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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: 268 - (25/04/03)

Azerbaijan is enjoying an oil boom at the moment, which is seeing GDP grow in double figures. But this is highly dependent on high oil prices that Baku fears could come tumbling down in the aftermath of the Iraq war.

The Achilles' Heel of the boom
There are clearly a lot of imponderables to factor into any equation concerning the global oil industry. Iraq' production was already at around two million barrels per day (bpd) before the war, but has obviously been disrupted during hostilities. It may be years before it resumes anything like its pre-1990 levels of three and a half million bpd.
Saudi Arabia is likely to remain the dominant force for some time to come, while Russian oil exports may well be peaking. There are huge transport problems for the Russian majors to surmount if they are to continue to raise oil output by 10% per annum, nearly all for export. These have been compounded by the decision by Transneft, clearly politically motivated, to discontinue large sales via Ventspils, Latvia's Baltic Port. Azerbaijan, then, may have a reprieve.
In the longer run its reserves of 31bn barrels are modest compared with Iraq's proven 112-115bn, certainly a large underestimate of full reserves, which could be as high as 300bn barrels, nearly ten times Azerbaijan's. SOCAR, the Azeri oil company, is keen to exploit its resources as soon and as fully as possible.
That means solving its own transport problems. The oil is there in the Caspian Sea shelf and is being extracted by the latest methods under foreign investors, BP-Amoco and others. But a question mark hangs over the one big pipeline, Baku-Tbilisi-Ceyhan, especially now that relations between the US and Turkey have soured. The finance of the project would require billions, putting a huge strain on the State Oil Fund of Azerbaijan (SOFAZ) mainly responsible; and the pipeline would be going through Kurdish-held areas of the country. The imponderables here are vast.

The IMF remains staunchly supportive
The IMF is disbursing funds to Azerbaijan under a Poverty Reduction and Growth Facility Programme. Two tranches of US20 million have been extended already and a further one of US$17 million is due. The whole programme agreed in July 2001, is worth US$100 million. 
It is being coupled with a rise in internal energy prices, vital if SOFAZ is to finance pipelines. The IMF funds are designed to alleviate the problems this will bring to the population at large.

World Bank to the fore
The World Bank is due to extend US$163 m to Azerbaijan in 2003 -06, improving water supplies and irrigation and raising educational levels. Agriculture, pension reform and electricity supplies are to be assisted. In all some US$400 m may be forthcoming from the World Bank for Azerbaijan by 2006

ADB to the rescue
The Azeris joined the Asian Development Bank (ADB) in 1999, which is based in Manila and has 61 members in all. The ADB is concerned to help the lot of the 50% of the Azeri population deemed to be living below the poverty line, some US$2 per day, and alleviate the plight of the 12% of the population who are refugees from Armenian-held territory of the country.
The ADB has earmarked US$65-90m for disbursement in 2003-05. The problem with such funds is that they can easily go astray in a republic with 'weak' governance. Like oil revenues, they have a tendency to trickle out, not down. When it comes to this issue, the government is unquestionably part of the problem, not the solution.

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ENERGY

Russian oil major strengthens its presence in Azerbaijan


The expansion of the D-222 oil field will help to significantly reduce the spending on the implementation of the project and will increase its potential oil reserves, Gennadiy Krasovskiy, head of LUKoil's department for investors, has said, Turan News Agency has reported.
The fact that SOCAR [State Oil Company of the Azerbaijani Republic] let the Russian partner have another 20 per cent of shares signifies that LUKoil will now finance 80 per cent of the costs and not the expected 60 per cent. The future profit will be divided equally according to the same principle: 80 per cent to 20 per cent. "LUKoil has paid nothing for the additional 20 per cent," Krasovskiy said.
He said that "dozens of millions of dollars" are needed to drill the first surveillance borehole in mid 2004. Citing preliminary calculations, he said that despite the high costs, the development of oil fields in the Caspian is more lucrative compared to the development of western Siberia's oil fields.

AIOC production at Chirag climbs 5% in 2 months

Azerbaijan International Operating Company (AIOC) produced 1.034m tonnes of early oil from the Chirag field in the first two months of the year, up 5% from the same period last year, a company source said, New Europe reported. The company produced 477,000 tonnes of oil from the field in February, down 2% from February 2002. The company said production dropped in February due to maintenance work at Chirag-1 production platform. Daily production dropped from 133,000 barrels in January to 126,000 barrels in February. The company shipped 947,000 tonnes of oil through the Baku-Supsa pipeline in the first two months of the year, including 467,000 tonnes in February. 
The company has drilled 17 wells from Chirag-1 (14 production and three injection wells to maintain bed pressure), and is completing an 18th well. Britain's KCA Deutag Drilling is performing the work. AIOC plans to produce 6.45m tonnes of oil at Chirag this year.

Azeri refineries boost oil product supplies by 15.7%

Oil refineries in Azerbaijan in January-February 2003 supplied 916,700 tonnes of oil products to the fuel market in January-February 2003, which was 15.7% more than in the same period in 2002, state statistics committee data showed. 
Of total supplies, 65% went to the domestic market and 35% was exported. Azerenergy accounted for 61.8% of supplies to the domestic market, Azernefttadjikhizat (a SOCAR division supplying oil products to the domestic market) - 14%, private company Azerpetrol - 10.4% and the state concern Azerbaijani Airlines - 8.9%. Azeri oil refineries increased production of oil products 14.3% year-on-year in the first two months of 2003 to amount to 1.65m tonnes.

Iran and Gazprom may form joint gas venture

Russia and Iran may form a joint venture to develop gas production in Iran and supply gas to international markets. The sides said in a protocol following the fourth session of the Russian-Iranian commission on trade and economic cooperation that took place in Teheran on March 16-18th that they would look at the issue closely, said Russian gas monopoly, Gazprom, whose representatives attended the meeting. They will also continue to consider the possibility of supplying Iranian natural gas to India.
One of the session's main achievements was finalising plans for the construction of phases two and three of the Southern Pars field in the Persian Gulf. Gazprom has been involved in this project.
Bijan Namdar Zangeneh, Iran's oil minister and co-chairman of the commission, spoke of Iran's keenness to continue to work with Gazprom in one of the further stages of the Southern Pars project.

US, Turkish companies quit Azeri oil projects

The USA's Moncrief Oil International and Turkey's Petoil companies have left Azerbaijan, Turan News Agency has reported. They have sold their shares in the production sharing agreements to other companies, Azadliq has reported.
Moncrief Oil was the operator in two projects in Azerbaijan - in developing the Mishovdag and Kelametdin oil fields, and in prospecting Padar. It owned 80 per cent of shares in the first project (the remaining 20 per cent belong to SOCAR [State Oil Company of the Azerbaijani Republic]); and 49.3 per cent in the second project (35.7 per cent were owned by Petoil and 15 per cent by SOCAR).

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ENVIRONMENT

Irrigation-2 project to kick-start soon

The Irrigation-2 project will be financed by a loan of US$30m from the World Bank. The project will include repairing the irrigation system, Interfax News Agency reported. The loan will be approved in June and will be for a 35-year period. For 7-10 years Azerbaijan will not pay any interest and for the rest of the period the rate for refinancing will be 0.75% yearly.

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FINANCIAL NEWS

Azerbaijan to borrow money

Azerbaijan needs to buy six helicopters for the state-owned Azal concern, for which the government will need US$37m. The country's finance minister told Interfax News Agency that the country is asking for up to US$200m. 
Azerbaijan is awaiting US$22m from the Asian Development Bank to implement water utilities in small towns and cities. The government wants to restart production at the Ganja automobile factory, where Renault trucks will be put together, for this to happen they need US$10m. The set up of the Ali-Bairamly hydroelectric dam and the No 9 generating unit at the Azerbaijan Hydro plant are the dominant projects in the energy sector. Amongst other institutions, negotiations have begun with the Islamic Development Bank and the European Bank for Reconstruction and Development.
Last year's budget limit was US$200m and the external borrowing ceiling for 2003 is set to the same amount.

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TELECOMMUNICATIONS

Azeri-Turkmen undersea telecom link to cost US$18m 


The turn-key construction of the underwater Baku-Turkmenbasy segment of the Trans-Asia-Europe fibre-optic link will cost US$18m, the Baku Baltimore OmniTel [BBOT] company's data show, Trend News Agency has reported.
The company together with Tayca International, are interested in the construction of this telecommunication link and have already obtained the go-ahead from the Azerbaijani government, the company's president Sadiq Humbatov has said. The BBOT is conducting negotiations with the Turkmen Communications Ministry on the issue.
Despite the measures being taken, the launch of the project is being delayed over some aspects in the construction that have not been coordinated with the Turkmen side, Humbatov said. In particular, in 2002 BBOT specialists submitted to Turkmenistan a draft agreement on the construction of the underwater segment of the Baku-Turkmenbasy route, but they have not yet received any reply.

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