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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: 260 - (29/08/02)

The Azeris might seem to be well placed to benefit from current world developments. In one sense they are, a key Caspian Sea energy giant, able to replace in part the troubled Middle East as main supplier to the West.

The West's new partner
Certainly, that is the role which the West is allotting them. The proven reserves of eight billion barrels of oil (possible reserves of 15-30bn), plus proven reserves of one trillion cubic metres of gas (possible reserves of two trillion), put Azerbaijan in pole position to become the West's main Caspian Sea energy source, as does its westernmost location of the five littoral states of the Sea, along with Russia. The oil is already flowing via Georgia to tankers across the Black Sea.

Japan beckons
An important development in late July took place when the Japanese indicated an interest in a project to build a pipeline eastwards from Azerbaijan. Always concerned to diversify their supplies of oil, the Japanese are dusting down the Azeri option, as well as the Kazak and Russian ones.
Another possibility is to construct a pipeline via Iran to Afghanistan, Pakistan, China and further to Japan.
The First Deputy Foreign Minister of Japan, Sugiura Seiken, was in Baku recently, talking to President Haidar Aliyev. "An oil pipeline in an easterly direction can realistically be built, given the prospects for stabilisation of the situation in Afghanistan."
A business delegation accompanied the minister; it is clear that Azerbaijan is now very much in Japanese sights.

But Nagorno-Karabakh remains
The thorn in the flesh of the Azeris is the Armenian encroachment of 20% of their territory, a hangover from the war of attrition fought and lost concerning the Armenian enclave, Nagorno-Karabakh. Until this vexed issue is solved, Azerbaijan will have more than one million penurious refugees.
The new-found cooperation with the US and the West over security generally in the aftermath of 9:11 would seem to offer the right backdrop to an agreement. But President Robert Kocharian of Armenia is proving a stubborn negotiator, once a president of the enclave himself.
President Aliyev is no walkover in negotiations either. But nor is he a spring chicken at 76 years old. He needs a breakthrough soon to help ensure the succession to himself of his son Ilham, who needless to say, holds down a top job, the vice-presidency of SOCAR, the national oil firm with whom the BP-Amoco led consortium AOIR, has a deal to develop three Caspian Sea oilfields, the Azeri, Gunelshi and Chirag fields.
Ilham might not find it an easy affair without help. The Azeris are angry at the scale of corruption and nepotism under the Aliyev dynasty. The effects of the oil boom so far may look impressive on paper, GDP growing by 9-11% in the last few years, but they have had precious little impact on ordinary Azeri living standards. It has been a matter not of trickle down, but of trickle out.
The Aliyev clan and their cronies may find that they have to trickle out rather smartly too when the time comes. They do not have even the tarnished legitimacy of the Saudi royal house. No religious and monarchical principles protect them or confer on them any honour. A settling of accounts may be nigh.

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AGRICULTURE

Considerable interest in farming registered in Azerbaijan 

Since the beginning of this year, around 700 farms have been established in Azerbaijan with the support of the state committee on refugees and internally displaced persons. A total of 60,000 ha of land and around 1bn manats (US$207,040) have been allocated to the farms, Bilik Dunyasi News Agency has learnt from the committee.
Every farmer has been provided with a credit of 5m manats. The number of people interested in farming is on the increase. To date, over 15,000 applications for financial and organizational support in setting up farms have been received by the committee from refugees and displaced persons. It will take time to consider all applications. Some of them will be approved.

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ENERGY

Turkish company to manage Sumqayit power grid 

Baku's power supplier Barmek Holding Company and the Azerbaijani Economic Development Ministry signed a contract on the long-term management of Sumqayitelektriksabaka [Sumqayit Power Network] on 29th July, ANS TV has reported.
Barmek President Huseyin Arabul, has said that the contract will be endorsed soon. He continued: "We shall start our activities round about 1st October."
In his words, according to an investment programme, US$100m will be spent on the improvement of Sumqayit's electricity supply within 25 years. Arabul has noted recent progress in collecting electricity fees and over fulfilment of payments to Azarenerji [Azeri energy].
Huseyin Arabul said: "We have paid 23bn manats (US$4.8m) to Azarenerji this month, that is to say, instead of 16bn manats (US$3.2m), we paid 23bn manats.
Huseyin Arabul said that interest rates would not be applied to debts although consumers pay one third of the electricity fees.

Azerbaijan has stockpiles of oil products worth over US$33m 

Azerbaijan's oil refineries have stockpiled in their warehouses goods worth 163.6bn manats (US$33.7m) during the first six months of this year. This represents 25.3 per cent of the total amount of stockpiled goods in the country, Media-Press News Agency has reported.

Azeri gas company pleased with gas reserves in underground storage facilities

The volume of gas in underground storage facilities in Azerbaijan stands at 200m cu.m., the Azariqaz [Azeri gas] closed-type joint-stock company has told Sarq News Agency.
This figure slightly differs from the one for the previous year, which is why it is predicted that there will be no problem with the pumping of the envisaged volume of gas to the tune of 500-510m cu.m. per year to gas storage facilities. What is more, head of Azariqaz, Alixan Malikov, noted, more gas is to be pumped (more than 510-520m cu.m.) due to the putting in place of new equipment at the gas compressor station in Qazi Mahammad in central Azerbaijan.
The Azqaznaql [Azeri gas transportation] production association reported that the gas supplied to Azariqaz by SOCAR [State Oil Company of the Azerbaijani Republic] was pumped to underground storage facilities, while the gas supplied to Azerbaijan by Russia's Itera company (7m cu.m. per day) is sent to power stations.

Two companies set up to finance, build Baku-Ceyhan oil pipeline 

On 1st August, the companies participating in the Group of Sponsors of the BTC [Baku-Tbilisi-Ceyhan] main export pipeline established two companies in London: BTC Co. and BTC Investment, according to the executive director of the State Oil Fund of Azerbaijan, Samir Sarifov.
According to Turan News Agency , the signing ceremony was attended by government representatives of the BTC trasit countries: Azerbaijan, Georgia and Turkey. Attending the ceremony on behalf of Azerbaijan was the president of SOCAR [State Oil Company of the Azerbaijani Republic], Natiq Aliyev, and head of SOCAR's foreign investment department, Valeh Alasgarov.
BTC Co. will be dealing with the issues of pipeline construction and management, while BTC Investment will handle financing issues. The breakdown of shares in the two companies is as follows: BP - 34.76 per cent, SOCAR - 25 per cent, UNOCAL - 8.90 per cent, Statoil - 8.81 per cent, TPAO - 6.87 per cent, ENI - 5 per cent, TotalFinaElf - 5 per cent, Itochu Oil - 3.40 per cent and Amerada Hess - 2.36 per cent. The acquisition of TotalFinaElf's share has not been legally registered yet, but the deal is expected to be completed soon.
President of the State Oil Company of Azerbaijan will be the chairman of the board of directors of BTC Co., while BP will be the project operator.
Thirty per cent of the project cost will be financed by its participants and 70 per cent by international financial institutions and commercial banks. Talks are currently under way to that end.
The next step in implementing the project will be to register the affiliated companies of BTC Co. and BTC Investment. They will be registered in the Cayman islands, a British protectorate located in the Caribbean Sea, in the near future.
Asked why the companies are going to be registered in an offshore zone, Sarifov said that the Azerbaijan International Operating Company (AIOC) had also been registered there in 1994. Crediting organizations require that all affiliated companies be registered in that zone. Besides, the legislation of the Cayman islands in the area of managing financial resources is considered the best in the world, which, in turn, creates a good legal framework and enables "more flexibility" in exercising control over the funds being allocated for the construction, Sarifov said.
The Baku-Tbilisi-Ceyhan pipeline project is valued at US$2.95bn, the pipe will be 1,760km long and its throughput capacity - 50m t a year. The construction is expected to start in the first quarter of 2003 and be completed in the fourth quarter of 2004.

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