INSTALACION ELECTRICA Condiciones de la Instalación

Source: Iranian Oil Exploration and Producing Company (1970)

With AIOC so dominant within the Iranian economy that it was effectively a “state within a state” (Marsh 2007: 28), the main concern that Iran had during the negotiation toward completing the agreement was that they were not happy to leave their oil in the hands of a single company (AIOC). As a result, Iran had objectives to push for the consortium agreement placing Iranian oil into the hands of several participants. In the end, the consortium agreement was reached with participation from a number of European and American oil companies, precisely 16 in all. Although this may seem on the surface to have met Iran’s objectives, a closer look at the consortium participants reveals that there was very little change as 95 percent of Iranian oil was controlled by the seven majors with 40 percent being AIOC (now BP), the sole owner of the older concession (Ferrier and Bamberg 1982).

Additionally, the consortium agreement was also by no means significantly different from the agreements signed by other majors with other oil-producing countries of the world. In this, it upheld the principle of national ownership of the Iranian oil industry, but put the company’s nationalised assets under the management of a new consortium of international oil companies. The consortium would be responsible in all operations and buying output with each member company in the consortium market its own share of the oil through its own marketing system. Thus, the main advantage of the nationalization was only that it solidified the 50-50 profit-sharing principles where profits from the operations would be divided equally among members and the Iranian government (Bamberg 2000b). This eventually became the norm in concession agreements in the Middle East as mentioned (Section 4.4).

Although the nationalization and the new consortium agreement that came out of it did help Iran in gaining back some of its oil revenues that they argued had been taken by foreign oil companies, it did not help them in gaining back authority in the industry as they wished. As explained above, this is mainly due to the nature of the new consortium agreement which was by no means significantly different from the agreements of the past. In this, the detail of the consortium agreement offers its own evidence on the matter. For instance, on the rights, power and control over the concession agreement, according to the documentation of the negotiations around the consortium agreement dated April 24, 1954, it was agreed that “the government of Iran would have control over all the non-basic activities and the consortium would [again] have control over all the basic activities such as exploration and production” (BP 1954a: 3).

Further, according to the publicity document of the agreement, it was clear that the company would still maintain most of the authority in the oil operation as the Iranian government stated that “[they] have delegated to the companies the necessary powers for the duration of the agreement” (BP 1954b: 2). Thus, from this evidence, it can be said that despite the trouble of going through the process of nationalization and reaching a new consortium agreement, in the end, the Iranian government had gained very little from the dispute. So, although the NIOC (National Iranian Oil Company) was the owner of the oil industry in the south of the country, the

consortium exercising effective managerial control over operations – the ownership with the NIOC was really no more than a token gesture of the nationalization (Bamberg 2000b). Hence, the agreement contains provisions recognizing that the entire assets belong to Iran, but they also reserve the right of foreign companies to exploit them.

All in all, the consortium agreement “gave to the Iranians the shadow of what they sought, while retaining for the British the substance of what they had” (Stocking 1971: 157). To many experts, the terms of the consortium agreement have generally been seen as a defeat for Iran. Particularly, in term of its attempt to challenge the existing order in which the international oil industry was controlled by the major oil company operating a concessionary system (Sampson 1975). As argued throughout the thesis, this concessionary system which sees so much cooperation both between firms and between governments and firms therefore acts as a platform for the oil majors to gain, control, and exercise their authority leading to what we argue here to be the emergence of “private authority” (see Section 2.4.2 and 4.4). To put it simply, by conceding the principle of the nationalization without any effective national control, the consortium agreement to the oil majors still preserved the status quo. As a result, did not fundamentally alter the relationship between them and Iran or the authority that they had previously (Bamberg 2000a). Although this may be the case and it was clear that the concessionary system was very much intact, the central elements of the company changed dramatically. The transformation was mainly a shift away from the previous concentration on Iran towards a more multinational orientation with more inter-firm cooperation (Section 2.4.2).

As will be examined further in the last few sections of this chapter, the cooperation among the consortium members in their operation in Iran would ultimately lead to the construction of the institutional, legal and regulatory framework for the governance of their affairs in the Iranian oil industry. In this, scholars such as Katsikas argued that such a process would ultimately shape political and economic affairs (Katsikas 2004). For this very reason, I would argue that the cooperation among the consortium members leads to the emergence of private authority in the Iranian oil market.

4.6 Community Programme: the Operation of Moral Authority

The completion of the consortium agreement made the oil operation which was previously paralysed active again. Although the new consortium agreement meant that AIOC had in effect given up 60 per cent of its interest in Iran, they were still very much in charge with the majority of shares. As a result, AIOC was still very much in control of the operations. The company began their normal operation by establishing operating companies. Through these operating companies, the company was again able to gain authority which they previously had in the old concession. The following extract from the agreement document between the consortium and the government highlights how the Iranian government allowed the operating companies such authority:

“[the government has] agreed that the constitution and internal management, rights, powers and obligations of the operating companies shall be provided as in [the consortium agreement]” (BP 1954c: 1).

These rights, powers and obligations were first and foremost to do with the operational activities of the oil company. In this, the activities to be carried out by the oil company in the oil venture were clearly stated in article 4 of the agreement document “Functions, Rights, Powers and Obligations of Operating Companies”:

“the operating companies shall have for the term of this agreement all rights and powers to carry out, within the area and on behalf of Iran and NIOC as hereinafter in this article set for [the functions such as] to explore for; to drill for; to produce, extract and take crude oil and natural gas; to operate; to process oil; to store and distribute; to transport and deliver; to refine and process; etc.” (BP 1954d: 6).

Although most of the agreement paper concentrates on the operational side, following detailed research, it was found that to run the oil operation smoothly, the oil company had to do a lot more than just finding, processing and marketing oil. According to a report commissioned by the company entitled “Education in Iran”

under the section “Standard of Education and Public Health,” the company had to maintain and improve not only the oil industry, but also the community and the environment of where they were operating (BP 1954h). In this, the agreement document “The AIOC in Iran” highlights the non-oil activities that made a major contribution toward the overall development in the local community by stating that “the AIOC’s operations in Iran also include providing schools, training, housing, medical and other services” (BP 1951a: 1). Thus, in relation to the responsibility to successfully develop the Iranian oil industry, the activities carried out by the company at the time can be categorized in two main ways. Firstly, on the part of the oil industry where the weak infrastructure and the problem of corruption in the government meant that the oil company’s presence was seen to be vital to the stability of the oil industry (Longrigg 1954). Secondly, on the part of the community where the oil company’s ability to generate wealth and development through their financial resources and expertise was seen to be crucial to the oil operation (see Section 2.4.1).

Considering the fact that public/private relationships play a vital factor in the success of the operation, the activities mentioned can be seen as part of the strategy employed by the company to try to establish a positive relationship with Iran and its communities. Through such relationships with the community, I would argue, the company could improve its position in gaining private authority which would help them to operate more smoothly. Here, Cutler et al. mention that “authority need not be accorded exclusively to public actors” (Cutler et al. 1999: 4). Biersteker and Hall draw further on this point by saying that “as long as there is consent and social recognition, [private actors] can be accorded the rights, the legitimacy, and the responsibilities of an authority” (Biesteker and Hall 2002: 8) (Section 2.3.2 and 2.5.1).

As suggested by Ole Sending and Iver Neuman (2006: 653), the increasing role of these non-state actors in the public process which involves public/private interaction would result in the “diffusion or decentralization of political authority that is traditionally exercised by the state actor”. This effectively gives these non-state actors more power and authority in the overall processes and networks of governance. Thus, it is not surprising to find that many manifestos, drafts,

documents and memos contain company statements indicating the aim to strengthen their role in the public process, particularly in their relationships with the state. In this, the company’s policy at the time encompasses “many commercial, technical, political and community relationship [projects]” (BP 1997a: 7). The report of the company in 1954 even stated that “mapping and improving relationships with government and communities is given highest priority at group level” (BP 1954b: 2). Such an aim to map and improve their relationships with government and communities can also be seen in the company’s policy to provide many public services including works concerned with public welfare.

From interviews with archive staff at the BP Archive Centre (BP, personal communication, 2008), it was explained that although there was no published or official social report in the 1950s similar to those produced by oil companies today, there was certainly clear evidence that the company indeed carried out many social projects and programmes, some of which include building schools and hospitals. For instance, the main mission statement of 1954 showed that following the signing of the consortium agreement, the company first began working with the community to improve many facilities and services in the local area (BP 1954e). In carrying out these social development activities, a report entitled “Statement for the Press” further highlights the importance of public/private relationships in the company’s operations. In this, the company tried to encourage positive relationships between all sides and pleaded for support from the Iranian government and general public in the following statement:

“[The company] believes that the oil industry [of Iran] will continue to advance in great stride during the next decade… [The agreement] interests the whole national and demands the support and help of every section of public. We are [also] working closely with the understanding and the support of the government of Iran” (ibid.: 3).

As it turned out, this support was particularly important to the overall success of the company’s operations in Iran. For this very reason, it is hardly a surprise to find that the company of today tends to focus heavily on their social performance. This is reflected in many of their reports, memos, statements etc. during the past few

decades. For example, the social statement of 1997 highlights the understanding of the issue by stating: “[the company] recognizes that the social performance defined as the way they behave, the impact of their operations on people and overall contribution to society” (BP 1997a). Interviews with archive staff further revealed that the development programme that AIOC carried out during the 1950s concession included a strategy to provide public services (BP, personal communication, 2008). In this, one of the documents published by the company “The AIOC in Iran – Growth and Composition of its Workforce” at the time clearly stated the fact that many of practices and activities of the company were not only oil-related, but also involved public services which saw the company working “to provide schools, training, housing, medical and other services” (BP 1951a: 1).

Although the discussion above has suggested that most of the social development projects were carried out in the 1950s during the implementation period of the consortium agreement, other historical evidence has suggested otherwise. In fact, the evidence has highlighted AIOC stepping into social development projects as part of relationship building programmes with the local community much earlier than suspected. For example, according to documentation recording education progress in Iran entitled “Confidential Letter Book,” in 1923 the company was involved in the Iranian educational system for the first time when they opened a primary school at Abadan, and took over and reorganized one at Ahwaz (BP 1924). They developed a fruitful relationship with Stuart College at Isfahan by providing teachers and equipment to educate Iranian boys in English.

Moreover, the company also gave away scholarships for many local boys, providing their parents agreed they would return to work with the company on completion of their studies. By the early 1930s, there were five schools at company centres including primary schools at Abadan, a primary and a middle school at Ahwaz, and two primary schools at Fields (BP 1951b). These schools were not only important to the company as the way to educate their staff, but I would argue that it is also vital to the development of the community as a whole.

The clear involvement that the oil company had in the Iranian education in this case I would argue has allowed the company the power and authority to influence the

structure of the educational system in Iran. Also, through social interactions that come about from various social development projects mentioned in this section, the company has taken increasingly influential role both in the development and maintenance of the community. According to Papadakis and Taylor-Gooby (1987: 71), this kind of influential role would affects both social and political progressions. Thus, the company’s position in the community and the Iranian educational system under discussions here represents the growing importance of the role of private actors in setting and maintaining standards and regulations in the public system (see Section 2.5.2). Captured by Iranian Oil Operating Companies in the 1950s, the following two figures show the classroom environments at Abadan Primary School (Figure 4.2) and Abadan Institute of Technology (Figure 4.3):

Figure 4.2: Pupils in one of Abadan’s Primary Schools

Figure 4.3: Students at Abadan Institute of Technology

Source: Iranian Oil Exploration and Producing Company (1956: 23)

Following the examination of their past establishment in the community, it then becomes much easier to understand why the company was so effective in carrying out new social relations projects straight after the completion of the new consortium agreement. For instance, at the company’s centre in Iran, the company was able to set up a number of brand new facilities for various training schemes which provided further support to the Iranian educational system. Although these activities do feature in the agreed terms that came with the new consortium agreement, the company’s policy to focus on such activities when they did not have to is considered here to be a well executed move by the company from the very beginning. Thus, considering the view of Biersteker and Hall on the concept of “private authority”, as presented in Chapter 2 (Section 2.5.3), I would argue that the company through their actions do create private authority in the form of “moral authority”. Representing activities of a progressive social agenda, such a form of authority in this case involves the company carrying out tasks traditionally done by state actors.

Therefore, with the company playing a more active role in public services as discussed through the analysis of this chapter, I concur with Stephen Kobrin’s view

in pointing out that “states are no longer the sole source of political authority [and that] private political authorities emerged and coexist with public authorities in an complex, interwoven, and ambiguous relationship” (Kobrin 2002: 67).

4.7 Functions, Rights and Powers: the Implementation of Epistemic Authority

Along with the social activities that the oil company carried out as mentioned throughout the section above, close examination focusing on “functions, rights and powers” as stated in the concession documents help reveal other forms of authority exercised by the company (BP 1954d: 1). This I would argue gives us a better understanding of how and where private authority emerges. This section highlights the authority which emerges from the public/private relationship in terms of demand and supply where there is an interaction of mutual interests (Lane 1985).

Concentrating on the analysis of the company’s activities involved with its functions in different operations, the negotiation paper which refers to the position of the Iranian government and the AIOC in the agreement (BP 1953, 1954f) is tremendously useful here. It can further reveal how the company’s ability to provide the necessary skills and knowledge has in turn highlighted the emergence of “private authority” through the process of gaining the concession (Section 2.5.3). The following statements extracted from the negotiation document article 37 “All Powers” indicates how one’s skill and knowledge can be used as a platform in the process of gaining the concession:

“whereas, both the government of Iran and the National Iranian Oil Company desire to increase the production and sales of Iranian oil, and thereby to increase the benefits flowing to the Iranian nation from said oil, but additional capital, experienced management, and technical skills are required in order to produce, refine, areas part and market such oil in quantities sufficient to effect this increase in a substantial amount; and whereas the international oil companies to this agreement are in a position and are willing to supply such capital, management and skills” (BP 1954f: 43).

According to Timothy Sinclair, this form of private authority which he labelled “epistemic authority” represents the capability of non-state actors to substitute or improve functions that are traditionally carried out by the state. He explains that “epistemic authority” relates to the ability to solve problems and to provide knowledge (Sinclair 1999). In this case for instance, the examination shows that the company was able to provide expertise and resources to carry out services ranging from exploration, production, transportation, refining to distribution of oil and gas. As revealed in the discussion in the earlier section, the company also uses such