VZCZCXRO1087
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKB #1199/01 2711224
ZNR UUUUU ZZH
R 281224Z SEP 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 3973
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2384
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 BAKU 001199 
 
SIPDIS 
 
DEPT FOR EUR/CARC 
DEPT PASS TO TDA FOR STEIN, EXIM FOR GLAZER 
ANKARA FOR FCS 
 
SIPDIS 
 
TAGS: ECON EINV ETRD ENRG EFIN AJ
SUBJECT:  AZERBAIJAN COMMERCIAL UPDATE, SEPTEMBER 2007 
 
 
¶1.  Summary: This information is drawn primarily from the 
Azerbaijani local press, and has not been checked for accuracy.  The 
opinions and policies expressed in this report are those of the 
authors, not the U.S. Government. 
 
SOUTH KOREAN INVESTMENT PROJECTS 
 
¶2.  On September 5, President Ilham Aliyev received a delegation 
from the South-Korean "GS E&C" corporation.  The company has 
designed port relocation plans to move the Baku port to a wider area 
near the settlement of Alat, south of Baku.  According to media 
reports, the project is valued at approximately $400 million and is 
designed to be executed in three phases with a completion date of 
¶2015.  The Government of Azerbaijan expects to finance the project 
from the budget. 
 
¶3. Another South-Korean company, Don Sung Engineering, submitted its 
proposal to the Government to construct a bridge across the Baku 
Bay.  According to the project, the bridge is proposed to link the 
settlements of Shikhovo and Zikh and be 13.3 km long.  It is 
supposed to ease major rush hour traffic and help with tourism 
development.  The project is designed to be completed by 2015. 
 
SMALL POULTRY BUSINESSES CLOSED DOWN 
 
¶4.  Nearly 80 percent of small poultry businesses have closed down 
in Azerbaijan.  According to Aydin Veliyev of the National Poultry 
Society, 100-150 small private businesses have shut down in the 
Absheron peninsula area alone.  He cited price increases on grains 
and lack of domestic stockpiles of feeds and food additives, as 
primary reasons leading to closures.  He also mentioned that the 
government is currently reviewing a proposal to make poultry 
equipment and food additives exempt from VAT. 
 
BAKU-TBILISI-KARS RAILWAY CONSTRUCTION 
 
¶5.  According to the Ministry of Transportation, construction of the 
Georgian (29 km) and Turkish (76 km) parts of the Baku - Tbilisi - 
Kars railway will start in October with an official ceremony on the 
Georgian - Turkish border. According to the Ministry, 50 companies 
have bid to participate in the tender, which parties hope to 
finalize by the end of September.  The final document on BTK was 
signed last February in Tbilisi.  According to the deal, Azerbaijan 
will issue Georgia a 200-million-USD loan (25 years, 1 percent 
interest rate) to help finance renovation of the existing lines, 
construction of a new 29-km line and a service station on the 
Turkish border. 
 
AZERBAIJAN RAILWAYS TO BECOME A JOINT-STOCK COMPANY 
 
¶6.  The Ministry of Transportation is conducting negotiations with 
the World Bank to reform Azerbaijan Railways into a joint-stock 
company.  This effort has been included in the national railway 
development program, which is being reviewed by the government. 
According to Musa Panahov, Deputy Minister of Transportation, 
reforms at Azerbaijan Railways are possible in the near future.  The 
Government will own 100 percent of shares at the start of the new 
enterprise. 
 
CASPIAN SHIPPING COMPANY INTENDS TO BUY THREE FERRIES 
 
¶7.  Azerbaijan State Caspian Shipping Company plans to purchase 
three ferries.  Proposals have been submitted to the Ministry of 
Economic Development to be included in the State Investment Program 
for 2008.  The Company justifies the purchase with increased volumes 
of shipments and more container shipments within TRACECA. 
Currently, the Company has a fleet of 7 ferries which transport 
shipments between Baku-Aktau, Kazakhstan and Baku-Turkmenbashi, 
Turkmenistan. 
 
JUICE AND NUT EXPORT PROMOTION ASSOCIATIONS 
 
¶8.  Germany's GTZ, together with AzPromo (the GOAJ's investment 
promotion agency), plans to create associations to help promote 
juice and nuts business in both domestic and foreign markets. 
According to GTZ, Azerbaijani business people have been offered to 
unite to compete with large foreign producers from Ukraine, Russia, 
and Turkey, whose produce is available in Azerbaijan and 
internationally. Natural fruit juices from Azerbaijan have high 
export potential, but packaging and marketing is key in the 
international markets, and Azerbaijani products are inferior in this 
regard. 
 
GOAJ TO INCREASE FUNDING FOR STATE INVESTMENT PROGRAM 
 
BAKU 00001199  002 OF 002 
 
 
 
¶9.  According to Minister of Economic Development Heydar Babayev, 
the government will increase public spending in 2008, but the 
investments will increase to a smaller degree. The government wants 
to finish the projects they have already started this year and get 
new ones under way. 
 
AZERBAIJAN TO BUILD A WASTE-MANAGEMENT PLANT 
 
¶10.  According to Minister of Economic Development Heydar Babayev, 
the construction company to build a waste-processing plant will be 
chosen before the end of 2007. The Cabinet of Minister is due to 
issue an order to grant the Ministry of Economic the financial means 
to carry out the selection.  According to the Minister, three 
companies are bidding for the project, and the contract should be 
signed before the end of 2007. 
 
AZERBAIJAN TO BUILD A NUCLEAR REACTOR 
 
¶11.  According to Adil Garibov, Director of the Institute of 
Radiation Problems of the National Academy of Sciences, the GOAJ has 
approved construction of a nuclear reactor, a development that in 
Garibov's view would positively affect the country's strategic 
image.  Garibov added that, if the IAEA approves this matter during 
its upcoming 51st conference to be held on 17-21 September in 
Vienna, the government could start construction in 2009. 
 
IDA AND IBRD WILL HELP FINANCE ABSHERON PENINSULA CLEAN-UP 
 
¶12.  The International Development Association (IDA) and the 
International Bank for Reconstruction and Development (IBRD) will 
provide Azerbaijan with a 70-million-USD loan to help finance 
clean-up of the oil-contaminated lands of the Absheron Peninsula. 
The Government of Azerbaijan intends to sign the financing agreement 
before the end of this year.  The State Oil Company of Azerbaijan 
(SOCAR) is cooperating with the World Bank as part of the 2006-2010 
state program.  The total area of contaminated lands on the Absheron 
peninsula is estimated at around 33,000 hectares, of which SOCAR 
owns 15,000 hectares of the most contaminated lands.  SOCAR and the 
Government of Azerbaijan have set aside 63 million manats (roughly 
$74 million) and 18.5 million manats (roughly $21.7 million) 
respectively for this project. 
 
MANAGEMENT OF POWER DISTRIBUTION NETWORKS TO BE TENDERED OUT 
 
¶13.  President Ilham Aliyev has signed a decree to conduct a tender 
for the management of two regional power grids in Azerbaijan.  The 
decision aims to help promote investments in the regional power 
distribution networks, introduce structural changes in the 
infrastructure, and improve overall power supply for the population 
and transparency in payment processing.  The Sumgayit network covers 
the city of Sumgayit.  The Sheki network covers the regions of 
Sheki, Gakh, Balaken, Zagatala and Oghuz.  The State Property 
Committee has been tasked with conducting the tenders. 
 
DERSE