No. 3, 2004
EARLY LESSONS OF MUTUALLY BENEFICIAL COOPERATION
The Soviet oil industry and Western capital during the prewar Five-Year Plan Periods
Having embarked on the road of industrialization in the 1930's, the Soviet leadership realized that it was possible to cope with the task only through developing in every way mutually beneficial cooperation with the world's leading industrial powers.
Drawing on American know-how
Back in the early 1920s, the import of American oilfield equipment played an important part in restoring the oil industry in the USSR. In 1922, the Soviet company Azneft and the American Barnsdall Corporation signed a contract under which American well drilling and oil production equipment was supplied in exchange for Soviet crude oil.
In 1923, the United States began delivering rotary drilling rigs, deep-well pumps and other equipment to the USSR. As soon as American equipment arrived in the Soviet Union, it was carefully examined and duplicated at Soviet factories.
In 1924, the USSR began producing deep-well pumps, and even before that - rotary drilling rigs, which were identical with the American ones. Several years later, commenting on the Soviet Union's import policy, Alexander Serebrovsky, then head of Azneft, wrote: "...If all the equipment we needed we had had to buy abroad, we would have soon run out of foreign currency. If we han ordered its manufacture at the plants in the center of the Soviet Union, this equipment would have been too costly and we wouldn't have got it by our target date. Therefore, first and foremost, we put our engineering plants in Baku firmly on their feet and equipped them with machine tools ordered from the USA. We constructed two main engineering plants: one for manufacturing drilling rigs and other drilling equipment, and the other - for manufacturing deep-well pumps and nothing else. Those plants were constructed according to the American project and operated according to the American methods."
The import of foreign equipment for the Soviet oil industry continued even after the contract with the Barnsdall Corporation was broken off. In 1925-1926, the share of imported equipment in the deliveries to individual oil trusts was as follows: Azneft - 22.4%, Grozneft - 6.0%, and Embaneft - 6.3%. Altogether, in this period, the three above-mentioned trusts received imported products worth 16.9 mln. rubles. The chief supplier was still the United States.
In 1926-1929, equipment for the Soviet oil industry was ordered in the United States to the tune of over $20 mln., mostly on the basis of long-term credits.
To facilitate Soviet oil exports brought in foreign currency so badly needed by the country, it was decided in 1925 to construct two oil pipelines as quickly as possible: from Baku to Batum and from Grozny to Tuapse. It was also decided to construct large export-oriented refineries at the pipeline terminal points on the Black Sea coast. The pipelines and the industrial facilities were completed and commissioned at the start of the First Five-Year Plan period.
The Soviet Union required considerable amounts of diverse equipment, including large-diameter pipes (10 inches in diameter) for its oil pipelines. Soviet producers offered to supply such pipes at a price of 3.85 rubles per pood (one pood is equal to 16,38 kg), while some German companies asked only 2.71 rubles per pood. And so the order was placed in Germany, and the USSR received 51,000 tons of pipes for its oil pipelines - on the basis of a five-year credit.
Some other equipment needed for the oil pipelines was purchased in the United States, Great Britain and Germany, and also supplied by two Soviet trusts - Gomza and Mosmash - which had technical cooperation agreements with German companies. Equipment for the pump stations of the Baku-Batum pipeline, for instance, was delivered by Britain and Germany, but a large part of it was supplied by the Kolomna works named Borets of the Mosmash trust, which turned out products in accordance with German drawings.
Nine powerful diesel engines for the pumping stations of the Soviet pipelines were ordered from the Crossley Company in Great Britain.
Orders for welding operations and electrical equipment worth $100,000 were placed in the United States. The production of welding equipment was started in the USSR with the technical assistance of General Electric Company (USA); about 150 people from the Soviet Union were trained in welding operations in the United States.
Employed during the construction of the Baku-Batum oil pipeline in 1928-1930 were excavating machines, cranes, backfillers and pipeline pigs imported from America.
The backbone of the refining sector
Foreign-made equipment was needed not only for producing and transporting crude oil but also for refining it. Back in 1927, the Standard Oil Company of New York, one of Rockefeller's firms, built a refinery for Azneft in Batum, which produced 150,000 tons of kerosene a year. The Soviet side paid for the imported equipment with this kerosene which the Americans then sold on the Middle Eastern and even Far Eastern markets. As A. Sutton notes, capital investment in the construction of a refinery in Batum was the United States' first investment in Russia following the Bolshevik revolution. The Batum refinery, capable of refining 16 mln. tons of crude oil a year, was the first among the foreign constructed facilities of this kind in Russia. Equipment for it was supplied by Craig, a British company that gave the USSR a six-year credit. This facility, which began producing in 1928, cost the Soviet Union 10 mln. rubles. It was also in 1928 that refineries using the equipment of Germany's Heckmann, were put into operation. They were followed the next year by the refineries using the equipment supplied by Wilke and by Pintsch. All that was done with a four-year credit of DM300 mln. which was provided by the German government in 1926. Most of this credit was used to buy up-to-date equipment for the oil industry.
Particularly important during the First Five-Year Plan period was the import of equipment for refineries which were being constructed, for the most part, in the Caucasus - in Batum, Tuapse, Baku and Grozny, and which were export-oriented. Operating in 1928 in Batum were refineries which had been constructed by foreign companies: America's Standard Oil Company (USA), Britain's Craig, and Germany's Heckmann, Wilke, and Pintsch. The capacity of the last three was 1.6 mln. tons of crude oil a year.
Foreign companies also built tube stills in Batum, as well as high-vacuum cracking units for the production of high-grade lubricants. A total of 23 mln. rubles was allocated for the construction of refineries in Batum.
All of the first cracking units were imported ones. In 1928-1929, Winkler-Koch cracking units for the Batum refinery were supplied by the Jraver company (USA) on the basis of a long-term credit. The same company provided cracking units for the refineries in Tuapse (1930) and Yaroslavl (1932).
By 1930 the Tuapse refinery had two Heckmann units to process over two mln. tons of crude oil a year.
In 1927-1930, cracking units were purchased in England and installed at the Dzhaparidze Refinery in Baku. The largest refining units were supplied to Baku in 1930 by the German company Steinschneider. They had a capacity of 3.6 mln. tons of crude oil a year.
Equipment for Soviet refineries in 1928-1930 was also supplied by America's Foster-Wheeler Corporation from New York and Badger and Sons from Boston, as well as by Vickers' of Great Britain and Germany's Borman, Dobbs, and Heckmann.
An agreement on technical cooperation in constructing oil cracking units was concluded with the U.S. Winkler-Koch Corporation of Wichita.
Stalin-style public relations
Foreign creditors and potential investors had to be assured of the solvency of the Soviet Union. Future income from the development of new oil fields could help attract funds from abroad. On June 9, 1932, soon after large oil fields were discovered in Bashkiria, Joseph Stalin, the all-powerful General Secretary of the Communist Party Central Committee, wrote to Lazar Kaganovich, a prominent Soviet functionary: "Without delay, we should start a campaign in the press concerning the wonderful prospects opening up before the oil field discovered in Sterlitamak, Ukhta and Emba areas. In several issues of lzvestia we should shout about the extremely rich oil fields in those areas, stressing that in the presence of such wonderful prospects we'll have to channel most of the Grozny, Maykop and Baku crude oil into export. We should organize a number of interviews with geologists, particularly with Ivan Gubkin, Josef Kosior and Sergey Ganshin, who would make statements about unheard-of reserves of oil in the eastern regions. It is quite possible that such a campaign will compel the Anglo-American oilmen to resume negotiations and make concessions to us. As early as June 12, 1932, the leading newspaper Pravda carried an article entitled "Sterlitamak - a new oil region of world importance. Most of the petroleum products from Baku, Grozny and Maykop - for export."
On June 15,1932, in another letter to Lazar Kaganovich, Josef Stalin wrote: "About raising a hue and cry over oil, you've done quite well. By all means, add to the new sources of oil mentioned in Pravda one more - Yakutia." Five days later, on June 20, Pravda carried an editorial which informed readers about some newly-discovered oil fields in several regions of the country, including Yakutia. And on June 21, the newspaper published a long article entitled "Oil in Yakutia." In other words, top-ranking Soviet leaders were trying to raise the country's investor appeal by means of Newspeak.
In 1933, in an interview to American journalist Walter Duranty, Josef Stalin said: "We are the world's greatest market, and we are prepared to order a large amount of goods and pay for them. But we need easy credits and, moreover, we must be confident that we shall be able to repay them. We cannot have import without export, because we do not want to make orders if we are not confident that we'll be able to pay for them in time."
Afterwards, however, the USSR never received such credits as it did during the First Five-Year Plan period.
Sights on rigid economy
In 1935, speaking at the Seventh Congress of Soviets, Vyacheslav Molotov, one of the top-ranking Soviet leaders, said: "In recent years we have managed to reduce four-fold the sizable debts to foreign countries which had accumulated in the past, and now the remainder of our debts can no longer be regarded as sizable."
It became immediately obvious that the foreign currency outlays to pay for the services of foreign specialists had been cut back. In 1932-1933, the American engineers who had been working in the USSR's oil industry, left the country. Some of the specialists from Germany stayed on, having signed, as a rule, new contracts - now on the ruble basis.
Compared with early 1932, a foreign specialist's average pay in foreign currency had, by the end of 1933, decreased by more than 90%.
Nevertheless, equipment for the oil industry continued to be ordered abroad even during the Second Five-Year Plan period.
In 1933, the Neftezavody trust filed an application for the import of some instruments, including a Siemens synchroscope with a rotary pointer and a "dual frequency meter with a dial calibrated at 45-55." The application was turned down on the pretext that such instruments would be manufactured in the Soviet Union during the second quarter of 1934. Thereupon, an appropriate request was sent to the Elektropribor plant in Leningrad.
In early 1934, the Neftezavody trust filed another application for the import of 189 units of equipment worth a total of 581,000 rubles. The largest amounts requested concerned purchasing various pumps and compressors abroad. Such equipment was needed for the cracking facilities in Saratov, Khabarovsk and Orsk, as well as for the Shaumyan Plant, the industrial plant named after "the 26 Baku commissars" - heroes of the revolution, the Vladimir Works, and the Neftegaz No. 2 plant.
Since the Soviet Union lacked the equipment needed for refining the high-sulfur oil of Bashkiria, a contract was signed by Amtorg with the American Alco company for the construction of a refinery in the USSR. Initially, this facility was capable of refining 12,000 barrels of Sterlitamak oil a day, producing high-grade gasoline, motor and boiler fuel, residual asphalt, and gas. When fully completed and commissioned, the refinery was to have a processing capacity of 500,000 tons of oil a year. The contractual price of all the blueprints, materials and equipment (which had first to be brought to New York) was set at $1,175,000.
This refinery, which was constructed in Ufa, Bashkiria's capital, with the participation of the American Alco Products company, started producing already in the middle of 1937.
In 1938, a contract was signed with the American company Universal Oil Products for the construction of a facility producing aviation fuel in the town of Chernikovo, 35 kilometers from Ufa.
The Soviet Union imported both refining and recovery equipment. Thus, in 1939, the country imported high-pressure pumps.
On the whole, the Soviet leadership made effective use of the opportunities to develop the country's oil industry which were offered by international trade and cooperation. The USSR received and quickly mastered advanced technology, although it still lagged seriously behind that of the United States. The equipment imported for the Soviet oil industry played a particularly significant role during the First Five-Year Plan period; but later, too, many crucial tasks were fulfilled owing to import deliveries and international cooperation.