroupingsat17%.

(*BecausenotallCEOsreceivedannualLTIpayments,year-over-yearcomparisonsmaynotaccuratelyindicatemarkettrends.) Theresulting2017compensationmixislistedbelow.

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BDO 600 Study Results in the Energy Industry - CFO

TheaveragetotaldirectcompensationpaidtoenergyindustryCFOsforfiscalyears2017and2016islistedbelow.

(*BecausenotallCFOsreceivedannualLTIpayments,year-over-yearcomparisonsmaynotaccuratelyindicatemarkettrends.) Theresulting2017compensationmixislistedbelow.

Read the full BDO 600 CEO/CFO study: www.bdo.com/2018-bdo-600-ceo-cfo BDOisthebrandnameforBDOUSA,LLP,aU.S.professionalservicesfirmprovidingassurance,tax,andadvisoryservicestoawiderangeofpubliclytradedandprivatelyheld companies.Formorethan100years,BDOhasprovidedqualityservicethroughtheactiveinvolvementofexperiencedandcommittedprofessionals.Thefirmservesclientsthrough morethan60officesandover650independentalliancefirmlocationsnationwide.AsanindependentMemberFirmofBDOInternationalLimited,BDOservesmulti-nationalclients throughaglobalnetworkofmorethan73,800peopleworkingoutof1,500officesacross162countries. BDOUSA,LLP,aDelawarelimitedliabilitypartnership,istheU.S.memberofBDOInternationalLimited,aUKcompanylimitedbyguarantee,andformspartoftheinternationalBDO networkofindependentmemberfirms.BDOisthebrandnamefortheBDOnetworkandforeachoftheBDOMemberFirms.Formoreinformationpleasevisit:www.bdo.com. Materialdiscussedismeanttoprovidegeneralinformationandshouldnotbeactedonwithoutprofessionaladvicetailoredtoyourneeds. ©2019BDOUSA,LLP.Allrightsreserved.

Authors` biography Mr. Yunis Salayev has more than 17 years of professional background Mr. Richard V. Smith is an independent advisor to compensation in Azerbaijan, Russia and other CIS countries. committees and management of public and private companies, as well Yunis is Fellow Chartered Certified Accountant (FCCA, UK), Certified as family owned businesses. He has extensive experience providing Fraud Examiner (CFE, US), Certified Internal Auditor (CIA, US), competitive market analysis for senior level executives and designing and Certified Information Systems Auditor (CISA, US) and a Member of implementing performance-based reward strategies that define the proper Chartered Institute for Securities and Investment (MCSI, UK). His primary mix of annual and long-term incentives as appropriate to the organization specialisation is in audit of IFRS financial statements in accordance and its culture. with the International Standards on Auditing (ISA), Azerbaijan taxation, Rick’s extensive consulting experience includes many assignments and risk advisory. Yunis holds MBA with Merit from Imperial College to the energy industry specifically mid-stream, up-stream, and oil London Business School and honours Bachelor and Master degrees service companies that deliver to the well head. Rick holds Business from Azerbaijan State Oil Academy. He has been a visiting lecturer at Administration degree from University of Arizona, USA. the School of Economics and Management of Khazar University in Baku.

28 Issue 35 development & education

The Most Popular Industry – Opinion of Youth

Aleksey Tushev Valida Bashir Chemistry and physics teacher, Math teacher, Dərs Evi Dərs Evi

If you ask an ordinary youth representative in Malaysia as much-in-demand specialties. Here we get an answer to who he or she wants to be in the future, then most often the question: what would we hear from our youth? Indeed, at you will hear “oil and gas sector”, or even better, work present oil and gas engineering and related specialties are at Petronas. The same situation is in Norway: “oil” or huddled up with management and computer science and IT “codfish”. And what will you likely hear in our country? for the right to be considered the most desirable area for study Why this field? in the country. In fact, previously and now, only few the guys As the first step, we will understand what the choice of an entrant student in Azerbaijan is based on, what factors influence his/her choice? The first factor is surely the economics of our country and traditions of oilfield as a whole. Open sources describe Marco Polo’s writings about how oil oozed out of the earth and erupted in Baku already in 13th century. And the fact that the first well was drilled specifically for oil production in Bibi Heybat in 1846 only strengthens the “oil” status of Azerbaijan and craving for knowledge-hungry minds to learn in this sphere. The second factor is a family, parents and network. The oil and gas sector, until recent years, was probably the most popular industry for education, although now there is a noticeable decline. With each passing year more and more people prefer computer science, IT, computer engineering

29 development & education

who enrolled in the oil and gas engineering and other similar will be from ASOIU, 2 from the Higher Oil School or Baku specialties, really understood where they were going. All that Engineering University, and another one from another we heard was: “We have plenty of oil, and we can always local university, like Moscow State University named after find a job”, and more often from parents than from anyone Lomonosov, BSU and so on. else. These statistics haven’t sidestepped the authors of the present article as well: grandfather is an electrotechnical Where and how: scores, places, price, probability? engineer and worked on Oil Rocks, a neighbor-friend also Let’s turn to statistics. If we take faculties utterly regarding the planned to get education in the sphere of petrochemistry as petrochemistry or related engineering, which universities are his parents were involved in this field to some extent. to be considered? The third factor is reputation and income. Income of employees Azerbaijan State Oil and Industry University (ASOIU), Baku in this sector can be several times higher than average salaries Higher Oil School (BHOS), Azerbaijan French University in other fields. Plus, the image and opportunities which this (AFU), “Khazar” University, Baku Engineering University job implies: international programs and internships, programs (BEU), Baku State University (BSU), Moscow State University of several diplomas, good learning environment, opportunity (MSU). Surely, the choice of an applicant is not limited to this, to have an internship in various companies. but we must always remember that some universities have internal exams, such as MSU or AFU. What problems can an applicant encounter when Let’s consider the scores, number of places, and according choosing a specialty or university in oil and gas sector? to these factors the probability of enrolling at university at Sometimes the name of the faculty itself is absolutely not the expense of the state. Think, for instance, of two enrollees enough to understand what kind of job will the graduate who got 550 and 650 scores. The specialty of “Oil and gas be engaged in after the university and it is that information engineering” exists in several universities; however, an which people were missing earlier and are missing up to average admission score for 2018 is 640. Total number of now. Therefore, very often students who have already been places by state order for 2019 is 264. On the other hand, a enrolled understood what they were going to study for and number of people who got 630 and more is 283. It turns out what they ultimately had to do. It’s very important either that the probability for the enrollee who got 650 scores to be for universities, and for parents/students to have enough admitted on the most respected specialty in this sphere is information about the specialty they choose. There is also 93%. a personal example, when we were caught in a trap when we applied for internship on Petroleum Engineering in BP and based only on the translation of the word “petroleum”. However, unfortunately it wasn’t petrochemistry as we had expected. Due to SOCAR Higher Oil School there happened some kind of awareness promotion in 2012. Finally, in addition to the present Azerbaijan State Oil and Industry University, the second Parthenon, the temple of knowledge on oil and gas, appeared in the country. What do we observe 7 years later? Of all the students who have studied on oil and gas specialties, only 20% are really looking for work or work according to their specialty; and most of them are SOCAR Higher Oil School, and not so much because they want to do this, but because “they have studied so much and there is nowhere to go,” and moreover the same reputation, novelty and a highly specialized direction. To some extent the last one is a shortage. Most of those whom we talked with while creating this article, spoke about how difficult it is to disengage from this sphere both in terms of education and work, as well as finding a master’s degree Let’s talk about another enrollee, who got 550. He will be abroad. among 1122 applicants who got the same score and higher. Surely, this refers not to everyone, everything is individual. How many places do we have on state order? Taking into There are people who enjoy their specialty professionally, account all specialties related to oil and gas sphere, we have and the number of those people could be more if the students about 850 places, including specialties, such as chemical had enough awareness about existing specialties, what all engineer, oil and gas engineer, oil and gas installations these people do and what awaits them at all, and not just engineer, geophysicist and etc. The probability of admission chase after the factor number three. is about 3/4 (75%). If an enrollee is ready to pay for education Now, if you go to the office of oil and gas company and simply on these specialties, then the price varies from 1800 to 4500 ask an employee under 30 about the university he or she depending on the university. Simultaneously, an average graduated from and also eliminate the fact of international score also decreases from 640 to 500 and even lower - all experience and training, then 4 out of 10 people, exactly these aspects should be considered.

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As a result, the more reasonably the enrollee approaches to the choice of specialties, the higher the probability of admission. Therefore, most enrollees address to the experienced educational centers for assistance in this issue. Currently up to 40 thousand of our citizens are studying this not interested in everything related to oil, as well as some of field abroad – in Turkey, Russia and Great Britain, with Turkey our peers for the reasons described above. However, now and Russia accounting for about 50%. As a result of a survey we agree that all professions related to oil & gas might have conducted by us we found that graduates of the University been interesting if someone had told us more about these of Oil and Gas named after Gubkin or St. Petersburg State specialties and the nuances of admission. As it appears, University are easily recruited by companies such as Socar, there are lots of various specialties in oil and gas sphere, BP, Halliburton, Baker Hughes, etc. not only chemical engineer or oil and gas engineer, but also We always say to our students: “Draw conclusions and geologist, geophysicist, petroleum and reservoir engineering, make decisions”. For us, authors of this article, this question that is fantastically interesting. has never been raised before, because, although we loved As a conclusion: for a competent, young and promising chemistry, physics and mathematics, we were absolutely enrollee it is always worth going to study in this field in our country, it will have both feet on the ground and drink hot tea with “baklava” for a long time, as it is our traditional and historical part of industry. However, we must go with an understanding of what choice an enrollee has, as well as all pros and cons of future education and profession. And remember that the fact the education is given to us doesn’t mean that we will get it – everything depends on us!

Authors’ biography Mr. Aleksey Tushev is one of the leading teachers at Dərs Evi - innovative educational center. His specialization is chemistry and physics. Aleksey has a great experience in teaching and preparing students not only for an exam, but also has a huge impact on their motivation and future career choice. Aleksey is a graduate of Moscow State University named after M. V. Lomonosov, Chemistry (Oil and Gas chemistry) faculty.

Ms. Valida Bashir is one of the leading math teachers at Dərs Evi - innovative educational center.​ Besides her enormous expertise in math, Valida has international education experience, including studying in UK. Her experience achieved at Math and Computer Science faculty of Moscow State University named after M. V. Lomonosov gave her excellent analytical skills and provides support in communications with students.​

31 our prouds

Always Remain True to Yourself and Your Internal Culture

Special Interview with Leyla Novruzova GBS Global HR Director

work environment. But, of course, country cultures are very different and there are always some small nuances which differ you from others. I remember on one of my very first days in London office, my colleagues to make me feel welcome, invited me to go out for lunch together. What I had in mind: cosy “Port Baku style cafe”, sitting at the table and talking predominantly about work. What it was in reality: grabbing sandwich in the closest fast- food and eating it while seating in a nice circle right on the grass in the park next to the office and talking about families and vacations!

How Azerbaijani professionals compete in very competitive labor markets, like the UK? If you are true professional, you will be successful in any labor market regardless of nationality. Especially in such diverse countries, as UK and US. But there are difficulties and complexities related to migration laws and regulations which seriously limit the employment opportunities for citizens of most of the world countries and this is sad reality… The world talks about globalization, but all kinds of visa and employment restrictions still exist... You have rich experience within HR, as well as working for BP over 20 years. What made you stay at this company? What is the role of networking to get promoted or find a This is an excellent question which I ask myself from time to job outside of Azerbaijan? time! Why I am still with BP and how can I feel still excited Probably networking will help you to find a job, but I don’t about this company after so many years?! believe that it will help you to be successful in the role and And I always come up with the following 3 things: 1) incredible advance your career further. Having strong and reliable dynamic of the company – it’s never boring, always stretching network is a good thing, but only on top of your skills and and challenging in positive way. It’s rare to get and stay in abilities and business reputation. ‘comfort zone’, you always need to grow; 2) opportunities – there is always something there for you, you just need to What are the lessons learned in the UK from professional be able to see it! 3) ethics of the company – everyone is perspective? respected regardless of levels, social status, beliefs, etc. I worked in different countries with very different cultures and learned 1 lesson: there is no need to force yourself to change What does it look like when Azerbaijanis work at if you are in different country. Always remain true to yourself international companies, headquarter? and your internal culture in any geography. And if you are We look like Azerbaijanis working abroad. :) interesting personality, in peace with yourself and your life, Seriously, the company culture is very similar regardless of you will belong everywhere (if you are not, you need to fix it the geography. So, you don’t feel significant changes in your first!). And always remember, being different is good, it is your

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strength, not weakness. One small example: after all that years I still have Russian accent in my English (!!), and this is ok… it would be pathetic if I would have tried to imitate Texan accent in Houston or Royal English accent in London!

Your top 5 advise for people working for international companies in Azerbaijan - how to get promoted to headquarter? I have same advice for successful career over the years and probably some people by now are tired of them! 1. Do whatever you do well and with passion (if you cannot develop passion, do something else) 2. Enjoy your job but keep your eyes open for new opportunities 3. When opportunities come up be brave and adventurous enough to take them 4. Don’t limit yourself to one particular goal, e.g. I want to work in HQ, or I want this specific role. It’s good to have a goal, but goals may change

As you asked for 5, I will add one new piece (exclusively for IMPACT!) Feel happy – if you don’t, do something to make yourself happy. Except for big tragedies, deaths which do not depend on us, we can fix everything in our lives if we have enough will and drive!

Biography of our Guest: Mrs. Leyla Novruzova is Human Resources Director of the Global Business Service in BP"s London office. Leyla began her involvement with the oil and gas industry in Azerbaijan in 1993 with Amoco Caspian Sea Petroleum. As a fresh university graduate, she joined the representative office of Amoco when the newly independent country was experiencing an influx of western oil companies following the collapse of the Soviet Union. Over the next five years, Leyla worked in different positions at Amoco until the merger of BP and Amoco in 1998. Soon after BP took over single operatorship of the Azerbaijan International Operating Company, she moved into HR. Since then her career path has taken her through various positions in HR – including areas such as, international mobility, benefits, and reward. Along the way, Leyla has had a number of international assignments. She worked in Pakistan for a short term followed by a four-year assignment in Russia during the TNK-BP era in 2003-07. Another assignment in 2010 involved three years in Houston, USA. In her role as VP HR, apart from leading people agenda in AGT, one of the most important aspects of her job was to align BP policies and practices with local labor legislation and manage external relations with Government authorities. She moved to the UK with her new role as GBS HR Director in August 2018 right in time to lead functional transition of the GBS from HR side.

33 AmCham Azerbaijan About Us The American Chamber of Commerce in Azerbaijan (AmCham Azerbaijan) is a leading private, non-profit business association supporting and promoting the interests of foreign and local businesses in Azerbaijan.

Established in 1996, the Chamber is Being one of the largest and the most Travel, Tourism & Hospitality, Corporate composed of around 250 Members influential organizations in the country Social Responsibility, Healthcare & and Associates active in every sector AmCham provides the best networking Medical Insurance, Legal & Compliance, of the Azerbaijani economy. AmCham opportunities. Other membership benefits FMCG and Procurement to make a real Azerbaijan represents nearly 80% include access to the data on the latest contribution to the future of business of all foreign investment, as well as a tendencies in the market (through such in Azerbaijan); Member-to-Member significant portion of local investment, information resources as Annual National Discount Program offers; U.S. Business in Azerbaijan. Through its 8 industry Employee Salary Surveys, Quarterly Visa Facilitation Program benefits etc. sector committees and 2 working Inflation Surveys, AmCham White Papers, groups, Members and Associates are AmCham Annual Reports, IMPACT Notably, the delegation of AmCham had able to share information, raise issues of Azerbaijan Quarterly Magazines); chance a privilege to meet with the President of common concern and propose possible to be heard and influence (Member Azerbaijan, H.E. Ilham Aliyev, in 2016. solutions. AmCham Azerbaijan remains Companies represent themselves Besides, the organization has established the most influential Access, Advocacy in committees in the areas of Tax & fruitful dialogue and keeps on cooperating and Advisory services provider in Customs, Banking, Finance & Insurance, successfully with government institutions Azerbaijan serving the improvement of Human Resources & Labor, Information on the highest level the business climate in the country. & Communications Technologies,

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Business Events

AmCham U.S. Independence Day Cocktail Reception On July 8, AmCham U.S. Independence Day Cocktail Reception took place. It brought together around 300 business leaders, government officials, and diplomats in a friendly-networking environment. A traditional event organized by the Chamber annually on the occasion of the 4th of July celebration in the U.S., this year it was held in a brand-new format – season-closure party for AmCham members, guests and partners. They all had an opportunity to enjoy delicious food and drinks, fabulous open-air atmosphere, live music, and amazing show program followed by a beloved raffle draw.

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Amcham Members’ Luncheon AmCham members and partners attended the event, including representatives of diplomatic corps. Starting his speech, Mr. Tahmazli expressed gratitude for the face-to-face channel of communication with the business community provided by the Chamber. He specifically thanked Mr. Nuran Kerimov and Mrs. Natavan Mammadova – President and Executive Director of AmCham – for invitation and hosting the event. He continued with the statement that all players in the food supply chain share responsibility for its safety, so the involvement and commitment of all

July 8 On July 8, AmCham Azerbaijan hosted another members’ luncheon. The honorable Guest Speaker of this month – Mr. Goshgar Tahmazli, Chairman of the Food Safety Agency of the Republic of Azerbaijan – spoke on the activities of the Agency

aimed at improving food safety in the country and the issues remaining high on its agenda. Additionally, the Luncheon highlighted several member presentations. Around hundred

parties concerned is needed to ensure food security. Mr. Tahmazli emphasized that one of the central responsibilities for any entrepreneur is to safeguard the lives and health of consumers by providing them with safe food products meeting the necessary quality requirements. He made an overview of the measures undertaken by the Agency to ensure the appropriate information is communicated efficiently to the businesses operating at all stages of the food supply chain in Azerbaijan. Mr. Tahmazli also pointed out that one of the main strategic goals, as laid down in the State Program on Food Security in the Republic of Azerbaijan for 2019-2025, is to develop effective public-private partnership in this field.

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Committee Highlights Tax & Customs Committee Meeting On July 16, AmCham Tax & Customs Committee hosted its meeting. Mr. Jeyhun Mamedov, Chairman of the Committee, opened the meeting by welcoming participants and introduced guest speaker, Mr. Elchin Mammadov, Tax Ombudsman and Advisor to the Minister of Taxes of the Republic of Azerbaijan. This year, the Institute of Tax Ombudsman has been established in Azerbaijan and Mr. Elchin Mammadov has been appointed Tax Ombudsman in the country. The corresponding decision was made by Mr. Mikayil Jabbarov, Minister of Taxes of the Republic of Azerbaijan in order to more effectively ensure the protection of taxpayers’ rights. Committee program for 2019 and suggested the change of Mr. Mammadov informed that tax ombudsman will provide a the name of the Committee. It was approved, so now it’s a prompt reaction to taxpayers’ appeals without applying them Digital Technologies and Innovations (DT&I) Committee. to the court and contribute to establishing an atmosphere Committee meeting was dedicated to Digital Transformation of mutual trust and cooperation between taxpayers and tax Agenda of the Government and Mr. Jafarov talked about latest authorities and the Institute of Tax Ombudsman will assist updates. Over the past year, the E-Government Development the taxpayers by ensuring their legal protection and providing Center developed over 40 projects covering, among others, impartial investigation and consideration of their requests. various service areas, including E-Gov, AsanFinans, At the meeting participants had an opportunity to discuss on AsanLogin, AsanVisa, AsanPay, AsanWi-Fi, E-Tender, etc. practical issues, as well as to debate on the expected issues He informed that the E-Government Development Center of and unclear points. During the meeting it was agreed that, Azerbaijan plans to switch from the current “one-stop shop” the participants would prepare written request on the issues model to the new “non-stop shop” model of e-governance they currently have with tax authorities and send it to the between 2020-2025 Ombudsman through Tax & Customs Committee. Mr. Jafarov noted that currently, the e-government portal At the end of the meeting Mr. Jeyhun Mamedov thanked providing more than 400 types of services (e-gov.az) is a everyone for participation. large system, which in turn consists of integrated subsystems connected to various areas: municipal, agrarian, social, and national. These subsystems combine many different structures. He also spoke about unique AsanLogin project which is a single sign in system providing the use of digital services in a more convenient form. Speaking about the electronic signature project, he mentioned successful cooperation with Sinam. An interesting discussion was opening in referral to possible connection to the ASAN VISA the consular departments of Embassies in Azerbaijan. The Chairman committed to organize the meeting with Embassies in near future. He mentioned that the current period is one of proactive services, where services are provided without the request DT&I Committee Meeting of citizens, he said. For example, when a child is born, the state will inform parents that it is necessary to obtain a birth On June 27, AmCham Digital Technologies & Innovations certificate without the citizens making a request themselves. Committee – (DTI) hosted its meeting. The system allows registering a newborn baby and issuing a First of all, Mrs. Natavan Mammadova, opened the meeting birth certificate. The citizens will be also notified in the case of by welcoming participants and thanked guest speaker, Mr. the expiration of their passports and other documents. Fariz Jafarov, Director of E-Government Development Center Paying attention to extended list of services provided by of the Republic of Azerbaijan for his participation. Then, ASAN, it was suggested to invited ASAN to AmCham monthly Ms. Kamilla Shahbazov, Chairperson of the Committee, luncheon to update all members. Chairman agreed to raise announced the agenda and informed that during the last this to Amcham board and inform with the result. AmCham Board meeting she had pleasure to present

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Speaking about the success of AsanVisa initiative, the Director said that in February this year, one millionth foreign tourist was issued an e-visa in Azerbaijan. He also reported about the AsanFinans project, which includes Internet banking allowing for quick banking transactions of the clients and provision of documents in an electronic form through the citizen identification system using an individual identification number (FIN). The information about all services including ASAN Notification Center, ASAN observer, ASAN bridge was provided and new e-gov model was introduced which is developed by specific technical work. Jafarov also assured that their goal is to continue develop and add more new services, he mentioned E-health experience ASAN is adopting from Turkey and force Finally, Mr. Ruslan Aghayev, who is traditionally in charge of AmCham Salary Survey, spoke on the upcoming 2019 edition of the Survey to discuss with the Committee members their suggestions and comments on what may be amended in the Survey procedure this year. BFI Committee Meeting On June 24, AmCham Banking, Finance and Insurance (BFI) Committee’s meeting was hosted. Mrs. Natavan Mammadova opened the meeting and welcomed the participants. She passed the floor then to Mr. Tural Hajiyev, Risk Advisory Director at Deloitte Azerbaijan, who presented in a form of a show-and-tell interactive session the latest, fourth edition, of the Business Outlook in Azerbaijan, the Deloitte Research Centre’s macroeconomic journal. He local software development companies come up with relevant shared the key research findings of the macroeconomic ideas to improve ASAN businesses analysis featuring an in-depth study of Azerbaijan’s overall In conclusion, Mr. Jafarov answered the questions of economic environment, trends of how the non-oil sector is participants, comments and proposals were made. At the end developing and peculiarities of foreign direct investment of the meeting, Ms. Kamilla Shahbazov thanked everyone for attraction, as well as insights on the Azerbaijan’s financial participation and mentioned about upcoming workshop to be system. held on June 28. Afterwards, he introduced Mr. Bahruz Naghiyev, Member of the Executive Board and Chief Financial Officer at PASHA HR Committee Meeting Bank, who has been recently appointed the Chairman of On June 25, AmCham HR Committee hosted its regular AmCham Banking, Finance and Insurance (BFI) Committee. meeting. Mr. Naghiyev presented the preliminary topics pipeline for The HR Committee Chair Ms. Elnara Mammadova opened the the Committee meetings in the upcoming business year. meeting and introduced the speakers of the first panel – Legal Tentatively, the issues to be raised and discussed include one: Mr. Mayis Aliyev – Partner Trainer at FireWorks HRM, Regulatory/Legal Changes in Banking, Insurance and Non- Mr. Emin Mahmudov – Head of Corporate Law Department, Bank of Baku, and Ms. Sara Huseyn-zade – Senior Legal Consultant, PwC. They initiated an interactive discussion with the Committee members and energetically answered their questions. The issues raised included, among others, the peculiarities of business travel legislation in Azerbaijan, scope of Azerbaijan’s Labour Code application, etc. Then, Mr. Vugar Gurbanov, Head of Mandatory Medical Insurance Department at the State Agency on Mandatory Health Insurance made an overview of the Agency’s activities and mission, pilot projects in Mingachever and Yevlakh, benefits of pilot scheme, challenges and opportunities, followed by Q/A on mandatory medical insurance scheme.

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Finally, Mr. Naghiyev closed the Meeting, thanked all the participants for their contribution and Mr. Hajiyev (together with the entire Deloitte team) for hosting the event. Legal & Compliance Committee Meeting On June 21, AmCham Legal & Compliance Committee took place moderated by the recently-appointed Committee Chair, Mr. Vagif Ahmadov. The meeting hosted as a guest speaker Mr. Ramin Gurbanov, President of the European Commission for the Efficiency of Justice (CEPEJ) and Judge of the Yasamal district court, who made a comprehensive overview of the latest judicial system accomplishments in delivering services to citizens Banking Industries, Banking and Insurance Industries’ and entrepreneurs. He particularly focused on reform and International Agenda, Managing Digital Banking & Insurance innovation brought with the recently-adopted Presidential Organizations, Derivatives Markets, Money/Capital Markets, Decree on Intensifying Reforms in Judicial and Legal System Monetary/Fiscal Policy, PE/M&A/AM Markets & Obstacles, and the Law on Mediation. Mr. Gurbanov, besides, elaborated IPO Market, as well as FDI Environment Improvement on the application of the e-court system in Azerbaijan (in Instruments. Another technical issue talked over was the a form of a show-and-tell session) and its specificities in desired frequency of the Committee meetings. practice. The Committee meeting proceeded with an active inter- member discussion of the issues highlighted by Mr. Naghiyev and Mrs. Mammadova. It was, among other, suggested to include to the annual BFI Committee meetings’ agenda some additional topics, in particular, the HR Compliance Practices and Leasing Solutions. In addition, it was proposed that the BFI Committee would closely coordinate its agenda and activities with the other AmCham Committees when touching upon the cross-sectorial issues, as well as with the external stakeholders, for instance, the Azerbaijan Banks’ Association (ABA). Also, it was suggested that the BFI Committee would be involved in the prior consultations with the financial regulatory authorities. New to AmCham Regular

Associate

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AmCham Legal Update

Amendments to the Code of Administrative Offenses liquidation of the enterprise, reduction of the number of of the Republic of Azerbaijan staff or jobs took place without prior written notification On 12 July, 2019, the President of the Republic of (at least 3 months) to the relevant trade union or without Azerbaijan signed the Decree on “Amendments to the Code negotiating with employees about the protection of of Administrative Offenses of the Republic of Azerbaijan”. their rights and interests, except for instances provided The amendments relate to the violations of employment by the Labor Code of the Republic of Azerbaijan, the legislation. According to the amendments: employer is subject to a penalty in the amount of AZN • Employers are subject to a penalty in the amount 500-1,000. of AZN 300-500 for the failure to submit Reports On Recruiting, including recruitment according to set quota Law on Insolvency and Bankruptcy has been amended or dismissal of employees; The Law of the Republic of Azerbaijan “On Insolvency and • Employers are subject to a penalty in the amount of Bankruptcy” (the “Law”) was amended by the Decree of the AZN 500-1,000 for the failure to report information President of the Republic of Azerbaijan, dated 29 April 2019. on open and closed vacancies along with the salary According to the Law, the grounds for debtor’s insolvency information into the centralized electronic system in the determined by court or creditors have been amended. form established by the respective executive authority A debtor will be considered insolvent by the court or the within 5 (five) working days from the date of opening or creditor in the following cases: closing of the vacancy; • • incomplete execution of its obligations vis-a-vis • Employers are subject to a penalty in the amount of creditors in the course of consecutive 2 (two) months AZN 300-500 for the failure to submit to the respective from the due date of the execution and in respect of executive authority information on occupation of a the reimbursement of damages caused to the life or vacant job within 5 (five) working days from the date of health, alimony, the obligations arising out of labor and receipt of the Employee Reference Form from the body related relationships and the payments under copyright determined by the relevant executive authority; agreements; • If the dismissal of the employees at the initiative of • • incomplete execution of taxes (interest and applied the employer in the course of increasing efficiency financial sanctions) and other state payments within of production, improvement of labor arrangement, consecutive 10 (ten) months from the date of their

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calculation; and contracts, place the relevant contract and other documents • non-execution of its obligations vis-a-vis creditors in the based on tender results, file complaints and obtain decisions specified period. on their results, submit invoices to the procuring company and etc. Other necessary changes to the Law shall include the following: The State Agency for Antimonopoly Policy and Supervision • duration for debtor to prepare the rehabilitation plan has of the Consumer Market of the Republic of Azerbaijan (the been determined 2 (two) months; “Agency”) is responsible for the management, organization • period for review of petitions filed with the court of activity and development of the portal. With the help of the in connection with the termination or alteration of electronic services module, the suppliers will be able to be the property administrator’s decision on approval registered as applicants and send the relevant documents to of settlement agreement with creditors, as well as the buyer. It will also be possible to maintain a single registry rejection of creditors’ claims and complaints has been of procurement contracts. determined as 10 (ten) days. In addition to the above, the Agency together with the Law on Telecommunications has been amended State Agency for Public Service and Social Innovations Amendment to the Law of the Republic of Azerbaijan “On under the President of the Republic of Azerbaijan will take Telecommunications” (the “Law”) has been entered into force the necessary measures to integrate the portal into the by the Decree of the President of the Republic of Azerbaijan, “Electronic Government” Information System. dated 29 March 2019. According to the amendment to the Law, an operator or provider has been obligated to take Decree on Establishment of Appeal Councils in State- measures by using technical means, equipment or software Owned Legal Entities has been signed to prevent illegal international telecommunication services On 6 May 2019, the President of the Republic of Azerbaijan conducted by joining the telecommunications network. signed the Decree “On Establishment of Appeal Councils in State-Owned Legal Entities” (the “Decree”). According to the Code of Administrative Offenses has been amended Decree, the Appeal Councils will be established in the state- On 29 April 2019, the Law of the Republic of Azerbaijan owned legal entities such as joint-stock companies, limited “On Amendment to the Code of Administrative Offenses liability companies and any commercial legal entities in of the Republic of Azerbaijan” (the Law”) came into other organizational-legal forms whose 51% or more of the force by the Decree of the President of the Republic stakes are directly or indirectly owned by the state, as well of Azerbaijan. According to the Law, organization of as non-commercial legal entities and public legal entities illegal international telecommunication services by established by the State. establishing the telecommunication operator’s or provider’s It should be noted that “legal entities” under the Decree telecommunications network through a relevant device has do not include the legal entities subordinated to the legal been identified as an administrative offence. Along with entities themselves owned by the State or by the central and confiscation of equipment and means used to commit such local executive authorities. an administrative offense, monetary penalties have been introduced for the said violation. State Program on Food Safety in Azerbaijan for 2019- Moreover, monetary penalties shall apply in case of failure 2025 has been approved by the telecommunications operator or provider to prevent The State Program in the field of food safety for 2019-2025 by means of technical facilities, equipment or software, has been approved on the basis of Article 5.5 of the Decree the use of illegal international telecommunication services no. 1235 of the President of the Republic of Azerbaijan On conducted by joining the telecommunications network “Additional measures for improvement of the food safety through an appropriate device. system in the Republic of Azerbaijan” dated 10 February 2017. Regulation on Single Internet Portal for Public Core targets of the State Program have been determined Procurement has been approved as follows: On 16 April 2019, the Regulation on Single portal for Public • adaptation of norms and standards in the field of food Procurement has been approved by the Decree of the safety with international requirements; President of the Republic of Azerbaijan. The portal provides • improvement of the population’s safe and quality food users with the opportunity to publish a tender announcement, supply; submit relevant documents to the supplier (contractor), pay • increase of food safety and quality, increasing their the participation fee, register the supplier as a bidder, create competitiveness and export potential to foreign markets; electronic data room, exchange information and documents • compliance of the activity of food subjects with the between the buyer and the supplier, submit tender proposals requirements of the legislation on food safety in and provide security, conduct virtual meetings of the tender cooperation with entrepreneurs; commission, arrange the electronic signing of procurement • animal and plant health in accordance with the

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international best practice. According to the amendments to the “Insurance Activity” It’s planned to carry out the priority activities by the working Law and “Non-Bank Credit Institutions” Law the financial groups to be established by the relevant state authority in market supervision body will supervise the compliance order to achieve the successful implementation of the State with the provisions of “Accounting” Law by insurers and Program. non-banking credit institutions respectively.

The activities should include the following: The “List of Services Provided for Legal Protection • optimizing existing laboratories in the area of food of Inventions, Utility Models, Industrial Designs, safety, creating new laboratories that meet modern Trademarks and Geographical Indications and Service requirements and providing logistics; Fees Payable to the Intellectual Property Agency of the • establishing a food safety training center; Republic of Azerbaijan” have been approved • creation of subjects and objects of the food sector acting The Decision of the Cabinet of Ministers of the Republic of in all stages of the food chain, as well as production of Azerbaijan dated May 27, 2019 approved fee rates for the food products and database of trade flows; following services: • carrying out activities related to the electronic issuance of export certificates and implementation of measures 1. Legal protection of inventions, utility models and for their recognition by importing countries. industrial designs; 2. Legal protection of trademarks and geographical Amendments were made to the Code of Administrative indications; Offenses of the Republic of Azerbaijan 3. Attestation of patent attorneys. The amendments impose the administrative fine ranging from 300 to 400 AZN on company executive officers Regulation of State Support to Internal Market for the company’s bookkeeping and accounting that Research for Stimulation of Competitive Production in are maintained in breach of the “Accounting” law; Micro, Small and Medium Businesses was approved interestingly, for such failure of the company management Under the Regulation organization of support and the company itself will be fined with the much higher fine payment of the support amount shall be arranged by ranging from 1,500 to 2,000 AZN. The company executive the Small and Medium Business Development Agency officers will also be fined in the range from 300 to 400 AZN of the Republic of Azerbaijan. Payment of the respective for the failure to organize an accounting unit in or engage a support amount will be made only by wire transfer. Likewise, professional accountant for the company. The same penalty the Regulation refers to internal market research stages, would apply for engaging a layman to the position of a chief sources of state financial support for internal market accountant by executive officer(s) of an organization of research and criteria of SMEs eligible for the support. public importance, a large business entity, an organization financed from the state budget and a public legal entity The updated “List of Countries and territories with which publish its annual (consolidated) financial statements. preferential taxation” was approved In accordance with № 724 Decree of the President of Minimum monthly salary was increased the Republic of Azerbaijan dated June 11, 2019, the new According to the Decree dated June 18, 2019 by the updated list of countries or territories with preferential tax President, it was determined that the minimum monthly treatment was approved: salary shall be 250 AZN. This amendment comes into force • 7 countries - Antillean (Netherlands), Bahrain, Guernsey, from 1 September 2019. Isle of Man, Macau (China), Nauru, Seychelles are removed from the list; The Law on Amendment to the Law of the Republic • 4 countries - Fiji, Cape Verde, St. Vincent and the of Azerbaijan “On Suspension of Inspections of Grenadines, Trinidad and Tobago have been added to Entrepreneurial Activities” has been enacted the list. Starting from May 30, 2019 the moratorium on state inspections will be lifted and the relevant state authorities Note: According to the provisions of the Tax Code of may resume inspections of business entities in the following Azerbaijan Republic, any payment made by the residents areas: of Azerbaijan or permanent establishment of the non- • fire safety control; residents in Azerbaijan to persons/ entities established • construction control; (registered) in the jurisdictions with preferential taxation, • supervision over potentially dangerous facilities; including payments to the bank accounts placed in so called • supervision over safe exploitation of mining areas; and “low tax jurisdictions” are considered as Azerbaijani source • radiation safety control. income and is subject to 10% withholding tax. The updated full list of countries with preferential taxation is Amendments were made to the “Law on Insurance available under the following link: Activity” and “ Law on Non-Bank Credit Institutions” http://e-qanun.az/framework/42606

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Approval of the criteria for “SME Cluster Company” years, from the date of the registration as a SME Cluster The criteria of the SME (small and medium enterprises) Company. Cluster Company were approved by the Decision of the Collegium of the Ministry of Taxes of the Republic of Approval of the Rules for the “Return of the overpaid Azerbaijan No 1917050000007900, dated May 8, 2019. taxes, mandatory state social insurance contributions, According to Article 13.2.78 of the Tax Code of the Republic unemployment insurance contributions, interest and of Azerbaijan, the SME Cluster Company is defined as a financial sanctions” legal entity, which meets the criteria set by the Ministry of According to the Decree No. 313 dated 16 July 2019, Taxes and obtained a certificate of SME Cluster Company Cabinet of Ministers of the Republic of Azerbaijan amended issued by the Small and Medium Business Development the “Rules on the return of the overpaid taxes, mandatory Agency of the Republic of Azerbaijan (hereinafter - the state social insurance contributions and unemployment Agency). insurance contributions, interest and financial sanctions” According to the Criteria, the following taxpayers are (hereinafter “Rules”). considered as an SME Cluster Company: The newly amended Rules define the refund procedures of 1. 1. Taxpayers, registered as commercial legal entities the following erroneously deducted or overpaid amounts to and not controlled by the State; the taxpayers or insurers: 2. Taxpayers, whose charter contains the clause that all • Taxes; important decisions should be made with approval of • Mandatory state social insurance contributions (“SIC”); the Agency; • Unemployment Insurance contributions (“UIC”); 3. Taxpayers supporting the following industries: • Property tax paid for state-owned property, the privatization of which has been completed; • Creating of competitive products that are not produced • Assessed interest and financial sanctions. in the Azerbaijan Republic, or; • Creating a local product that can replace an imported The rights of the taxpayer or the insurer to refund the product which currently satisfies more than 50% of the overpayments to the budget consumption, or; A taxpayer or insurer is entitled to claim amount of taxes, • Providing housing and accommodation services (hotel, accrued interests and financial sanctions, UIC and accrued motel, camping, etc.). interests which have been erroneously deducted or overpaid within 5 years after the end of the tax reporting period: 4. For the purposes of the project’s implementation by • to be refunded or; the SME Cluster Company, at least 10 non-related micro, • to be offset with the current liabilities or; small and medium entrepreneurship entities should enter • to be deferred to cover the future liabilities. into contractual and commercial relationships with each In case the taxpayer or insurer files an appeal to the court with other. respect to the taxes, UIC and financial sanctions calculated The criteria for the minimum amount of investment required by the tax authorities, the claim period of 5 years shall not for the implementation of the projects by SME Cluster include the time period since the submission of complaint Company is defined as follows: until the date when the court’s decision becomes effective. With respect to the amounts of the overpaid SIC and

1 Baku 5 million AZN associated interests and financial sanctions, there are no restrictions or limitations in terms of the claim period. 2 Baku suburban settlements and Absheron district 3 millon AZN Thus, the taxpayer can claim the overpaid SIC, associated 3 Sumgait and Ganja cities 2,5 millon AZN interests and financial sanctions without statute of limitation. 4 The cities and districts not mentioned above 1,5 millon AZN Another important change is that the overpaid amounts Nakhchivan Autonomous Republic, Nakhchivan Au- of SIC, interest and financial sanctions can be utilized for tonomous Republic, Fuzuli, Khojavend, Agdam, Tartar, 5 0,5 millon AZN Agjabedi, Goranboy, Goygol, Gadabay, Dashkesen, payment of UIC liabilities, or vice versa. Gazakh, Tovuz, Agstafa, Lerik, Yardimli, Balakan and Gusar However, overpaid taxes, accrued interests, and financial sanctions cannot be offset with SIC and UIC liabilities. Thus, the taxpayers meeting the criteria listed in the Decision are provided with the Certificate issued by the Agency by Term of application agreeing with the Ministry of Taxes. The terms for processing of the refund applications have In accordance with the Tax Code of the Republic of been aligned with those set out in the Tax Code and have Azerbaijan (Article 102.1.32, 106.1.21, 164.1.40, 199.15, been determined between 20 days and 4 months. 207.6), taxpayers who have obtained this certificate, shall be exempted from income/profit tax property, land tax and VAT on import of the machinery, technological equipment and devices imported for the purpose of production and processing by SME Cluster Companies for the period of 7

43 We do believe our members appreciate an opportunityto benefit from AmCham M2M Discount Program exclusively designed for our Member Companies to obtain as well as for the Associates to provide discounts on a wide range of products and services from thehotel stays to food and beverage outlets. This AmCham initiative is recognized as a strong promotional vehicle aimed to add more value to companies’ membership by helping to increase the volume of sales and to save costs. To become a discount provider you need to complete M2M Discount Program Agreement, print it out and return the signed copy to us. This program allows two people from each Member Company to obtain discounts in below mentioned companies upon presentation of special M2M cards. Currently, our M2M Discount Program encompasses the following offers:

TRAVEL, HOSPITALITY AND LEISURE

JW MARRIOTT ABSHERON BAKU

Ÿ 10% discount on all Food & Beverages – Discount is applicable maximum for 20 HOLIDAY INN BAKU people per card. The card cannot be applied for meetings & events held in 10% Discount on Food and Beverages at hotel Ÿ BOULEVARD HOTEL BAKU 10% discount on all Spa Treatments – Holiday Inn Restaurant Marina 18 and Ÿ Sagi Bar The limit is 20 guests per card. Discount Ÿ 15% SPA Ÿ 15% Discount on Holiday INN Spa does not apply for spa products retail Ÿ 10% Retail/rack price of room 30% discount on Laundry & Cleaning – annual subscription (fitness center and 15% Laundry Ÿ swimming pool) Ÿ Discount is applicable for minimum on 3 Ÿ 15% Food and Beverage days service Ÿ 10% Discount on “Your Special Day” events inclusive Weddings, Engagements, Henna Parties

THE LANDMARK HOTEL BAKU HILTON BAKU 15% discount on Food & Beverages at: Ÿ Caspian Grill & Terrace (ala carte) Lunch Ÿ 10% discount on Hilton Baku restaurants & Dinner and bars HYATT REGENCY BAKU Ÿ Bangkok Noi (ala carte) lunch Ÿ 10% discount on Hilton Baku SPA Ÿ 15% discount on restaurant and bar Ÿ Seto (ala carte) Lunch & Dinner treatments Ÿ 15% discount on laundry and dry Ÿ Salo (ala carte) lunch *Discount can be applied to a group up to 9 cleaning Ÿ Shin Shin (ala carte) Lunch & Dinner people Ÿ 20% discount on Spa treatments at Ÿ Dolce Pausa (regular menu) Throughout *Discount cannot be applied in combination Armaiti Spa & Fitness the day with any other promotion OTHER

PASHAINSURANCE ForallemployeesofAmChamMember INTOURISTHOTELBAKU Companies: џ 15%discountonvoluntaryinsuranceof џ 15%SPA property џ 10%Retail/rackpriceofroom џ 5%discountonvoluntarymotor џ 15%Laundry insurance(CASCO) ASPIAGROMMC ForindividualM2MCardholders: џ 20%discountonvoluntaryinsuranceof џ 10%discountonbeveragesinSavalan property BoutiqueWineHouse џ 10%discountonvoluntarymotor insurance(CASCO) FOURSEASONSHOTELBAKU џ 10%offforZafferanoRestaurant& Bentley`sBar џ 10%offforJalehSPA(treatment,gym offer,retailproducts) MEGAINSURANCE DiscountsforM2MCard џ 20%Voluntarypropertyinsurance џ 15%Voluntarymotorinsurance џ 35%Travelinsurance DiscountsforallemployeesofAmCham PULLMANBAKU MemberCompanies OFFICESYSTEMS џ 10%discountonFoodandBeverages, џ 15%Voluntarypropertyinsurance џ 10%discountforofficechairs FitnessandSPAservices џ 10%Voluntarymotorinsurance џ 15%discountforhardfurniture џ 10%discountonroomsstays џ 30%Travelinsurance џ 40%discountforofficepartition EDUCATION PROFESSIONALSERVICES

ADAUNIVERSITY SEABAKLLC џ 10%onExecutiveEducationCorporate џ upto10%onITSupportServices TrainingsPrograms џ FREEmigrationtoCLOUD.AZServices џ upto5%onITEquipment,Cartridges andSoftwareLicensing џ upto15%onInternetServicesat LandMarkandotherbusinesscenters AUTOSTARKAUKASUSGMBHAZERBAIJAN Intern ational Facul ty џ CITY Col lege. 10%discountonallservicesat Mercedez–BenzServiceCenter REPRESENTATIVEOFFICEOFTHE UNIVERSITYOFSHEFFIELD INTERNATIONALFACULTYCITYCOLLEGE џ 5%discounttoallemployeesof SIARRESEARCHANDCONSULTINGGROUP AmChamMember/AssociateCompanies џ 10%discountonanumberofservices onExecutiveMBAProgram andprojects INTERNETANDCOMMUNICATIONS

ANTARIS-OFFICE,BANK& SCHOOLSUPPLY џ 15%discountonproductsinAntaris shops INTERNATIONALBANKOFAZERBAIJAN AZQTELLLC џ 15%discountonproductsinAntaris џ 50%discountonAmexGoldcard џ 20%discountforSkyPortWireless branchinBakuBookCenter џ 50%discountonAmexPlatinumcard LeasedLine *Discountcannotbeappliedincombination џ FreeMCWorldElitecard withanyotherpromotion