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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: 262 - (22/10/02)

The Azeris are in an 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 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 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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ENERGY

Russian, Azeri energy firms agree to build new power line


As a result of negotiations held in Baku, the Azarenerji Azerbaijani energy joint-stock company and the Unified Energy System of Russia joint-stock company have agreed on the need to design and build a second 330-kV power line between Derbent in Dagestan and Yasma in northern Azerbaijan, Media-Press News Agency has reported.
The sides noted that the current scheme of parallel work of the Unified Energy System of the North Caucasus and the Azerbaijani energy system did not ensure the necessary reliability and stability. The construction of the second high-voltage power line will boost the reliability and stability of energy supply, increase electricity supplies from Russia to Azerbaijan and its transit to neighbouring countries in future. Under a protocol signed on the results of the talks, it was decided to prepare a feasibility study of the project within four months.

Baku-Supsa pipeline to be used after Baku-Ceyhan route put into operation

According to the Production Sharing Agreement (PSA) on Azari-Ciraq-Gunasli fields, all the oil to be produced during Phase-1 and subsequent stages of the "contract of the century" (Phase-2 and Phase-3) is to flow through the Baku-Tbilisi-Ceyhan (BTC) pipeline, said SOCAR president Natiq Aliyev, Turan News Agency has reported.
According to him, the western route Baku-Supsa, built to export early Azerbaijani oil to world markets, will not be an abandoned pipeline: if project partners find it commercially viable to sell their oil in the Black Sea market, of course the pipeline will be used. The capacity of the western route will be used to the maximum extent possible till 2005 and then markets will decide how to use it further.
Some consortia producing oil from onshore fields in Azerbaijan are already working on plans to export oil via the Baku-Supsa pipeline. In the future, such operating companies as Salyan Oil (operator is Chinese CNPC, developing Kursangi and Qarabagli fields), Karasu Operating Company (US Moncrief Oil, developing Qalamaddin and Misovdag fields) and joint venture Shirvanoil (British Whitehall, developing Kurovdag field) can export over 1m tonnes of oil a year through the western pipeline. This pipeline could also be used to export oil from the eastern coast of the Caspian.

Azeri oil major orders new test well after offshore failure

SOCAR [State Oil Company of the Azerbaijani Republic] has not accepted the outcome of the first test well drilled at the Yanan Tava offshore structure by the Japan Azerbaijan Operating Company [JAOC], which is to drill a new well there, Xosbaxt Yusifzada, SOCAR's deputy president for geological and geophysical issues, has announced, Turan News Agency has reported.
The drilling work at the JAOC contractual area was conducted by the US company, Transocean SedcoForex, using the Qurtulus jack-up drilling between October 2001 and May 2002. However, owing to geological complications, the JAOC management decided to halt the drilling at a depth of 4,700 metres as against 5,075 metres under the project.
In June this year, JAOC said that it planned to start drilling the second test well in mid-October this year. It now turns out that the Japanese companies will have to drill another test well in addition.

Azeris to export 220,000 t of oil via Baku-Novorossiysk in September 2002

The Romanian company, Rompetrol, has started shipping 85,000 t of SOCAR's [State Oil Company of the Azerbaijani Republic] oil from Novorossiysk, the foreign investment department of SOCAR has told Turan News Agency.
In all, during September SOCAR exported 220,000 t of oil through the Baku-Novorossiysk oil pipeline, of which 135,000 t have already been shipped by the international trader, Western Petroleum.
In October SOCAR is planning to pump 275,000 t of oil through the Baku-Novorossiysk oil pipeline. Of this, Glencore company will dispatch 140,000 t and 135,000 t will be transported by Trafigura company.

Turkish company takes over Azeri town's power grid

Turkey's Barmek Azerbaijan company will manage the Sumqayit [town near Baku] power grid as of 1st October. Despite the fact that the social situation of the population is not good, Barmek believes that it will manage to collect payments for electricity in Sumqayit, ANS TV has reported.
The TV Correspondent said: "Turkey's Barmek Holding Company has taken over Sumqayit power grid for 25 years as of 1st October. The company's president, Huseyin Arabul, said that the takeover document had already been signed and that work would start tomorrow. Arabul said that the payment collection rate for electricity was low in Sumqayit in August."
Arabul said: "Nine per cent was collected from the population. We reached 24 per cent in Baku, which means that we will reach about 20-25 per cent on average in Sumqayit."
Mr Arabul stated that 20bn manats [US$4m] investment would be channelled to the power grid within a year and added that this would not be possible if consumers did not pay their electricity bill. He said that only 10 per cent of the consumers had meters and that 50,000 new meters would be fixed in Sumqayit by the end of this year.
It was noted that the republic's northern districts were also covered by Sumqayit power grid.

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ENVIRONMENT

Azeri capital's mayor pledges to clean up Baku bay

The bed of the Caspian Sea is being dredged in Baku bay. Baku Mayor Hacibala Abutalibov, has said that every day, up to 1,500 tonnes of effluent are discharged into the bay from the city sewers alone, said Lider TV presenter, Konul Bilalova. The effluent and oil waste have formed heaps of ooze 12 to 15 metres high. 
Abutalibov said that the smell of sewage would disappear from Baku bay within three days. 
He continued: "All the dumps which have formed around Baku bay over dozens of years are being cleared, and a clean 12-26-metre zone is being established in the environs. The effluent is no longer being discharged and will not be discharged. I would say that after one month you will not recognize the bay. You will be able to breath fresh air here." 
Abutalibov said that the cleansing work in Baku bay would be fully supervised and promised that the clean-up and renovation operation would not stop. He said that this work would be done in the winter too. He continued: "Generally speaking, I make no difference between winter and summer seasons. Baku has to be always ready for any situation. I assure you that we are ready for any situation in Baku. We will try to make sure there are all necessary conditions for our people's leisure and entertainment."
Abutalibov also said that a draft law on Baku's status had been submitted to parliament. He did not know when the law would be adopted. 

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FOREIGN ECONOMIC RELATIONS

Azeri-Moscow economic commission signs cooperation protocol

The protocol of the fourth session of the Azerbaijani-Moscow intergovernmental commission for economic cooperation was signed during a one-day commission session in Baku on 28th September. Trend News Agency reports that it reflects cooperation between the sides in the trade and economic, scientific and technical and cultural spheres. The protocol was signed by Azerbaijani First Deputy Prime Minister, Abbas Abbasov, and Moscow Deputy Mayor, Lyudmila Shvetsova.
During the meeting, the sides discussed implementing the decisions of the previous, third, session of the commission in Baku last October, cooperation in the trade and economic, scientific and technical and cultural spheres, the development of trade relations and cooperation in the humanitarian sphere.
Opening the session, Abbasov noted the importance of expanding supplies of Azerbaijani agricultural produce to Moscow. 
Shvetsova also noted the need to expand agricultural produce supplies, especially with the onset of the season when such exotic fruits as pomegranates, persimmons and others ripen. "We attach great importance to Azerbaijani agricultural produce because their quality is higher than other produce supplied to Moscow," she said.

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FOREIGN LOANS & AID

Germany allocates 18m Euros to Azerbaijan

The Federal Republic of Germany has decided to allocate 18m Euros to Azerbaijan, including 15m Euros as privileged credits, Turan News Agency has reported.
As the Azerbaijani Economic Development Ministry's press service reports, 16m Euros have been allocated within the framework of the financial cooperation programme and will be used to establish a system of investments insurance and implement infrastructure projects. The remaining 2m Euros will be spent on the implementation of social measures in the process of privatisation and the continuation of the poverty reduction programme within the framework of the technical cooperation programme.
Up to now, Germany has provided Azerbaijan with 90.4m Euros under cooperation projects in the financial sphere, and 13.8m Euros within the framework of the technical cooperation programme. These funds were used for supporting the private sector and establishing a bank for microfinancing, implementing projects for the development of infrastructure and power system and food supplies, supporting agricultural policy, implementing legal and judicial reforms and helping the process of privatisation.

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TRANSPORT

Bridges to be built between Azerbaijan, Iran

Azerbaijan and Iran have agreed to build three bridges - a railway, road and pedestrian ones - across the Astara river, which forms part of the border between the two countries, and a railway bridge to connect Iran with the Dzhulfa district in Azerbaijan. The two nations discussed the projects in talks in Astara, Iran, Interfax News Agency quoted the Azeri Economic Development Ministry as saying.
The eight-kilometre Dzhulfa bridge would link Iran to the Baku-Astara railway. It was also planned to rebuild road bridges between Astara, Iran and Alyaty, Azerbaijan, which fail to meet modern needs. Azeri and Iranian specialists are to prepare technical documents shortly that will set the cost of the projects. Construction is to start after that. Iran will provide 85% and Azerbaijan 15% of the funds.

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