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  AZERBAIJAN

REPUBLICAN REFERENCE

Area (sq.km)
86,600

Population
7,771,092

Principal ethnic
groups

Azeri 90%
Russian 2.5%
Armenian 2%
Dagestani 3.2%
other 2.3%

Capital
Baku

Currency
Azeri Manat

President
Heidar Aliyev

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Background:
Azerbaijan - a nation of Turkic Muslims - has been an independent republic since the collapse of the Soviet Union in 1991. Despite a cease-fire, in place since 1994, Azerbaijan has yet to resolve its conflict with Armenia over the Azerbaijani Nagorno-Karabakh enclave (largely Armenian populated). Azerbaijan has lost almost 20% of its territory and must support some 750,000 refugees and internally displaced persons (IDPs) as a result of the conflict. Corruption is ubiquitous and the promise of widespread wealth from Azerbaijan's undeveloped petroleum resources remains largely unfulfilled.

Update No: 255

The Azeris are among the big beneficiaries of the new post-9:11 world. Their reserves of energy are not vast like those of the Iranians or of course the Saudis, but substantial all the same. Azerbaijan has 15bn proven barrels of oil and a possible 15bn barrels. It has a proven one trillion cubic metres of natural gas and possibly two million in reserves.
The key is that Islamic fundamentalism has little chance of making it in the former Soviet republic. Communism may have been a disaster in many ways for Azerbaijan but it definitively inoculated its population against extreme Islamic doctrines, forbidding wine, women and song.
The regime in Azerbaijan is in fact far from secure with at the top an ageing and frail dictator, President Haidar Aliyev, from a remote enclave Nakhichevan. His clan, who are mightily unpopular on account of their massive and irrepressible corruption. A change of regime is a distinct possibility on his death, which everyone is awaiting, whether in trepidation or high hopes. It could still be years away for a man who gets the best medical attention, recently in the US, now a strategic ally against terrorism. But whoever comes to power, the new regime would certainly not want to compromise the excellent prospects opening up for the republic's energy industry. 
The Azeris are hoping to see movement on the longstanding dispute with Armenia. The two sides at least made 2001 "the year of dialogue on regulation of the Karabakh conflict between Azerbaijan and Armenia." 
President Aliyev visited Paris twice in 2001 where, however, the Azeris could not agree to the "Paris Principles" as a base for settlement. France is not such a good mediator as all that because it has the largest Armenian diaspora in Europe, something like one million, which is an important constituency for a French president in an election year.
The US is also disqualified from being impartial in the dispute because of its own huge Armenian diaspora; albeit that the administration is certainly keen to see Azerbaijan develop as an energy counterweight to Iran and the Persian Gulf States. But this is happening anyway. Production of oil and gas from the Caspian Sea is accelerating and Azerbaijan is an increasingly important part of the global energy equation. 
The energy boom is generating a wider boom, not before time. GDP grew by 9.9% in 2001, with agriculture rising by 11% and industrial production by 5.1%. Investment rose by 17.1%. 
The role of the energy boom in the total economy is shown by the fact that 67% of total investment is now foreign investment, 3.8 billion mantas out of 5.6 trillion mantas. Of course local currency is at a heavy discount against the dollar, while not all foreign investment is in the energy sector. But the bulk of it certainly is or is reflected in the presence of foreign officials and employees. Baku is regaining the cosmopolitan aspect it had in the pre - 1914 days when it was one of the two leading centres of the World's oil industry, the other being Texas. 
Last year President Aliyev switched the republic's linguistic alphabet to Latin in emulation of Ataturk's doing so in Turkey in 1928. All signs in Cyrillic were removed.
But the Russians remain a key influence all the same and may well hold the key to the resolution of the Karabakh dispute. Aliyev was in Moscow in January, hoping to persuade Putin to that effect. He aspires for his son, Ilham, to succeed him. The return of six of the seven provinces held by the Armenians and the return of refugees to their homes would probably clinch the matter. But the Armenians are proving intractable negotiators. A resolution of the conflict may still be years away.

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BANKING

HSBC to quit Azerbaijan


The British bank, HSBC Baku, branch stopped its operations on 7th March, the bank's management announced at a news conference. The manager of the British Bank's department for customer services, Farid Axundov, told ANS Radio that the Azerbaijani National Bank had already been informed about this.
The bank is being closed for commercial reasons, i.e. because it is not making profits in the business situation in the republic. Axundov said that over the past six years of the bank's operation in the republic, no profits had ever been made. Not expecting this situation to change in the near future, the bank's management has decided to close the bank's branch.
Local deposits of the bank's customers will be closed by 30th June, which means that customers must either transfer their deposits to other banks or withdraw their money in cash. Until that time, the bank will continue operating according to the same schedule.
So far, the bank's customers - companies and individuals - are estimated to have deposited US$60m The British bank received a license for its operation in Azerbaijan in February 1996 and started working on 15th August. Up to now, 50 people have worked for the bank. Axundov said that in addition to Azerbaijan, the British bank had three branches in CIS countries - in Moscow, Almaty and Yerevan. Their work will not stop.

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ENERGY

Italy's Saipem to replace Agip in Azerbaijan

Major changes are expected to take place at the office of Agip Azerbaijan B.V. at the end of March. Media-Press reports that another Italian company - Saipem - will replace Agip in Azerbaijan. Agip is a subunit of the Italian ENI [National Hydrocarbon Corporation] oil and gas concern. The latter had joined the sponsor group for the construction of the Baku-Tbilisi-Ceyhan main export pipeline with a five per cent share.
Agip's replacement by Saipem is linked to the closure of the only project Agip was involved in - exploration of the Kurdasi-Araz Daniz and Kirqan Daniz offshore oil fields. The company refused to drill a third exploration well in the bloc after the first two yielded commercially unviable oil reserves.
According to preliminary reports, the amount of the compensation Agip will pay SOCAR [State Oil Company of Azerbaijani Republic] for refusing to drill the last well totals US$12-15m. SOCAR said that the reserves in each of these structures had been estimated at 90-100m tonnes. The contract was signed between SOCAR -50 per cent; the Italian Agip company - 25 per cent; Mitsui of Japan - 15 per cent, the Turkish company TPAO - 5 per cent; and the Spanish company Repsol - 5 per cent.
It seems that Saipem, which replaces Agip in Azerbaijan, intends to win the contract for the construction of the main export pipeline in Azerbaijan and Georgia. However, according to international practice, the participating company cannot appear as a customer and subcontractor at the same time. For this reason, the ENI concern (which includes Saipem) joined the sponsor group and it is believed that in this case Saipem will manage to win the contract for the pipeline.

BP to resume work in Azeri section of Caspian Sea

British Petroleum, a British-US company, has began analysing the technological data gathered during the geological exploration work in the Araz-Alov-Sarq bloc in the Azerbaijani section of the Caspian Sea in the south, Ekspress News Agency has reported. 
According to a report, BP is now engaged in relevant consultations with SOCAR [State Oil Company of the Azerbaijani Republic] to plan the work to be implemented in the bloc. We should recall that according to the agreement between BP and SOCAR, the work should have started last year and the first exploration well should have been drilled.

Azeri energy firm hopes new substation to light up interior

Azerenerji [open-type joint stock company] has started the construction of a substation with a capacity of 330/110 kV in Agcabadi in central Azerbaijan, Turan News Agency was informed by the company.
Germany's Siemens will supply the necessary equipment meeting international standards, while all contractor operations are being carried out by local construction, mounting and repair organisations. Construction of the substation is scheduled to be completed within five months. The commissioning of the Agcabadi substation will enable Azerenerji to expand its capacities and ensure an uninterrupted electric energy supply to the republic's central, western and north-western districts.

Russia's LUKoil seeks share in Baku-Ceyhan pipeline

Russian oil company, LUKoils seeks a 7.5-8 per cent share in the group of sponsors of the Baku-Ceyhan MEP [Main Export Pipeline], says the general director of LUKoil Azerbaijan, Fikrat Aliyev, MPA News Agency, has reported.
According to him, the company is currently examining the feasibility study of a new route to Baku-Ceyhan pipeline. It would be premature to say conclusively that LUKoil is joining the group of sponsors, but the company does not rule that out if the project is commercially viable. Commenting on the Russian government's consent for LUKoil's participation in the project, Aliyev said "if the issue had not been resolved on a political level, LUKoil would not have taken this step."

Azeri oil reserves sufficient for Baku-Ceyhan pipeline, oilman says

"It is clear today that the transportation capacity of the Baku-Tbilisi-Ceyhan Main Oil Pipeline will not be sufficient for the volume of oil extracted from the Azari-Ciraq-Gunasli oil field," the head of the SOCAR [State Oil Company of Azerbaijani Republic] department for foreign investments, Valeh Alasgarov, has told journalists, Media-Press News Agency reported. He said that "we do not need anyone else for the main oil pipeline, because Azerbaijan's oil is totally sufficient for this project."
Alasgarov's statement could be seen as almost sensational. Many of those who criticize the construction of the Baku-Tbilisi-Ceyhan pipeline still maintain that not only Azerbaijani, but part of Kazakhstan's oil will also not be sufficient to fill the main export pipeline, which requires 1m barrels of oil per day.

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FINANCIAL NEWS

Azeri aide says US$1.2bn invested in economy in 2001

"In 2001, US$1.2bn was invested in Azerbaijan's economy, of which 1bn in the production field," Azerbaijani presidential adviser, Vahid Axundov, told a news conference, Media-Press News Agency has reported.
Starting from 1995, the amount of investments was US$7bn, of which US$2bn were internal investments. The adviser said that the flow of investments in the country's economy was explained by the efficient oil strategy of Azerbaijan, but this did not mean that proper attention had not been paid to other fields of the economy. The results of 2001 showed that the growth in the oil industry was 4 per cent, in the food industry 7.6 per cent, machine-building - 25 per cent and construction materials - 85 per cent. In general, the growth in industrial production was 5.3 per cent and in the private sector 17 per cent.
Axundov also said that production growth had been observed in the agrarian sector. In 1995, food products made up 42 per cent of imports, whereas this year this indicator was reduced to 16 per cent. At the same time, over 50 per cent of imports in 2001 were machines and equipment. The trade turnover amounted to about US$3.8bn with a positive balance of US$920m.

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FOREIGN LOANS & AID

US assistance to Azerbaijan in past 10 years US$429m 

On the occasion of the 10th anniversary of US-Azerbaijani relations, a news conference held by US envoy Ross Wilson was devoted to this anniversary, ANS TV has reported.
Reports that the USA has sent military forces to Georgia to launch military actions in the Pankisi gorge are not true, Ross Wilson, US envoy to Azerbaijan, has said. He said that Washington-Tbilisi negotiations are aimed at protecting Georgian borders, increasing the country's potential as well as struggling against terrorism. US cooperation with Georgia serves this goal. Officially Washington is set to help this country achieve stability, stabilize the situation in the Pankisi gorge and resolve other problems.
The fact that the USA is focusing its attention on uncontrolled territories in the South Caucasus creates the need to pay similar attention to another uncontrolled region - Nagornyy Karabakh. Washington, however, sees this region differently. It is too early to speak of rendering military assistance to Nagornyy Karabakh. The USA is making efforts to settle the conflict peacefully, Wilson said when asked about the possibility of anti-terrorist measures in the uncontrolled region of Nagornyy Karabakh.
Mr Wilson said that US military assistance to Azerbaijan included modernisation of the armed forces, raising military potential to a more contemporary level and bringing this military potential into line with NATO standards as well as boosting defence capability.
On 25th and 26th February three representatives of the US united command office in Europe and two Pentagon representatives paid an official visit to Baku. Wilson said that the military experts had held important meetings with their Azerbaijani colleagues. He said that the mission came to Baku to jointly assess the situation. The envoy noted that the visits had not been the last - there will be more. At the end of March, a more high-powered delegation will pay a visit to Baku, Wilson said and added that the mission would discuss a programme of military assistance to the army.
The envoy, who spoke about the 10th anniversary of diplomatic relations between the USA and Azerbaijan, presented a number of figures relevant to the field of cooperation. He said that 75 US companies were currently operating in Azerbaijan. According to a report from 2000, these companies have invested about US$30m in the country. Over the past 10 years, the USA's financial assistance to Azerbaijan amounted to US$429m. Of this sum, US$326m was rendered by the US government and US$103m by non-governmental organisations.

Azerbaijan to receive IMF tranche under PRGF programme

The executive council of the International Monetary Fund (IMF) on 20th February endorsed the allocation of another tranche to Azerbaijan under the Poverty Reduction and Growth Facility [PRGF] Programme, Turan News Agency has reported.
The three-year PRGF programme was endorsed on 6th July 2001 and so far the IMF has allocated 8.05m (US$10m) SDR [Special Drawing Rights] to Azerbaijan. The PRGF credit (worth 80.45m i.e. US$100m SDR) will be given for a period of 10 years with 0.5 per cent annual interest rate and an easy term period of 5.5 years.

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FOOD & DRINK

Foreign catering company to provide services to offshore platforms

The British-American company, Aramark, has began to provide catering services to offshore oil workers on PSA [Production Sharing Agreement] contracts operating in the Azerbaijani sector of the Caspian Sea. It is replacing an Azerbaijani private company, which was providing catering services before, Turan News Agency has reported.
Despite the presence of a rich national cuisine, national companies have been unable to master the necessary level of service. This has been confirmed to Turan by Azerbaijani specialists who had an opportunity of tasting the quality of both local and foreign catering companies' food. At the same time, almost all employees of foreign companies, with the exception of managers, are Azerbaijani citizens.
The following catering companies are successfully functioning in Azerbaijan: Aramark (provides service to Cirag-1 stationary platform and semi-submersible drilling rig Dada Qorqud and is expected to provide service to a similar rig, Istiqlal), US Catermar (provides service to jack-up rig Qurtulus) and British Abella (Azerbaijani BP offices and the head office at Villa Petrolea).

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TRANSPORT

Azeri railways transport over 6m tonnes of cargo via Silk Road in 2001

The Azerbaijani railway department transported 6.8m tonnes of transit cargo via TRACECA [Transport Corridor Europe-Caucasus-Asia] in 2001, the head of the department, Ziya Mammadov, has told journalists, Turan News Agency has reported.
Comparing this with previous years, Mammadov said that the department transported 5.6m tonnes in 2000, 3.5m tonnes in 1999 and 650,000 tonnes in 1996. The profitability of the railways department was 14.7 per cent in 2001. The department had receivables of 401bn manats [US$87m], while its debts were 360bn manats [US$78m] by the end of 2001.
The EBRD [European Bank for Reconstruction and Development] has allocated credits of US$20m and US$8m as a European Union grant for the development of the department's infrastructure. The EBRD is planning to allocate an additional US$30m this year.

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