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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: 258 - (27/06/02)

The Azeris are experiencing an economic boom from their energy exports, mainly oil from the Caspian Sea fields. GDP is growing at 8.5% in 2002, after rise of 1.1% in 2000 and 9.9% in 2001. Foreign direct investment has begun to enter in substantial amounts, even if still less than in Kazakstan, the other major player in the Caspian. Some US$119m of FDI was made in Azerbaijan in 2000, rising to US$314m in 2001 and leaping to 1,307m in 2002.
A more general boom in economic activity is under way, which should provide some relief for the huge pool of unemployed and the refugees from the war with Armenia. Azerbaijan has sore need of the world's attention and should now get some, as its energy is coveted as an alternative to Gulf oil and gas. Even the Pope came to Baku in early June, being greeted by President Haidar Aliyev, although the republic is largely Islamic.

Bush backs Baku-Caspian route
The existence of a Texan oilman in the White House means that the US president is taking a keen interest in the new oil game being played out in Central Asia and the Caucasus. Bush is right behind the new idea of a pipeline via Georgia to go through Turkey from Baku, as is Vice-President Dick Cheney. Cheney, indeed, has lobbied for it for years as head of Halliburton, the huge petroleum services company. A deal was signed in Baku in early June.
The controversial pipeline has hitherto lacked the solid backing of oil majors, and international bankers wary of the commercial risks involved. Now the EBRD is to step in as the main financier.
In an address to the international conference on oil and gas in the Caspian Sea region, which opened in Baku on June 4th, Bush backed the project, the Baku-Tbilisi-Ceyhan pipeline, while also welcoming the idea of a South Caucasus gas pipeline to follow. The sooner Caspian oil and gas reach the West in quantity, the sooner it can lessen its dependence on the Middle East.
The beauty of the Baku-Ceyhan pipeline, which could take one million barrels daily, is that it could render Azerbaijan, as well potentially as Kazakstan and Turkmenistan, independent of the colonial pipelines of Russia. Hence a truly new region is being added to the world's energy map. But it is the financiers, not the politicians, who will ultimately decide on the viability of the project. 

Tight rule
Aliyev knows how to run a tight ship He has been at it for years, the former communist boss of the country. In those far-off days he ladled out the flattery for Brezhnev and other Soviet Party bosses, being a Politburo member himself. Today the Pope gets the red carpet treatment. These occasions allow him to show that at 76 he is still up to it, combating rumours of failing health.
Azerbaijan is run by a small and highly corrupt elite, indeed public office of almost any kind is regarded as a licence to extract money from those whom in any way need their services.
The succession question is still an urgent matter of speculation in the republic. Aliyev's son, Ilham, vice-head of SOCAR, the national oil company, is being groomed for the job. But whether the elite in Baku will accept him is another story. Many of them must think that it is time for another lot to get their hands in the state coffers. Aliyev and his ilk hail from Nakhichevan, the enclave between Armenia and Turkey. As provincial upstarts, his clan has made plenty of enemies. A day of reckoning could be soon coming and the Baku political clans are keenly awaiting their turn at the trough. 

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ENERGY

Azeri official says over US$5bn invested in oil industry 

"Daily oil extraction from the Ciraq-1 oil field has already reached 19,000 tonnes, which the level was not expected until 2004-2006," the Azerbaijani president's aide for economic issues, Ali Asadov, told a news conference at the headquarters of the ruling New Azerbaijan Party on 7th June, Turan News Agency has reported.
A total of 20.7m tonnes of oil and 3bn cu.m. gas have been extracted from the Ciraq oil field (part of the Azari-Ciraq-Gunasli contract block) since the end of 1997. The oil extracted has been transported to world markets via the Baku-Novorossiysk (3.7m tonnes) and Baku-Supsa (16.5m tonnes) pipelines.
Touching on the future development of the Azari-Ciraq-Gunasli oil field, Asadov said that the annual figure would reach 20m tonnes (55,000 tonnes per day) during the implementation of Phase-1, 40m tonnes (110,000 tonnes per day) during the implementation of Phase-2 and over 50m tonnes (135,000 tonnes per day) during the implementation of Phase-3.
According to Asadov, Azerbaijan's predicted reserves are 5bn tonnes of oil and 4,000-5,000bn cu.m. of gas. A total of US$5.3bn of investment has already been channelled into the oil and gas industry. Azerbaijani companies have carried out work worth US$800m within the framework of oil projects.
The presidential aide also touched on the government's plans for the export of gas from the Sah-Daniz field. He said that 2bn cu.m. of gas would be exported in 2005, 3bn cu.m. in 2006, 5bn cu.m. in 2007 and 6.6bn cu.m. every year from 2008-2021.
From the implementation of these projects Azerbaijan will need investments of US$1.5bn in 2006, US$2.2bn in 2007, US$3.4bn in 2008 and US$5.8bn in 2011.

Azeris, international financiers open talks on Baku-Ceyhan funding 

Talks between the head of the SOCAR [State Oil Company of the Azerbaijani Republic] foreign investment department, Valeh Alasgarov, and the executive director of the State Oil Fund of the Azerbaijani Republic [SOFAR], Samir Sarifov, on the one hand and representatives of international financial institutions on the other, opened in London on 10th June on the issue of financing the construction of the Baku-Tbilisi-Ceyhan main export pipeline, Trend News Agency has reported. According to a source from SOCAR, the Azerbaijani party hopes this will be the final stage in the negotiations and that the parties will agree on all aspects of financing.
According to the Baku-Ceyhan funding scheme, 70 per cent of the funds will be attracted from outside, while 30 per cent will be contributed by the project shareholders. SOFAR is ready to assume 25 per cent of the Azerbaijani party's share.

India said interested in investing in Azeri gas sector 

The Indian state gas corporation is showing an interest in investing in Azerbaijan's gas sector and purchasing Azerbaijani gas; it has already held negotiations to this effect at the SOCAR [State Oil Company of the Azerbaijani Republic] and the Fuel and Energy Ministry, Turan News Agency has reported.
The decision was taken during the first round of talks to continue bilateral meetings. In this connection, a delegation from the Indian energy ministry [Petroleum and Natural Gas Ministry] is expected to visit at the end of August and meet SOCAR and Fuel and Energy Ministry officials.

British trading company purchases July batch Azeri northern route oil 

The British trading company Taures has won the tender to acquire SOCAR's [State Oil Company of the Azerbaijani Republic] July batch of oil (135,000 t) exported via the Baku-Novorossiysk pipeline, Turan News Agency has learnt from SOCAR's foreign relations department.
Export of this oil will start at the beginning of July and it will be shipped from Novorossiysk on 25th July 2002.
The pumping of the June batch of oil (135,000 t) via the "northern" route is continuing and its shipping will start on 28th-29th June (this oil has been purchased by the Arcadia company).
In total Azerbaijan must export 2.5m tonnes of oil via the Baku-Novorossiysk route in 2002.

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FINANCIAL NEWS

Local enterprises to receive state credits

Azerbaijan's local entrepreneurs are soon to be financed with state credits, the country's Minister of Economic Development, Farhad Aliyev, was quoted as saying by ANS News Agency.
Aliyev noted that following the recent meeting with local business representatives, it was decided that credits would be given on behalf of the state by means of specially chosen banks. According to Aliyev, the maximum rate of the credit is yet to be determined, whilst the terms of the credit will also be different. This should be dependent on the business plan. It was noted that 17bn mantas will be provided and divided up to finance business ownership. The minister said that since the credits are to be allocated though the state budget, the state would control the determination of the priorities for their use. 
Aliyev added that the government is to adopt a three-year programme on the development of ownership. The programme also includes the different measures for development of the agrarian sphere and regional development. There will be some changes in the field of licences. According to speculation, the types of licensed work which stands at 170 at present, will be reduced to 40.

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FOREIGN INVESTMENT

City of London set to attract Azeri Oil Fund assets to London 

British entrepreneurs and bankers are interested in Azerbaijan, City of London Mayor, Alderman Michael Oliver, told a round table attended by Azerbaijani ministers and ministry representatives, Azerbaijani news agency, Bilik Dunyasi, has reported. The fact that experts from a number of big financial groups from the City of London and owners of enterprises have come to Azerbaijan with Oliver also testifies to this. 
The mayor said that one of the forms of business cooperation might be the creation of British-Azerbaijani joint ventures. He pointed out that assistance from City businesses in setting up huge state and private foundations and especially in organising an institute for managing funds, could play an important role in developing Azerbaijan's financial system, for example, in managing the Azerbaijani pension fund. 
Support and advice from City businesses will promote the effective use of the fund's money. In this connection, it is worth noting that during the visit negotiations were held with Samir Sarifov, executive director of the State Oil Fund of the Azerbaijani Republic [SOFAR]. 
Nick Davidson, a representative of the Asset Management organisation, which manages assets in developed and developing share and bond markets on behalf of institutional and private clients throughout the world, said that "negotiations with the Oil Fund took up most of the time during this business visit to Azerbaijan. Issues linked with managing Oil Fund assets were thrashed out during the negotiations. In this connection, we can assume that the City of London is seriously intending to attract SOFAR assets to London's financial centre." 
Sarifov's recent remarks that work was currently under way to transfer Oil Fund assets from dollars to pounds or euros make such a scenario appear even more likely. It can be assumes that London's bankers, who dislike the euro, are trying to apply a certain amount of pressure so that the government decides in favour of the pound sterling.

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