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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: 264 - (01/01/03)

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 a KGB General, 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 'pour-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 like its Clinton predecessor, 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 that 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 needed to pay for the project have to answer to their shareholders and many look askance at the project of a pipeline through remote mountainous areas of Turkey, whose cost over-runs could prove daunting, quite apart from all the other problems.

EBRD to the rescue 
The Azeri government is pleased that the EBRD has come out firmly in favour of financing part of the Baku-Tbilisi-Ceyhan oil pipeline project, which is of great importance to its Caspian Sea oil boom. The EBD is talking of a US$300m contribution, US$150m from itself and another US$150m form other financial sources.
The EBRD's participation is important in that it could give it a decisive imprimatur for the entire investment community, creating political stability around the project.
But nothing is likely to be put up-front on the project, about which considerable misgivings are held, until events in the Middle East unfold, now eagerly awaited. If the US topples the Iraqi regime from the south without much Turkish help, and the Turks start meddling in Northern Iraq's Kurdish provinces, then Washington may begin to back off from the idea, pre-occupied with the prospects of a newly-constituted Iraq.
If Turkey plays a crucial role in toppling Saddam, then the US may find it difficult not to reward it with the pipeline, on which many a Turkish politician's fortune depends.
The EBRD is also being asked to consider the Shah Deniz gas export project from the Caspian Sea.

Stock trading systems renovated 
Baku and Tbilisi are not just cooperating in energy pipelines, from which Azerbaijan would benefit in oil and gas revenues and Georgia in transit fees but also in working out the kinks in their stock-trading systems.
Georgia established its stock market in 1999 and Azerbaijan one year later. Georgia leads the way heavily in numbers over Azerbaijan, listing 282 joint-stock enterprises on the Georgian Stock Exchange compared with 50 on the Baku Stock Exchange. Azerbaijan has only 14 brokerage companies. The Azeris have a lot of catching up to do.
The Azeri firms listed on the BSE are larger, however, on average than those of the GSE, reflecting the big companies involved in servicing the oil boom, whose main players are the multinationals.
One promising sign for the economy is that the giant foreign firms are beginning to source inputs locally. BP, for instance, has ordered key quality goods from Baku Steel on a permanent contract basis. BP Amoco is the flagship of the huge AOIC consortium in the Caspian Sea fields.

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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AGRICULTURE

Azeri cotton yields improve in 2002


The average cotton harvest per hectare stands at 1,310 kg in Azerbaijan. This is 310 kg more than last year, Bizim Asr reports quoting the Agriculture Ministry's main department for plant-growing.
As of the end of November, farmers had handed over 80,000 t of harvested cotton to the mills. Despite 61,040 hectares of land (22 hectares less than in 2001) being available to farmers for cotton-growing, figures show that the overall output will be more than in 2001.
This became possible due to close relations between the cotton mills and farmers and government measures guaranteeing immediate payment for cotton.
Cotton-growers in Goranboy District have recorded the best results. They harvested 2,470 kg per hectare. [Central Azerbaijani] Agcabadi, Tartar and Zardab Districts harvested 1,940 kg, 1,900 and 1,660 kg respectively per hectare.

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CONSTRUCTION

Turkish firms interested in building Azeri Caspian ports 

Turkish companies are interested in the implementation of the project for the expansion and modernization of the Baku International Trade Port (BITP) and the construction of two ports in Baku and Sumqayit, the chairman of the board of the Piri Reis Shipping Company, Erol Dizdar, said in a meeting with Azerbaijani Economic Development Minister, Farhad Aliyev, Turan News Agency has reported.
In turn, Farhad Aliyev voiced his support for the notion to construct ports in Baku and Sumqayit. The minister said that the growing flow of cargo through the Eurasian corridor necessitated the construction of new ports and that local companies should be involved in the construction of the ports.
The sides also discussed the establishment of a free customs zone for transit cargo at the BITP and the prospects for Turkish companies to serve the port.

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ENERGY

US company to provide uninterrupted power supply for Baku-Ceyhan

Northern Power Systems and BP, the operator of the Azeri-Ciraq-Gunasli oil fields, have signed a multi-million dollar contract, MPA News Agency has reported. Northern Power Systems is to install its TeleCycle and GridTie power systems to ensure uninterrupted power supply for the Azerbaijani and Georgian sectors of the Baku-Tbilisi-Ceyhan pipeline, which stretches for 690 km.

Baku-Tbilisi-Ceyhan pipeline project gains EBRD financing

The management of the European Bank for Reconstruction and Development (EBRD) has decided to allocate US$300m for the financing of the Baku-Tbilisi-Ceyhan main export pipeline, Norbert Radermacher, chief executive of the German office of the EBRD, told a news conference.
Norbert has said that the amount of the subsidy for the Baku-Tbilisi-Ceyhan pipeline is still under review and that the bank itself would allocate US$150m with the intention to attract another US$150m from other institutions. The BBC has reported that Radermacher believes that the bank's participation could create political stability around the project and that the bank is interested in the construction of the pipeline.
The EBRD official said that they had also been asked to consider the financing of the Sah Daniz gas export project. However, the board has not considered this yet. Radermacher said that talks with the project shareholders were under way.
"It is still not clear whether the bank will be a shareholder in the project," he said. However, the bank will issue loans for financing the share of the State Oil Company of the Azerbaijani Republic (SOCAR) in the project.
The EBRD official added that he had discussed these issues with government officials and businessmen during his recent two-day visit to Baku. He said that the bank, had already invested in the implementation of projects to assist the development of energy, finance, small- and medium-sized businesses.
Radermacher also commented on the report that the EBRD would purchase 20 per cent of the Azeri International Bank within the framework of the bank's privatisation. He said that the bank's board had not yet adopted a specific decision to this effect. Serious talks on the issue are being conducted with the Baku government.

Chinese oil firm owns 50 per cent share in Azeri onshore project

The affiliate of China National Petroleum Corporation (CNPC), CNPC (Hong Kong) Ltd. (CNPCHK), on 25th November announced the acquisition of an additional 10 per cent share in the operating company Salyan Oil Ltd. (SOL). The latter is developing the Kursangi and Qarabagli onshore deposits, Ekho News Agency has reported.
Ekho previously reported that the Delta Hess alliance (Delta Oil of Saudi Arabia and Amerada Hess of the USA) had announced plans to sell its share (20 per cent) in Salyan Oil. CNPCHK, the operator of this project, has been reported as wanting to buy the alliance's share.
Dow Jones has reported that CNPCHK has substantiated its decision by a wish to increase its oil shares. Thus, CNPCHK's share in Salyan Oil becomes 25 per cent.
At the same time, another CNPC affiliate, China National Oil and Gas Exploration and Development Corp. (CNODC), has decided to acquire 10 per cent in the same project, and now owns a 25 per cent share in the project.
Thus, China's largest oil producer - CNPCHK's affiliates have acquired 50 per cent of Salyan Oil. The State Oil Company of the Azerbaijani Republic owns the remaining 50 per cent. SOL has become China's first major investment in Azerbaijan's oil industry.

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FOREIGN INVESTMENT 

BP allocates US$6m for Azeri social programmes in next 3 years

BP will allocate US$6m for social and investment programmes in Azerbaijan over the next three years, Phil Middleton, BP's environmental and social impact assessment manager, said on 3rd December at a meeting with representatives of non-governmental organizations in Azerbaijan, Turan News Agency has reported.
He said that the company also planned to allocate US$1.5m for the development of social and investment projects in Azerbaijan.
He noted that BP attached great importance to environment-related issues and for this reason periodically provided training in Baku for the projects' contractors.

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MINERALS & METALS

Baku Steel taking its place on the global market

Baku Steel Co, has succeeded in producing products that meet the standards of leading global companies, ANS News Agency reported. Baku Steel Quality Department head, Oqtay Refiyev, said as per a request made by the Cabinet of Ministers, 11 types of products made by the company were examined in the main laboratories of Russia and Belarus, and the results were very good.
An official of the ES-CI-ES Co, the group that oversees Baku Steel's products, said no complaints were registered in connection with the selling of products in the republic and exportation products.
"The company prepares steel not from ore, but from metal crumbs, and the rumours about its bad quality were unfounded," Refiyev was quoted as saying. "First of all, the plant received only waste fit for production," he noted. "This waste is later refined, and unnecessary elements eradicated from its structure." The end result is that the steel is better quality than that produced from ore, Refiyev said. 
Baku Steel's products were also given a thumbs up by the representative of the State Construction and Architecture, Minare Huset-nova, who suggested that leading enterprises should use the company's products.
In other developments, officials from BP have started to order key quality goods from Baku Steel, which meets its demands with 80,000 tonnes of steel.

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