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C O N F I D E N T I A L BAKU 000070 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EEB, EUR/CARC 
 
E.O. 12958: DECL: 01/28/2018 
TAGS: ETDR ECON WTRO PINR PGOV KCOR PREL AJ
SUBJECT: RUMORS SWIRL OF MINISTER OF ECONOMIC DEVELOPMENT'S 
LOOMING DOWNFALL 
 
Classified By: AMB ANNE E. DERSE; REASONS 1.4 (b,d). 
 
¶1. (C) SUMMARY:  Since his 2005 appointment as Minister of 
Economic Development, Heydar Babayev's political influence 
and personal financial wealth have been growing.  Many 
attribute his appointment to his close personal relationship 
with President Ilham Aliyev; the two studied in Kyiv and are 
rumored "drinking buddies."  After a career in international 
banking and finance abroad, Babayev returned to Baku and his 
family-owned ABU Holdings, one of Azerbaijan's largest 
conglomerates.  However, beginning with the closing of two of 
Babayev's medical clinics in November 2007, rumors and media 
reports have begun to speculate that Babayev is being 
punished and sidelined.  His absence from a January 11 
Cabinet meeting added fuel to the speculations that Babayev 
is on the outs and going to be dismissed.  The unusual moves 
by a GOAJ agency against a powerful minister's holdings may 
be indicative of continuing struggles among Azerbaijan's 
oligarchs, as the "old guard," associated with Heydar Aliyev, 
continues to jostle with Ilham Aliyev's "new guard" of close 
personal associates including Babayev.  END SUMMARY. 
 
Rumors of Trouble Start with Clinics 
------------------------------------- 
 
¶2. (C) The persistent rumors about Babayev's declining 
political fortune have been picked up in the international 
press, including the Economist's Intelligence Unit, which 
reported that a large state-owned enterprise changed its 
insurance provider and withdrew its business from Babayev's 
ABU Holdings.  The report from this well-respected source 
raised questions about Babayev from at least one jittery 
foreign investor that has regular dealings with Babayev's 
Bank Standard, the largest private bank in Azerbaijan. 
However, when asked about the report, the American 
International Group (AIG) Country Manager said he had not 
heard reports of a large corporate shift away from Babayev's 
Standard Insurance company.  In fact, in late 2007, both 
government and opposition press reported that Azerbaijan's 
largest cell phone service provider, Azercell, would shift 
all its insurance needs to Babayev's Standard Insurance, with 
opposition press alleging the company was forced to use 
Babayev's company to avoid problems from the Ministry of 
Economic Development (MED). 
 
¶3. (C) A few local political analysts speculate that the 
persistent rumors and press reports are a result of a 
campaign launched by powerful Minister of Emergency 
Situations (MES) Kamalladin Heydarov against Babayev.  The 
opposition press reported that Heydarov had attempted to 
convince President Aliyev that Babayev was responsible for 
unpopular price increases; the opposition newspapers also 
claimed that President Aliyev had been informed that in 2007, 
Babayev met with and sponsored some newspapers of opposition 
leader Rasul Guliyev  (Babayev's predecessor, jailed 
ex-Minister of Economic Development Farhad Aliyev, still 
faces coup-plotting charges due to his alleged support for 
Guliyev.) 
 
¶4. (C) Babayev's notable absence from a January 11 Cabinet 
meeting, chaired by President Aliyev, further fueled rumors 
of his imminent political demise.  Embassy contacts report 
that Babayev was out-of-town on a long-planned business trip. 
 Building on the recent spate of media reports about Babayev 
having fallen out of favor with President Aliyev, many 
political observers in Baku have questioned the timing of his 
international trip and absence from the Cabinet meeting, 
saying the meeting should have been postponed and/or Babayev 
should have returned. 
 
Trouble with Babayev's Clinics 
------------------------------ 
 
¶5. (C) In November 2007, the Ministry of Health (MOH) 
investigated and withdrew licenses from two ABU Clinics, 
effectively closing them down.  The investigation and 
closings of the two clinics started rumors that Babayev was 
being punished, hinting that the clinic closures were a sign 
of bigger problems to come.  One newspaper speculated that 
Babayev's large 50th birthday celebration had upset President 
Aliyev with its lavishness, especially when Babayev referred 
to his wife as the one person who helped get him where he is 
today.  During a Cabinet meeting in late 2007, Aliyev 
reportedly decried the lavish lifestyle of some of 
Azerbaijan's elite, a comment the media interpreted as a dig 
at Babayev.  Other media suggested that the clinic closures 
 
were linked to First Lady Mehriban Aliyeva's family since 
Health Minister Shiraliyev is distantly related to her. 
There are some who think it is a first step on the part of 
First Lady Aliyeva's family - the increasingly active 
Pashayev family - to take over the health sector.  On January 
23, one opposition newspaper reported that the ABU Clinics 
have already been turned over to the Heydar Aliyev Foundation 
controlled by the First Lady. 
 
¶6. (C) MOH's Head of International Relations Abdullayev said 
the temporary closing of the clinics was due to their 
inability to meet the MOH's health standards.  Abdullayev 
said that after a MOH quality assurance inspection, performed 
randomly on both public and private clinics, the MOH 
discovered that ABU Clinic's doctors were performing 
procedures without licenses, did not have work contracts and 
permits, and there were biohazard violations at the clinics. 
He said the MOH could reinstate the two clinics' licenses 
when the clinics could demonstrate health code compliance; 
however, as of January 23, the clinics are still closed. 
 
Babayev's Rise in Government 
---------------------------- 
 
¶7. (C) The Ministry of Economic Development is the linchpin 
in the GOAJ's development efforts as the primary point of 
contact for economic policy, foreign and local investment, 
the GOAJ's efforts to accede to the World Trade Organization 
(WTO), and business climate and investment issues in the 
non-oil sector.  Since being promoted from his previous 
position as the Head of the State Securities Committee and 
appointed MED Minister in 2005, Heydar Babayev's political 
influence has been growing.  Babayev's increasing power and 
access to President Aliyev have resulted in an expansion of 
the MED's role, and its involvement in nearly all economic 
and business activities throughout the last two years.  For 
example, with Babayev's arrival, the MED took on a leading 
role in agricultural development through its control of 
agricultural credits to farmers.  The MED also seems to be 
moving in on the Ministry of Communications and Information 
Technology's long-standing plans to create a Regional 
Innovation Zone (RIZ), which Minister Abbasov now says most 
likely will be closely tied to the Babayev's efforts to 
create Special Economic Zones under the authority of the MED. 
 
¶8. (C) In spite of a political agenda more closely linked to 
his financial future than any political ambitions, over the 
past year Babayev has also actively raised his and the MED's 
international profile with his participation in sensitive 
decisions on Azerbaijan's international future.  In energy 
policy discussions with Italy and Greece, Babayev 
unexpectedly played a role as the President's representative. 
 While he likely was assigned these duties due to the fact 
that his counterparts in Italy and Greece were the GOAJ's 
negotiating partners, it is notable that Babayev has taken on 
an international role outside the MED's previous sphere of 
influence. 
 
¶9. (C) Using his position and access to President Aliyev, 
Babayev appears to have played a key role in Aliyev's 
decision to accelerate Azerbaijan's WTO accession process and 
to establish an Azerbaijani WTO Commission with Babayev as 
Chairman.  Babayev's assignment was a break from the past and 
removed the Ministry of Foreign Affairs from its previous 
role as Azerbaijan's original WTO champion.  While Babayev's 
appointment represents a key victory, he continues to face 
significant resistance from other GOAJ officials who are less 
receptive to WTO accession, slowing the GOAJ's progress. 
 
¶10. (C) Babayev also extended his influence through the 
MED-controlled AzPromo, a public-private initiative to 
increase foreign investment in Azerbaijan, and Azerbaijan 
Investment Company (AIC), a state-owned joint stock company 
established in March 2006.  In fact, Babayev has told 
visiting USG officials in 2007 that AIC would be a good 
partner for U.S. businesses as it would "guarantee" 
investment.  AIC's investment records to-date indicates that 
it has steered GOAJ funds to companies in which senior GOAJ 
officials are believed to have significant shares, such as 
Azersun.  Through his chairmanship of these two entities, 
Babayev controls large sums of money and linkages with 
potential non-oil sector investors.  He also travels 
extensively abroad for meetings with counterparts, to head 
investment conferences, and to support President Aliyev's 
travels. 
 
Babayev's Connections 
--------------------- 
 
¶11. (C) Babayev's rise as Minister of Economic Development 
appears to be linked to his close personal relationship with 
President Ilham Aliyev.  He and Aliyev studied together in 
Kyiv (along with Foreign Minister Mammadyarov, Minister of 
Finance Sharifov, and Minister of Communications and 
Information Technologies Abbasov), and Babayev is rumored to 
be one of President Aliyev's closest "drinking buddies." 
Having lived, worked, and built close connections in Moscow 
and London, Babayev's background in international banking and 
finance has led to his reputation as one of Azerbaijan's 
leading oligarchs. 
 
¶12. (C) In Azerbaijan, rising political power equates to 
increasing personal financial wealth, as the country's most 
powerful ministers and political players also control large, 
privately held corporations, often in the same areas they are 
responsible for regulating.  Like Babayev's MED, his personal 
financial holdings are diverse.  As owner of family-owned ABU 
Holdings, one of Azerbaijan's largest conglomerates, Babayev 
is involved in banking, retail petroleum, health care 
facilities, insurance and securities, food processing, 
construction, entertainment facilities, tobacco and wine, 
advertising, shopping malls, and the lottery. 
 
Comment 
------- 
 
¶13. (C) Rumors of Babayev's political downfall have stemmed 
almost exclusively from opposition newspapers, notorious for 
their gleeful publication of anything and everything that 
could be negative to the ruling party's interests.  Given the 
massive scope and variety of ABU Holding's business 
activities, we believe that the closing of two clinics and 
reported loss of one insurance contract, for which the 
Azercell insurance contract would have more than compensated, 
do not in and of themselves indicate Babayev's imminent 
political demise. 
 
¶14. (C) That said, it is unusual for a GOAJ agency to take 
steps against business interests associated with key 
political players such as Babayev.  Recent moves against ABU 
Holdings could be signs of internal struggles for business 
control as other powerful elites - notably Kamalladin 
Heydarov (ATA Holdings) and the Pashayev (Pasha Holdings) 
clan, family of the first lady - muscle their way into new 
sectors.  Some speculate that Pasha Holdings is taking over 
parts of other big businesses, and that businesses like ATA 
Holdings are "voluntarily" giving up pieces of the pie; 
Babayev may not have voluntarily ceded parts of his business 
and received a warning for it.  One clinic employee suggested 
that that the ABU Clinic closure's had nothing to do with 
Babayev's political standing but instead resulted from 
another powerful GOAJ official or his family personally 
having a bad experience at one of the clinics and demanding 
retribution. 
 
¶15. (C) Since the downfall of Farhad Aliyev and Ali Insanov, 
there has been a slow and steady shift in Azerbaijan's power 
calculus from the clan politics that dominated Heydar 
Aliyev's rule, to a new, Baku-based elite that appears to be 
centered around Ilham Aliyev's personal relationships, 
including the Pashayev family.  Conventional wisdom has held 
that the "old guard" associated with Heydar Aliyev, including 
heavyweights Ramiz Mehdiyev and Ramil Usubbov, have been 
jostling for power and influence with Ilham Aliyev's close 
personal associates, including Minister of National Security 
Mahmudov and MED Babayev.  Given the old guard's use of the 
media to attack their rivals, persistent rumors of Babayev's 
looming downfall likely are just another example of 
Azerbaijan's shifting power politics.  In our view, the real 
question is where the Pashayev family fits into the equation, 
as the family along with MES's Heydarov are emerging as a new 
force among the oligarchs.  Babayev's relationship with the 
Pashayevs remains unclear. 
DERSE