Business

AIOC SIGNS CONTRACTS FOR PHASE 1 CONSTRUCTION ACTIVITIES

On November 30, AIOC signed in Hyatt Recency Hotel in Baku six main contracts for Phase 1 construction activities in support of the full field development of the Azeri, Chirag and deepwater portion of the Gunashli (ACG) fields in the Azerbaijan sector of the Caspian Sea. These include two contracts with McDermott Caspian Contractors, Inc. for the fabrication of platform topsides and for offshore pipelay; and one contract with each of the following international companies: Bouygues Offshore for jacket, piles and drilling template fabrication; Emtunga International for Living Quarters; Saipem for transport and installation activities; and Eiffel for the platform drilling module.

The selection of these companies involved an extensive competitive tendering process spanning some eight months. These contracts have a total value of $ 750 million.

The scope of work within the contract with McDermott Caspian Contractors, Inc. for platform topsides involves fabrication, assembly, hook-up and commissioning of the production, drilling and quarters (DQ1) Integrated Deck. The work will start this month and will be completed in September 2004. The contract will employ a high level of local workers and include about 4.5 million man-hours of which about 72% will be local labour from SOCAR and SPS workforce. Local infrastructure which will involve SPS yard and equipment will also be used. McDermott, a US company which has a regional base in Dubai.

In preparation for the commencement of construction works the contractor developed an extensive training program which is being conducted in McDermott's Jebel Ali yard in Dubai. Some 132 Azerbaijan citizens who were selected by McDermott using SPS labour and other local employees three months ago are already being trained and by the end of this year that number is expected to be around 200. In addition, a further 500 plus people will be selected for training in Baku by McDermott over the course of this schedule.

The offshore pipelay contract work scope includes offshore installation of 186-km pipeline for DQ1 and 12 km pipeline for the Compressor and Water Injection Platform (C&WP). Work is scheduled to start this month with expected completion in May 2005. The contract will require about one million man-hours. The workforce will be recruited through SOCAR and KMNF. It is planned that this contract will use significant local infrastructure including local vessel support. This will include Israfil Huseynov pipelay barge, various marine support fleet and SPS yard, with the main subcontractors being SOCAR, KMNF and BUE.

The contract with Bouygues Offshore, a French company, is for fabrication and loadout of DQ1 and C&WP jackets and piles and the DQ1 drilling template. The work within this contract will also start this month and will be completed in March 2005. The contract will use a high level of local labour from SPS to meet the estimated 2.5 million man-hours needs and this has required the contractor to commence an extensive training program. Some 22 Azerbaijan citizens are currently being trained at the SPS yard.

The contract with Saipem is for transport and installation of the DQ1 drilling template, DQ1 and C&WP jackets, and floatover of the DQ1 and C&WP topsides. Saipem is an Italian company and has major previous experience in Azerbaijan with installation of offshore oil and gas pipelines for the Early Oil Project. Work will begin this month and will be completed in July 2005. The contract will use 160,000 man-hours and will mainly recruit labour through SOCAR and KMNF. The work on this contract will largely involve Azerbaijan's local infrastructure including derrick barge "Azerbaijan", STB-1, various marine support fleet, SBS yard and SPS yard through subcontracts with SOCAR, KNMF, AZFEN, BUE and Blue Water. The floatover of the 14,000-ton topsides for DQ1 and C&WP planned as part of the contract will use a unique technology expected to set a new world record for open sea installation.

The scope of work within the contract with the French company Eiffel includes engineering, procurement and construction of the DQ1 drilling facilities. Work will commence this month and will be completed in July 2003. The majority of the work within this contract will be implemented at Eiffel's Yard in France and assembled and commissioned in Baku.

The contract with Emtunga International, a Swedish company, which provided the living quarters for the Chirag platform within the Early Oil Project, is for engineering, procurement and construction of the DQ1 Living Quarters. Work will start this month with completion expected in November 2003. The majority of the work will be done at Emtunga's factory in Sweden and assembled and commissioned in Baku.

In addition, AIOC has a contract with the US company Halliburton whose subsidiary company Kellogg Brown & Root based in London and Baku are undertaking the Engineering & Procurement work for Phase 1. This contract was awarded in mid 1997. Since then some 50 Azerbaijan citizens spent eight months training in the Brown & Root London office before transferring back to Baku where the jackets and terminal design is being undertaken by approximately 90 national employees with support from Brown & Root's London personnel. Two other existing contracts are with the UK company KCA for drilling facility engineering and with CDC, a joint SOCAR/Santa Fe company, for pre-drilling.

AIOC has also recently issued a letter of intent to award a contract to Azfen/Tekfen for the provision of preliminary civil works as part of the Sangachal Terminal Upgrade. Mobilisation activities will commence in November 2001 to allow a start on site in January 2002 and the work is scheduled to be complete in June 2002.

Tender submissions for the main construction activities and tank construction at the Terminal are under evaluation. Contracts for these activities are expected to be awarded December 2001 and 1st Quarter next year respectively. In addition, a contract for the C&WP topsides will be awarded 3rd Quarter 2002. The contract values for Phase 1 will then total in excess of $ 1,050 million.

David Woodward: 3,000 direct local construction jobs at peak.

"The signing of the six main contracts today is a major milestone which marks the commencement of construction activities within the ACG Phase 1 of Full Field Development," David Woodward, AIOC President. "This project, which AIOC, SOCAR and the Ministry of Fuel and Energy sanctioned on 30th August 2001 in a ceremony witnessed by H.E. President Heydar Aliyev, is a massive world-class undertaking in terms of investment, the jobs that will be created, the local facilities that will be used, the oil revenues that will be generated and the positive impact we hope the project will have on the nation's economy and the lives of all its people.

"We are pleased that many of the resources we need to bring this world-scale project to a successful completion are here in Azerbaijan. We are working to ensure a significantly high level of utilisation of Azerbaijan's facilities and involvement of local workers throughout the construction works. It is expected that the project will create more than 3,000 direct local construction jobs at peak. In addition, the current plans are that jackets will be constructed and modules assembled at the SPS yard. SOCAR/KMNF pipelay, crane, transport barges and marine fleet will also be used. We are strongly encouraging the main contractors to optimise use of local subcontractors. We are committed to helping the country optimise its participation and developing further Azerbaijan's capability to meet international standards in this large project which will give a significant boost to Azerbaijan's economy. Some $75 million will be invested to upgrade Azerbaijan's construction and marine facilities, which will be involved in the Phase 1 construction works. It is in all our interest to increase Azerbaijan's participation as we are here for the long term. We need cost- effective local suppliers, a strong and diverse local economy and political and economic stability to take our business forward.

"Safety will be a top priority during construction activity and careful selection of contractors has been and will be used to manage the risk. ACG Phase 1 is a world-class project that will be undertaken to the highest environmental and safety standards, and therefore requires the best contractors and skilled workers that the world has to offer. Our main contractors were selected on the basis of their ability to deliver world-class performance in terms of HSE, quality, cost and schedule. This will be followed up with a rigorous approach to training of a largely Azerbaijan labour force with particular emphasis on frontline supervision, application of safety management systems and target-setting to influence safety performance.

"We will continue to work in close cooperation with Government authorities, SOCAR and the people of Azerbaijan to ensure the progress of ACG's future phases which together will see Azerbaijan producing in excess of 50 million tonnes of oil a year - and potentially revenues totalling 5 billion dollars a year - from ACG alone by the end of the decade."

P.S. The Phase 1 project targets the development of the central area of the Azeri field in the ACG contract area. The project comprises a 48-slot production, drilling and quarters (DQ1) platform, 30" oil pipeline from DQ1 to the Sangachal Terminal, conversion of an existing 24" subsea oil pipeline to gas service, expansion of the existing onshore terminal in Sangachal, a gas compression and water injection platform (C&WP) which will be will be bridge-linked to DQ1. First oil production from Phase 1 is scheduled for Q1 2005.

AZERBAIJAN, KAZAKHSTAN SIGN CASPIAN STATUS TREATY

President Heydar Aliyev of Azerbaijan and Nursultan Nazarbayev of Kazakhstan signed an interstate treaty on the status of the Caspian during the CIS summit in Moscow. The document reads that Azerbaijan and Kazakhstan agree to divide the Caspian seabed into national sectors. The use of the Sea surface and its bioresources will be in focus during a meeting of the deputy foreign ministers of the coastal nations on December 17-18 in Moscow.

Azerbaijan, Russia and Kazakhstan have already signed similar treaties. Thus, three of the Caspian nations have official accord to divide the Sea into national sectors.

KOREA TELECOM TO WORK IN AZERBAIJAN

Korea Telecom intends to start implementing a number of projects in Azerbaijan, as the company's delegation is expected to hold final talks in Baku with joint US-Azeri Baku Baltimore Omni Tell (BBOT), its President Sadig Humbatov told AssA-Irada Tuesday. Korea Telecom and BOOT will implement joint projects in Azerbaijan under the agreement signed. The impending negotiations will define the volume of investments to be made, he said.

According to Mr. Humbatov, Korea Telecom is Korea's national telecommunication operator and operates subsidiaries in America, Europe, Russia, etc.

In addition, it is the official sponsor of the 2002 World Football Cup in

Korea and Japan. The company has 30 million subscribers for line phones and 5 million for mobile phones. Its revenues reportedly made up $1 billion last year.

S. Humbatov voiced hope that the company will take root in Azerbaijan's telecommunication market following joint cooperation with BBOT.

AZERI, ROMANIAN RAILWAYS CO-OP

A delegation of the Romanian Railway Department is expected to visit Baku in the second half of December. According to advisor on economic issues of the Romanian embassy in Baku, Emil Nikolesko, a representation of the Romanian department will be set up in Azerbaijan during the visit in a bid to expand bilateral cooperation.

AZFEN-TEKFEN RUNNING INITIAL CONSTRUCTION IN SANGACHAL

Azfen-Tekfen, the winner of the tender for initial civil construction work as part of the expansion of Snagachal terminal, plans to complete the operations in June 2002. Yet, the evaluation of tender bids for capital construction of the terminal and reservoirs is still underway.

The expansion is expected to raise the yearly capacity of the terminal from 5.5 million tons to 25 million.

WB LOANS AZERBAIJAN $461.5 MLN

The World Bank has allotted $461.5 million until recently to help the implementation of 16 various projects. Three of the projects have been already implemented.

Being non-interest bearing, the loans were allocated by means of the International Development Association, a WB division, for a period of 35-40 years.

AZERCELL OFFERS NEW SERVICES

Azercell started its new Yon Cell services, which enable to direct incoming calls to any other mobile phone, on December 1.

The joint venture has recently established roaming communication with French mobile communicator Bouygues Telecom operating in GSM 900/1800 standards. Owing to this cooperation, Azercell subscribers can now contact more French cities. Thus, Azercell has 136 roaming operators in 68 countries.