Oil major BP investigates bribes, inflated costs in Azerbaijan

By bne IntelliNews April 1, 2016

Oil and gas major BP is investigating instances of fraud and inflated costs in Azerbaijan, the Wall Street Journal (WSJ) reports. BP has held production sharing agreements in offshore oil and gas fields in Azerbaijan's portion of the Caspian Sea since 1994, and is the largest oil and gas producer in Azerbaijan. Its output accounts for approximately 80% of the total oil output in the country.

The company is now investigating instances of graft in 2013 and 2014 after documents emerged showing that an employee of one of its main logistics contractors, Swiss company Panalpina World Transport Holding, had approved $16mn worth of invoices for transport services that were never provided.

Furthermore, some of the subcontracting contracts that BP awarded in 2014, which were worth $2.5bn, are reported to have practised grossly inflated costs. The subcontractors were both private companies and companies owned by the Azerbaijani government and are household names in oil and gas services in the country - Bos Shelf, Bull Equipment Trading, Italy's Saipem and Star Gulf FZCO. 

The payments raised red flags for BP’s compliance department, which worried that money siphoned off from its logistics operation might be used to pay bribes, a former BP manager who worked on its projects in the Caucasus told WSJ.

In 2010, Panalpina and other companies were fined about $236mn by the US Justice Department for bribing officials in seven countries, including Azerbaijan. A Panalpina spokeswoman told WSJ that the company had since hired a new CEO and chairman and “successfully implemented a new corporate culture that emphasises compliance”.

Saipem is currently being investigated in Italy, where it faces court charges for corruption in Algeria and Brazil.

The scandal involves the Azerbaijani customs service, which are notoriously corrupt. A BP manager told WSJ that nothing can get through customs without bribes. Based on its experience in Azerbaijan, bne IntelliNews can verify that statement. The Azerbaijani customs service denies the claim.

BP itself is said to have got its foot in the door in Azerbaijan back in the early 1990s by organising lavish parties for government officials which it then invoiced as a "$40mn PR effort", sources told bne IntelliNews.

Related Articles

Azerbaijan finishes takeover of bad IBA assets worth $2.2bn

The Azerbaijani government has finished taking over $2.2bn worth of external debt owned by the country's largest bank, International Bank of Azerbaijan (IBA), APA news agency reported on March 5 ... more

Opposition cry “farce” and “mockery” while announcing boycott of Azerbaijan’s snap election

Several opposition parties in Azerbaijan have announced that they will boycott the early presidential election scheduled for April, according to local media reports. On February 5, President ... more

Azerbaijan's IBA sees assets fall 29% y/y in 2017 after debt restructuring

The assets of the International Bank of Azerbaijan (IBA), the largest lender in the country, contracted by 28.9% y/y to AZN8.7bn ($5.1bn) in 2017, the state-controlled bank reported on January 10. ... ... more