Transparency initiative annual report

2.2. Allocation of licenses

There is no any relevant law regulating oil or production sharing agreements (“PSA”) in the Republic of Azerbaijan; therefore there are no any criteria in the law on selection of potential investor.

In accordance with the existing practice, the selection of potential investors for development of hydrocarbon reserves is conducted directly as the result of negotiations between such investors and the authorised state body. Nevertheless, there are different form of internatiolan best practice on bidding process and the common used are the tenders. The PSA contracts have been chosen for development of the hydrocarbon exploration projects with foreign partners in Azerbaijan. The best practice of PSA was set up by signing the Azeri-Chirag-Gunashli on 20 September 1994 and since that time more than 30 PSA have been signed. The current implementation of PSA consists of the following procedures:

• 
  The negotiations on the preparation of contracts on development of the hydrocarbon reserves are held between SOCAR which represents the Government of Azerbaijan Republic and has the legal power to issue Decrees related to hydrocarbbon reserves on one side and various interested investors on the other;
  
• 
  A Memorandum of Intentions (“MOI”) is signed as an initial agreement after negotiation;
  
• 
  SOCAR executes MOI with the party (foreign oil company), whose offer is considered reasonable and acceptable by SOCAR;
  
• 
  After MOI us signed, SOCAR starts negotiations with that party on relevant terms and conditions of prospective PSA;
  
• 
  The inquiry for the delegation of authorities to SOCAR for negotiations on and signing of the PSA is submitted to the President of Azerbaijan Republic and such authorities are put in effect by appropriate statute of President;
  
• 
  Principles and conditions of further partnership agreed on the basis of Memorandum of Intentions;
  
• 
  Agreement signed on key principles and commercial terms of PSA;
  
• 
  PSA project agreed by the basis of an agreement of key principles and commercial term;
  
• 
  PSA signed and submitted to the Parliament of Azerbaijan Republic for ratification; and
  
• 
  PSA becomes effective after Presidental decree.
  

The signed PSA’s are submitted to the President of the Republic of Azerbaijan and then sent to the National Assembly (“Milli Majlis”) for ratification in the form of legislative initiative. Upon completion of negotiations by the energy and natural resources protection committee and after necessary procedures prescribed for the draft laws, the PSA is ratified. Upon ratification, the President of the Azerbaijan Republic signs the relevant Law of the Azerbaijan Republic and PSA is considered to come into effect. ³¹

• 
  On 22 December 2014, BP and SOCAR signed a new PSA to jointly explore and develop potential prospects in the shallow water area around the Apsheron Peninsula in the Azerbaijan sector of the Caspian Sea, according to the Order of the President of Azerbaijan Republic numbered. 944, dated on 22 December 2014, SOCAR, BP Exploration (Azerbaijan) SOCAR Oil Company Limited and Affiliates ("SCA") signed an agreement. The bill on the President's decree dated 14 April 2015 entered into force. ³²
  

• 
  SOCAR was entrusted to prepare and sign the agreement “on rehabilitation, exploration, development and production sharing from oilfield block Muradkhanli, Jafarly and Zardab” based on the Order of the President of Azerbaijan Republic numbered 1439, dated 7 October 2015. SOCAR and Zenith Aran Oil Company signed a deal on exploration, development and production sharing which comprises Muradkhanli, Jafarli and Zardab fields on 16 March 2016.