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Area (


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


Azeri Manat

Heidar Aliyev


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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: 263 - (26/11/02)

The West beckons
The Azeris are closely involved with NATO and have been so for eight years. The result has been a bonding experience in NATO's Partnership for Peace. President Haidar Aliyev said in a meeting with NATO's Supreme Commander in Europe, Joseph Ralston: "Azerbaijan intends to expand cooperation with NATO."
Aliyev is a remarkably pro-Western leader for a man who was once the communist president of the nation and a member of the Politburo. He knows which way the wind is blowing. He was, indeed, one of those present at a meeting between the Azeri leadership and a British journalist in 1986. After the Azeris expressed great admiration for Margaret Thatcher, the journalist replied: "You know she is not a communist?" to which they intoned in unison: "neither are we."

The economy booms
The Azeris are in a mildly improving situation on the economic front, even if there is considerable poverty, especially among refugees from the 20% of Azeri territory occupied by the Armenians. The boost is coming from the energy sector, always in any country a somewhat doubtful saviour, leading to distortions and lop-sided development, at least in the Third World, to which Azerbaijan now effectively belongs.

Boom in GDP and in investment
Still, some people are likely to benefit, even if there is far more of ' trickle-out' about the itinerary of Azeri oil riches than 'trickle-down.'
The GDP is due to grow by 10% in 2003, with inflation only rising by 2.5%, the Economic Development Minister Farkhad Aliyev said in September. This would be after expected growth of 8.5% in 2002, with industrial production rising by 7.9%.
The driving force has been investment, mostly foreign at that, and concentrated in the energy sector. There has been US$11.28bn investment in the last ten years since independence, of which US$7.9bn, or 70%, was FDI. Most of this latter was in Caspian Sea oil developments, with the AIOC consortium, led by BP-Amoco, to the fore.

US now the main partner
The oil boom is seeing the US, and to a lesser extent the UK, playing a vital role. US Energy Secretary Spencer Abraham was in Baku in September, conferring with President Heydar Aliyev. Washington accords great importance, Abraham said, to the development of energy projects in the Caucasus.
The Bush Administration is backing the long-mooted Baku-Tbilisi-Ceyhan pipeline, whose financial viability has been in doubt. The outcome of the crisis in Iraq will be obviously crucial here.
At the moment oil prices of over US$30 per barrel make the pipeline look feasible. But how long will they last?
The security of the pipeline, especially from Kurdish insurgents in Turkey, is an issue, which US intervention in Iraq, if it creates a new Kurdish entity there, might help to resolve. The branding of Iran as an 'axis of evil' state also helps the prospects of the pipeline in so far as it removes the alternative of an Iranian route for Caspian oil for at least the while.
But the hard-headed bankers have to answer to their shareholders and still look askance at the project of a pipeline through remote mountainous areas of Turkey, whose cost over-runs could prove daunting.

IMF at hand
US approval brings IMF endorsement more or less automatically. The IMF is extending a US$100m loan facility for the next three years, of which US$16m has already been disbursed. But it is insisting on compliance with conditions, the lowering of customs tariffs, further privatisation, the extension of the market economy, etc. One condition that Azerbaijan is baulking at is a raising of oil prices, which are kept low for domestic reasons.
The budget is only going to be one per cent in deficit in the coming period, while taxes are rising as the boom commences. Financially the administration is sound, insists the Finance Minister, Avaz Alekperov.

Russia still counts
President Aliyev visited Moscow recently and maintains a good working relationship with Putin. The Russians have agreed to a division of the Caspian Sea along lines laid down in Soviet times. Basically, Azerbaijan's borders remain unchanged. 
Aliyev pledged Baku's full support for Moscow in the anti-terrorist campaign. But its really important ally here is the US. Azerbaijan is moving out of the orbit of Russia.

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Renault gearing up for assembly plant in Baku

The government of France plans to provide a loan of US$10m to Azerbaijan under a project to set up assembly of Renault trucks at the Ganca automobile plant, Interfax News Agency reported quoting the Economic Development Minister, Farhad Aliyev.
"The French government wants to grant this credit under government guarantees," Farhad Aliyev said. "The provision of the guarantees became possible after Azerbaijani President Heidar Aliyev issued a decree allocating US$10m in governing funding to rehabilitate the plant," he explained.
The Economic Development Ministry is also considering putting the plant under the long-term management of Renault, which plans to raise financing from French banks at soft interest rates, the minister said. "The decrees of Azerbaijan's president the French government's decision and putting the plant under long-term management are elements of one project. If the plant is put under management it will remain a government property, and therefore the loan will be provided to the state under government guarantees," a source at the ministry disclosed.

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AMMB opens doors in Baku

The Azerbaijan Micro-Financing Bank (AMMB) has already been put under operational activities in Baku, New Europe reported. The authorised capital of the bank is US$5m. The bank has the following founders: the International Financial Corporation (35 per cent), the Black Sea Bank for Development and Trade (35 per cent), the European Bank for Reconstruction and Development (25 per cent), and LFS Financial Systems (5 per cent). According to statements made by the bank's officials German KfW Development Bank intends to become the fifth founder of AMMB in the coming year. The bank will issue credits not exceeding US$10,000 under monthly three per cent interest rates for up to a six-month period.

Nikoil Investing Commercial bank opens doors in Baku

Nikoil Investing Commercial Bank started its activity in Baku recently. The regulation capital of the bank has been set to US$5m, with the compensated capital at US$2.6m. Forty per cent of the bank's shares belong to the Russian oil group LUKoil, and the majority of sixty per cent belong to Nikoil Finance Corporation. Milli Bank chief, Elman Rustemov, said that such a launch would strengthen fruitful competition in the country's banking sphere. 
LUKoil chief, Vahid Alakbarov, for his part, noted that although previous activities of Russian banks were unsuccessful and forced to shut down after the 1998 crisis, Nikoil bank would change the situation. The main services of the bank will be money notification. In addition the financing operator will soon offer its credit assistance to almost all spheres in the market including, communications, transport and medicine as well as small and middle-sized entrepreneurs.

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EBRD fails to pull out of energy project

Newly appointed head of the European Bank for Reconstruction and Development (EBRD) Yerevan office, Nikolay Hajinski, recently stated that the bank may revise its earlier decision to cancel a deal with the Armenian government, whereby it was supposed to take hold of 19.9% of shares in the United Armenian Electricity Company, a merger of four energy distributing companies, which was privatised recently by an offshore Midland Resources Holdings company. "We are not pulling out of the energy distributing networks' privatisation process. The bank's decision to cancel the deal was prompted by the lack of information about the new owner's experience in running energy networks. We would like to have certain facts which will prove that the new owner will succeed in it," Hajinski was quoted by the government press office as saying during a meeting with Armenian Prime Minister, Andranik Margarian, cited by Armenpress. 
The premier, however, said that under the take-over terms the Midland Resources Holding will hand the networks running over to a skilled company with a protracted record of handling similar enterprises. New possible directions of cooperation between the Bank and Armenian government were also discussed. Hajinski was quoted as saying that the EBRD decision to pull out of the privatisation process would in no way affect its financial allocations to the country.

About 10 per cent of Azeri oil major to be privatised in future

The Azerbaijani government is planning to reconstruct SOCAR [State Oil Company of the Azerbaijani Republic] next year, Turan News Agency has reported. It is planned that a number of structures, which have no direct connection with oil development, will be separated from SOCAR and privatised. Some 5-10 per cent of its shares will probably be sold, the head of the economic policy department of the Presidential Executive Staff, Mail Rahimov, said.
A number of educational and health enterprises are also expected to be privatised next year.

Azeri oil boss says no problems with major gas export project

As a matter of principle, a clear-cut decision has been adopted on the extraction of natural gas from the Sah Daniz field, the first vice-president of the State Oil Company of the Azerbaijani Republic (SOCAR), Ilham Aliyev, has told Trend News Agency in an exclusive interview. 
The decision was adopted at a special sitting on 4th November chaired by the Azerbaijani president Heydar Aliyev, which discussed problems with the implementation of the project of the development of the Sah Daniz natural gas field and the South Caucasus pipeline. Aliyev said that there were no problems in connection with the implementation of the Sah Daniz project and that this would be stated in the near future. 
Commenting on the possible sale of Russian LUKoil's shares in the Sah Daniz project, Ilham Aliyev said that this was a normal process and had already been observed in Azerbaijan, particularly in the project of the development of the Azari-Ciraq-Gunasli fields. However, SOCAR has not received an official notification from LUKoil about the sale of its shares in the Sah Daniz project. LUKoil President Vagit Alekperov visited Baku on 11th November. The EBRD [European Bank for Reconstruction and Development] has not officially stated its intention to purchase shares in the Sah Daniz project, Aliyev said.
Commenting on the rise of the project cost, Aliyev said that the project operator BP explained this with the need to build a new platform, pipelines and other facilities. "In any case, this rise might have reasons, and BP is not interested in having the project cost increased. It is too expensive anyway," Aliyev said. "It will take us at least two years to closely study the technical characteristics of the new concept for the launch of industrial extraction from the Sah Daniz field and to clarify the reasons for the increased cost," he added.
The first vice-president of SOCAR also ruled out problems with the Turkish side regarding Azerbaijan's plans for gas delivery. "They assure us that they will purchase gas in the volumes envisaged in the signed contract," he said.

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Iran to allocate US$40m for road reconstruction in Azerbaijan 

The Export Guarantee Fund of Iran has agreed to allocate a US$40m credit to Azerbaijan for the reconstruction of Astara-Baku highway. This credit is about 85 per cent of the cost, Turan News Agency has reported. 
The Azerbaijani government will finance the remaining 15 per cent. The Iranian cooperatives minister and co-chairman of Azerbaijani-Iranian intergovernmental commission, Ali Sufi, said at a meeting with the chairman of the Azerbaijani State Customs Committee, Kamaladdin Heydarov.

Azeri leader endorses US$9.5m World Bank loan for institution-building

Azerbaijani President Heydar Aliyev has endorsed the credit agreement between the Azerbaijani government and the International Development Association (member of the World Bank group) on allocating US$9.45m to Azerbaijan for the implementation of the second Institution Building Technical Assistance Project (IBTA-2), Turan News Agency has reported.
The loan is allocated with 0.75 per cent annual interest for 35 years, with a 10-year grace period. The total cost of the project is US$13.5m, of which US$4m have been allocated by the Azerbaijani and US governments. The project is to be implemented within three years. The project includes the automation of treasury transactions (US$2.85m), assistance in the implementation of the law "On state purchasing" (US$75,000), assistance in the modernization of the Audit Chamber (US$800,000), the monitoring of expenses on poverty reduction (US$400,000), drafting a state investment programme (US$300,000), ensuring transparency and financial discipline in the public utilities sector (US$1.1m), improving the business climate (US$1.17m), payments for the services of consultants on the privatisation of water and gas supply entities (US$800,000) and other projects.

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