In November 1801, the Russian Emperor most graciously allowed Count Musin-Pushkin to set out, at his request, as a traveler to the Caucasus Mountains to prospect for ore deposits. The results of this expedition were used to compile the first mineralogical descriptions of the Caucasus and South Caucasus, which laid the foundation for widespread development of this land’s natural resources.
In the fall of 1802, Emperor Alexander I issued a decree abolishing the boards founded under Peter, creating ministries in their place. Thus, a transition of the mining industry began from collegial administration to undivided administration.
In 1807, the Mining Board was replaced by the Mining Department, which at first was an organizational unit of the Ministry of Commerce. The first director of the Mining Department was Ural region native Gavriil Kachka (1740–1812). Under his authority, the Mining Department directed the Treasury’s plants and mines through district-level governing bodies, controlled the activity of existing private mining and metallurgical enterprises, allocated land sites to new ones, and granted permission to carry out prospecting for mineral resources. At first, the department consisted of two subdivisions: the Mining Council, for preparation of legislation concerning the industry, and the Mining Expedition, whose authority included executive functions. The head of the Mining Expedition had extensive powers, while the Mining Council was a consultative body under the director of the department.
Government reform involved reexamination of the legal framework of mining. In 1804, the head of the Perm Works, Andrey Deryabin (1770–1820), delivered a report to the government in which he proposed to introduce hired labor in mining industry enterprises, restore the freedom of the mining industry, carry out a technical reconstruction of enterprises, and improve working conditions. This report was considered by a special commission chaired by Count Aleksey Vasilyev (1742–1807), minister of finance. A decision was made to write a new mining statute, and although not all of Deryabin’s proposals were incorporated into the statute, this document, which was approved in 1806, became one of the most progressive regulations of the time in Russia. For example, it provided for the replacement of serfs with paid workers for auxiliary plant work. The statute also confirmed freedom of mining for treasury lands, and devoted attention to standardizing the working day of laborers and modernizing mining equipment.
In 1810, the Mining Department was incorporated into the Ministry of Finances and renamed the Department of Mining and Salt Works. An experienced specialist, Chief Mining Captain Andrey Deryabin, was appointed as its director.
Further significant changes were afoot for the Russian mining industry, in particular, the return of the Absheron Peninsula to Russia. The signing of the Treaty of Gulistan between Russia and Persia (1813) ended the Russo-Persian War of 1803–1813, and the agreement returned the territory of the Baku Khanate to the Russian Empire.
At that time, there were 116 hand-dug wells on the Absheron Peninsula producing “black” oil and one producing “white” oil. The total annual production was about 18,000 barrels. The means of oil production at that time were very primitive, with the local population drawing oil from open pits and shallow wells.
It should be noted that by this time a Russian military garrison had already been located in Baku for several years, and the oil fields were leased out to various people to be operated under a tax-farming arrangement. Here again, private initiative at the outset of development resulted in positive results. Evidence of this is provided by a report issued July 30, 1813, by General Nikolay Rtishchev, commander-in-chief of Russian forces in the Caucasus, to St. Petersburg: “Under the tax-farming arrangement for four years, this item, along with others that are very unimportant, at first brought a net sum of 450,000 rubles in banknotes, without any concerns or expenses on the part of the Treasury.... The Treasury income for this production can be considered certain only when an item rich in resources is under a tax-farming arrangement with honest persons.... But if these institutions are directly managed by the Treasury, then besides the necessity of establishing a special staff of civil servants for this and provide their salaries, workers and travel expenses must be supported. Everything will require significant expenses for the Treasury.”21
According to archival sources, in 1813 the Russian government leased out the Baku oil wells under a tax-farming arrangement to Mark Tarumov, province secretary. A second agreement to turn the oil wells over to him from January 1, 1817 through January 1, 1821 was concluded in the summer of 1816.
General Anikita Yartsev (1737–1819), former head of the Ural mining plants, described the Baku fields in his manuscript, History of Russian Mining [Rossiyskaya gornaya istoriya] (1819): “Around Baku there is an unbelievable quantity of mineral oil or petroleum, for 12 versts [7.9 miles] from Baku several villages of the Balakhany neighborhood have 25 open hand-dug oil wells, although the oil springs often do dry up, which necessitates the digging of new wells; however, even the old ones are not quickly refilled, but are carefully left open for a certain time, since sometimes after several months the oil springs usually reappear in them.... The excess is transported to the city of Baku; although there are no special reserve storage depots there, outside the city 15 hand-dug wells have been set up and dug out into the hardest gypsum rock, and lined with stone. The reserve oil is poured into these wells, and kept until it is removed by sellers.”
After the term of the agreement ended, a new tax-farming contract was signed with Tarumov on January 12, 1821 for the following four years, under the previous conditions, for an annual payment of 131,000 rubles. The agreement solidified Tarumov’s right to a monopoly on the sale of this oiclass="underline" “And if anyone should be discovered, then for a first offense, such a secret seller shall be forced to pay the Treasury 1,000 rubles in banknotes, and the entire quantity of oil shall be confiscated and given to the tax farmer, as property belonging to him. For a second and third secret sale of oil, in addition to such fines to the Treasury and the tax farmer, the secret seller shall be turned over to be dealt with according to the laws.” In addition, the agreement provided the tax farmer with generous resources and rights, including “the work force to dig and repair wells, remove oil from them and transport it to reservoirs, and also the right to prospect for new sources of petroleum on the peninsula.” There is also a very interesting point in the agreement that allowed Tarumov to engage in oil trading with Persia, without paying customs duty.
Despite such favorable conditions, however, his subsequent activity was apparently not profitable, and after his agreement expired not a single person could be found who was interested in or willing to take over the wells for a new term. Therefore, as there was no one who desired to run these fields for the next four years for the amount of the previous tax-farming arrangement, Count Yegor Kankrin (1774–1845), minister of finance, issued a directive placing them under the administration of the Treasury starting January 1, 1825. In connection with this, the minister of finance issued an order creating two special posts: superintendent of oil fields and salt lakes located in Baku province, and an assistant from the ranks of mining civil servants.