AZERBAIJAN

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Area (sq.km)
86,600

Population
7,830,764

Principal ethnic
groups
Azeri 90%
Russian 2.5%
Armenian 2%
Dagestani 3.2%
other 2.3

Capital
Baku

Currency
Azeri Manat

President
Ilham Aliyev
 

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Update No: 287- (29/11/04)

Progress made on Nagorno-Karabakh with Armenia
A breakthrough may just be pending between Baku and Yerevan on the key problem of the Armenian enclave, Nagorno-Karabakh, although optimism on this vexed issue always needs to be muted. Armenian Foreign Minister Vartan Oskanian has said that he and his Azerbaijani counterpart, Elmar Mammadyarov, have made "serious progress" during their four rounds of talks on approaches to resolving the Karabakh conflict. Oskanian said it is now possible to begin a second stage of talks building on what was achieved earlier, and that Azerbaijan has signalled its readiness for such talks. 
Since May, Oskanian and Mammadyarov have met four times in Strasbourg and Prague to discuss approaches to resolving the conflict. Whatever provisional consensus they reached was the subject of discussion at a meeting on 15 September between the two countries' presidents, Robert Kocharian and Ilham Aliyev, on the sidelines of a CIS summit in Astana, after which Oskanian said there would be an "interval" before the second stage of his talks with Mammadyarov began. 
No details have been divulged of the issues on the table in Prague, and that enforced confidentiality has spawned rumours that Yerevan is prepared to withdraw from either three or five of the seven occupied Azerbaijani districts bordering on Karabakh even before a final decision is reached on the future political status of the unrecognised Nagorno-Karabakh Republic. 
On 27 October, the Armenian Foreign Ministry issued a formal statement denying such speculation. "Regardless of Azerbaijan's wishes or statements, Armenia's focus during negotiations is on the issue of the status of Nagorno-Karabakh. All other issues are tangential to the status issue, and Armenia views them only in the context of the future status of Nagorno-Karabakh," the statement said. It further underscored that Yerevan "is interested only in a comprehensive resolution of this issue, and its participation in negotiations is conditional on that approach," the statement continued. In other words, Armenia wants the final agreement on a solution to the conflict to address, and stipulate a solution to, all disputed issues, and to specify the order and time frame in which the various points agreed upon will be implemented. 
Oskanian has criticised as "a diplomatic error" Baku's insistence on including on the agenda of the UN General Assembly the issue of the resettlement of Armenian families on territory controlled by Armenian forces. He warned that Azerbaijan should not proceed on the assumption that it can continue negotiations on resolving the Karabakh conflict under the aegis of the Organization for Security and Cooperation in Europe (OSCE) Minsk Group while at the same time seeking the assistance of other international organizations in resolving individual issues related to that conflict. 
Armenia wants the final agreement on a solution to the conflict to address, and stipulate a solution to, all disputed issues, and to specify the order and time frame in which the various points agreed upon will be implemented.
"Either we continue the negotiations within the Minsk Group, trying to reach a solution of the whole problem, or Azerbaijan can take the issue to other instances, seeking separate solutions," Oskanian said. Should Azerbaijan choose the latter approach, Oskanian said, the Azerbaijani authorities will have to negotiate with the Nagorno-Karabakh leadership. "Today the ball is in [Azerbaijan's] court," Oskanian concluded. 
But on 10 November Azerbaijani Foreign Ministry spokesman, Metin Mirza, rejected Oskanian's warning that Azerbaijan should not try to launch a parallel mediation effort as an effort to "torpedo" the negotiating process at a juncture when "favourable conditions" had been created for making progress. He inferred that Yerevan is "seriously concerned" by the prospect of the UN General Assembly debate. And he stressed yet again that Baku will not agree to negotiate with the Nagorno-Karabakh leadership. 
President Aliyev similarly argued recently that raising the Karabakh issue in other international forums will not jeopardize the ongoing search for a solution under the aegis of the OSCE Minsk Group, nor does Baku seek to replace the Minsk Group by another mediator. Aliyev said Baku simply wants international organizations such as the UN, the EU, and the Council of Europe to "recognize unequivocally that Armenia has occupied part of Azerbaijan's territory," and that this "unfair situation" should be corrected. 
Touring four southern regions of Azerbaijan on 9 November, President Aliyev said that Baku will not sign a formal Karabakh peace agreement until Armenian forces have retreated from the districts adjacent to Nagorno-Karabakh that they currently occupy. "We demand with justification that the seized territory be freed and the occupying forces withdraw," Aliyev said while visiting Astara, where he formally opened a new cargo terminal on the border with Iran.

Key oil pipeline links Azerbaijan, Georgia
Much depends for Azerbaijan on the Baku-Tbilisi-Ceyhan (BTC) pipeline, taking Caspian Sea oil to the West. The long-delayed 1000-mile BTC pipeline to transport 1 million barrels of oil a day from the Caspian to the Turkish port of Ceyhan is progressing toward completion as early as 2005.
The presidents of Azerbaijan and Georgia on October 21st attended the 'Golden Weld' ceremony on linking their two sections of the US$3.6-billion BTC pipeline to deliver Caspian oil to Western markets. The event took place in the Boyuk Kasik village of Azerbaijan's Agstafa district bordering on the Gardabani district of Georgia. 
President Ilham Aliyev, addressing the ceremony, said that the oil pipeline has united two brotherly nations. He emphasized the high profitability of the project and said it will promote economic development in Azerbaijan and Georgia, and boost regional security. 
With regard to the Azeri-Georgian relations, he said such projects will give an incentive to expanding regional cooperation. 
The Azeri President stressed the role of the United States in implementing the project and said Azerbaijan and Georgia will keep the pipeline's safety in focus. 
Georgian President Mikhail Saakashvili, in an apparent reference to Russia which is opposed the US-backed pipeline, said that some forces had tried to hamper the project but failed. "I have no false illusions that the pipe will be able to solve all our problems but this is a start." 
Saakashvili stated that the event proves that the construction will be completed successfully and the pipeline commissioned on time. The Georgian President said he particularly appreciates Azerbaijan's contribution to the project and pointed out that the country has assisted Georgia when it was necessary. 
Steven Mann, the US State Department envoy for Caspian energy development, speaking at the ceremony, sought to dismiss fears about the pipeline's security, saying that it was being built far from the zones of conflicts in the region. 
Michael Townshend, BTC Executive Director, spoke of the advantages of the project. 
"We believe BTC has always been more than just a pipeline. It is a project which will not only connect the three host countries but also will deliver long-term benefits to the peoples of Azerbaijan, Georgia and Turkey for many years to come." 
All the areas have been cleared for the pipeline route across the three countries, 97% of the pipe welded and over 70% of the pipe backfilled. 21,000 people are engaged in BTC construction in the three countries. About 5,000 people are involved in the operations in Azerbaijan, of whom 80% are Azeri citizens. 
The 1,768-kilometer (1,100 mile) pipeline will run from Baku to the Turkish port of Ceyhan, where oil from Azerbaijan's Caspian sea fields will be loaded onto tankers for Western markets. The project that envisions daily exports of one million barrels of oil from the Caspian without increasing tanker traffic through the Turkish Straits is led by oil giant BP with the support of the US government. 

BTC pipeline already threatened
But even before the BTC pipeline construction is finished, terrorist elements may already be planning attacks on this high quality target. 
According to Azerbaijan's National Security Minister, Namiq Abbasov, the country's special services have obtained information that regional insurgents, and members of al Qaeda, are planning acts of sabotage designed to derail construction of the pipeline. If true, this means that the BTC, which traverses some of the world's most unstable regions, could be a target of a new terrorist campaign to disrupt the flow of much needed oil from the Caspian Sea to Western markets. The pipeline could provide livelihood for many people in Azerbaijan, Georgia and Armenia as well as stimulate economic activity in eastern Turkey, and it will make a contribution to enhancing world energy security by developing a non-OPEC oil source. Therefore, failure of the countries involved to ensure the security of the project will have severe implications on the future of the region as well as global energy markets at large. 
Who has an interest in damaging the pipeline? Of all the countries in the region, even though it is implausible, Iran is perhaps the state actor with the strongest motivation to impede the BTC project. Engulfed by US forces in both its neighbours Afghanistan and Iraq, Iran is agitated by growing US military presence in Central Asia and views the US led war on terror as an American pretext to penetrate the region and seize control over Caspian oil. To disrupt the flow of oil in the BTC pipeline Iran could theoretically use its web of proxies and the terrorist groups it sponsors. Iran is not only a major oil producing country but also a stepping stone between the Caspian region and the Persian Gulf. As such, it would like to see Caspian oil flowing through its territory rather than through Turkey. It is therefore offering an alternative route which runs from Kashagan and Tengiz oil fields in Kazakhstan along the eastern Caspian shore, through Turkmenistan and on to the Iranian border. From there the pipeline would run across the eastern part of Iran to the Persian Gulf terminal at Bandar Abbas. If the construction of the BTC pipeline is completed and the pipeline operates well, it will make very little sense for Iran to carry out its plan in the short term, although the Kazak oil fields will eventually be producing far more than at present and the BTC pipe will, by then, not be adequate. However, if the flow of oil in the BTC pipeline is interrupted due to sabotage, there will be strong incentive for major oil companies to seek an alternative route. 
Other players who would like to see the project fail are terrorist groups operating along the pipeline route. Such groups strive to weaken the governments they oppose by denying them revenue from the pipeline. The Turks, for example, are a long way away from reaching a settlement with the Kurds and are involved in fighting with the Kurdish Workers' Party (PKK). Until the Kurdish issue is resolved, Kurdish groups might want to derail the project. The PKK has already attacked pipelines as recently as October. Turkish television reported that on October 24 a remote controlled device was detonated on a pipeline in the Garzan region. Two days later the PKK bombed an oil pipeline in southeastern Turkey.
In addition there is increasing threat by Islamist groups operating in the Caucasus such as the Islamic Party of Eastern Turkestan, the Islamic Movement of Uzbekistan (IMU), Chechen separatists and Hizb-ut-Tahrir al-Islami. The latter group seeks to seize power and supplant existing governments with a Sharia-based Caliphate for the purpose of jihad against the West. The head of the Kazakh National Security Committee Nartai Dutbayev said that the Hizb has recently increased its clandestine activities in Kazakhstan and poses "a real threat to Kazakhstan's security." In early September, Kazakhstan's President, Nursultan Nazarbayev, publicly admitted that Hizb-ut-Tahrir is making significant inroads in his country. Always there is the Islamist wing of the Chechen rebels, anti-western and geographically, neighbours to Georgia.
Then again, as we have seen, the conflict between Armenian and Azeris over the Armenian enclave of Nagorno-Karabakh in Azerbaijan still goes on. Armenian nationalists might conceivably decide to attack the BTC in order to hurt Azerbaijan, which derives most of its income from oil sales. 
Much of the stability along the BTC corridor would depend on Russia. Russia is not supportive of BTC. It sees it as a US plot to gain control over the Caucasus and cut all links between Moscow of the former Soviet states, building an economic infrastructure that would prevent the former Soviet states to ever reunite with Russia. Moscow also views BTC as a way to weaken its position as major supplier of oil to the European markets. In a recent article at Asia Times Online, John Helmer refers to the BTC project as an effort "to redraw the geography of the Caucasus on an anti-Russian map." 
Another problem BTC poses Russia has to do with its tense relations with Georgia. As it is, Georgia suffers from many domestic problems: it is emerging from a civil war and is rife with corruption, but perhaps its most serious problem is the growing likelihood of hostilities with Russia over the two breakaway territories of South Ossetia and Abkhazia. The August 8 Moscow News quotes Georgian leader Mikheil Saakashvili: "If war begins it will be a war between Georgia and Russia, not between the Georgians and Ossetians. … We are very close to a war [with Russia], the population must be prepared." As a result of the above Russia will not shed tears if BTC is sabotaged. It might even clandestinely lend its hand to groups that might do just that. 
If Russia decides to undermine the project, this will surely have implications on its relations with the US. BTC is the linchpin of the shift in US energy policy away from the Middle East and it is in America's best interest that the project succeeds. Secretary of Energy Spencer Abraham called the project "one of the most important energy undertakings from America's point of view." US Special Forces are already training 1,500-2,000 Georgian soldiers in "anti-terrorism" techniques under a US$64 million program initiated in May 2002. In addition, the US provided the Georgian army with new combat helicopters and other weapons. The 17,000 strong Georgian military has many tasks related to the defence of the country from external enemies such as Russia and Armenia but if attacks against the Georgian section of the BTC pipeline are mounted the Georgian military will have to take on the role of protecting the pipeline against saboteurs. 
Azerbaijan is another country along the pipeline route which stands in the centre of US diplomacy in Central Asia. In early August, US Defence Secretary Donald Rumsfeld visited Azerbaijan, where he concluded an agreement on the deployment of American forces to the former Soviet republic. This despite a recently adopted law which forbids foreign military forces on Azeri soil. US military specialists have already conducted preliminary examinations of airfields in Kyurdamir, Nasosny, and Gala, and have commenced the installation of long-range mobile radars in Sanchagal, near the pipeline. General Charles Ward, the Deputy Commander of the US European Command, revealed in a Senate hearing that "provisionally deployed mobile forces" will soon patrol the BTC. 
The BTC pipeline could be as strong as its weakest link. An attack on the pipeline in any place along its route will hurt not only the country where the attack took place but also the other countries which benefit from it. This is why multinational cooperation to secure the pipeline is of particular importance. On August 21, the armed forces of Turkey, Azerbaijan, and Georgia embarked on a series of joint military exercises in the Azeri capital of Baku. The goal of the six-day manoeuvres was to strengthen coordination and cooperation among the land forces of the three nations in preparation for defending the BTC from a terror attack. According to Natig Aliyev, president of Azerbaijan's State Oil Company, US$170 million have already been spent on safeguarding the pipeline. In addition, unlike many other pipelines around the world, BTC will be fully buried and its pumping stations will be surrounded by walls and fences. 
But as the sabotage campaign in Iraq, in which to date oil and gas pipelines have been attacked more than 150 times, shows, investment in physical security is not enough to secure oil infrastructure. Pipelines are long and vulnerable and a determined terrorist would always succeed in blowing it up somewhere along its route. If BTC were to succeed this would be mainly due to active diplomacy to resolve the lingering conflicts in the region and redress the grievances of those who want to see this significant project failing. 

Azerbaijan signs contract on major onshore field 
Azerbaijan is not confined to offshore oil operations. It still has large onshore deposits as well.
The State Oil Company of the Azerbaijan Republic (SOCAR) and British Caspian Energy Group signed a Production Sharing Agreement (PSA) on the development of "Kurovdagh", one of the largest onshore fields of the country, on November 11th.
SOCAR President Natig Aliyev said that the agreement sets exact obligations for the signatories. 36.7 million tons of oil has been produced from the field since 1955, he noted. 
Whereas 500 tons of oil was produced daily from the field earlier, now the figure represents 700 tons. 42 wells are currently being used for oil production on the field, Aliyev said. 
Caspian Energy Group Vice President Hill Mastell, in turn, said that the new agreement will allow it to raise production in the field. Long-term drilling operations will commence in the field in 2005-2006, which will allow output to increase 50% by 2008. 
The contract is the 25th international agreement on developing oil and gas fields of Azerbaijan. The parties to the 25-year agreement hold equal shares. 
SOCAR and Caspian Energy Group established the Shirvan Oil joint venture in 1997 to develop the "Kurovdagh" structure, with 51% and 49% of shares respectively. However, the parties later decided to sign a Production Sharing Agreement after they grew dissatisfied with the make-up of the joint venture. 

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BANKING

Asian Development Bank opens office in Baku, lays out goals

An office of the Asian Development Bank (ADB) was opened in Baku on November 8th. Attending the opening ceremony were ADB President, Tadao Chino, Azerbaijani Minister of Economic Development, Farhad Aliyev, and the head of the ADB's East and Central Asia Department, Muhammad Tusneem, Trend news agency reported.
At the opening ceremony, Chino said that the ADB's core objectives were projects helping to reduce poverty in the region and general regional development. He stressed the importance of reforms aimed at achieving economic growth and increasing macroeconomic stability. 
He said that these issues were discussed with Farhad Aliyev and would be discussed with President Ilham Aliyev and Prime Minister Artur Rasizada on the same day. He noted that the main purpose of the ADB's activity in Azerbaijan was to develop non-oil sectors of the economy, agriculture, microfinancing, the water supply and sanitary systems, road construction, in particular the East-West corridor, social infrastructure for displaced persons, as well as regional cooperation.

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ENERGY

Georgian, Azeri branches of export pipes come together

Georgian and Azeri Presidents, Mikhail Saakashvili and Ilham Aliyev, respectively, attended a ceremony marking the joining of the Azeri and Georgian branches of the Baku-Tbilisi-Ceyhan (BTC) main export pipeline, Interfax News Agency reported.
The installation and welding operations on the Azeri part of the pipeline have been completed, but Georgia is still continuing its part of the job. The pipeline should be put into operation in the first half of 2005, and oil is expected to be pumped through it in the second part of next year.
Saakashvili expressed gratitude to the Turkish government, which, as he put it, "played a special, positive role in implementing this project, as well as the governments of the United States and Britain."
Aliyev said: "If there had been no trust in our peoples, the international community would not have invested billions of Euros in this project." US senior advisor on Caspian basin energy diplomacy, Steve Mann, also highly assessed the role of the new pipeline, adding that it is a huge investment for Georgia, not only in economic, but also in political terms.
On October 19th, the Georgian government and the British Petroleum company signed in Tbilisi a package of documents on additional measures for technical and ecological safety of the Georgian stretch of the BTC, Prime Minister, Zurab Zhvania, said, and British Petroleum, which is an operator of the construction, would carry out measures to ensure the safety of the Georgian leg of the pipeline. It was decided that Georgia would receive 60m Euro within five years for this purpose.

LUKoil to start exploration in Azeri section of Caspian Sea

Russia's oil giant LUKoil is expected to start drilling of the first exploratory well in the Yalama structure in the Azerbaijani section of the Caspian Sea shortly, Interfax News Agency reported on October 24th.
Drilling and development operations on the well with a projected depth of 4,500 metres would be carried out from the Heydar Aliyev semi-submersible drilling rig. Sixty million Euro is to be spent on development operations. Up to 150,000 tonnes of oil is expected to be produced from the well per day. The reserves in the Yalama structure, situated 30 kilometres offshore between sea borders of Azerbaijan and Russia, are estimated at 800m barrels of oil and 50bn cubic metres of gas. Two billion Euro will be invested in the project. Under the agreement signed, LUKoil will hold an 80 per cent stake in the project, while the Azerbaijani state oil company SOCAR will keep 20 per cent.

SOCAR & Caspian Energy to sign Kyurovdag PSA

Azeri state oil company SOCAR and Britain's Caspian Energy Group decided to sign a revised contract to develop the onshore Kyurovdag oil field, press reports said recently. Kyurovdag, one of Azerbaijan's biggest onshore fields, was discovered in 1955 and has been under production since 1956. SOCAR said on October 19th that the Shirvanoil joint venture that it and the British company set up had been developing the field since 1997, Interfax News Agency reported.
But the joint venture as a vehicle to develop the field no longer meets the parties' interests, and the partners have decided to sign a production-sharing agreement (PSA), SOCAR said. "Nearly all work on the contract has been completed, and it remains to finalise a few details. The same parties will sign the PSA," SOCAR said. At this stage, it is thought the companies would have equal shares of the PSA. SOCAR owns 51 per cent and Caspian Energy 49 per cent of the Shirvanoil joint venture, which started to operate in September 1997.

SOCAR announces tender for Azeri Light consignment

Azerbaijani state oil company SOCAR announced a tender for the seventh consignment of Azeri Light oil from the Azerbaijani-Chirag-Gunashli fields to be exported through the Baku-Supsa pipeline, a source in the company's marketing department said, Interfax News Agency reported.
The consignment would amount to one million barrels, to be shipped from the port of Supsa on November 21st-22nd. The first consignment this year was bought by Italy's API Oil, the second and fifth by Austria's OMV, the third by Arcadia and the fourth and sixth by Glencore. This oil is produced as part of a contract for the development of the Azerbaijani-Chirag-Gunashli fields, in which SOCAR has a 10 per cent share. Profitable oil is distributed among shareholders in proportion to their participation in the project.

Azerbaijan to "treble" oil output in three to four years

In a interview with ITAR-TASS News Agency, Aliyev said there is "enough oil and gas in Azerbaijan to last for several decades" and that the country will "treble the production of oil in the next three to four years and will build the third export pipeline." "Therefore Azerbaijan is fully realizing its potential and can become a very attractive transit country in future," the agency quoted Aliyev as saying.
He added that his country had signed more than 20 contracts which "greatly benefited" the country's oil industry. "We have created an investment climate in Azerbaijan that fully protects our economic interests," the president added.
He also called on the littoral states to reach an agreement on the status of the Caspian Sea as soon as possible, stressing that Russia, Kazakstan and Azerbaijan are "united" on that. 
He said that Baku "attaches great importance" to the development of relations with Russia which he described as "a very important element of Baku's foreign policy." 
Aliyev said that "after the collapse of the Soviet Union bilateral relations were not at the desired level for objective and subjective reasons." "But the situation changed after Vladimir Putin came to power," he said. "I have taken a great liking to Vladimir Putin. Russia is fortunate to have such a leader," the Azeri president said. "There are no unresolved issues between us. All the problems which we used to have, including those that were difficult to resolve, were left in the past," he stressed, adding that the relations now could serve as the epitome" of neighbourly relations. 

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FOREIGN ECONOMIC COPERATION

Azeri leader, Belarus premier discuss ties

Azerbaijani President, Ilham Aliyev, received Belarus Prime Minister, Syarhey Sidorski, at the presidential palace on November 5th, Azartac News Agency reported.
The president cordially welcomed the guest and said that relations between Azerbaijan and Belarus were developing successfully in several fields, including the economy.
President Ilham Aliyev stressed that he had made a decision to open an Azerbaijani embassy in Belarus, adding that this would play an important role in expanding bilateral relations further.
The president said he was confident that the visit of the Belarus prime minister to Azerbaijan would serve to expand cooperation between the countries.
Mr Syarhey Sidorski thanked president Aliyev for the reception and hospitality and conveyed Belarus President Alexsander Lukashenka's sincere greetings and good wishes to President Aliyev. The guest said he was pleased that a large delegation that included high-ranking officials of the Belarus government was greeted with hospitality on the very first day of the visit to Baku. He stressed that the two countries had great potential for expanding relations in all fields, including the economy. Mr Syarhey Sidorski said that the Belarus leadership and government would do their best to further expand relations between their countries. The prime minister said he was confident that Azerbaijani-Belarus relations would continue to develop and strengthen.
President Aliyev thanked President Lukashenka for his sincere greetings and asked the prime minister to pass his greetings and good wishes on to the Belarus president. The meeting also discussed a number of other issues of common interest.

Azerbaijan, Russia's St Petersburg set to expand economic, cultural ties

A meeting between [Azerbaijani] First Deputy Prime Minister, Abbas Abbasov, and the governor of Russia's St Petersburg, Valentina Matviyenko, ended with the signing of inter-government agreements on trade, economic, scientific-technical and cultural cooperation between Azerbaijan and St Petersburg, Turan News Agency reported.
The governor of St Petersburg said that the documents determined priority spheres of developing interregional cooperation and the legal basis for direct contacts between St Petersburg and Azerbaijan. 
The sides are, particularly, planning to ensure favourable conditions for cooperation of Azerbaijani and St Petersburg enterprises, establish joint enterprises and implement investment projects with the involvement of third countries.
Moreover, a protocol designating specific measures of cooperation crowned the negotiations. In particular, it envisages supplies of early fresh vegetables from Azerbaijan to St Petersburg and establishing joint ventures for reprocessing agricultural products. It is also planned to conclude contracts in the field of mechanical engineering, conversion, construction, oil chemistry, transport, culture, education, science, tourism and protection of intellectual property in the future.

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