VZCZCXRO8752
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKB #1419/01 3331018
ZNR UUUUU ZZH
R 291018Z NOV 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 4340
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2480
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 04 BAKU 001419 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/CARC 
DEPT PASS TO TDA FOR STEIN, EXIM FOR GLAZER 
ANKARA FOR FCS 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD ENRG EFIN AJ
SUBJECT: AZERBAIJAN COMMERCIAL UPDATE, NOVEMBER 1-15, 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.  END SUMMARY. 
 
- PRIVATIZATION VOUCHERS VALID THROUGH 2010 
- BTK RAILWAY LAUNCHED ON NOVEMBER 21 
- AZERIINSHAATSERVIS TO BUILD GEORGIAN BTK PASSAGE 
- NATIONAL BANK TO RESTRUCTURE FOREX RESERVES 
- NGO REPORTS 22.15 CPI INCREASE FOR PAST 10 MONTHS 
- LUKOIL SUPPORTS LOCAL BUSINESSMEN 
- GOAJ DEVELOPS NEW ANTI-INFLATION MEASURES 
- EBRD FORECASTS 30 PERCENT ECONOMIC GROWTH IN AZERBAIJAN 
- USD 20 BILLION CONSIDERED FOR STATE INVESTMENT PROGRAM 
- GOAJ KEEPS SUBSIDIZING FARMERS IN 2008 
- KOREAN STX ENERGY WANTS TO BUILD WIND POWER STATION 
- KOREAN COMPANY TO SPONSOR CONSTRUCION OF THE NEW PORT 
- GOAJ FOREX RESERVES EXCEED USD 3.26 BILLION 
- FIRST SUBCONTRACTORS FOR GOLD MINING PSAS ANNOUNCED 
- GOAJ TO NEGOTIATE VOLGA-DON-2 CHANNEL PROJECT 
- PRESIDENT ESTABLISHES A STRATEGIC RESEARCH CENTER 
- COMMERZBANK AG EXPANDS TO AZERBAIJAN 
- GOAJ DEVELOPS NEXT HOUSING AND PUBLIC UTILITY REFORM 
- KESHLI ENTERPRISE TRANSFER TENDER ANNOUNCED 
- TWO COMPANIES' TRANSFER TENDER ANNOUNCED 
- ENVIRONMENT MINISTRY ANNOUNCED A TENDER 
 
¶2. PRIVATIZATION VOUCHERS VALID THROUGH 2010 
-------------------------------------------- 
President Ilham Aliyev issued a decree on November 13 extending the 
validity of state privatization vouchers and state privatization 
options until January 1, 2010. 
 
¶3. BTK RAILWAY LAUNCHED ON NOVEMBER 21 
-------------------------------------- 
On November 21 the leaders of Azerbaijan, Georgia and Turkey 
inaugurated the construction of the Baku-Tbilisi-Kars railway 
project.  It is the region's first major project not directly 
related to energy. The railway will ensure the uninterrupted 
transport of passengers and freight. It is expected to lead to 
further development of the Europe-Caucasus-Asia transport corridor 
within the reconstruction of the ancient Great Silk Road. 
 
¶4. AZERIINSHAATSERVIS TO BUILD GEORGIAN BTK PASSAGE 
--------------------------------------------- ------ 
According to the Georgian Marabda-Kartsakhi Railway LLC, which 
oversees the construction of the Georgian branch of the railway, 
Azerbaijan's Azeriinshaatservis has been selected as the primary 
construction contractor. The Azerbaijani company shall carry out 
construction on the 60km Georgian segment from Akhalkalaki to Kars. 
Marabda-Kartsakhi Railway LLC has already received USD 280,000 to 
cover the initial cost of construction works. By the end of 2007, 
the GOAJ plans to provide Georgia with the first USD 40 million 
tranche out of the USD 200 million loan allocated from the State Oil 
Fund of Azerbaijan (SOFAZ).  This amount shall cover reconstruction 
of the Marabda-Akhalkalaki railway branch and building of new 
railway segment from Akhalkalaki to the Turkish border.  The loan 
will be extended for a 25-year period with a one percent per annum 
rate through the International Bank of Azerbaijan's subsidiary 
IBA-Georgia. 
 
¶5. NATIONAL BANK TO RESTRUCTURE FOREX RESERVES 
--------------------------------------------- - 
The GOAJ will work on minimizing its foreign exchange losses from 
the long-term depreciation of the U.S. dollar.  National Bank (NB) 
chairman Rustamov has proposed to change the structure of the 
country's FOREX reserves.  Azerbaijan's currency reserves exceed USD 
7 billion and are formed mainly from two sources - NB's reserves and 
assets of SOFAZ.  The NB currency reserves (USD 3.285 billion) are 
90 percent formed in US dollars. According to the National Bank, the 
local currency market totals USD 10 billion, with the majority of 
the transactions done in the American currency. "For example, 85-90 
percent of total foreign trade operations are in US dollars", 
Rustamov emphasized. "The current depreciation of the US dollar is 
not a risky factor for us, however, we still would like to 
restructure our FOREX assets and find the optimal balance", he 
added. 
 
 
¶6. NGO REPORTS 22.15 CPI INCREASE FOR PAST 10 MONTHS 
--------------------------------------------- ------- 
USAID-funded Economic Research Centre reported that the consumer 
price index (CPI) for January-October 2007 reached 22.15 percent, of 
 
BAKU 00001419  002 OF 004 
 
 
which prices rose 22.81 percent in Baku and 21.32 percent in the 
rural regions of the country. 
 
¶7. LUKOIL SUPPORTS LOCAL BUSINESSMEN 
------------------------------------ 
Russia's Lukoil plans to support the creation of the SME Development 
Support Fund in Azerbaijan.  Lukoil will also invest in development 
of the educational system in Azerbaijan. In Azerbaijan, Lukoil 
participates in the development of the Shah Deniz gas condensate 
field (10 percent) and exploration of D-222 (Yalama) perspective 
structure. 
 
¶8. GOAJ DEVELOPS NEW ANTI-INFLATION MEASURES 
-------------------------------------------- 
Heydar Babayev, Minister of Economic Development of Azerbaijan, 
stated in Parliament that world competition (strengthening of 
inflation, price growth for oil) had led to the strengthening of 
inflationary trends in Azerbaijan in 2007.  According to Babayev, in 
2008, due to Azerbaijan's fast-paced economic development, currency 
inflow and rising import prices will bring the CPI up to 12-14 
percent.  Babayev pledged that the GOAJ would apply new 
anti-inflation tools. 
 
¶9. EBRD FORECASTS 30 PERCENT GROWTH IN AZERBAIJAN 
--------------------------------------------- ---- 
According to the EBRD's report on countries in economic transition, 
while average weighted growth in all the EBRD member countries will 
be 7 percent in 2007 against 6.9 percent in 2006, Azerbaijan's GDP 
will grow at 30 percent compared to last year's 34.5 percent. 
According to the EBRD, inflation in Azerbaijan will rise further. 
 
¶10. USD 20 BILLION FOR STATE INVESTMENT PROGRAM 
--------------------------------------------- -- 
The Ministry of Economic Development has announced that the USD 20 
billion State Investment program for 2008-11 will focus on 
infrastructure and social projects.  In particular, the Minister of 
Economic Development announced that in 2008 the GOAJ would invest 
USD 1 billion in the transport sector, USD 684 million in public 
utility projects, USD 337 million in water supply and irrigation 
systems, and around 812 million in the energy sector and 
manufacturing.  In frameworks of the program, the GOAJ plans to 
spend USD 4.6 billion in 2008, USD 4.82 billion in 2009, USD 4.45 
billion in 2010 and USD 3.88 billion in 2011 respectively. 
Approximately 79.3 percent of the program cost will come internal 
financing, while international sources will fund the remaining 
costs.  The general investments directions are the following: 
infrastructure projects- USD 11.7 billion, social projects-USD 3.78 
billion, institutional projects at USD 22.1 million, defense 
projects at USD 864 million, rehabilitation of the country's 
released territories at USD 398 million. 
 
¶11. GOAJ KEEPS SUBSIDIZING FARMERS IN 2008 
------------------------------------------ 
The GOAJ has announced that it will continue subsidizing 50 percent 
of the cost of lubricants and fertilizers for Azerbaijani farmers. 
The State Budget has already utilized USD 57 million out of USD 31.2 
million allocated for this purpose.  Despite the WTO requirements to 
minimize the level of subsidies, the GOAJ still plans to allocate 
USD 91.2 million in this direction in 2008.  This will also include 
subsidized leasing of agricultural equipment on by Agroleasing OJSC 
at USD 45.6 million. 
 
¶12. KOREAN STX ENERGY WANTS TO BUILD WIND POWER STATION 
--------------------------------------------- ---------- 
The Ministry of Industry & Energy of Azerbaijan announced that 
Korean STX Energy Co will soon complete a feasibility study on a 
wind power station project in Azerbaijan. The Cabinet of Ministers 
and the Office of the President will review the draft next month. 
The USD 40 million project aims at construction of a wind power 
station in Gobustan district and is to be completed in late 2008 or 
early 2009. 
 
¶13. KOREAN COMPANY TO BUILD NEW PORT 
------------------------------------ 
The MED has announced that Korean GSE & Construction was ready to 
fund out of its own sources construction of the new Baku 
International Sea Trade Port in the Alat settlement of Baku. 
Preliminary cost of construction is USD 400 million, with the 
project to be completed in 2011. 
 
¶14. GOAJ FOREX RESERVES EXCEED USD 3.26 BILLION 
--------------------------------------------- --- 
For November 1-6, the National Bank of Azerbaijan's currency 
 
BAKU 00001419  003 OF 004 
 
 
reserves grew to USD 27.3 million.  The NBA reports a 66 percent 
increase in currency reserves as of the beginning of 2007.  The Bank 
plans to bring the OREX reserves up to USD3.5 billion by the end of 
¶2007. 
 
¶15. FIRST SUBCONTRACTORS FOR GOLD MINING PSAS ANNOUNCED 
--------------------------------------------- ---------- 
Azerbaijan International Mineral Resources Operating Co, Ltd, has 
announced first subcontracts under the PSA for development and 
exploration of six gold deposits in Azerbaijan.  These are R.I.S.K. 
Company (Azerbaijan)- the winner of the tender for composition of 
topographic maps of Chovdar and Garadagh ore deposits (scales 
1:10000 and 1:2000), and SRM LLC  - the winner of the contract for 
composition of a report on the influence of geologic works at 
Chovdar field on environment.  The work timeline is 24 months from 
first quarter of 2008. 
 
¶16. GOAJ TO NEGOTIATE VOLGA-DON-2 CHANNEL PROJECT 
--------------------------------------------- ---- 
The GOAJ has agreed to negotiate making investments in the 
construction of the second branch of the Volga-Don channel 
(Volga-Don 2) with Russia.  Under the current arrangements, 
Azerbaijan pays USD 40,000 per one vessel going through the Russian 
channels, while Russia pays only USD 4,000.  Russia permits no more 
than 30 Azerbaijani vessels to pass through its internal waters per 
annum.  Azerbaijan received permission for 14 vessels only for the 
year of 2007. 
 
¶17. PRESIDENT ESTABLISHES A STRATEGIC RESEARCH CENTER 
--------------------------------------------- -------- 
The GOAJ has established a Strategic Research Centre to coordinate 
strategic surveys and provide scientific and analytical data support 
to the front line ministries and agencies of Azerbaijan.  The Center 
will employ 30 people, and the Ministry of Justice shall register it 
within 15 days.  The Cabinet Ministers shall provide the Centre with 
an administrative building and necessary equipment within a month 
and solve issues of financing of the Strategic Research Centre, 
which will operate under the President's Office of Azerbaijan. 
 
¶18. COMMERZBANK AG EXPANDS TO AZERBAIJAN 
---------------------------------------- 
According to the National Bank, Commerzbank AG has almost completed 
the process of opening a representative office in Baku.  The 
National Bank official indicated that Commerzbank has already 
submitted a full package of documents and applied for a permission 
to start operations in Azerbaijan. 
 
¶19. GOAJ DEVELOPS HOUSING AND PUBLIC UTILITY REFORM 
--------------------------------------------- ------ 
The GoAJ is developing the next program of housing and public 
utility reform (drafting of its first version was started in 1997) 
to bring it up for discussion at the Parliament, according to MED 
Minister Babayev.  So far, the GOAJ has only been able to create the 
state heat supply joint stock company, which in fact, failed to 
improve heat supplies system Azerbaijan. 
 
¶20. KESHLI ENTERPRISE TRANSFER TENDER ANNOUNCED 
--------------------------------------------- -- 
The State Property Management Committee of Azerbaijan has announced 
extension of the tender procedures for the first stage of transfer 
Keshli Machine-Building Plant (Azneftkimyamash OJSC) to the 
territory of the Yashma industrial town at the intersection of Khizi 
and Absheron regions and for dismantling of the old building and 
construction of a new one for a military unit located on Heydar 
Aliyev Avenue of Baku.  Both tenders have been prolonged until 11:00 
am on November 23, 2007.  The documents for participation and the 
bids are accepted until November 22. Participation cost of each 
tender is USD 570. Contact phone: (+99412) 490-24-08 (150,242), 
490-33-59 (fax). 
 
¶21. TWO COMPANIES' TRANSFER TENDER ANNOUNCED 
-------------------------------------------- 
The State Property Management Committee of Azerbaijan has announced 
the tender procedures for the second stage of transfer of 
Azerelektrosvet OJSC and Ulduz scientific and producer company to 
the territory of the Yashma industrial town at the intersection of 
Khizi and Absheron regions.  The tenders consist of lots for 
dismantling of the old building, installation and equipment of 
companies, storage of companies' property; cleaning of territory; 
disassembling of companies communications lines.  Participation cost 
of each tender is USD 228. The applicants are to submit tender 
documents and bid applications by November 20, 2007 at the address: 
Room 914, 20, Safarov St, Baku. The tender procedure will be held at 
 
BAKU 00001419  004 OF 004 
 
 
11:00 am November 21, 2007. Contact numbers: (+99412) 490-24-08 
(150,242); 490-33-59 (fax). 
 
¶22. ENVIRONMENT MINISTRY ANNOUNCED A TENDER 
------------------------------------------- 
The Department of Forest Protection of the Ministry of Environment 
and Natural Resources of Azerbaijan has announced a tender procedure 
for reclamation works.  The tender includes two lots: creation of 
root and nursery plant system under conditions of protected ground 
in the Absheron region area and construction of a water pipeline in 
Jengi village of Gobustan region.  The criteria for selection are 
low price, quality, financial condition and experience on similar 
supplies.  Tender participation cost on the 1st and 2nd lots is USD 
114 and USD285 respectively.  The applicants shall submit a bank 
reference on participation cost payment, work schedule, indicate 
company's full name, juridical status, properties, the registration 
country, data about financial condition for the last year of 
activity, potential, a tax debt lack reference, a 2% bank guarantee, 
conformity certificates and its issuer sources.  The documents 
should be submitted by 18:00, November 20, 2007 at the address: 
100-A, B.Agayev St, Baku. The bids will be received throug 18:00, 
November 22, 2007. The tender will be hel at 16:00, November 23, 
¶2007. Contact numbers: (99412) 510-33-34. Contact person: Mehbali 
Kerimov. 
 
DERSE