The problem with SOCAR

Energy Minister Konrad Mizzi says his ministerial direction to Enemalta’s advisory committee was limited to a direction to broaden suppliers and consider SOCAR. “I know the people at SOCAR and this was an option I asked Enemalta to explore,” he said.

The Prime Minister justified the intervention by saying that government defended the interests of families and businesses; although it ended up making losses from this hedging agreement, this can be attributed (as the Auditor General said) to the unexpected decline in the price of oil in last’s year final quarter. In this sense one cannot directly attribute the higher price of petrol paid by Maltese consumers for petrol to the deal with SOCAR as this would have been the result of any long term hedging agreement.

Both Mizzi and Muscat speak the language of popular common sense, through which foreign affairs is all about getting financial gain from whoever is ready to make an offer.

But in so doing they show a pathological aversion to the fine details of good governance, the same aversion they showed when both saw nothing wrong in the direct appointment of Mizzi’s wife as a Malta Enterprise envoy.

The problem in this case is that a minister intervened directly in the procurement system on behalf of a company [SOCAR] which forms part of the ElectroGas consortium that will be the sole supplier of natural gas to Malta for the next 18 years.

It is worth reminding that the LNG contract was awarded through an expression of interest, and not through a full tendering procedure. Although approved by the European Commission, this system allowed the government to have the final say on the choice made.

Signing a long-term hedging deal with SOCAR confirms this dependency and gives the impression that Malta’s relationship with SOCAR is part of a wider political relationship with Azerbaijan, crystallised in an as yet unpublished agreement signed by Muscat in Baku in December.

It seems that we are slowly moving from a corrupt and defective tendering system that left room for ministerial intervention under the previous government, to a simple ‘no procurement system’ where SOCAR controls both our energy supply and our energy mix.

While the previous government’s major sin was that of ignoring and twisting rules of propriety while nominally adhering to these rules, this government shuns being constrained by rules (in its rush to get things done) and gets away with murder by constantly reminding us of what the Nationalists did in the past.

It is worth noting that in this case the Auditor General found a lack of documentation with regards the final approval by the procurement committee and the placing of the order with SOCAR.

But one also has to look beyond any immediate financial advantages and at the geopolitical implications.

Azerbaijan is not exactly a stable democracy. It is a kleptocracy where the 12-year-old son of the Azerbaijan president went on a multi-million pound property spending spree, buying up a series of luxury Dubai waterfront mansions. It is located in a highly volatile region where Azerbaijan’s ambition to become a major gas and oil exporter collides with Russia’s hegemonic ambitions.

Despite this rivalry, its political survival depends on cosying up to the Putin regime from which it gets arms consignments. Russia also holds leverage over Azerbaijan by threatening to support Armenia over the disputed Nagorno Karabakh region.

Nor is SOCAR a model of transparency.  NGO Global Witness recently exposed its opaque ownership, which includes mysterious private businessmen. SOCAR has denied these allegations and even launched its own website to rebut the report.  It belongs to a repressive government that jails opponents like journalist Khadija Islamayilova who expose corruption.  Azerbaijan ranks in 126th place (out of 175) in Transparency International’s corruption perception index scoring only 29 out of a maximum 100 points.

One could argue that SOCAR is not so different from other oil companies. Even long established western companies like BP and Shell have been reprimanded for lack of transparency and shady deals in the Third World. BP itself is a partner of SOCAR.

SOCAR is keen to project itself as yet another private company, telling Global Witness that it is “a commercial and not a political entity”, using this argument to dismiss criticism over the government’s human right record and lack of respect towards civil society.

But the UN Council for Human Rights’s committee for business and human rights has called on the Azeri government to make SOCAR accountable to the country’s parliament.

Azerbaijan may be no worse than other major oil and gas suppliers like Saudi Arabia and Qatar. What is questionable is not including it in public procurement systems, which are adequately and transparently recorded and assessed; but depending outrighty on SOCAR, an extension of Azerbaijan’s caviar diplomacy.