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C O N F I D E N T I A L SECTION 01 OF 05 BAKU 000411 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 03/17/2016 
TAGS: PINR ECON PGOV PREL AJ
SUBJECT: ECONOMIC DECISION-MAKING AZERBAIJANI STYLE 
 
REF: STATE 27788 
 
Classified By: Ambassador Reno L. Harnish III per 1.4 (b,d). 
 
¶1. (C) SUMMARY: President Ilham Aliyev is the lead economic 
and political decision-maker in Azeraijan.  Aliyev, however, 
makes most economic polcy decisions relying upon a small 
close group ofbusiness contacts and trusted government 
ministers.  High-level economic decision-making in Azerbaijan 
remains a mostly murky mystery with only whispers of rumors 
escaping from the inner circle.  Based on past and current 
economic policy decisions, one can conclude that President 
Aliyev and his close allies generally make key economic 
decisions based on their personal business and financial 
interests.  That said, President Aliyev and some in his 
government have also promoted several poverty reduction and 
regional economic development programs.  Most government 
officials in Azerbaijan operate large, powerful personal 
businesses that deal directly with the government.  This 
collusion between the GOAJ and private business controlled by 
the economic elite makes the task of unveiling economic 
decision-making difficult.  END SUMMARY. 
 
¶2. (C) Answers are keyed to reftel questions: 
 
¶3. (C) A. With the changes in Aliyev's economic circle, which 
officials are most likely to have decision-making authority 
on key fiscal and energy issues? 
 
¶4. (C) Fiscal decision-making in Azerbaijan is determined 
haphazardly and without much economic strategy or long-term 
planning.  Within the GOAJ, Economic Development Minister 
Heydar Babayev, a close personal friend of President Aliyev, 
currently has the most sway over economic decision-making in 
the government.  As a successful businessman and former 
banker in London, he has quite a bit to gain or lose based on 
GOAJ economic, fiscal and monetary decisions.  Despite his 
personal interests, Babayev has declared to some 
interlocutors that he has already made his fortune and does 
not seek government office to make money. 
 
¶5. (C) Babayev's family, like those of many government 
officials, operates a large holding company, ABU Holdings, 
that has many different subsidiaries, including Bank Standard 
and ABU gasoline stations.  While not directly connected to 
the jailing of Former Economic Development Minister Farhad 
Aliyev, he and his family's company have benefited 
tremendously from the arrest and subsequent breakup of 
businesses connected to Aliyev, particularly AzPetrol. 
Babayev personally benefited with Farhad Aliyev's arrest by 
assuming his position as Minister of Economic Development. 
Babayev had previously been Chairman of the State Securities 
Committee.  In addition, Babayev's family oil and banking 
businesses benefited with the breakup of the competitive 
AzPetrol business and the investigation of the Farhad Aliyev 
connected Bank of Baku. 
 
¶6. (C) In addition, we believe that the current Minister of 
Emergency Situations, former Chairman of the State Customs 
Committee and another close contact of President Aliyev, 
Kemalladin Heydarov, exerts significant influence over 
economic decision-making, if only in an indirect way.  While 
neither his former position, nor his current Ministry has any 
jurisdiction over economic, monetary or fiscal economic 
policy, he certainly can influence policy using his close 
ties to the President and his tremendous wealth. 
 
¶7. (C) Heydarov was originally appointed by former President 
Heydar Aliyev to the Customs Committee to facilitate 
lucrative oil exports from Azerbaijan.  While at Customs, he 
oversaw a large source of budget revenue for the GOAJ in 
tariff collections.  He expanded Customs, income by 
systematizing bribery within the organization.  Post has 
recently heard rumors that Customs "fees" for imports under 
the new Customs Chairman Aydin Aliyev have increased six to 
15 times in recent months.  The "fee" increase is so high, 
that some importers are holding their goods at the border 
rather than bring them into the country. 
 
¶8. (C) It remains to be seen what role Heydarov will play in 
his new Ministry of Emergency Situations.  He has alread 
begun to exert political power by gobbling up sveral minor 
agencies and his newly created super-ministry cuts across the 
 
BAKU 00000411  002 OF 005 
 
 
areas of interest of several different ministries.  It 
appears that Heydarov will now have his own armed troops 
("militarized special guard service"), criminal investigation 
capacity, and ships and wharfs formerly run by the Caspian 
Specialized Emergency and Rescue.  On a more interesting 
note, President Aliyev also transferred to MES the former 
State Agency for City Planning and Architecture, which means 
that the MES may control city-related construction and 
architecture issues.  Observers have cynically noted this is 
a potential windfall for Heydarov that on the surface seems 
to have little link to emergency situations. 
 
¶9. (C) The Ministry of Finance and National Bank of 
Azerbaijan wield limited influence over fiscal and monetary 
policy.  Both Finance Minister Alakbarov and National Bank 
Chairman Rustamov are long-time political players but do not 
appear to have the personal connections or charisma that 
would add weight to their efforts to reform the economy and 
spur economic growth.  They are both talented technocrats who 
are attempting to perform their duties while surrounded by 
disjointed and dangerous economic decision making. 
 
¶10. (C) On energy, it appears that Valekh Alasgarov, formerly 
head of the Foreign Investment Department at SOCAR, will 
continue to have great influence over Azerbaijan's energy 
policy in his new incarnation as one of Parliament's deputy 
speakers and the chairman of Parliament's Energy Committee. 
He had been instrumental in the negotiations for the 
Baku-Tbilisi-Ceyhan pipeline and is now playing a leading 
role on the intergovernmental agreement with Kazakhstan, 
bluntly saying that the agreement will not pass Parliament in 
its current form.  Embassy contacts have been told that he is 
taking his orders directly from the President. 
 
¶11. (C) Another player in Azerbaijan's energy policymaking 
circle is current SOCAR President Rovnag Abdullayev, who is 
close to President Aliyev.  Abdullayev is the former 
president of the Heydar Aliyev Oil Refinery, an institution 
closely connected to the leadership in Azerbaijan.  He has 
brought many of his deputies from the oil refinery to SOCAR. 
Many of them are also politically connected to the 
government.  Abdullayev supposedly has a family connection to 
someone in the presidential security apparatus.  Several in 
the international energy community in Baku have expressed 
concern that SOCAR appears adrift under Abdullayev's 
leadership.  Some of this may be due to the fact that 
Abdullayev seems focused on reorganizing SOCAR internally, 
but the end result is that he seems much less involved in 
setting national or international policy for the 
organization. 
 
¶12. (C) The status of current Minister of Energy and Industry 
(MEI) and former SOCAR President Natik Aliyev is unclear. 
According to some reports, he was not happy about his 
reassignment to the MEI from SOCAR and appears to be on the 
outs in the government.  Others have characterized his new 
position as a sinecure.  However, in several meetings Aliyev 
has said that he intends to focus on the industrial part of 
his portfolio.  This work will involve both expanding and 
restructuring the MEI itself (it currently is very small) and 
in getting a handle on the hundreds and hundreds of state 
enterprises and public/private enterprises in Azerbaijan. 
This will leave Aliyev little time to work on Azerbaijan's 
national/international energy policies at anything more than 
the broadest possible level.  Aliyev has also disclaimed any 
interest in taking over international negotiating functions 
from SOCAR. 
 
¶13. (C) Another figure in Azerbaijan's energy establishment 
worthy of note is Samir Sharifov, the head of the State Oil 
Fund of Azerbaijan.  He appears to have carved out an 
important role where macroeconomics intersects with energy, 
especially when dealing with Western interlocutors.  AIOC 
President David Woodward has said that he believes Sharifov 
is President Aliyev's primary strategic-level advisor on 
energy issues.  A second figure of note is former diplomat 
Elshad Nazirov, SOCAR's vice president for marketing and 
development.  He represented SOCAR at the recent conference 
called by Deputy Foreign Minister Araz Azimov to highlight 
how Caspian energy resources can meet the demands of European 
markets and deals a lot with the international community. 
Both men are fluent English speakers and very comfortable in 
the international arena. 
 
BAKU 00000411  003 OF 005 
 
 
 
¶14. (C) B. To what degree does Aliyev maintain final 
authority on economic decision-making and how much does he 
depend on expert advice? 
 
¶15. (C) By all accounts, President Aliyev follows closely the 
macroeconomic situation and retains final economic 
decision-making power.  While President Aliyev most certainly 
makes some economic decisions based upon his personal and 
family wealth interests, he has led GOAJ efforts to reduce 
poverty and increase the economic development of Azerbaijan's 
regions.  He is widely rumored to be Azerbaijan,s richest 
person and his wife Mehriban Aliyeva is from the politically 
powerful Pashayev family.  While it is widely assumed that 
Aliyev controls vast assets, Aliyev is not linked either 
publicly or privately to any known business ventures in 
Azerbaijan.  Most Azerbaijanis believe that President Aliyev 
transferred all of his personal assets into his wife,s name 
upon taking office in 2003; she also is not linked either 
publicly or privately to any known businesses in Azerbaijan. 
 
¶16. (C) It is unclear if President Aliyev relies on expert 
advice.  President Aliyev once grumbled to the Ambassador 
that he cannot rely on his ministers to provide him with 
sound technical advice and often has to read up on key policy 
decisions on his own.  The advice that Aliyev receives from 
his ministers and advisors would tend to be slanted towards 
their own personal business and financial interests.  The 
President would certainly filter any advice he receives 
through his own complex personal business and financial 
interests in order to make final economic policy decisions. 
 
¶17. (C) Minister Babayev is rumored to have been the man in 
charge of the First Family's money, which may make Ilham's 
filter a little less dark when dealing with Babayev, who 
probably has many of the same types of interests.  Another 
influential figure, the President's Chief of Staff, Ramiz 
Mehdiyev, maintains significant business interests in Russia, 
is rumored to have connections to Lukoil and holds extensive 
property in Baku.  There are no known high-level foreign 
advisors to the President, although most certainly his 
international bankers could, if requested, provide some 
economic and financial advice. 
 
¶18. (C) At a recent brainstorming meeting with the 
Ambassador, Babayev removed Presidential Economic Advisors 
Vahid Akhundov and Ali Asadov from a proposed guest list for 
a macroeconomic and budget workshop.  Babayev remarked that 
he had not seen Akhundov in months and that "the President 
does not listen to Asadov."  In theory, both Akhundov and 
Asadov are supposed to be close economic advisors to the 
President.  It was clear from Babayev that he did not 
consider them to be relevant.  In addition, Post has been 
trying since early January to arrange a meeting with Akhundov 
but has been repeatedly told he is on "vacation." 
 
¶19. (C) Some of Azerbaijan,s economic decisions appear to be 
modeled after Russian President Putin's decision-making 
style, teetering on the brink of an oligarchy.  Reminiscent 
to the Yukos affair in Russia, Azerbaijan recently pulled 
apart AzPetrol, a company connected to the jailed brother of 
former Minister of Economic Development Farhad Aliyev, and 
gave different parts of the company to insiders, including 
Jalal Aliyev, brother of late President Heydar Aliyev and 
uncle of Ilham.  The principal owners of AzPetrol, Rafik 
Aliyev, and his brother, former Minister of Economic 
Development Farhad Aliyev, remain jailed on charges of 
plotting a coup in November 2005.  All the businesses in 
Azerbaijan with any connection to the Aliyev brothers have 
been inspected by government authorities and in some cases 
owners have been jailed on suspicion of collusion with the 
Aliyev brothers. 
 
¶20. (C) The recent AzPetrol case highlights that the GOAJ 
believed that Farhad Aliyev had gone too far politically and 
had too much influence economically.  The government's final 
decision to remove Farhad Aliyev most likely was based on a 
political fear that he, along with others inside and outside 
of Azerbaijan, were planning a coup.  As a result of Aliyev's 
removal and his brother Rafik Aliyev's detention, business 
rivals in the GOAJ, including Babayev, seized upon the 
opportunity to break up the successful and competitive 
AzPetrol gasoline stations business model.  The fact that the 
 
BAKU 00000411  004 OF 005 
 
 
President decided to remove him from office only weeks before 
a highly anticipated Parliamentary election could indicate 
the willingness of the President and his close associates to 
risk international condemnation for political and economic 
gain.  Economic interests aside, however, President Aliyev 
seems to genuinely believe that Farhad Aliyev posed a real 
security risk. 
 
¶21. (C) C. Which officials in the economic sphere are most 
resistant to advice from the international financial 
institutions?  Can post speculate on the reasons behind this 
resistance? 
 
¶22. (C) To one extent or another, all of Azerbaijan,s key 
decision makers are resistant to advice from the 
international financial institutions (IFI).  Economic 
Development Minister Heydar Babayev is the most resistant to 
the International Monetary Fund and its past efforts to 
reform the economy, and especially its attempts to privatize 
the state-owned International Bank of Azerbaijan.  Babayev 
also has criticized the role of the European Bank of 
Reconstruction and Development for its investments in 
mid-tier banks, such as Bank of Baku and UniBank. 
 
¶23. (C) In several meetings with Ambassador Harnish, Babayev 
has gone out of his way to criticize the IMF and the EBRD. 
In the latest meeting to review the agenda for an upcoming 
macroeconomic and budgetary workshop, Babayev requested that 
the IMF resident representative not give a presentation. 
Instead, Babayev said that a World Bank representative should 
make the presentation, noting that the World Bank "gives us 
money and is trying to help us." 
 
¶24. (C) Babayev's dislike for the IMF may be connected to his 
personal business and financial sector interests.  His family 
controls or is shareholder in many different businesses in 
Azerbaijan.  Babayev's family operates ABU Holdings, which 
has interests in banks (Bank Standard), gasoline stations and 
other businesses.  The IMF's financial and economic 
prescriptions would adversely affect ABU's preferential 
position and its many businesses. 
 
¶25. (C) Babayev's dislike for EBRD seems to come from his 
personal business dealings in Russia.  He has told the 
Ambassador that the EBRD invested heavily in banks in Russia 
during the 1990s, similar to its current efforts in 
Azerbaijan.  This investment, according to Babayev, led the 
banks to bankruptcy.  EBRD's private equity investments in 
certain banks in Azerbaijan also threaten the competitiveness 
of Babayev's family bank, Bank Standard.  Babayev also 
appears to have a personal dislike for the Canadian head of 
the EBRD. 
 
¶26. (C) Any resistance to IFI policies by other key economic 
actors would be due to their personal business and financial 
interests.  Presidential Chief of Staff Ramiz Mehdiyev 
maintains extensive business interests and looks more towards 
Russia for economic advice than the West and the IFIs. 
Minister of Emergency Situations and former Chairman of the 
Customs Committee, Kemalladin Heydarov, is one of the 
principal shareholders in ATA Holdings, along with the 
current Minister of Taxation Fazil Mammadov.  Mammadov was 
the deputy to Heydarov at Customs in the 1990s.  ATA 
Holdings, which comprises firms in banking, insurance and 
financial services, construction, and industry, would stand 
to profit or lose based on IFI reform directives and 
policies. 
 
¶27. (C) D. What relationships do key energy decision makers 
maintain with energy officials in Russia and Turkey?  Do they 
share business ties? 
 
¶28. (C) In general, there is a great deal of business and 
trade between Russia and Azerbaijan.  Banking contacts have 
told Embassy officers that as much as USD 3 billion per year 
flows between the two countries, while GOAJ officials put the 
figure only at USD 1 billion.  Two-thirds of this amount 
never enters the banking system and operates in a "gray 
market" of business deals negotiated between contacts in Baku 
and Moscow.  While we do not have specific figures, it is 
safe to assume that a significant portion of this trade is 
due to personal connections between Azerbaijani government 
officials and Russian businesses.  Azerbaijan also trades 
 
BAKU 00000411  005 OF 005 
 
 
extensively with Turkey.  Turkish goods and  clothing in 
local stores and shops compete directly with Russian 
manufactured goods.  Turkish construction companies are 
actively participating in the construction boom in Baku and 
other areas of Azerbaijan. 
 
¶29. (C) Presidential Chief of Staff Ramiz Mehdiyev, in 
particular, maintains significant business interests and 
wields enormous political power.  Mehdiyev has deep 
commercial ties to Russia, including rumored political and 
Lukoil connections.  With construction booming in Baku, 
Mehdiyev also controls elements of the lucrative trade in 
construction materials, including high quality Russian steel 
rebar.  Mehdiyev may be involved with the GOAJ's efforts to 
force out Turkish electric company Barmek from Azerbaijan andQreplace it with Russian electric company UES. 
 
¶30. (C) Post has little information on ties among energy 
decision makers in the region.  It is certainly probable that 
many energy decision-makers have ties to Russia, or Turkey, 
or both, given historical experience.  However, any such 
relationships are probably personality-based.  The Turkish 
electrical-distribution company Barmek has had great 
difficulties in Azerbaijan and is facing a possible shutdown 
in Azerbaijan.  The energy sector appears to be one area 
where Russian influence has not penetrated.  Russian 
interests tend to aim more at blocking or blunting 
Azerbaijan's initiatives, for example by trying to sew up the 
gas market in southern Europe to prevent a greater role for 
Azerbaijani gas in Europe.  Russian officials (unlike Turkish 
officials) are not invited to or do not attend international 
energy meetings in Baku.  This is in contrast to the 
privileged position that Russian companies have acquired in 
the non-energy sector, in areas ranging from the construction 
industry to shipping registries. 
 
¶31. (C) Post notes, however, that while there may be a number 
of commercial energy deals (Azerbaijan buys some gas from 
Gazprom), Russian and Turkish firms do not appear to own or 
control any pipelines and have only minor offshore gas and 
oil interests compared to other Caucasus countries. 
HARNISH