Victor
Kozheny and Privatization in Azerbaijan
Why
did Kozheny fall in love with
Azerbaijan
and even called
it “sleeping beauty”? First of all, a method of privatization was so
familiar for him – voucher privatization. In contrast to Czechs the citizens
of
Azerbaijan
obtain vouchers
for free. Kozheny gathers a command and purchases vouchers on $150 million.
His plan is to collect them so many by 1997 in order to purchase the only
attractive, in his opinion, state company in Azerbaijan - petroleum giant SOCAR
(State Oil Company of Azerbaijan Republic). This company controls the oil and
gas fields of republic with the residual reserves into several hundred millions
of tons of oil equivalent. Furthermore,
the company through its affiliated structures is a participant in more than 20
joint-stock exploratory ventures with the reserves of several billion tons of
oil equivalent. On
20 December 1997
, Kozheny begins to gather investors around his Azerbaijani enterprise.
Among
the creditors who lent him millions of dollars were - his friend - traveler
jeweler Burk; Richard Friedman, who leases one of his houses to
Clintons
; George Mitchell,
former head of majority in Senate. After
some doubts hedging fund Omega Advisors, British pension fund Magnum and the
biggest
US
insurance
company AIG give under the petroleum project more than 500 million dollars.
Moreover, according to the local legislation foreigners had to pay for
participation in the privatization twice: 1)
for the privatization checks and then, 2) for so-called options. Only having
such securities as options foreign investors could use purchased vouchers and
participate in the privatization.
Within
the short period in the country there were sold about 20 million options and
more than 30 million vouchers were distributed among the population, absolute
majority of which was subsequently outbid, according to official government data,
furthermore by foreigners.
Everything
depends on President Aliyev, without consent of whom no political decision in
Azerbaijan
is made.
But everybody - from the Azerbaijani clerks to Kozheny himself –
convince investors, that there are no reasons for the uneasiness: privatization
of SOCAR will begin soon. Some of
the investors personally meet with Aliyev and he tells in them the same.
Thus, in the spring of 1998 Americans are in the complete confidence,
that everything goes according to the plan and enormous profits soon flow into
their pockets. Kozheny buys voucher
by boxes.
Victor
opens in
Baku
investment bank
Minaret Group, which could not actually be called “bank” because did not
have appropriate license by National Bank of
Azerbaijan
.
For
storing vouchers he constructs the enormous armored bunker with the steel doors,
the twenty-four hour intensive protection and the observation system.
The “bank” now is conducting his business in
Azerbaijan
.
Finally,
it was declared that after presidential elections of 1998 it would be possible
to privatize SOCAR. Though nothing happened after the elections were held. The
first alarming signals began to reach the investors in 1999.
Then the top officials of Azerbaijani government began to declare, that
no one intended to privatize the extractive enterprises of SOCAR.
Then investors found out the fact that Kozheny bought in
Azerbaijan
options to
vouchers not on $25, as it was asserted, but less than for $1.
Only corporate investors (Omega, AIG) gave Kozheny $100 millions to buy
the options.
However,
in the documents of European Union, obtained by Omega, it was indicated that the
Azerbaijani clerks received for options on the whole about $13 millions.
Investors logically assumed that the fate of remaining sum could be
different: money could flow into the
pockets of Kozheny; Azerbaijani
officials; or possibly, both of them.
Omega
and AIG brought an action against Kozheny and the trial is still on. They
require the compensation of losses. But
Kozheny himself proposed to plaintiffs to get together in action against the
government of
Azerbaijan
, which did not
begin the second stage of privatization of its enterprises in 1999, as it had
promised earlier. Recently Kozheny
sold his house with the gigantic pond in
Bahamas
, yacht, aircraft
and motor pool, after keeping only one " Mercedes "for himself.
At the end of March 2001 of year the President of Azerbaijan Republic
Heydar Aliyev issued Decree about the beginning of privatization of the
enterprises of Fuel-Energetic Complex and some other branches, somehow connected
with the oil and gas sector. Azerbaijani
leader invited foreign investors to take part in the purchase of actions. There
are no extractive enterprises of SOCAR among the objects for privatization. All
rights and liabilities of Minaret Group are passed to Harvard Investment Fund,
which is going to take active part in the second tour of privatization in
Azerbaijan
Fuad
Aliyev
Budapest,
Hungary
October
2001
Sources:
Lubov
Grekhova, weekly magazine "КоммерсантЪ-ДЕНЬГИ"
(Commersant-Money) No.13, 2000.
Ali
Abbas, “Second Tour of Privatization Will Ruin the Investors That Did not Ruin
in the First” (in Russian), online magazine RusEnergy:
http://www.rusenergy.com/caspianregion/a03042001.htm
The
offical web-site of Ministry of Economic Development of Azerbaijan Republic: http://economy.gov.az/