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Books on Azerbaijan
REPUBLICAN REFERENCE
Area (sq.km)
86,600
Population
7,868,385
Principal ethnic
groups
Azeri 90%
Russian 2.5%
Armenian 2%
Dagestani 3.2%
other 2.3
Capital
Baku
Currency
Azeri Manat
President
Ilham Aliyev
President
Ilham Aliyev
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Update No: 310- (26/10/06)
A regional crisis
About 95% of Azerbaijanis are Muslim with a significant number of orthodox
Christians and, in the historic past, the landlocked nation has played host to
leaders such as Alexander the Great and Genghis Khan. It shares common borders
with Armenia, Georgia, Iran, Russia and Turkey.
The crisis in relations between two of these neighbours, Georgia and Russia, is
preoccupying everyone in the Caucasus right now. It is likely to have wide
repercussions there. Indeed it is already doing so.
Moscow has cut off trading relations, which could leave the Georgians shivering
this winter, if the embargo is not lifted. Georgia is going to be turning to new
energy suppliers.
Azerbaijani-Georgian Negotiations on Gas Held in Baku
One implication is that Azerbaijan is becoming an alternative gas supplier for
Georgia and the region, as well as its energy hub. Negotiations on these matters
between Azerbaijan's Industry and Energy Minister Natig Aliyev and Georgian
Energy Minister NIka Gilauri were held in Baku on October 10th.
During the meeting, both parties exchanged their opinions on future gas
operations. According to Mr Aliyev of the ruling dynasty of Aliyevs, up to now
Turkey has not informed the Azerbaijani party about its readiness to receive gas
from the gas condensate field "Shakhdaniz". Turkey said that it could
begin to receive the gas only starting from November 15, 2006.
According to informed sources, it is not ruled out that the Georgian delegation
will also hold such negotiations with Iran. Last year, after the hold-up of the
Russian gas supply to Georgia, the Georgians received gas from Iran via the
territory of Azerbaijan.
This year, Azerbaijan can supply up to 300 m. cubic meters of gas to Georgia
from the field "Shakhdaniz". The gas will be exported via the South
Caucasian Gas Pipeline (SCP), constructed on the territories of Azerbaijan and
Georgia. For its part, Turkey is constructing a gas pipeline from the Georgian
border to Erzurum that will be a gas distribution point.
Azeri economy enjoying super growth
Thanks to a boom in oil and gas production and revenue, the Azeri economy is
soaring by 35% this year, with industry growing by 40%, world records, if true.
Indeed, if official figures are to be believed, Azerbaijan is rescuing hundreds
of thousands of people from poverty at a pace unseen in modern times. Official
2002 data suggested that 49% of the population lived in poverty. This was
slashed to 29% within only three years.
Of course this is all from a very low base. Azerbaijan shed the shackles of 71
years of Soviet-style domination to gain independence just 15 years ago. The
first few years were a period of virtual economic meltdown, as was the case in
Russia, with authorities moving rapidly from a command-control economic
structure to a market economy. Up to 80% of producer and consumer prices were
decontrolled in January 1992, a year in which industrial output plunged by 26%.
The transition problems were compounded in Azerbaijan's case by the exodus of
one and a half million refugees from a losing war with Armenia over
Nagorno-Karabakh, that saw 20% of its territory lost to the Armenians. So many
more mouths to feed!
According to the CIA World Fact Book inflation reached 735% in October 1992 and
rose to 1,200% in 1993.
Living expenses were said to exceed incomes by about 50%. The inflationary
spiral meant that at the end of 1993, the minimum weekly wage of workers was
inadequate to purchase a single loaf of bread and hundreds of thousands of
people faced starvation. This was the nadir of the modern Azeri nation.
Communism was not a complete disaster in that it educated people. Exceptionally
high literacy levels - 98.8% of people aged over 15 can read and write - and
high numeracy levels are indicators of a rich cultural heritage that should
underpin economic buoyancy even after the anticipated oil production peak in
2011.
Late in 1994, production-sharing agreements (PSAs) were signed with foreign oil
companies - the country's oil history goes back to the 19th century. These
companies agreed to spend US$7.5 billion to develop oil reserves in the Caspian
Sea and to build two separate oil and gas pipelines to transport the fuel
through Turkey. Oil production fell from 1991 to 1997 but the 1994 deals that
Azerbaijanis refer to as the "Contract of the Century" have engineered
a massive turnaround.
The government-owned Azerbaijan International Operating Company (AIOC) signed
its first PSA in November 1997 and similar deals are now in place with oil
companies from the United States, England, Saudi Arabia, Norway, Russia, Japan,
Turkey and Italy. Together they have committed US$60 billion towards long-term
developments.
AIOC, as operator, last year increased its oil production by 73.8% from the
Azeri-Chiraq-Guneshi fields, owned by a British Petroleum-led consortium. Oil
reserves there total 5.4 billion barrels. The Baku oil pipeline to Ceyhan in
Turkey was completed at a cost of US$4 billion and is pumping out one million
barrels daily. Total oil production is expected to reach 345 million barrels
next year, up 40% in two years.
Wide-ranging reforms supported by quick World Bank disbursements, as well as an
International Monetary Fund programme, kicked off the modernisation and good
governance process in earnest. In December 1999, a State Oil Fund of Azerbaijan
Republic was set up to manage booming oil revenues through financial
stabilisation and savings initiatives. Assets reached more than US$3.6 billion
by the end of last year.
Azerbaijan seems to be defying gravity in recent times. Asia's 1997 economic
meltdown had tempered the wave of Japanese-style near double-digit economic
growth rates in Asia, although China remains an exception to this rule.
Azerbaijanis have entered an even more spectacular phase - its 8.4
million-strong population only grows by 1% annually - with economic growth
entering overdrive from a low of 9.9% in 2001 and 10.6% in 2002.
President Ilham Aliyev, promised his people in 2004 that things would improve
the following year and indeed they did. He was of course lucky in his timing,
with soaring global oil prices. By last year, growth hit 26.4%, fuelled by oil
and gas exports and foreign direct investment equivalent to 41% of gross
domestic product. Early this year, the Asian Development Bank forecast that
Azerbaijan would grow in 2006 by 30.5%, but after a half year surge of 36.3%,
the ADB recently revised this to an incredible 35%.
Similarly next year's growth has been upped from 27.3% to a 30% estimate.
This means that in a mere three years from 2005-07 average per capita incomes
would grow by well over 80% - far faster than Japan, China or any other newly
industrialised countries have managed in a similar time frame.
Last year, per capita incomes on a purchasing power parity basis had reached
US$4,800 so they should hit around US$8,000 by the end of next year! The raw per
capita GDP figure for 2005 is US$1,240.
Azerbaijan has also been a Central Asian leader in terms of farm privatisation
and registration of arable land, with sensible policies ensuring that the
non-oil sectors have also been growing by a very impressive 15% annual rate
since 1999.
Doubts on the horizon
But some economists still worry about the future. As the ADB's "Outlook
2006" report stresses: "The major risk to the bright economic outlook
centres on properly managing oil revenue to maintain macroeconomic stability and
avoid excessive appreciation of the exchange rate. The latter would damage
competitiveness in the non-oil sector and limit its development. A very sharp
downturn in oil prices, though unlikely, would put pressure on the budget and
the current account, putting constraints on the rapid economic transformation
needed to reduce unemployment and poverty."
One can enter a caveat here. If there is a world economic crash, of course, then
all bets are off. With the US lynchpin running up colossal deficits this cannot
be ruled out, with everyone else likely to be affected (see Russia).
International Expo - BakuBuild 2006 Started in Baku
On October 11th, Azerbaijan's largest International Exhibition - BakuBuild
2006 - started in Baku's Heydar Aliyev Sports and Concert Complex. Suleyman
Tatliyev, President of Azerbaijan's Chamber of Commerce and Industry, Edward
Stroon, ITE Group General Director for Central Asia and Caucasus, Farman
Seyyidov, Economic Development Minister of Nakhchivan Autonomous Republic, and
many others took part at the event, Trend reports. It closed on October 15th.
Heydar Aliyev, the former president who died in harness two years ago and the
father of the present president, was the founder of the clan, which hails from
Nakhichevan, an Azeri enclave between Armenia and Iran. They run Azerbaijan
after their own fashion.
The Head of the Chamber of Commerce noted at the opening ceremony the huge
growth in the development in the construction sector of the country that is of a
great importance both in the development and expansion of all the sectors of the
Azerbaijani economy.
For his part, Mr. Stroon pointed out that 220 companies from 20 countries
participated in the exhibition, 25 per cent more than in last year's one.
"This time the exposition area is significantly extended, that is explained
with a growing interest in the construction sphere from different
companies", he stressed.
About 40 per cent of the company-participants of the exhibition were entering
Azerbaijan's market for the first time. Production exhibits from France,
Slovenia, and Korea were among the newcomers.
Such countries as Russia, Ukraine, Byelorussia, and Kazakhstan are showing a
great interest in Azerbaijan. Forty Turkish companies presented their production
exhibits and services. About 65 per cent of the exhibition's area was occupied
by local producers, which significantly extended their exposition areas by 30
percent this year in comparison with last year.
Within four days, construction and burnishing materials, equipment, windows, and
doors, ceramics, and sanitation engineering, saunas, and pools, and many other
interesting items were presented at the exhibition. Britain's ITE Group and its
partner for the Caucasus ITE Group Plc. were the organizers of the exhibition.
The official supporters of the exhibition were Azerbaijan's Economic Development
Ministry, the Baku City Executive Power Corporation and Azerbaijan's Chamber of
Commerce and Industry.
The fourth Azerbaijani exhibition of furniture, interior, and design, as well as
the first Azerbaijani exhibition of real estate were held at the same time.
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BANKING
National Bank of Azerbaijan to boost forex reserves 77%
The National Bank of Azerbaijan's foreign currency reserves could increase 77
per cent from early this year to 1.7 billion Euro by 2007, first deputy chairman
of the National Bank, Alim Guliyev, said, Interfax News Agency reported.
"The Bank's foreign currency reserves will be approximately 1.7 billion
Euro at the end of 2006. We expect yield of the National Bank's foreign currency
reserves will be approximately four-five percent. In this case, the National
Bank will get at least 100 million Euro from managing foreign currency
reserves," he said. The National Bank expects yield from other sources this
year, Guliyev said.
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ENERGY
Azerbaijan raises oil, gas production in 9 months
Azerbaijan edged oil production up 0.2 per cent year-on-year in
January-September to 6.736 million tonnes, the State Statistics Committee said.
OCAR itself produced 5.887 million tonnes of oil, up 0.2 per cent year-on-year,
and joint ventures and onshore operating companies produced 848,600 tonnes, up
0.4 per cent, Interfax News Agency reported.
Azerbaijan raised gas production 21.1 per cent year-on-year in the nine months
to 4.996 billion cubic metres. SOCAR produced 3.116 billion cubic metres, up 6.2
per cent, Azerbaijan International Operating Company (AIOC) produced 1.579
billion cubic metres, up 58.5 per cent, and joint ventures and onshore operating
companies produced 83.51 million cubic metres, down 13.5 per cent.
SOCAR receives syndicated credit to pay for Shah Deniz
Azeri state oil company, SOCAR, has received a syndicated credit from foreign
banks of US$175 million to finance its share in the project to develop the Shah
Deniz field, Vagif Aliyev, head of the SOCAR foreign investment department, said
on September 20th, New Europe reported.
"We have received a credit of US$175 million from a syndicate of Western
banks. The organisers of the syndicate are Societe Generale and ABN Amro. They
are currently putting together other participants in the syndicate. The credit
is being provided at the annual rate of LIBOR+0.85 per cent," he said.
He said these funds would be used to return a credit to the European Bank for
Reconstruction and Development of US$170 million, received in December 2004 to
pay for SOCAR's share in the implementation of Phase-1 of the Shah Deniz
project. "We have returned the EBRD credit. This [new] credit is better for
us than the EBRD credit. While on this syndicated credit the rate is LIBOR+0.85
per cent, on the EBRD credit it was LIBOR+4.5 per cent," Aliyev said.
He said that after Societe Generale and ABN-Amro decide on the participants in
the syndicate, an agreement would be signed with the banks and all the
conditions of the credit would be announced.
SOCAR has already received a credit this year from a syndicate of western banks,
amounting to US$750 million at LIBOR+1.75 per cent to finance its share in the
Azeri-Chirag-Gunashli project.
The contract for the development of the Shah Deniz field was signed in Baku on
June 4th, 1996. Participants in the project include BP - 25.5 per cent, Statoil
- 25.5 per cent, SOCAR - 10 per cent, LUKoil - 10 per cent, NICO - 10 per cent,
TotalFinaElf - 10 per cent and TPAO (Turkey) - nine per cent.
The field's reserves are estimated at 625 billion cubic metres of gas and 101
million tonnes of condensate. Stage-1 development includes the production of 178
billion cubic metres of gas and 34 million tonnes of condensate. During peak
production under Stage-1 the field will produce 8.4 billion cubic metres of gas
and 2 million tonnes of condensate per year. In further stages of development it
is planned to produce about 16 billion cubic metres of gas per year.
Gas from the field will be sold to Turkey (6.3 billion cubic metres per year),
Azerbaijan (1.5 billion cubic metres) and Georgia (up to 800 million cubic
metres). Phase-1 also includes a project to transport gas to Turkey through the
South Caucasus Pipeline. Turkey and Greece are interested in buying gas from
Phase-2 of the project for re-export to Europe.
SOCAR to start drilling at Babek structure by 2007
Azeri state oil company, SOCAR, intends to start drilling a first exploratory
well at the Babek offshore structure by the end of 2006, SOCAR said, Interfax
News Agency reported.
"We're holding talks with Denmark's Maersk on the use of their
semi-submersible drilling rig named after Heydar Aliyev. This rig is currently
free and it is technically capable of drilling at the Babek structure. If the
talks are successful and we can make preparations we can start drilling this
year," SOCAR said. SOCAR said it did not intend to sign a
production-sharing agreement with a foreign company for the structure. SOCAR has
preferred this arrangement, with foreign companies acting as project operators
in the past. "Foreign companies could be involved as technical consultants.
We already have the funding and we're gaining expertise. It could take five to
eight years to put the structure on stream and by that time we'll have every
opportunity, including staff and technology to do the work ourselves,"
SOCAR said. Babek, a deep-water structure, is thought to contain 200 million-300
million tonne.
Azerbaijan to raise oil output
Azerbaijan's crude oil production will hit 47 million metric tonnes next year as
the country is increasing its oil output, New Europe reported.
SOCAR President, Rovnag Abdullaev, said that the government plans to raise oil
output 35 per cent year-on-year to 30 million tonnes this year and likewise it
will reach 47 million tonnes in 2007 and 65 million in 2009. He added that this
level of increase would continue up till 2010-2011. This kind of increase would
be a record production level for the country. According to Azerbaijan's industry
and energy ministry last year the crude oil production was 22.21 million tonnes,
42.9 per cent more than the previous year. With the completion of BTC pipeline
Azerbaijan's oil output is on a high.
Rovnag Abdullayev, CEO of the State Oil Company of Azerbaijan (SOCAR), said the
Caspian country's oil output is expected to reach 65 million metric tonnes in
2009.
According to Azerbaijan's industry and energy ministry, crude output in
Azerbaijan in 2005 was 22.2 million metric tonnes, representing a 43 per cent
year-on-year increase.
SOCAR is part of the Azerbaijan International Operating Company, the BP-led
consortium that operates the country's Azeri-Chirag-Gunashli (ACG) offshore
oilfield, with estimated recoverable reserves of 5.4 billion barrels.
Azerbaijan's SOCAR to tap new Caspian field deposit
SOCAR said it plans to work on the development of the Karabakh oil deposit in
the Caspian Sea via its own means, New Europe reported.
SOCAR Vice-President, Khoshbakht Yusifzade, said that the company is ready to
tap the new oil deposit in the Karabakh field at it own expense. He added that a
platform will be installed and the wells drilled on the field. According to him
tapping these deposits is very productive considering the current prices of oil.
Yusifzade said, "Although foreign companies have great interests in the
deposits, SOCAR will work independently on the field." He informed that
US$200 million is expected to be invested in the operations which will manage to
yield US$ one billion in revenue depending on prices of oil.
According to Yusifzade, the construction of the platform and digging wells are
planned to start in the near future.
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FOREIGN COOPERATION
Vike-Freiberga, Aliyev discuss bilateral, EU, NATO links
The presidents of Latvia and Azerbaijan, Vaira Vike-Freiberga, and Ilham Aliyev,
met in Riga on October 4th to discuss bilateral, European and Euro-Atlantic
cooperation. "Latvia's constant support (in the framework of EU relations)
has been very significant ... I am confident that Latvia will support
Azerbaijan's integration into Euro-Atlantic structures," Azerbaijan's
president Aliyev told journalists after the meeting. Azerbaijan has been a
participant in NATO's Partnership for Peace programme since 1994. Latvia, which
joined the partnership programme in the same year, became a fully-fledged NATO
and EU member in 2004 and is due to host a NATO summit in November, New Europe
reported.
"Latvia expressed its readiness to share with Azerbaijan the experience
gained by its state institutions in the process of its integration into European
and Euro-Atlantic structures," a Latvian presidential press release stated.
The presidents also discussed energy cooperation, seen as a key strategic need
on both sides. Azerbaijan's economy is largely based on oil and gas exports,
while Latvia relies on Russian imports - a situation which has led to fear of
pressure from Moscow. "Europe needs to diversify its sources of energy ...
Any situation in which there is only one supplier creates disequilibrium and can
become a tool of political pressure," Vike-Freiberga said. The presidents
"stressed the international importance" of opening oil and gas
pipelines from Baku, via Tbilisi, to Turkey "to strengthen the ties between
the European Union and the Caspian Sea region in terms of energy
cooperation," the press release said.
This was the first visit of an Azeri president to Latvia. Last October
Vike-Freiberga paid a state visit to Azerbaijan, signing several agreements on
economic cooperation. Trade between the countries has doubled in two years, and
Latvia's national airline has opened direct flights to Baku, Vike-Freiberga
said. The two presidents signed a further six agreements on economic, cultural
and scientific cooperation.
Latvia and Azerbaijan were both part of the Soviet Union until 1991. Since
joining the EU and NATO, Latvia has been keen to strengthen the organisations'
relationships with other western-leaning former Soviet states, such as Ukraine
and Georgia.
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FOREIGN LOANS
EBRD to loan Azerbaijan 50m Euro for non-banking financing support
The European Bank for Reconstruction and Development (EBRD) will loan Azerbaijan
50 million Euro for a project aimed at supporting systems of non-banking
financing institutes in countries with transitional economies, Interfax News
Agency reported.
The loan will be allocated to five commercial banks and one non-banking credit
organisation to finance small-business projects, EBRD Director for Small
Business, Chikako Kuno, was cited as saying in Baku on September 26th.
"We're prepared to expand cooperation with banks and non-banking credit
organisations that work in the area of micro-financing. Non-banking credit
organisations should correspond to the following criteria to be chosen: they
should provide quality credit services and have the potential for stable
development," Kuno said. The EBRD previously opened a one million Euro
credit line to CredAgro, an Azerbaijani non-banking credit organisation, as part
of the non-banking financing development project. CredAgro was set up in 2000 by
the US organisation ACDI/VOCA with the support of the USAID programme. Kuno
noted that the EBRD has also allocated loans to three organisations set up by
ACDI/VOCA in Kazakstan, Kyrgyzstan and Tajikistan. The goal of providing support
to non-banking financing institutes in countries with transitional economies is
to develop micro-financing institutes in Azerbaijan, Armenia, Georgia,
Kyrgyzstan, Moldova, Mongolia, Tajikistan and Uzbekistan.
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