Global Linkages Unit, SME Department
April 2009
Linkages Highlights: The ACG/BTC Linkages Program IFC and BP are ensuring local small business participation in the supply chain of the ACG oil field and the BTC pipeline, BP’s massive projects in Azerbaijan, a country that has struggled economically since the breakup of the Soviet Union.
About Azerbaijan Azerbaijan is one of the world’s oldest oil exporters, and development of the country’s extensive petroleum reserves can play a central role in its economic future. But a lack of opportunity, a dearth of financing sources and gaps in business skills pose major obstacles to local economic growth. The nation has a serious pollution problem as well, the result of an over-dependency on inefficient energy sources.
The Azerbaijan SME Linkages Program Local SME wins metal fabrication contact with BP
IFC, together with BP and other partners, designed the SME Linkages Program to help local companies and entrepreneurs benefit from economic activities related to BP’s oil field and pipeline projects. These projects, formally known as the Azeri-Chirag-Deepwater Gunashli Phase 1 Oil Field and the Baku-Tbilisi-Ceyhan Pipeline, also present linkage opportunities for other countries in the region. IFC’s outreach to BP brought the company on board with the SME Linkages Program in the early stages of the investment. BP’s willing participation—including efforts to break down contracts into smaller, more manageable quantities for fledgling local businesses—has played a critical role, contributing to positive results.. Among the Linkages Program’s key components:
Employees of a small local factory produce protective wear for BP employees in Azerbaijan.
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Supply Chain Development: Increasing procurement opportunities for local businesses in Azerbaijan, through the Baku Enterprise Centre (EC). The EC links vendors and customers, and offers a range of on-line resources for local businesses.
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Access to Business Services: Developing and delivering small business courses in local languages, using a fee-based system. The Azerbaijan Bank Training Centre, co-funded by IFC, BP, and ABTC, delivers the courses. Efforts here focus on building up the local small business services sector, creating a market for such services and improving the skills of the local consultants who will provide these services.
Supplier Finance: In July 2006, the Linkages Program launched a $350,000 pilot Supplier Finance Facility (SFF) involving BP, IFC, and the Microfinance Bank of Azerbaijan, providing medium-term funding for working capital and capital expenditures to small and medium oil services suppliers to BP and its partners in Azerbaijan. In early 2007, the pilot was expanded to a $15 million investment project involving the three parties. Local companies eligible to receive SFF loans are pre-qualified by the BP-operated Enterprise Centre.
The Azerbaijan SME Linkages Program: A snapshot of results BP currently spends more than $70 million per year on procurement from local SMEs, with significant growth anticipated until 2010. ■ From 2003 to 2006, 562 SMEs received training on the contract tendering process, quality control, and health, safety and environment (HSE) standards. ■ 1606 new business contracts, worth $249 million, were awarded to local SMEs in the last four years. ■ 41 new small business management training courses have been developed in the Russian and Azeri languages, with demand for these pay-as-you-go services outpacing supply. Local training providers have raised more than $60,000 from fees, allowing them to continue to provide courses and consulting to local companies following the completion of the Linkages Project. ■ More than 1100 participants have taken courses since the program’s inception in July 2004. ■ The first local supplier obtained a $210,000 loan from the SFF in December 2006. Other suppliers are now applying for SFF loans.
Enterprise Centre Azerbaijan: A Portrait of Linkages Program Success Small business owners in Azerbaijan are connecting with the large oil companies that have set up shop to explore Azerbaijan’s deep sea oil resources, by way of an electronic “one-stop shop” resource center. The Baku Enterprise Centre, which was opened in May 2002 in Baku by BP on behalf of its partners, provides information on how to become an oil company supplier. The Centre also offers a comprehensive supplier data base to help link local firms with companies in need of a vendor. A job board lets companies know in a timely, efficient way about potential opportunities. In addition, the EC sponsors a variety of fee-based courses to enhance general economic opportunities for entrepreneurs, and to improve the chances that small local businesses will win contracts on which they bid.
BP consortium partners include: ConocoPhillips, Amerada Hess, Devon, Eni, ExxonMobil, Inpex, Itochu, LukAgip, LUKoil, NIKO, SOCAR, Statoil, TotalFinaElf, TPAO, UNOCAL in the Azerbaijan International Operating Company (AIOC), the Shah Deniz and the BakuTbilisi-Ceyhan (BTC) oil export pipeline projects.
In 2003, BP, IFC, and other partners, including GTZ, Unocal and Statoil, launched a $625,000 initiative to provide much need international, specialized expertise to local Azeri SMEs via the Enterprise Centre. The
EC has also been IFC’s key partner in developing the Supplier Finance Facility described above.With IFC’s SME co-coordinator located at the EC, IFC’s SME Linkages Program works in close partnership with the EC. One commercialization seminar aims to teach scientists how to turn scientific discoveries into viable products for sale. A three day sales and marketing session covers the range of topics, from a synopsis of marketing basics to advanced work on market research, finding the optimal product mix and creating a customer-oriented focus. “The Enterprise Centre provides information regarding BP’s business to local SMEs and informs them as to how local companies can participate,” explains BP Azerbaijan President David Woodward. “The Enterprise Centre has worked hard to provide training on safety and technical standards, ethics and business practices. We see this as the beginning and look forward to the Enterprise Centre continuing this tremendous contribution in the future.” Future plans include expanding the number of courses offered.
ACG/BTC Linkage Program Lessons Learned IFC’s SME Department linkages team has learned some valuable lessons as a result of the ongoing effort in Azerbaijan and surrounding nations. ■ Field-based implementation is critical, through an on-the-ground SME Linkage program coordinator who manages day-to-day implementation and relationship building. Contacts: ■ Early buy-in from the corporate sponsor is essential. BP’s full endorsement at the early Farzin Mirmotahari stage has allowed program priorities and objectives to be designed jointly. Program Officer Corporate Advice Dept. ■ Design of a wholesale approach through a central entity closely linked to the corporate
[email protected] sponsor has been critical to the success of the ACG/BTC SME Linkages Program. The establishment of the Enterprise Centre creates a unique platform to advance the interests of the SMEs with BP. IFC provided capacity building to the EC to build economies of scale. ■ Custom tailored components based on local needs are important. Program components could be vastly different in each country: supply chain services in Azerbaijan and technology incubators in Georgia, for example.
