In the spring of 1838, Karl Byurno visited Paris, where he had the opportunity to familiarize himself with the city, including its experience in the use of asphalt in road construction. Since he directed the construction of defensive buildings, he was naturally aware of the high cost involved in shipping Seyssel asphalt from France to Russia, and instead proposed establishing domestic asphalt production.
His memorandum was fully endorsed by Governor General Mikhail Vorontsov, who instructed junior shift foreman Kulshin, a mining civil servant, to investigate petroleum and asphalt deposits in Kerch. The results of this expedition turned out to be promising, and in August 1838, Colonel Byurno was granted 12,000 rubles to build an asphalt plant close to the petroleum sources between Yeni-Kale and the Yeni-Kale lighthouse, with property rights to it for 12 years.
The construction work was performed in a rather short period of time. At the plant, one distillation still was set up with a capacity of 50 buckets. The processing of Kerch petroleum produced equal volumes of kerosene distillate and a thick residue called maltha. An apparatus was set up on the plant grounds to crush asphalt rock—so-called grease rock— which was screened and placed, along with the maltha, into two kettles, each having a capacity of 60 buckets. Gravel was then added to the heated asphalt compound. The asphalt concrete resulting from this process was poured using manual scoops into quadrangular cast iron molds lubricated with oil. The finished asphalt concrete slabs weighed around 72 pounds.
In 1839, under the supervision of Colonel Byurno, a number of streets and sidewalks in Odessa and Kerch were successfully paved with asphalt. Use of asphalt concrete to pave the terraces and landings of the stairs leading up Mount Mithridat turned out to be a successful solution.
The road improvement work had a substantial influence on the appearance of the cities of the Black Sea coastal region, and was given high marks by Governor General Mikhail Vorontsov and the local population.
In 1843, in connection with a new appointment, Colonel of Engineers Karl Byurno transferred management of the asphalt plant to the Kerch municipal authorities and left the peninsula. In 1844, he was promoted to major general and appointed inspector of engineering forces of the Caucasus Army.
The plant he had founded operated successfully for almost another twelve years, right to the beginning of the Crimean War. In 1854, it produced around 36 tons of asphalt concrete. However, during military operations it was destroyed by British artillery. Afterwards, for a variety of reasons, no real attempts were made to restore asphalt production on the Kerch Peninsula for several decades.
Entangled in the Tax-Farming System
Meanwhile, back on the Absheron Peninsula the scale of oil production in the final years of the first half of the 19th century can be judged on the basis of a memorandum written in 1842 by the Caspian Office of State Properties of the Ministry of State Properties. It indicated that there were 136 wells on the entire Absheron Peninsula, the annual production of which was up to 27,620 barrels of oil, and more of this oil was exported to Persia than to Russia.
Subsequently, a certain growth in the number of wells also increased annual oil production, up to the level of a maximum of 36,025 barrels. With small fluctuations, this level was maintained for 10 years, and then oil production began to fall starting in 1847, and in 1849 a total of only 30,682 barrels of oil were produced.
Striving to correct the situation, the administration of the South Caucasus attempted to introduce a new method of oil production by means of drilling wells. On April 30, 1845, Fëdor Vronchenko (1780–1854), minister of finance, directed the Caspian Treasury Office to grant 1,000 rubles in silver and commissioned Major of Mining Corps of Engineers Alekseyev, who was the director of the Baku and Shirvan oil and salt fields, to perform manual exploratory drilling for petroleum in the region of Bibiheybet. This work was carried out for several years; finally, on July 14, 1848, the most illustrious Prince Mikhail Vorontsov, viceroy of the Caucasus, reported to St. Petersburg that a well containing petroleum had been drilled at Bibiheybet. However, since the flow of petroleum was small and had no industrial value, this well was soon forgotten.
Such weak production and financial results of Treasury administration of the fields on the Absheron Peninsula prompted the Russian government to return to the tried and true method of tax farming to extract income from the oil industry. On June 9, 1849, at the initiative of Minister of Finance Fëdor Vronchenko, a decree was issued by the emperor ordering the return of oil field operations to a tax-farming arrangement.
Starting on April 15, 1850, taxation of the oil fields was farmed out to three entrepreneurs—Kukudzhanov, Babanosov, and Ter-Gukasov—who jointly undertook a series of measures to increase the number of wells to 218 over the next ten years.
It is very noteworthy that, in 1851, samples of “white” and “black” Absheron oil at the disposal of Prince Mikhail Vorontsov, viceroy of the Caucasus, were sent to the Great Exhibition in London, where they found a worthy place in the Russian section of the exhibit.
Nevertheless, by the 1860s it was already readily apparent that the tax-farming system of operating Treasury oil lands was both faulty and obsolete, and its elimination was called for by the interests of both the oil industry and the Treasury, which received unrealistically low income under the tax-farming system.
Speaking about the urgency of eliminating the tax-farming system, the renowned Russian scientist Dmitry Mendeleyev (1834–1907) wrote: “The obstacles to the oil business essentially involve the operation of oil sources. The petroleum sources of the Caucasus are given to tax farmers for petroleum. There is no advantage for them, having a short-term tax-farming arrangement, to engage in major and troublesome work, to spend capital on prospecting and exploratory drilling, to dig nine wells in order that the tenth would repay all their expenses. This tenth one might come at a time when the tax-farming arrangement ends, or when its holder is no longer able to enjoy the fruits of his entrepreneurship for a long time, given the certain degree of risk that is unavoidable in the oil business. The tax-farming system paralyzes oil development, and consequently the entire oil business.”24
Pennsylvania Kerosene in Russia
The presence of the tax-farming system on Russian oil fields led to a paradoxical phenomenon: although the country had enormous hydrocarbon reserves, at the beginning of the 1860s the streets of St. Petersburg, Moscow, and other cities were illuminated by lamps that used kerosene from the US.
In 1862, the St. Petersburg City Council acknowledged that in light of the substantial financial costs, the existing alcohol and oil street lighting was unfavorable for the city, and announced a competition to install a new type of lighting.
Commercial proposals were soon received from three bidders: American citizen Laszlo Sandor, director of the Mineral Lighting Company, a merchant named Bregman, and the Noble & Co. trading house.
A commission of six members of the council was set up to perform tests. The tests began on January 10, 1863. Observation of the function of the new lamps continued until May 1 of the same year, when the city council announced the winner of the competition to be Laszlo Sandor, who incidentally had offered the lowest installation price: 34 rubles per large lamp and 29 rubles per small lamp.