INVESTMENT INCENTIVE: DIVERSE PLANS
A Conference dealing with Investing in Azerbaijan - Gateway to the Newly Independent States was held here in Baku on May 7-9. The conference was organized under the support of International Financial Corporation, SECO and SOFL. More than 600 businessmen, delegates of international organizations and governments were taking part in the forum. Johannes Linn, vice president of the World Bank (WB) for Europe and Central Asia, represented the WB, while the International Financial Corporation was represented by Peter Woicke, Executive Vice President of the Corporation, the government of Switzerland was represented by David Syz, head of the State Secretariat for economic relations.
"For its geographical location Azerbaijan is a gateway for the exports to Russia and other countries of the CIS. Conclusion of the PSA type contracts have already drawn into the country 400 foreign companies, and we are willing to create conditions for the extension of investment into non-oil sector of its economy", said Farhad Aliyev, Minister of Economic Development of Azerbaijan in his speech at the conference. Since 1995 the investment into the country made $9.6 bln, and can increase in average term perspective to $10 bln. "We would like to hold the conference of 2004 beyond Baku so as to extend the investment into the regions of the country", he said.
However, despite the great number of the participants, and, the seemingly great interest in the investments into the country, David Syz, the Head of the Secretariat for Economic Relations of the Government of Switzerland, said that the Banks of Switzerland were not too willing to come to the countries like Azerbaijan, where the economic system still fails to be formed. Azerbaijan should develop the infrastructure, reform the legislation and organize her relations with World Trade Organization. "And Azerbaijan should not forget about the necessity of developing the non-oil sector", D. Syz said.
A Glance from Aside
"The system of governmental planning fails to work in Azerbaijan", said Robert Bestani, general director of the Department for Operations in Private Sector of Asian Bank for Development. He said that the assumption about the possibility of full control of the economy of another country was wrong. "The market economy is too complicated so as some limited number of people could make all calculations and manage the macro-economy", R.Bestani pointed out. In his opinion, among the phenomena that Azerbaijan should scare is the red tape and excessive licensing. "All of them exist in Azerbaijan, and it should be enforced. Besides, Azerbaijan is rich in oil, it is good, but it is necessary here to fear of getting into extremely great dependence on the oil sector. One cannot rely on oil only, as on a stick", the expert noted.
Main investors
During the conference, the Ambassador of the USA to Azerbaijan, Mr. Ross Wilson declared that American companies invested US $ 2.3 billion into the energy and other sectors in Azerbaijan. The number of American companies increased by 25% in 3 years only, -said Mr. Wilson.
Quoting Mr. Wilson, the Government of the USA provided more than US $ 400 million worth support to Azerbaijan since 1991, including humanitarian support to the victims of conflict with Armenia, support to locals, farmers and small enterprises. Support has also been given to programs of strengthening democratic institutions and to scholarship programs and exchange programs in order to establish relations between next generation of leaders of Azerbaijan. According to the Ambassador, it is necessary to continue reforms in order to attract even more significant investments and to apply better the received international support and develop diversity of the economy to build the welfare of population's majority, that is not yet on their way to development, based on the oil resources.
One of the most important steps will be the total rescue of society and business from the mortal grip of the State. This means to follow the declaration of the President Heydar Aliyev to stop an excessive licensing and to dispose of excessive registration requirements; also, there is a necessity to stop unjustified inspection held by government bureaucrats, freezing banking accounts and other forms of the official aggression against private sector and social activity, -said Mr. Wilson.
It also means quick dispatch of government's election pledges; it is necessary to protect economic and human rights of every single person, including rights for the freedom of speech and meetings.
We mean division of commercial and management functions under the rescuing from mortal grip of the government, that are now combined in Ministries of Communication, Transport and in other institutions. Recent breaks of telecommunication network at American and European companies and embassies are very sad examples. Companies wanting to organize their business in accordance with the law cannot be closed in the illegal way in order to protect someone's monopolist interest. Members of projects where the Government is involved should be given a guarantee that the Government will not decrease their share in joint ventures, - said Mr. Wilson. According to his words, positive steps in this direction will let the private sector to breathe and will attract more potential investors.
Credit Lines
As a result, Azerbaijan has received new credit line, despite some negative declarations made on the subject of not fully mature economy. Peter Woicke, Executive VP at the International Finance Corporation (IFC) concluded credit agreements with AzeriQazbank and RabitaBank totaling at US $ 2.4 million and agreement on grant at US $ 550,000 with Azeri Banking Training Center for services on developing local business. AzeriQazbank and Rabita Bank will get US $ 1.2 million each for 6 years (with 2-year preferential period) with LIBOR+4.25% annual rate. Two equal trenches, settling of which will take 6 months will provide funds. Banks will be able to provide credits up to US $ 150,000 to one borrower (small or medium enterprise) within the framework of credit lines.
The Project is aimed for encouraging the economic activity in key sectors of economy that will help energies of Azerbaijan in diversification in the non-oil sector and provision of sustainable development and reduction in poverty. The problem is not only in extending our financing. Azeri banks are small but they are getting their experience, - said P. Woicke.
We started our cooperation with IFC in 1998 from the credit line at US $ 400,000. Provision of new credit line for 6 years is the positive result of our cooperation, - the Chairman of Supervisory Board at Rabitabank, Zakir Nuriyev declared.
In 1998 the IFC provided US $ 400,000 at LIBOR+5% to banks for 4 years.
Everyone knows our problems in the last 4 years and we are grateful to the IFC for choosing us as its partner, - Chairman of Supervisory Board at Azeri Qazbank, Cingiz Asadullayev pointed out.
Our investments into the development of early oil on block of Azeri-Chirag-Guneshli oil fields helped to mobilize revenues for the future development of the economy. Our credit lines to Azeri banks for small and medium entrepreneurship, as well as investments into the Azeri bank for micro financing are aimed to the formation of higher level of healthy business community, said Peter Woicke.
BTC
Peter Woicke, the VP of the IFC and the Executive Director at the World Bank has distinguished himself not only and not by self-possession and delicate declarations at the conference, but applied more or less specific figures within the framework of future projects in Azerbaijan. He said that the Board of Directors of the IFC plans to approve the allocation of credit in October-November 2003 for the construction of BTC pipeline. The question of financing the project is currently at its final stages. But we do want the BTC project to be implemented with highest level of benefit for the population of countries participating in this project, that is - Azerbaijan, Georgia and Turkey, - he said. Financing the project by IFC will total US $ 150 million, and I am sure that this amount is not that important. It is more important that IFC supports this project, - said Woicke.
The size of capital expenditures for the construction of BTC is US $ 2.95 billion, 30% ($ 885 million) of which is covered by the shareholders of BTC and 70% is attracting funds from the international financial market.
As Mr. Woicke noted , the IFC has the highest level of ecological standards requirements. I think that as soon as we will approve this project, exporting agencies will follow us. IFC hopes that all these operations will be done in accordance with planned schedule, - the IFC's VP noted.
Among most important creditors, with which the BTC Co. is holding negotiations currently is Japanese export-import Bank, American EXIM Bank, British ACGD and others.
As for ecological issues that are being discussed within the framework of laying BTC, Mr. Woicke said: We do not have a lot of questions left related to the laying of pipe on territories of Azerbaijan and Turkey. But we do have couple questions on ecological problems on the Borzhomi (Georgia) route. However, we are absolutely confident that risks in Borzhomi region could be significantly decreased.
Commenting the BP's (head of BTC Co.) decision on toughening ecological requirements during the construction of BTC in ecologically sensitive regions in Georgia, Mr. Woicke said: We do not have doubts in level of standards at the BP, but we have our own standards, and the compliance of these standards are very important. If found opposite we will not be involved in the project.
Greek CCIC will be constructing the pipeline on the territory of Azerbaijan, French/American Spie Capag/Petrofac alliance - in Georgia. BTC shareholders are BP (30,1%), SOCAR (25%), Unocal (8,9%), Statoil (8,71%), TPAO (6,53%), ENI (5%), TotalFinaElf (5%), Itochu (3,4%), INPEX (2,5%), ConocoPhillips (2,5%) and Amerada Hess (2,36%).
PRIVATIZATION
The International Financial Corpora tion is willing to take part in putting private the International Bank of Azerbaijan (IBA) and the United Universal Bank (BUSBank). "We have discussed with the government of Azerbaijan the state in financial sector. IFC is ready to participate in its development and welcomes the acceleration of the IBA's privatization", Peter Woicke said.
Privatization of both IBA and BUSBank is to finish by the end of 2004. Major investor of the IBA is the EBRD, the memorandum with which about the sale of the Bank's 20% stocks is to be shortly concluded.
No investor exists for the BUSBank yet. "I cannot say whether we are ready to take part in the capital of governmental banks. It is necessary to decide lots of problems for the purpose, including the cost of participation", Mr. P. Woike said. The IFC has already stirred up activities in cooperation with private banks and is ready to extend the activities.
"We are ready to give consideration to the participation in the capital of the commercial banks. But acquiring the participation, we won't take part in Banks' management", P. Woicke said.
MANAGEMENT IMPROVEMENT
David Syz, state secretary of Switzer land for Economic relations and Peter Woicke, executive VP of thye IFC an nounced about the start of the program of corporate management in Azerbaijan.
The State Secretariat for Economic Relations of Switzerland (SECO) is to grant $2.099 mln to realize the project of corporate management to be completed in September 2006. The government of Azerbaijan will be rendered consultations in the frame of the project to develop the legislative regulations in the sphere of corporate management of the Azerbaijanian companies and banks. The IFC is to work together with the training centers to train curators of the corporate management, governmental agencies, private companies and financial institutions will be trained to [perceive the importance of corporate management.
"We are aware of the weakness of corporate management at small and medium enterprises in transition economies. Such enterprises are, as a rule, managed by one shareholder, and are reluctant to apply open financial accountancy. This makes their loaning investment more difficult. Our program is aimed at teaching enterprises like this to modern management and accountancy", Mr.Woicke stated.