BP says alliances key to building Azerbaijan supplier base

Darius V. Snieckus
OGJ Online

BAKU, June 8 -- BP PLC's head of procurement in Azerbaijan Thursday urged local and western oil and gas service and supply companies to forge alliances to speed development of the supplier base in the Caspian Sea area as the region enters its "new golden age."

Stephen Loss, BP's supply chain management team leader for Azerbaijan, said partnerships would mean "a fast track opportunity" for Baku-based companies to build competencies while gaining access to resources would otherwise be beyond reach in the short-term.

"I would certainly urge both Azeri and western companies to explore this potential and the possibility of identifying a market niche, or a product or service which differentiates them from the competition," said Loss, speaking at the Caspian Oil & Gas Conference.

Alliances, he said, would be "one route to achieving business excellence" for both local and western service companies aiming to secure steady work in the Caspian Sea.

If they don't cooperate, many suppliers could "find it hard to compete with proactive companies and risk being pushed further down the line as changing technologies, techniques, and practices are introduced" to the international oil industry.

"Those [companies] which leave it too late in gearing themselves up to compete effectively will find themselves having to play catch up," he added.

Though BP and its E&D partners in the Caspian plan to spend $9 billion by the end of 2002 on the Azeri-Chirag-Guneshli field development phase 1 project, the Baku-Ceyhan oil export pipeline, and, when sanctioned, the upstream development of Shah Deniz, Loss admitted that the oil and gas major is spending unacceptably little with Azeri companies.

He acknowledged that the present supplier base in Azerbaijan was limited by the former Soviet state's constricted infrastructure, where there were "only a few contractors with the capability of carrying out high value service contracts." But he said that it was BP's aim to maximize its local spending in order to cut costs.

"If we fail to achieve this goal, we increase the danger of contributing more cost variables -- and any failure in a larger supply chain in the future can have major cost impacts," said Loss. "Because we are unable to acquire most of the goods we now need from local suppliers, we need to import them and this adds almost 30% to our costs."

BP is working with the recently launched Azerbaijan Enterprise Development Committee to build the local supply chain, he noted, as well as setting up a web-based supplier database with UK SCM specialist First Point Assessment Ltd. to identify local companies with the required skills, resources and standards. The oil company is also working with the Citizens Democracy Corps development agency on a "train the supplier" program, Loss said.

"BP will provide training assistance where it can," he stressed, "to those companies which show themselves keen to understand our requirements and expectations, and are willing to adapt their business to them."

Contact Darius V. Snieckus at dsnieckus@ogjonline.com