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RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
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RUEKJCS/SECDEF WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 BAKU 000963 
 
SIPDIS 
 
FOR U.S. DEPARTMENT OF COMMERCE - DAS PAUL DYCK 
 
E.O. 12958: DECL: 10/09/2018 
TAGS: ECON ETRD EINV EFIN EAGR ECIN BBSR BEXP BMGT
AJ 
SUBJECT: DEPARTMENT OF COMMERCE DAS DYCK VISITS U.S. 
COMPANIES IN AZERBAIJAN AND ANNOUNCES RE-OPENING OF FCS 
OFFICE 
 
REF: A. A. BAKU 863 
     ¶B. B. BAKU 649 
     ¶C. C. 593 
 
BAKU 00000963  001.2 OF 004 
 
 
Classified By: Ambassador Anne E. Derse for reasons 1.4 (b,d). 
 
 ¶1.  (U) SUMMARY:  In his September 25-28 visit to 
Azerbaijan, Department of Commerce DAS Paul Dyck met with 
GOAJ officials and representatives of several U.S.-based 
companies, and toured business facilities in Azerbaijan. 
Business leaders complained of corruption and inefficiencies, 
despite gains Azerbaijan made in the World Bank's "Doing 
Business 2009" report.  GOAJ officials highlighted rapid 
economic growth and reforms, and pointed to key non-energy 
sectors of growth, including telecommunications and 
environmental remediation.  To highlight the USG's commitment 
to strengthening commercial relations with Azerbaijan and 
reflect the growing economic relationship between the U.S. 
and Azerbaijan, he officially announced the re-opening of the 
Foreign Commercial Service office in Baku at a luncheon with 
the American Chamber of Commerce.  The move was widely 
praised by business representatives and GOAJ officials alike. 
   See Action Request in para 14.  End Summary. 
 
¶2.  (U) Department of Commerce DAS Paul Dyck began his 
September 25-28 visit to Azerbaijan by having separate 
roundtable discussions with U.S.-based IT and telecoms 
companies, International Financial Institutions (IFIs), and 
U.S. based non-energy companies to discuss the overall 
business environment in Azerbaijan.  He also met privately 
with representatives of U.S. based companies, including Gagaj 
Corporation, a consumer products manufacturing firm, and 
Cisco, an internet network services firm, to discuss on-going 
issues with the GOAJ which have impeded their progress.  DAS 
Dyck met with GOAJ officials from the Ministries of Industry 
and Energy, Communications and Information Technology, 
Finance, and Economic Development as well as the State Oil 
Company of the Azerbaijan Republic (SOCAR). 
 
Private Industry Meetings 
------------------------- 
 
¶3.  (U) During a frank discussion of the effect of recent 
reform initiatives and rankings, such as those highlighted in 
the recent World Bank "Doing Business 2009" report (Ref A), 
at luncheon meeting with representatives from IFIs, DAS Dyck 
noted the increased value of commercial relations and stated 
that much had changed since his last visit in 2007. 
Participants included World Bank Country Manager Gregory 
Jedrzejczak, IMF Resident Representative Kobe Gvetenadze, 
EBRD Head of Office Francis Delaey, and IFC's Country Officer 
Aliya Azimova. 
 
¶4.  (C) Jedrzejczak opined that while diversification from 
oil and gas was desirable, it would not make a big difference 
in the structure of Azerbaijan's overall GDP.  He also noted 
that the current international market turmoil provided a good 
opportunity for Azerbaijan to acquire diversifying assets on 
the cheap, but that more maturity was needed in planning how 
to spend the money and planning the economy for the future. 
Gvetenadze recommended the best way for the GOAJ to continue 
its progress on economic reforms would be to close its 
Customs Service, reflecting the "Trading Across Borders" 
criterion of the "Doing Business" Report in which Azerbaijan 
scored 174 out of 181 economies, in marked contrast to its 
great progress in other areas.   Other topics of discussion 
included the hope that the "Doing Business" report would spur 
on other sectors, such as the Customs Service, to begin to 
implement reforms and concern that Azerbaijan could "miss its 
chance" to become a developed vice developing country if it 
did not act quickly to implement policies to create an 
investment climate which is "predictable" with regulations 
which are "enforceable" and support a "level playing field." 
The group noted with surprise that the Customs Committee, in 
the embarrassing wake of the Doing Business report, has 
already issued a statement that it, too, will implement a 
"one window" concept for customs clearance (USAID is 
following up). 
 
 
BAKU 00000963  002.3 OF 004 
 
 
IFC and World Bank reps reported that Azerbaijan had taken a 
focused and "intelligent" approach to improving its Doing 
Business rating, seeking their advice on what lay behind the 
methodology of the ranking and pinpointing the reforms that 
needed to be made to improve it. The result was spectacularly 
successful.  They added that some GOAJ officials had already 
approached them with questions about how to take the same 
approach with the Transparency International rating. 
 
¶5.  (C) In a roundtable with business leaders, DAS Dyck was 
told that "monopolistic groups" have divided the economy 
amongst themselves and colluded with government actors to 
make things difficult for new entrants to the market.  As an 
example, the local American International Group (AIG) 
manager, Viladi Maniyev explained that each of these groups 
has its own insurance company and therefore AIG is only able 
to profitably engage in the reinsurance market.  An American 
lawyer with ten years' experience in Azerbaijan said that 
when one of his clients complained that he was being asked 
for a $20,000 bribe during an audit of his company, even 
though his company had complied with all tax laws, the 
auditor said "We know you've paid all your taxes - that's why 
we're only asking you for $20,000!"  Others spoke of the 
frequency with which the GOAJ still awards contracts without 
an open tender process, such as a recent passport production 
contract that was awarded to a French firm without any tender 
announcement cited by 3M. 
 
¶6.  (C) When asked their thoughts on WTO accession for 
Azerbaijan, all the business leaders agreed it would be 
important.  Oguz Aldemir, director of the local Coca-Cola 
bottler, said that "transparency would come" if Azerbaijan 
had to abide by WTO regulations, but added that the growth of 
the Azerbaijani market was still too good to resist: "the 
consumer market here has doubled in three years' time   . . . 
you don't get growth like this anywhere (else) in the world." 
 
STATE PROPERTY COMMITTEE 
------------------------ 
 
¶7.  (C) In a meeting with the State Property Committee (SPC), 
DAS Dyck brought up the land dispute the Committee has with 
Gagaj Corporation.  Gagaj purchased a factory through a state 
privatization program in 1998 but was not given the 
underlying land.  Recently, Gagaj has been warned that unless 
it purchases the land, which it has been trying to acquire 
the rights to since 2003, the land could be sold to another 
party, thus putting Gagaj in a perilous legal situation. 
Gagaj says they were told that the SPC would refuse to sell 
this land at the official, nominal price unless they were 
paid a large bribe.  In response to his inquiry, SPC 
representatives informed DAS Dyck that the Committee had 
submitted new zoning rules to the Cabinet of Ministers, and 
that once those new rules were approved, "Gagaj would not 
face any problem." 
SOCAR 
----- 
 
¶8.  (U) In a meeting with State Oil Company of the Azerbaijan 
Republic (SOCAR) Vice President for Environmental Issues 
Muhkhtar Babayev, DAS Dyck discussed the company's efforts to 
reduce its environmental impact and to rehabilitate 
contaminated production sites.  Babayev noted that 30,000 
hectares of land need to be rehabilitated and that vast 
amounts of outdated infrastructure need to be upgraded to 
meet international standards.  He explained that his 
division, created in response to a government mandate in 
December 2007, has received World Bank assistance to develop 
a plan to clean up its land-based and offshore operations. 
Babayev noted that key challenges remain, including a culture 
of environmental negligence, as well as a lack of training 
programs, expertise and the equipment necessary to achieve 
the goals of the World Bank plan.  In response, DAS Dyck 
informed Babayev that the new FCS office planned for Baku 
would be able to facilitate links between SOCAR and U.S. 
firms which have the necessary expertise.  Until that office 
is opened, he suggested that Babayev coordinate with the FCS 
office in Kazakhstan. 
 
 
BAKU 00000963  003.2 OF 004 
 
 
Ministry of Industry and Energy 
------------------------------- 
 
¶9.  (SBU) During his meeting with DAS Dyck, Deputy Minister 
of Industry and Energy Gulmammad Javadov, expressed the 
GOAJ's gratitude for USG assistance in constructing the BTC 
pipeline, aiding Azerbaijan's efforts to become economically 
independent from Russia.  Javadov noted the desire for closer 
cooperation with the USG and with U.S. companies, 
specifically in the fields of renewable energy sources, soil 
cleanup, light industry, machinery making, chemical 
production, and environmental remediation.  He said that U.S. 
companies have an excellent reputation for quality in 
Azerbaijan, but that other countries, namely South Korea and 
Belarus, are more effective salespersons.  DAS Dyck informed 
him that FCS office, planned to re-open in Baku within 6 
months, would provide the opportunity for a more effective 
commercial relationship.  In the interim, the Embassy 
Economic section promised Javadov that it would further 
research opportunities for economic partnership. 
 
Ministry of Communications and IT 
--------------------------------- 
 
¶10.  (U) Minster of Communications and IT Ali Abbasov opened 
his meeting with the DAS by expressing his pleasure with the 
proposed re-opening of an FCS office in Baku and inquired 
about its future role and involvement with the American 
Chamber of Commerce.  He went on to explain the expanding 
role of the IT sector in the Azerbaijan economy, noting that 
some recent estimates show the sector growing by 35 percent. 
Abbasov acknowledged room for growth in the privatization of 
the telecoms sector, which is still 90 percent stated-owned. 
He emphasized President Ilham Aliyev's concern for the 
Azerbaijan economy after 2012, when oil and gas production is 
slated to decline, and said that Aliyev was focusing on the 
Communications and IT sectors for economic diversification. 
 
¶11.  (SBU) Abbasov enthused about Azerbaijan-initiated plans 
to create an information super highway extending from the 
west coast of the Black Sea to China, which would include a 
fiber optic connection between Azerbaijan and Turkmenistan. 
Plans for the super highway infrastructure are slated to be 
discussed by stakeholder countries at the November 11-14 
BakuTel Conference.  Abbasov also informed DAS Dyck that the 
GOAJ plans to include a contract signing ceremony for the 
Orbital Sciences satellite project in the first day of the 
conference. 
 
Ministry of Finance 
------------------- 
 
¶12.  (U) In his meeting with Minister of Finance Samir 
Sharifov, DAS Dyck commended the Minister on Azerbaijan's 
impressive rankings in the recent World Bank "Doing Business 
2009" report, cautioning that further reforms were still 
needed.  Sharifov agreed and revealed GOAJ plans to extend 
streamlining reforms, such as the one-stop shop implemented 
for registering a new business, to customs, the tax 
administration and the property registration processes. 
 
¶13.  (C) In discussing the specific issues related to U.S. 
companies Bechtel, General Electric (GE) and Cargill, 
Sharifov was candid about the GOAJ position, if not 
completely clear on all of the issues.  Sharifov seemed 
confused about the funding issues for the Bechtel project 
(Ref B), and Commerce agreed to pull together data to clarify 
the financing information.  With respect to GE, Sharifov 
renewed his long-standing request that EXIM consider 
retroactive financing for GE turbines it purchased with a 
commercial loan. (After purchasing GE turbines with "bridge" 
financing, the GOAJ  find themselves 350-400 million USD in 
the hole to complete the project, and over a year ago asked 
if EXIM bank would consider retroactive financing for the GE 
turbines. (NOTE:  Embassy will again explore this option with 
EXIM Director Kian when he next visits Baku October 13-17. 
End note.)  Regarding Cargill (Ref C), Sharifov explained 
that he was not convinced that the GOAJ was legally liable, 
as the dispute originated between partners of Cargill and a 
 
BAKU 00000963  004.3 OF 004 
 
 
"limited liability" corporation, in which GOAJ was merely an 
investor, and therefore had limited liability. He confirmed, 
however, that if it is shown that Azerbaijan in fact has a 
legal obligation to Cargill, "we will honor it." 
 
¶14.  (C) COMMENT/ACTION:  U.S. Department of Commerce (USDOC) 
states that Cargill has not yet filed an advocacy case with 
them.  We had earlier been told by Washington that the 
necessary papers had been filed. Embassy requests that USDOC 
follow up with Cargill asap to address the issue of liability 
and that State (EEB/CBA) and USDOC determine what further USG 
advocacy is appropriate, and advise. Cargill has expressed 
concern with lack of USG advocacy. If Cargill has a 
legitimate case for further USG action, we want to follow up 
expeditiously.  End comment. 
 
Ministry of Economic Development 
-------------------------------- 
 
¶15.  (U) DAS Dyck's meeting with Minister of Economic 
Development Heydar Babayev was cordial and constructive with 
Babayev echoing many of the sentiments of Minister Sharifov, 
especially concerning the World Bank "Doing Business" report, 
the re-opening of the FCS office in Baku, and issues related 
to Cargill and Bechtel.  With regard to Cargill, Babayev 
added that GOAJ has the reserves to pay, but would not do so 
unless it is shown that the GOAJ in fact has a legal 
liability to Cargill.   He also commented that while 
President Aliyev was still very interested in the Bechtel 
project, he felt the U.S. side was "not very active," and 
urged that Bechtel renew its efforts. 
 
¶16.  (C) COMMENT:   DAS Dyck's meetings with U.S. company 
representatives and GOAJ officials were direct and 
informative.  There are obvious areas for improvement and 
increased cooperation, but the dialogue remains open and 
honest.  Continued GOAJ focus on further reforms in the wake 
of its "Doing Business" ranking will enable expanded economic 
relations. USDOC's decision to re-open the FCS office in Baku 
was very positively received by GOAJ and business 
representatives alike as an important signal of USG support 
and commitment to build commercial relations, especially in 
the wake of recent regional tensions.   End Comment. 
DERSE