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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: 267 - (27/03/03)

The Azeris are in an apprehensive state like a lot of people. They do not expect oil prices to remain high after the Iraq war is over, so denting their oil boom. GDP has been growing at nearly 10% per annum, but for how much longer?

Active diplomacy
The clique in charge around President Heydar Aliyev are aware that something needs to be done of a dramatic nature if they are to survive. Advance on breaking the logjam over Nagorno- Karabakh would do the trick. But Armenia is as intransigent as ever.
Aliyev is doing his utmost to use diplomatic means to get some progress, talking to both Moscow and Washington recently. He can talk to Putin, and in Russian, as an old Politburo hand, who ruled Azerbaijan when Putin was a novice KGB operative. The Russians are the real people with leverage over the Armenians. But they are not prepared to jeopardise their relations with their closest Caucasus allies with the Chechen war in progress.
Aliyev made a trip to Washington in late February which involved a tour d'horizon with President Bush. But Bush is powerless in Armenia. In fact the US is doing harm to Azeri interests by its Iraq war. The two presidents agreed on the need for the Baku-Ceyhan oil pipeline to go ahead, but the financial viability of the project is threatened by the prospect of cheaper oil prices, putting the backing of the bankers in doubt.

Energy prospects
After 9:11 the Caspian Sea seemed to be the obvious alternative to the Persian Gulf. But we now know that 'regime change' in Iraq was the Bush Administration's goal from that moment onwards. With Iraqi oil on stream in full flow the Caspian option is less vital, although not totally unimportant. That is why Bush still meets Aliyev, a figure he can't much like.
The aim is to expand by as much as possible production of oil and gas. In the case of gas the development of the huge Shah Deniz field started in late March. It was planned that the construction of a big pipeline to take the gas to market would be begun then too. It is to go from Baku to Tbilisi to Erzurum in Turkey. The field has about one billion cubic metres of gas and about 400 million tonnes of gas condensate. Output in Phase One will be 8.1bn cu m, starting in 2006.
The gas pipeline will have a capacity for transporting 22bn cu m per annum and an ultimate top capacity of 30bn cu m. The cost of Phase One, including the construction of the pipeline, is US$3.2bn.
The project is handled by a consortium that includes SOCAR (which holds 10% stake in it), BP (25.5%), Norway's Statoil (25.5%), France's TotalFinaElf (10%), Russian-Italian venture LUKAgip (10%), Iran's OEIC (10%) and Turkey's TPAO (9%).

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ENERGY

Azeri oil boss says Kazakstan may start oil exports via Baku-Ceyhan by 2008

The Baku-Tbilisi-Ceyhan oil pipeline is expected to be completed in October-November 2004, Azerbaijan's State Oil Company President, Natiq Aliyev, told a news conference on 11th March, Prime-TASS News Agency has reported.
After the completion of the pipeline, five more months will be needed to fill it with oil, he said.
Kazakstan will be able to export its oil through the pipeline by 2008-2009, he said. He added that before the exporting could begin, a number of legal, technical and environmental issues would need to be resolved, which he did not specify.

Rolls-Royce chosen to supply equipment for Azeri oil project

On 6th March Rolls-Royce announced that it had won a tender to supply US$100m worth of equipment to develop the BP-owned Azari deposit in the Caspian Sea. Trend News Agency reports that the overall value of the Rolls-Royce equipment in the deposit has already reached US$155m, Space TV has reported. 
The company's equipment will be imported into Azerbaijan in 2003-2004.

International consortium invests US$1bn in Azeri oil project

In line with the strictly-fulfilled schedule of work, the exploitation of the Azari [offshore] deposit will start in 20 months, i.e. in autumn 2004, the deputy president of the AIOC, Neil Shaw, has told reporters, Turan News Agency has reported.
The work started 18 months ago. The international consortium has already fulfilled 51 per cent of the construction work on the project, Shaw said. "The implementation of the project in Azerbaijan is four times more successful than similar BP [operator of the project] exploitation projects in other countries of the world," Shaw said.
Until now, US$1bn out of the planned US$3.2bn have been invested in the construction work at the Central Azari deposit
Currently, over 4,000 local workers are involved in the Phase-1 and the Phase-2 (exploitation of the eastern and western Azari deposit) projects, and this number will reach 6,000 in the future.

BP to start drilling on major Azeri gas field in April

The BP Azerbaijan company plans to begin drilling three pilot holes at the offshore gas and gas condensate field Sah Daniz on the Azeri part of the Caspian Sea shelf in April, BP Azerbaijan's press service said on 11th March.
The pilot drilling is scheduled to take 18-20 months and precedes the beginning of the first stage of the Sah Daniz development, which is planned to start in the middle of next year.
This should enable gas production to start immediately after the stationary TPG-500 gas rig has been installed, allowing the company to start gas sales before the winter of 2006, said Dr Rob Kelly, president of the Sah Daniz project and vice president of BP Azerbaijan.
Apart from direct investment and state revenue, the development of the Sah Daniz [gas] field will also create numerous new jobs both during the construction and exploitation of the gas pipeline, Bilik Dunyasi News Agency has reported.
A total of 4,200 vacancies will be created for the locals during the construction of the Baku-Tbilisi-Erzurum pipeline. Another 1,300 jobs will be created during the construction of onshore and offshore facilities, BP Azerbaijan has said.
It is reported that the strategy of purchasing goods and services from local suppliers through a business centre will boost the development of local small- and medium-sized businesses. It is also noted that the Sah Daniz project also envisages training and educating courses for the local staff who will be involved in the construction and exploitation of the Baku-Tbilisi-Erzurum pipeline.

Siemens ends power substation works

German company Siemens will complete the construction of an electric power substation in Agjabedi in the near future. Azerenergy company was quoted by Media-Press as saying all preliminary construction works and secondary communications' installations have already been completed. Now Siemens specialists are to install, adjust and test the transformer. Made in Croatia it was delivered to the place of installation in December last year. It was planned to complete all construction works by the end of February. It is noted that putting this substation into operation will improve the power supply of central, west and south-west regions of Azerbaijan. 
The construction works on Agjabedi substation began in February last year within the framework of "Mingechavir energy project." All works were carried out by Siemens, which won the proper tender. The contractual works were fulfilled by local enterprises. The total estimated cost of this project is US$41.5m, the European Bank of Reconstruction and Development credit's share is US$21.6m, whilst US$12.5m was allocated by the Islamic Bank of Development. 
The project consists of three stages. The first stage is the Ingechavir Hydro electric power station reconstruction. Then a moderate rehabilitation of electricity transmission lines between "Azerbaijan" Hydroelectric power station and Imishli City will be carried out.

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ENVIRONMENT

OSCE, NATO fund environmental project in Azerbaijan

The Azerbaijani National Academy of Sciences is to start implementing a project by the OSCE and NATO for inspecting the quality of the water in the Kur and Araz Rivers, Hurriyyat reported on 4th March.
The research is to find out about the accumulation of contaminants in the rivers. A grant worth US$500,000 has been allocated for this three-year project, David Swalley, economic and environmental expert at the OSCE Baku office, has told Turan News Agency.
The research could help resolve environmental problems and could also be helpful for businesses based on the use of water. "People have to know where to establish their businesses so that they have access to pure quality water," Swalley concluded.

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FOREIGN ECONOMIC RELATIONS

Azerbaijan, Finland sign mutual investment accord

An agreement on mutual investments was signed between Azerbaijan and Finland on 26th February. Azerbaijani Minister of Economic Development, Farhad Aliyev, and the Finnish envoy, Timo Alex Lahermo, signed the document, Bilik Dunyasi News Agency has reported. 
The Finnish envoy said in his speech that businessmen from his country were interested in the development of economic and trade relations with Azerbaijan and were ready to take part in the economic projects being launched in Azerbaijan. Finnish businessmen are interested in the production and export of furniture to Azerbaijan, production of boards etc.
Aliyev said that the Ministry of Economic Development had drawn up numerous projects which would be submitted for consideration by Finnish businessmen. He also requested the envoy to invite his country's businessmen to an international investment exhibition to be held in Baku on 8th-9th May.

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TRANSPORT

Iran set to fund reconstruction of Azeri road

The deputy transport minister of Iran, Karim Farajzadeh-Halva'i, made a three-day visit to Azerbaijan, Trend News Agency has reported. 
The Iranian embassy press service has told Trend that the aim of the visit is to discuss the reconstruction of the Baku-Astara road.
Iranian and Azerbaijani specialists have already inspected the road to prepare the feasibility study of the project, for which the Iranian side intends to issue a loan.
An agreement will be signed at the highest level after the feasibility study is ready.

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