Issue # 12: Happy 15th Anniversary Amcham Azerbaijan

Happy 15 Anniversary
Amcham Azerbaijan
th
Interview with Matthew Bryza, American Ambassador to Azerbaijan
AmCham: A Never Ending Story
The Rise and High-Rise of Post-Independence Baku
Unique opportunities in the era of changes
A Word from the Executive
Director of AmCham
American Chamber of Commerce in Azerbaijan (AmCham),
established in 1996, is celebrating its 15th Anniversary this
September. To celebrate this important occasion, we publish
this anniversary edition of our IMPACT Magazine.
The development of the Chamber has paralleled the vibrant
growth of Azerbaijan, especially after regaining its independence
in early 1990th (collapse of Soviet Union). Founded in mid
1990th with 89 members at the first five years, today AmCham
has an impressive list of more than 230 members and
associates, active in every sector of the Azerbaijani economy.
Summer / Issue 12
Credits
AmCham Executive Director:
Nargiz Nasrullayeva-Muduroglu
Editor:
Donna Denton
Design & layout:
Quadro M Media Agency
Photographer:
Huseyn Azimzade
Articles contributed by:
Nargiz Nasrullayeva-Muduroglu
Wayne Walz
Alum Bati
Rifat Roy Kocal and Gular Almazova
Cuneyt Turktan
Faig Huseynov
Nigar Jafarova
Samir Hadjiyev and Yekaterina Kim
Fariz Ahmadov
Kamal Mamedzade
Advertisers:
Bakcell
ITECA
Mozaik LLC
Pasha Construction
Port Baku Towers
Pasha Insurance
PriceWaterhouseCoopers
SAZZ Azqtel
GDF Suez
The Landmark Hotel
Cover artwork:
Quadro M
Printing:
Nurlar
Publisher:
American Chamber of Commerce
in Azerbaijan
Tel: (+994 12) 497 13 33
Fax: (+994 12) 497 10 91
www.amchamaz.org
Advertising opportunities:
Please contact the Editor
Jeyhun Atayev
[email protected]
Tel: (+994 12) 497 13 33
The articles in IMPACT AZERBAIJAN
express the opinions of the authors and
do not necessarily reflect the position of
the American Chamber of Commerce in
Azerbaijan.
Last seven years I spent as the Executive Director of
AmCham have been the most challenging and the most exciting years in my life.
This work requires great effort and dedication, strong belief and endless passion.
But the payback is immense - our work is the source of personal pride and constant
learning and growing for me and all of the team.
On our anniversary these feelings are stronger than ever. 15 years is a considerable
period. In this issue we tried to show you how much has happened in Azerbaijan in
this period and how much has happened in AmCham.
To continue with our endeavors to raise our Chamber’s standing to the best standards,
we need crucial support from all our members, counterparts and partners. We invite
all of you to celebrate this achievement together and look forward to joint future!
Warmest regards,
Nargiz Nasrullayeva-Muduroglu
Executive Director
AmCham Azerbaijan
Editor’s Comment
Dear Readers,
Happy 15th Anniversary AmCham Azerbaijan! In this issue
we'll celebrate with Nargiz, AmCham's Executive Director,
as she recounts the accomplishments of the American
Chamber of Commerce from its humble beginnings to its
prominent place in the business community promoting
growth and investment in today's economy. Also, enjoy
our exlusive interview introducing the new American
Ambassador, Mr. Matthew Bryza, as he discusses his hopes
for a successful tenure in Azerbaijan. Then, to wrap it up,
we'll highlight the path of progress over the past 15 years
of a few select business sectors in Baku and the changes and challenges they've
experienced along the way.
I'd like to express my gratitude to Jeyhun Atayev and the entire AmCham staff for
coming to my rescue to help complete this very special issue of Impact AZ. My
broken foot is nearly back to normal and I wish you the best of luck moving forward.
As always, a warm felt appreciation to our advertisers. Your loyalty makes this
publication possible.
Thank you for your support and happy reading!
Best regards,
Donna Denton
1
contents
IN FOCUS / THEN & NOW
5
Happy 15th Anniversary AmCham!
12 Then and Now - a Flashback of the Past 15
Years of Business in Baku
What was it like to do business in Baku back then?
Several business sectors highlight their growth
over the past 15 years and how they sustained the
Azerbaijan market
14 Unique opportunities in the era of changes
Having opened its doors in 1996, the
American Chamber of Commerce is still
growing strong with over 220 member
companies. What keeps us connected to this
business market and how do we give back to
this community? Director Nargiz Muduroglu
describes our humble beginning and what is
to be her focus moving forward.
8
Azerbaijan Welcomes new American
Ambassador, Mr. Matthew Bryza
18 The Rise and High-Rise of Post-Independence Baku
20 The Development of Aviation in Azerbaijan
Meet Mr. Matthew
Bryza in our exclusive
interview as he
discusses his arrival
to Baku, how to face
the tough issues of this
developing nation and
what would make his
time here a success
24 General overview of ICT Sector in Azerbaijan
2
Summer / Issue 12
contents
AMCHAM AZERBAIJAN
27 Development of Banking Industry in Azerbaijan
42 About us
MEMBERS
30 A Step Forward: Building an Investment Fund
Need an advice on creating an investment fund?
Let’s talk about how experts can help you
32 Introduction to the concept of Islamic Taxation
Some people
will consider the
concept of Islamic
Taxation only as
springing from the
concept of Islamic
Finance which is
in turn covered by
the Islamic Law.
However, we would
like to broaden our comprehension of the
Islamic Taxation as an institute of Law.
43 Business Events
36 Global Compact
Nowadays we know
that it is not possible
to achieve peace and
prosperity without the
partnership among
states, international
organizations, business
and civil society.
Today we are closely
interconnected.
47 Government Relations
39 Islamic banking
Various forms of
Islamic financing
are used today
in more than
40 countries. A
positive effect of
the Islamic banking
is clearly evident in
crisis times
3
contents
AMCHAM AZERBAIJAN
49
AmCham Legal Update
AMCHAM AZERBAIJAN
60 Corporate Social Responsibility
Laws
Court Decisions
President Decrees / Orders
Cabinet of Ministers Resolutions
53 Social Events
AmCham & Junior Achivement Azerbaijan
hosted an event
54 AmCham 16th Annual Independence Day
Picnic
56 Members’ News & Events
58 2011 January - July
Calendar of Activities
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Summer / Issue 12
AmCham & Junior Achievement Azerbaijan
Hosted 2011 Student Business Day
AmCham and Save the Children joint
party - Closer to children
62 New Members
63 M2M Discount Program
in focus
Happy 15th Anniversary
AmCham: A Never Ending Story
In 1996, thirteen companies came together to found the
American Chamber of Commerce in Azerbaijan. I was
17 then. Much has changed - I have, Azerbaijan has and
the AmCham, too, has evolved. From a small group of
like minded companies mobilizing to promote American
business in Azerbaijan, the Chamber grew into the largest
foreign business association in the country, representing
the diversity of companies that embody more than 80% of
Azerbaijan’s foreign and a significant part of the countries
national investment, now coming forward to promote
the interests of business in Azerbaijan. Our members
represent every sector of this country's economy
becoming a collective positive force in making Azerbaijan
a better place to invest and conduct business.
access to exclusive “members only” content, including an
instantly updated membership directory, where members
find contacts that are not available in other directories, filter
companies by sector and use a search engine. In a few
clicks they also make instant changes to their own info.
More than 150 Monthly Members’ Luncheons since 1996
have transformed in quality and size becoming the ultimate
business networking event in town. In addition to Special
Guest Speakers, the agenda offers short presentations
by new members, news and announcements of existing
members, as well as the update on the chamber activities
and events.
One of the brightest indications of association’s success is positive
growth in membership. We have been constantly growing: from
13 companies when we started, to 89 on our fifth, 168 on our
tenth and 224 on our fifteenth anniversary. This logically leads
to steady financial performance which has allowed us to improve
and expand our services over the years for members to enjoy.
And I am a little older than 17 now.
Our six industry-specific committees provide networking on
a different level. Any employee of any member company is
welcomed to the committees’ workshop where friends at HR
network with their peers in the Labor committee, colleagues in
finance and legal counselors in the Tax and Customs Committee
and so forth. Through committees meetings members can
discuss common issues, share best practices, establish and
develop relationship with relevant Government agencies and run
various trainings and projects.
As many, I want to think, would agree, foremost has always
been the best networking opportunities in the country, and
there are tricks for accomplishing this. Major changes that
we undertook on our website in 2007 now lend members
Our ability to provide tailored and targeted networking for
members has evolved over the years –as one of the membership
benefits, we are organizing personalized meetings for our
member companies with various levels of Government officials,
in focus
companies within and outside the membership in the US and
worldwide. These are my personal favorites.
Insurance and many more are discussed and referred to by
lawmakers.
Our Events have advanced to a whole new level. In 2010
alone, in addition to Monthly Members Luncheons, we held 30
committee meetings with 560 attendees, 3 business events with
210 attendees and 5 social events with over 1100 members
attending - all of them all planned to help our members’
businesses develop. They are designed for members to network,
learn, promote, showcase their companies and simply have a
good time with colleagues and friends.
Sometimes our policy work is more of a firefight. Emergency
response to the amendments on the Law on Entrepreneurship
adopted in the summer of 2009, when AmCham took a full
initiative to clarify the new provisions, their implementation
mechanisms and impact, and contacted the Economic
Commission of Milli Majlis, Legal and Legislative Department of
the Presidential Apparatus and Office of the Economic Advisor
to the President. Within the first weeks of the adoption of the
law, we invited the representatives of leading international and
financial institutions including International Monetary Fund (IMF)
, International Finance Corporation (IFC), World Bank, OCSE,
USAID, Embassies of the United States, France, Italy, Norway,
Delegation of the European Commission as well as the BBG
and DAWF to join efforts to revoke these changes. Finally, we
addressed President Aliyev with an assertive position putting
forward logical arguments in the best interests of Azerbaijan, with
the confident result of the President rejecting the amendment.
We developed as the Effective Business Advocate. I now get
the luxury of enjoying extensive meetings with civil servants, I
am sure many would share the joy. Issues of systemic nature
are raised by the Chamber on behalf of the aggregate group of
companies facing them, get analyzed, brought to Committees
and advocated with the Government. Dozens of success stories
prove the effectiveness of these efforts.
More services adding value to the membership are continuously
offered. The Annual National Employee Salary Survey has
been provided since 1998, Quarterly Consumer Price Index
since 2006, Impact Azerbaijan, a quarterly business magazine
since 2007, Real Estate Survey since 2010 and bi-weekly Legal
Updates since 2011 are notable examples.
Policy work and dialogue with the Government has always been
of the pillar of AmCham’s work. Our White Paper, a summary
of observations and recommendations of the private sector
for the Government of Azerbaijan, crowns this work and sets
our overall policy directions under a unified document. This
document encompasses major challenges for business in the
areas of Taxation, Banking-Finance and Insurance, Customs,
Communications, Information Technologies, Labor and Tourism
and provides concrete and specific recommendations on how to
overcome these. First edition of the White Paper was delivered to
late President Haydar Aliyev in his meeting with AmCham in 2001,
and was highly appreciated by him resulting in amendments to
legislation and changes to practices undertaken by the Government.
I am also proud to write that the second and third editions were
presented to President Ilham Aliyev in 2005 and 2008 and found
their reflections on the policies set by the Government since then.
I am hopeful that the latest edition of our White Paper finalized last
month will be presented for President Aliyev’s considerate attention
by the time this article reaches your attention.
Another policy and advocacy milestone is our working
relationship established with the Parliament of Azerbaijan.
Being a true believer in the principle of legal certainty and clarity,
and highly valuing the rule of law, Amcham for years has been
developing a mechanism where draft laws and legal norms that
affect business and will have an impact on the private sector are
shared with AmCham at the stage of revision in Parliament to
be analyzed and commented upon by the member companies.
This is a work in progress though our position papers on the
Tax Code, Competition and Customs Codes, Law on Social
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Summer / Issue 12
AmCham’s work with the State Migration Service, started
immediately upon its inception, is another example of
Government relations we enjoy. Since 2009, we have regularly
held meetings with the Chairman of the State Migration Service,
General Arzu Rahimov. In addition to the numerous meetings
with AmCham Board Members, General Rahimov addressed
the entire membership by speaking at one of our Monthly
Members' Luncheons, held a separate meeting with members of
AmCham’s HR Committee and a number of wider group member
meetings. We have also hosted a working level Q&A session for
members to ask questions directly to migration officials of various
departments. This again is a work in progress with highs and
lows, but it does bring tangible results eventually.
I do, however, believe that we as a business community need
to change and transition with shifting trends. Issues including
corruption, unethical behavior and anti-competitive practices are
like a two way street with both public and private sectors that need
to work on preventing such actions. We’ve therefore introduced
the AmCham Code of Conduct, a set of principles that we as a
Chamber are committed to follow, supporting fairness and honesty
in business activities. All members of AmCham agree to abide by
these principles, developing and promoting them further.
We have been and remain a very active member of the global
network of AmChams. Being a member of the U.S. Chamber of
Commerce since our formation in 1996, the European Council
of American Chambers of Commerce (ECACC) since 2006 and
a Member at Large of ECACC’s, now “AmChams in Europe”
Executive Committee since 2010, we are participating in the
transatlantic and regional dialogue to a great extent.
My most recent ambition is to expand into the area of the socioeconomic development of Azerbaijan. Our members have
increasingly approached the Chamber, and me personally, to
support their socially responsible business and caring staff’s
goodwill in helping vulnerable populations in the country in a
in focus
manner that prevents fragmentation and duplication and disallows
corruption ensuring that the donated money, non-financial assets
and time reaches the recipients in the most meaningful way.
Among these, I am proud to share that the 15th Annual
Independence Day Picnic on July 3rd, 2010, with more than 700
guests attending, raised a seemingly modest amount of 3,800
AZN. But being donated to our new member, Save the Children,
the funds published a handbook for the parents of children with
disability, providing guidance for them to support their children.
The book, the only resource of its kind in the Azerbaijani language,
contains comprehensive definitions of medical terms, symptoms
and treatments, legislative advice, and firsthand stories from
family members of children with disabilities. By touching issues
such as education rights, training and employment opportunities
for people with disabilities, the book is a do-it-yourself resource
to encourage parents to fight for the best lives for their children
with disabilities. It has been distributed to polyclinics, boarding
schools, rehabilitation clinics, and Children and Family Support
Centers free of charge, impacting the lives of thousands of
children living with disabilities and their parents.
Upon our members’ request, we organized a joint visit on December
29, 2010 to Boarding School #11 in Shuvalan, a place that shelters
children, predominantly diagnosed with light mental disabilities.
Facilitated for children’s positive interactions with adults, and
designed for AmCham Members to invest their time for vulnerable
children, the visitors and the children spent the day engaging in joint
activities and communicating via decorating the New Year tree,
playing interactive games, drawing, painting and sharing presents.
AmCham’s Members interaction with the children had immediate
and lasting impact on both children and the guests.
With these, we have now been engaging in de facto corporate and
personnel social responsibility more frequently than ever before,
but by far not often enough, to secure a significant social change.
We call on all our members to address their preparedness to
invest in their society to better future business and employment
environments. As our formal engagement to support our
members to achieve meaningful and efficient social investment,
AmCham will seek avenues with members such as Save the
Children for more formal ways of engaging the members in social
work, such as workshops, co-sponsored projects, establishment
of the CSR committee and so forth.
I believe it was Theodore Roosevelt who said, “What you are to
be you are now becoming.” If that is true then AmCham with all
its great achievement in the business environment is becoming
a bridge between the private sector and social development with
more yet to learn, give and achieve. Together with AmCham, I
too have now grown into a socially conscious individual – owing
this all to our caring members.
Nargiz Nasrullayeva-Muduroglu graduated from Western
University, faculty of Legal Regulation of Economy. Nargiz has
over 14 years experience with multinational organizations. She
started her professional career in Baku branch of HSBC Bank
Middle East, then joined Regus Business Centre Trading Ltd. as
Business Centre Manager. Since July 2004 Nargiz Nasrullayeva
is the Executive Director of AmCham Azerbaijan.
in focus
Mr. Matthew Bryza, American
Ambassador to Azerbaijan
With much anticipation, you have finally arrived as the
new American Ambassador in Azerbaijan. How are you
settling into your role?
I’ve settled in very well, thanks. My family and I have been
overwhelmed by the warmth of the reception we’ve received
from just about everyone we’ve met in Azerbaijan. We really
wanted to come here and had known the place and the people
for a long time. But, even with that background, we were
surprised at how wonderfully warm the reception has been.
We are very grateful for that.
Now that you’ve had a chance to look at the big picture
as a whole and assess the circumstances from a higher
level, is there any one glaring objective that begs your
attention that might define your first year here in AZ?
There’s an overall objective, and then there are a few sub­
objectives. Once the overall objective is achieved, we can
focus forward on subsequent issues to broaden our work here
in Azerbaijan.
8
Summer / Issue 12
The overall quest is to improve the tone of our relationship with
the Government of Azerbaijan so that we can rejuvenate the
positive momentum that has been a part of the U.S.­Azerbaijan
relationship since I first started working in this region 34 years
ago. I feel that starting to happen again based on the warm
reception and collaborative mood of the official meetings I’ve
attended, not to mention concrete bits of progress we’ve seen
on key issues.
Then in terms of subsequent objectives, there are a few
things we’d like to achieve as a result of that improved
tone that I’d like to highlight. First, as I’ve said a couple
of times in my public statements, I am doing everything I
can to support the work of the OSCE Minsk Group and the
Co­Chairs to help the parties reach a negotiated peaceful
settlement for the Nagorno Karabakh conflict. Nothing is
more important than peace. If we can’t secure a lasting
peace, it’s impossible to secure anything else we’re working
on.
in focus
The second objective is to help Azerbaijan emerge as the
example that proves that in the wake of all of the upheaval in
the Middle East and North Africa, the choices in this extended
region of the world is not between religious extremism and
political authoritarianism, but instead to demonstrate that there
is a middle way. This middle way is based upon political and
economical liberalization, democratic reform moving forward,
step­by­step, day­by­day – not as a revolution, but as a part of
a constant effort by civil society, government and common
people to liberalize.
The same goes for the economic side where, as we’ve heard
from President Aliyev, there is a need to fight corruption. There
has been positive progress in that direction. Also, to break up
monopolistic power throughout various parts of the economy
which, as an example, recently impacted food prices.
To sum it up, we want to improve the tone of the relationship
to generate the positive spirit that has always dominated
the U.S.­Azerbaijan relationship. With that, we’d like to help
the parties advance toward a peaceful settlement in the
Nagorno Karabakh conflict by supporting the OSCE Minsk
Group Co­Chairs, and help Azerbaijan prove that there is a
proverbial third way between religious extremism and political
authoritarianism.
How does your past experience give a general
understanding of this region and its inherent challenges?
I hope it gives me an intuitive feel for the dynamics within
the Azerbaijan society in a way that maybe someone who’s
brand new wouldn’t yet understand. Generally, in life I think
the best decisions are based not only on rational analytical
calculations, but on intuition. I’m not saying I have some deep,
profound understanding of this very complex society, but what
I am saying is that since I have spent this much time getting to
know this society and many of the people, hopefully I have a
bit of an advantage over someone with less insight.
I also have had a chance to work on issues that are most important
to Azerbaijanis in a way that pulled me in on a more human level.
Again, going back to the Nagorno Karabakh peace settlement;
I don’t think a diplomat can do any work more satisfying then
helping two countries reach peace. As a diplomat, we all dream
of doing that someday. So that’s something I’ve had the honor
to work on for 3­4 years, even longer if you count the time I spent
at the White House. I think that has helped me gain a deeper
understanding about how Azerbaijanis feel about the conflict
as well as how Armenians feel. So I hope I have more to offer
besides support of the Co­Chairs.
I’ve also worked in a personal and professional way on the
oil and gas pipelines. It’s thanks to the Baku­Tbilisi­Ceyhan
pipeline that I have my family. I met my wife while working
on that project originally and we got married on an island in
the Bosphorus. Because of this, I feel more connected to
Azerbaijan and to the entire region for that matter, through
my work and my private life. My whole professional existence
is committed to helping the parties reach peace, advance
prosperity and strengthen their ties to the Euro­Atlantic
community.
As our guest speaker at AmCham’s monthly luncheon
in February, you seem to tackle sensitive subjects like
bribery concerns and corruption in the education system
head on, pausing only to encourage an open dialogue.
How will you persuade participants to speak frankly
without apprehension so that real progress can be made
in these areas?
That’s a key question that I think the Government of Azerbaijan at
the highest levels is dealing with. As we know, an anti­corruption
campaign has been initiated by the government of Azerbaijan.
It’s not a result of U.S. policy, although we strongly support it
and wish to do everything possible to insure its success.
Of course, it’s more than just a campaign. It’s a broad effort
that aims to foster systemic change. I think the way to get
people to talk about these difficult issues is to support the
people themselves as they begin to open up about the need to
advance the fight against corruption.
I do sense that there have been some significant changes
in people’s everyday lives as a result of this effort. We hear
about traffic police behaving more politely these days and
acting within the rule of the law. Seems people are doing more
driving and less stopping to pay “fines”.
We hear from some companies that custom procedures
have improved and that it’s easier to do business. We even
hear from people dealing with notarial services that they are
getting receipts for services rendered for the first time ever.
International business standards are crucial for Azerbaijan to
attract investors moving forward that will make this place even
more prosperous.
What are the top 5 areas of concern where you feel a great
deal of attention should be given to improve or maintain
the U.S. / Azerbaijan relationship?
I would say there are 3 broad concerns that are the ones which
our policies towards Azerbaijan and the Caucusus are based,
and then I would add 2 more specific ones, in no particular order.
Security – We support of the OSCE Minsk Group Co­Chairs
working to find a peaceful solution to the Nagorno Karabakh
conflict, and also cooperate on counter terrorism, counter
proliferation and access of non­lethal supplies to the international
community’s efforts to assist the people of Afghanistan. I’d
like to note for a moment on counter terrorism that we are very
grateful for years of successful cooperation between our two
governments that have lead to the apprehension of some of
the world’s most serious terrorist suspects. As a host country,
Azerbaijan has kept us safe in the U.S. Embassy community
over the last several years, most recently just a couple of months
ago when heightened levels of security were deemed necessary.
Energy – the topic which brought me to this region in the first
place and has helped establish Azerbaijan on the strategic
in focus
streets. Our goal is to see meaningful, constructive dialogue
between the government and its citizens to constructively
keep this reform moving forward every day. I sometimes think
of the reform process as a shark – conventional wisdom says
that a shark may drown if it stops swimming. It’s the same
with the reform process – it can’t stop. Azerbaijan has a vision
at the political level about where this country needs to evolve
– it’s got time and the necessary monetary resources. Now
it needs to have the energy to drive these changes forward.
As a subsequent objective, the fourth has to be to further improve
the business and investment climate. Thanks to the American
Chamber of Commerce Azerbaijan (AmCham), our minds are
full of practical ideas that can help us achieve this goal. The
white paper soon to be released by AmCham, will provide the
guidelines for our discussion with the Government of Azerbaijan
in an effort to find a mutually agreed upon way to implement the
necessary steps towards a more opportunistic market.
Finally, the fifth area would be to reshape the relationship
between those who rule Azerbaijan and those who are ruled
so that there is a positive connection – one where the people
feel their government exists to help them. I believe the top
areas of concern are in education reform, healthcare reform
and supporting the rights of women and girls ­especially where
women and girls are concerned. Obviously, when half of your
society doesn’t have the same rights as the other half culturally,
and are in a sense held back from achieving everything men
are achieving, then it’s impossible to talk about democracy.
Photo by Heydar Aslanov
map of this region. This is a big year between the companies
and the countries developing the southern corridor which will
move Azerbaijan’s natural gas, and hopefully gas from central
Asia, to Europe to help diversify Europe’s gas supply. The
project will undoubtedly anchor Azerbaijan to Europe and
other global markets on a higher level.
Internal Reform – as I said earlier, our goal is to help this country
to liberalize one step at a time, persistently laying the foundation
of democracy, strengthen democratic institutions and to help
open up this economy by de­monopolizing based on the free
flow of goods, services and labor. This will bring stability.
We know from public opinion polling that many Azerbaijanis
believe their country is moving in the right direction on
democratic change, and we’d like to celebrate that. However,
we believe there’s much more work to be done now. Our goal
is not revolutionary change, and not to see unrest on the
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Summer / Issue 12
In January there was an increase in terrorist threat levels
and a travel warning issued for Azerbaijan. What can
you tell us about short and long term goals to insure a
secure environment in Azerbaijan for expat and local
communities alike?
First of all, I’d like to state that those warden messages that
were issued recently were serious. We don’t want to frighten
people or jump to conclusions, but when we have information
that will result in U.S. officials possibly changing their behavior;
we have to share that information with our fellow American
citizens. That’s by law. So that’s what happened when we
received information that was becoming increasingly specific
and worrisome that led us to take steps to strengthen our
own security. We want American citizens to have that same
opportunity to be as safe as possible.
Having said that, we’d like to suggest that AmCham and all
of its members along with all Americans in this country are in
close contact with us at all times. American citizens should be
registered with the Embassy’s Consular section in the event,
God forbid, there’s a problem and we need to find people
to make sure they’re ok, we can. We also welcome you to
consult with us to understand the security procedures from
our prospective.
What I realize, unlike any other job in government, is how
dependent we are on our host government to keep us safe.
in focus
At the end of the day, we have our security procedures;
we have our technology and equipment, our walls and our
internal security services. But the key to keeping us safe
is the partnership we have with the Azerbaijan government.
On behalf of everyone in our Embassy community, I’d like to
once again express our gratitude to the Ministry of National
Security and the Ministry of Internal Affairs for the superb
cooperation we’ve enjoyed from them in making sure we stay
safe.
In your opinion, what will make your tenure in Azerbaijan
a success?
Well, a good part of that depends on how long I get to be here.
I know for sure that I’ll be here thru the end of this year. If that’s
the length of my time here, and if we’ve changed the tone of the
U.S.­Azerbaijan relationship and rebuilt a sense of trust across
society so that everyone –government and non­government
alike – understands that we are committed to an ongoing
partnership with Azerbaijan, then my time here is well spent.
I need people to understand that our press for progress and
democracy, human rights and economic liberalization is again
noted in friendship. It’s our desire for us to work together to
have the strongest possible partnership with the most stable
partner that we can have in the country of Azerbaijan. I think
that would define a successful tenure.
Matthew J. Bryza was appointed by President Barack Obama
as U.S. Ambassador to Azerbaijan, and arrived in Baku on
February 6, 2011. Mr. Bryza served most recently as Deputy
Assistant Secretary of State for European and Eurasian
Affairs, responsible for policy oversight and management of
relations with countries in the South Caucasus and Southern
Europe, as well as serving concurrently as U.S. Co-Chair of
the OSCE Minsk Group. Mr. Bryza graduated from Stanford
University with a bachelor’s degree in international relations.
He received his master’s degree in the same field from
the Fletcher School of Law and Diplomacy. He is fluent in
Russian and Polish, and also speaks German and Spanish,
as well as conversational Azerbaijani. He is married to Zeyno
Baran Bryza, with whom he has a one-year old daughter,
Maya.
in focus
Unique opportunities
in the era of changes
Wayne Walz
President
Caspian Region Oilfield Services
Azerbaijan has been linked with oil for centuries, even
for millennia. By the 19th century Azerbaijan was by
far the front-runner in the world's oil and gas industry.
Azerbaijan drilled its first oil well in 1820, by the beginning
of the 20th century the republic was producing more than
half of the world's supply of oil. After the oil crisis in the
second part of the 20th century, the world started looking
for other sources to reduce their dependence on OPEC
countries. One of the regions that proved to be quite rich
is the Caspian Sea region. Today proven oil resources of
the Caspian region are 10 billion tons, 3 billion of which
belong to Azerbaijani sector of Caspian Sea. Wayne Walz,
takes a look at the past 15 years of oil and gas sector
development and describes its most interesting stages…
We are all aware of the tremendous interest in the petroleum
production potential of the Caspian Basin. Reserve numbers
are being stated ranging from 100 to 200 billion barrels.
These are optimistic estimates, and much exploration and
delineation to determine actual hydrocarbon reserves must be
accomplished before definitive numbers are available.
Considerably more is known concerning the potential
recoverable oil reserves within the Azerbaijani offshore sector.
Numerous potential hydrocarbon areas have been identified
and a few have been exploited since as early as the 1940's.
Currently, international specialists are comfortable to assume
that the Caspian Sea offshore sectors contain more reserves
than within the North Sea. In fact, the Contract Area of
Azerbaijan International Operating Company (AIOC) is known
to contain recoverable reserves conservatively estimated to
equal 7 Billion barrels of oil.
Therefore, when coupled with the fact that the Azerbaijani
Government has a proven track record of negotiating and
honoring fair agreements for the exploration and exploitation
of the potential onshore and offshore structures, then it is easy
to understand the intense interest in coming to Azerbaijan to
do business.
In the meantime, the intense interest in the hydrocarbon
14
Summer / Issue 12
producing potential of Azerbaijan is reinforcing yet another
significant opportunity for commercial participation there.
The reality of Azerbaijan is that it is a developed country
with an extensive manufacturing and offshore petroleum
services infrastructure. During the days of the former USSR,
Azerbaijan provided the state monopolies with 70% of all the
petroleum sectors equipment and was the center of offshore
services within the Caspian. It was the center of excellence
within the USSR for numerous petroleum sector technological
areas, such as, electric logging, seismic techniques, offshore
technology, drilling equipment, etc. The country boasts an
extensive and distinguished system of scientific research
institutes and a 97 % literacy level. There are currently tens of
thousands of under-employed engineers and skilled workers
available to be employed within the existing petroleum
sector manufacturing and services industries, upon their
refurbishment and revitalization.
Therefore, nothing would be more natural or logical for
Azerbaijan then to strive towards re-establishing itself as a
major exporter of petroleum sector goods to the international
market place and provider of offshore services to the Caspian
Region. The country is uniquely positioned to achieve both
objectives if the right mix of government stewardship; western
technology, management techniques, commercial savvy and
financing is brought together to create and facilitate alliances
between selected world class international firms and selected,
in focus
capable Azerbaijani organizations.
This last statement
represents the current challenge to the Government, consortia
and oil companies working within Azerbaijan, due to the need
to match infrastructure development to both the requirements
of Hydrocarbon Resource development and meet the
expectations of the Azerbaijani petroleum-sector industrial
complex.
What can be learned from the
AIOC Experience?
The first consortium of international companies to accomplish
the development of an offshore E&P development program
in the Caspian Sea is the Azerbaijan International Operating
Company, better known as “AIOC”. AIOC has been operating
the Azeri-Chiraq-Guneshli License Area since September
1994. AIOC’s initial work program, the combination of AIOC's
“Minimum Obligatory Work Program (MOWP) and the Early
Oil Implementation Program (EOP) was fondly known as "The
Billion Dollar Experiment" within some of the consortium's
members. In actuality, the cost of achieving the two programs
totaled approximately 1.5 billion USD.
Basically, the
workscopes were seen as a preliminary effort to determine
if international companies could operate effectively in
Azerbaijan, to determine if the resultant oil production could be
exported and sold on the international market and to develop
typical project benchmarks on work productivity, quality and
cost; to serve as a basis for making future cost estimates and
future technical and commercial decisions.
The MOWP program was successfully implemented with the
completion of a 3-D seismic survey, Environmental Impact
Assessment of the Contract area, refurbishment of a semisubmersible drilling rig (The Dede Gorgud), the drilling of
three additional appraisal wells and submission of a report
identifying potential Main Crude Export Pipeline routes.
The challenge of implementing EOP began in earnest on
February 19, 1996, with the execution of the Intergovernmental
Agreement, Transneft Agreement and budget sanctioning of
the required funds. The work program comprised five major
programs: (1) refurbishment of required major infrastructure
assets; (2) refurbishment of the the Chirag 1 topsides and
jacket (slide); (3) installation of 176 km of 24 inch subsea oil
line and 48 km of 16 inch subsea gas line; (4) construction
of the Phase 1 onshore terminal at Sangachal; and (5)
construction and refurbishment of the Northern Export Route.
The Project was successfully implemented to mechanical
completion within 19 months.
The achievement of such a successful project implementation
program, involving such a complex project, upon the initial
efforts by a consortium of international companies within
Azerbaijan, requires careful analysis to be properly understood.
Obviously, the consortium provided an experienced, competent
project management team, western technology and financing,
however, the Azerbaijani Government and SOCAR obviously
provided the required basic infrastructure, skilled workforce
in focus
and facilitation/support that was necessary to accomplish
such a successful project.
Therefore, during the execution of the work programs, several
"lessons learned" relate to the issue of forming successful
alliances with competent Azerbaijani entities and are pertinent
to any potential International partner's deliberations on the
issue. The main "Lessons Learned" were as follows:
• Fabrication and offshore service infrastructure necessary to
support a significant level of the anticipated consortia work
programs currently exists in Azerbaijan, however it requires
varying levels of refurbishment/enhancement;
• Extensive petroleum sector manufacturing facilities exist in
Azerbaijan, however, as in the case of the service sector,
the facilities require varying levels of refurbishment /
enhancement;
• Azerbaijan workers respond quickly to training and
incentives to deliver world class productivity and quality of
work;
• A comprehensive evaluation of metocean and seismic
characteristics of the Azerbaijani sector of the Caspian
Sea proved that the API Technical Standards are directly
applicable and appropriate; and
• The Government of Azerbaijan and SOCAR delivered their
obligations in full, and AIOC was continuously supported as
required at all levels within the Government.
Full Field Development of AIOC’s ACG field implementation is
complete, but it is not the end of the story, it is the beginning
of a tremendous opportunity, and not just for Azerbaijan, but
for the international community as well. An opportunity to not
only participate in the exploitation of Azerbaijan's hydrocarbon
resources, but an opportunity for international contractors and
manufacturers to position themselves to participate within a
major developing market serving the Caspian Region, the
former Soviet Union and the world market. Currently, where
else in the world can an international contractor or manufacturer
negotiate a fair deal, assume operations of existing facilities,
tap a large pool of technical and skilled workers with proven
world class performance potential and position themselves so
strategically from a market standpoint.
The current realities of Azerbaijan elaborated earlier, plus the
lessons learned during the AIOC’s various project phases,
leads us to the ongoing Initiatives to facilitate alliances between
Azerbaijani and international contractors and manufacturers.
Initiatives to Foster Azerbaijani
/ International Alliances
When all of the forementioned factors are brought together;
the large perspective reserve potential within the Basin, the
willingness of SOCAR and the Government to negotiate
and abide by a fair deal, the infrastructure available to be
16
Summer / Issue 12
refurbished, the exceptional productivity and work quality
demonstrated by Azerbaijan's large technical and skilled
work forces and the current competitive labor cost; then it is
easy to conclude that great potential exists for the formation
of commercially viable Azerbaijani/International Company
Alliances in both manufacturing and services for the petroleum
sector.
If structured properly and provided with an investment
environment conducive to profitable operations, these ventures
should successfully compete both within the Caspian Region
and beyond, in the international market. This is exemplified
by the current operationally successful alliances active within
Azerbaijan, such as Caspian Geophysical, Azfen (SOCAR/
Tecfen), Gabeg/Azpromstroi, Azlab (SOCAR/Schlumberger),
Azeri-FUGR SOCAR/FEL/LUKOIL, Caspian Drilling Company
(SOCAR/Santa-Fe), ATA Group (AMEC, AZFEN,TECFEN), etc.
This level of participation by such alliances performing such
significant scopes of work during project implementation
demonstrates both the commitment of AIOC to utilizing
qualified Azerbaijani alliances and companies and their
respective capabilities to deliver the project work to
international standards.
As stated earlier, it is the goal of the Azerbaijan Government to
once again become an exporter of petroleum sector equipment
and services to the Caspian Region and beyond. Realization
of this goal is key to the re-vitalization of the Petroleum Sector
Industrial Complex, new job openings and the employment
of the tens of thousands of currently underemployed sector
workers. If the formation of commercially successful alliances
can be facilitated within the petroleum sector, the investment
and employment generated by the refurbishment and staffing
of these alliances will bridge the current cyclic nature of the
in focus
offshore development projects. The successful implementation
of such a program would be of great benefit to all parties and
would place Azerbaijan firmly on the road to a more balanced
economic development, not solely dependent on petro-dollars.
Another significant initiative, which Azerbaijan joined within
the last decade, was an Extractive Industry Transparency
Initiative (EITI). The EITI was launched by Tony Blair at the
World Summit on Sustainable Development in Johannesburg,
September 2002 with the goal to encourage governments,
publicly traded, private state-owned extractive companies,
international organizations, NGOs and others with an interest in
the sector to work together voluntarily to develop a framework
to promote transparency of payments and revenues.
Azerbaijan was one of the pioneers of the EITI process. The
Government of Azerbaijan had supported the EITI since it was
launched and indicated its readiness to participate in EITI at the
country level in June 2003. EITI implementation is overseen by
the National Committee on EITI, chaired by the State Oil Fund
of the Republic of Azerbaijan (SOFAZ). An MOU of cooperation
between the EITI Committee, the Coalition of NGOs for Improving
Transparency in Extractive Industry, and oil and gas companies,
was signed in November 2004. All extractive industry companies
operating in Azerbaijan are engaged in the implementation of the
EITI. Since joining the EITI, Azerbaijan has completed nine EITI
reports, which are published twice a year.
In 2007, in recognition of the progress Azerbaijan has made in
implementing the EITI, SOFAZ was awarded the Certificate for
Improving Transparency, Accountability and Responsiveness
in Public Service at the UN Public Service Awards. Azerbaijan
also played a leading role in enabling the adoption by the UN
General Assembly of the Resolution on the EITI in 2008.
Taking into account that Azerbaijan has instituted a regular process
of disclosing, reconciling and publishing company payments
and government receipts; Azerbaijan is the first ever country to
complete validation, the EITI's quality assurance process which
verifies compliance with EITI principles and criteria.
Yesterday... Today… Tomorrow…
The AIOC contract signed with the oil companies of the West
in Gulistan palace of Baku on September 20, 1994 opened a
new page in the history of the country. Later, the said contract
called the “Contract of the Century”, was perpetuated in the oil
chronicle of independent Azerbaijan.
Since then, 21 oil contracts were signed with the foreign
oil companies. To date nearly 34 international companies
representing 15 countries engaged in operations in 30 fields of
Azerbaijan. More than 40 bln. US Dollars were invested during
last 15 years. To date the hydrocarbon reserves of Azerbaijan
exceed 4 billion tons, thus including the country into the list the
biggest oil regions of the world.
In addition, Azerbaijan has a unique geographical location
between Europe and Asia, as a result, Azerbaijan has a
significant role to play in the transportation of Caspian energy
resources to the world market. The transportation of Azeri oil
and gas to the world market is one of the major directives of the
State Energy Strategy. Due to the comprehensive protection
of the long-term interests of Azerbaijan, the development of
broad international economic cooperation and the increase in
the oil and gas production in the Region, the foresight and
wisdom of the implementation of the Baku-Tbilisi-Ceyhan and
Baku-Tbilisi-Erzurum pipelines is now evident to all.
The fundamental elements are clearly in place for Azerbaijan
to work towards its goal to re-establish itself as the Caspian
Region provider of petroleum sector goods and services and
a major conduit of Caspian Region oil and gas resources to
the world market. In addition, the potential is strong for the
establishment of a viable export trade of crude derivatives to
the international market place. Such a successful program
would contribute greatly to a more balanced development of
the Azerbaijani economy and the realization of the aspirations
of the Azerbaijani Government. The key ingredient continues
to be the Azerbaijani Government's vision and commitment to
provide the required stewardship.
Forty years of Domestic and international engineering and
management experience in both onshore and offshore
operations within the upstream petroleum sector, including 19
years of senior management experience in the FSU ( 17 years
in Azerbaijan). Specifically:
General Manager of NOBEL OIL LTD (Azerbaijan), Member of
the Board of Directors of Azeri Drilling Company, AQS Drilling
Company and Oil & Gas ProServ.
Managing Director - Caspian Region Ventures Corporation
and Trans Ventures International; Founded several upstream
petroleum sector companies providing services and
consultancy.
Executive Director – The Coordinating Council ; Managed
the permanent office of the Coordinating Council, a forum
consisting of the Presidents of the ratified consortia and
Chaired by the President of the State Oil Company..
AZERBAIJAN INTERNATIONAL OPERATING COMPANY,
Vice President - Projects and Field Development; member of
the Executive Committee that conceptualized, planned and
implemented the establishment and implementation of AIOC
and the fulfillment of its PSA work program within Azerbaijan.
Directed, coordinated the evaluation of the Early Oil Project
feasibility and its subsequent implementation.
PENNZOIL CORPORATION, Houston, Texas; Project
Director - West Mogutlorsk Field, Western Siberia Houston/
Moscow based position coordinating the facility construction,
drilling, well completion, operations and government relations
activities of a Russian/American Joint Venture located in
Western Siberia.
In addition, member of the Board of Directors on the Azerbaijan
chapter of the American Chamber of Commerce and former
President of the BAKU ROTARY INTERNATINAL CLUB.
in focus
The Rise and High-Rise
of Post-Independence Baku
Alum Bati
Wicklow Corporate Services Limited
Post-independence Baku is a perfect subject for a study
in development economics. Today, in 2011, tower blocks
and hotels are sprouting all over the city and grandiose
development plans are mushrooming almost as fast. But
post-independence Baku was a very different place. There
were few tall buildings and satellite towns such as Xirdalan did
not exist. Vermin-free and electrically-safe accommodation,
with running water (preferably not through the ceiling) was a
rarity in downtown Baku.
Arriving in the late summer of1993, Baku had no quality
hotels. There were basically five half-acceptable ones (i.e.
with louse-free beds): the Respublika - not really an option
as BP had block-booked most of its rooms; the Old Intourist
(a not unattractive grey-coloured low-rise building), which
was also not really an option as two other oil companies
(Pennzoil and Unocal) together with the British Embassy
had taken over chunks of it; the New Intourist, otherwise
known as the Azerbaijan Hotel, (an ugly high-rise now
being redeveloped and intending to re-open as the Hilton),
the Apsheron (mirroring in many ways the Azerbaijan Hotel
and currently also being redeveloped and expecting to
reopen as the JW Marriott) and the Hotel Moskva (Moscow)
another non-descript high rise on the hill near the Parliament
building, then popular for weddings and even in late 1993
was undergoing renovation (and is now being completely
redeveloped as part of the ‘Three Flames’ site, which will
house the Fairmont).
Of the three ‘available’ hotels (the Azerbaijan, Apsheron
and Moskva), the Moskva had the better reputation, though
hard to see why but for its wide staircase and an absence of
the then ubiquitous Russian ‘floor-ladies’ (unsmiling ogres,
invariably ethnic Russians, who kept their beady eyes on
all comings and goings). It also had a bar, bigger though
less popular than the one at the Old Intourist. The hotels
did have one factor in their favour – with the country still
at war (the ceasefire with Armenia not taking hold till May
1994), their restaurants did at least have something to eat
(even if the menu was limited to caviar – a treat the first
few times but unappetising thereafter - sturgeon, chicken,
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Summer / Issue 12
hard-boiled eggs, plov, tomatoes and cucumber). And they
had bread and mineral water. There were always long bread
queues in the city and a there were a couple of days when I
recall mineral water was hard to come by (before a convoy
of Iranian trucks arrived to save the day). The waiters wore
black bow-ties, scruffy black jackets and crumpled white
shirts, pretending at style.
But the Azerbaijan Hotel was still for me the preferable
option over the Moskva, stuck out of the way up the hill. It
was staying at the Moskva that I conducted my interviews to
hire staff for Ernst & Young and where I consequently met
some of the brightest people in the city. I was convinced
one candidate, a senior employee of the Ministry of Foreign
Affairs, was working for the intelligence services, his English
being so good and his Soviet-era history as a diplomat
(having resided in Vienna for several years). He, too, was
suspicious of me and insisted on looking at the notes I was
taking of our interview. We remain friends to this day.
But it was also in the Moskva where I had one of my scariest
experiences. Taking the elevator to my floor it, for reasons
unknown, failed to stop and kept on going to the top floor.
Realising there must be a fault with the machinery. I hopped
out and decided to walk down. That was a mistake. It was
only when I got out that I realised the top floor was being
renovated, with all the windows removed, bags of cement
lining the walls, the sun setting and the natural light fading,
the wind gathering force and billowing up dust. I walked down
two storeys only to come to a wooden barrier constructed
across the staircase. With no human in sight and it getting
too dark to see clearly, I ascended the stairs to call the lift,
my only option. I went to press the elevator button. But where
was it? The control panel had been removed! I was stranded.
I had visions of starving to death without anyone knowing.
Fortunately, before panic took hold, the dodgy lift came as if
sensing my distress, the doors opened and I leapt in.
Although the Moskva had its scary moments, the other hotels
had there own problems. The ‘refurbished’ ‘suite’ rooms of
the Azerbaijan Hotel were poorly heated and even less wellinsulated (the winter of 1993-94 was an especially cold one
for Baku, with unusually heavy and persistent snowfalls) and
I shivered some nights fully dressed. When I moved out of
hotels to an apartment on Nizami Street near the railway line,
a spot also doubled as the Ernst & Young office, I recall one
winter night the curtains flapping horizontally as the north
wind howled outside and, despite being fully dressed lying
under two duvets on the bed, I struggled to sleep because
in focus
of the cold. I eventually nodded off only to be woken in the
morning by the staff arriving for work. I looked at my alarm
clock to find its battery had seized up with the cold and the
electricity voltage had dropped so dangerously low that the
plug on my electric heater had melted.
Baku that winter seemed dreary, depressing, desolate and
dead. The creaky tram/trolley bus network (since dismantled)
was barely functioning and the few rusty Soviet-era Ladas
and Volgas on the streets were targets then, as now, for
the rapacious traffic police. On one occasion, my driver –
who came equipped with his own white unheated Lada –
whispered urgently for me to get into the parked car as he
made to hand his papers over to a policeman. As I closed the
door, he sped off, leaving the bristling policeman whistling
for his money.
Not only were there few acceptable hotels in 1993 but there
were few restaurants and no supermarkets. The nearest
thing to a supermarket was the Viyana Store, a shop in
Xatai, which stocked whatever the truck happened to bring,
including toilet paper and out-of-date cheese (and where
I once bought 36 litres of UHT milk, not knowing when I
might see that luxury again). It was not long before quite
reasonable supermarkets (the first I recall being an Israeliowned one on Rasulzadeh Street in the historic part of town
on the fringes of the Old City) and restaurants started to open
(three Turkish ones in particular, including the Cinema Club
on the Boulevard and a very pleasant one in a garden setting
in Xatai). Bars were also starting to proliferate.
For entertainment, other than the bars, there were the
Opera & Ballet Theatre and the Philarmonia. The former
was an interesting diversion to see some delightful Azeri
operas, and some uninspiring western operas and ballets.
Soldiers on R&R from the battlefront would use the matinee
performances for a snooze in the back rows.
And the Azerbaijani soldiers were not the only soldiers
taking a rest from the fighting. There were also the Afghan
mujahideen, strolling along the waterfront or relaxing in the
Azerbaijan Hotel. And strolling along the waterfront was then,
as now, one of the few pleasures an impecunious Azerbaijani
could indulge in when the weather was good. The Afghan
mujahideen, along with the rest of Baku’s males, would no
doubt ogle the pretty girls (even though almost all seemed
to have one or more glinting gold teeth). But the women in
those days were quite modestly dressed: the first mini-skirted
girl I saw was in the summer of 1994 and I recall she was
given a mouthful of abuse from an older woman. Back then,
you would never see men in shorts (even today a rare sight)
– jogging would have to wait until there was a fitness club
equipped with a running machine.
But all of this was before the Hyatt Regency opened in 1995.
That was when the city started to buzz. Not only did it provide
that fitness club and the first public space where a western
businessman could feel relaxed and comfortable. It also had
an important economic impact on the city. Before the hotel
opened, British Airways had already started scheduled flights
to Baku to meet the growing demand from the oil companies
and oil service sector looking for opportunities in Azerbaijan.
But the flights were dog-legged through Bucharest. Now,
with an acceptable hotel to put up their crew, British Airways
could fly direct. Once it could do that, more businessmen
were willing to visit. And with a good quality hotel, more
senior executives, unused to roughing it in Soviet-era hotels,
were ready to explore new opportunities. Other airlines, such
as KLM, also saw the opportunity to develop routes, and to
use Baku as a stop between Tehran and Amsterdam.
The Hyatt Regency also formed the venue for the early
meetings of the Baku Cricket Club (formed in 1995 but
now defunct), two of whose early stars were a Dutch and
American-Pakistani employees of Hyatt's management team.
The British Embassy and ambassador’s residence, too,
moved to the Hyatt Regency (the former Naxchivan Hotel).
Britain’s first ambassador to Azerbaijan, Tom Young, was
a Turkish speaker with a nice sense of humour and he
developed a real affection for the people of Azerbaijani.
The Hyatt Regency brought with it a casino (subsequently
outlawed but popular whilst it lasted). Originally located on
the lower-ground floor of the Hyatt Regency it was later
moved to a newly-constructed adjacent building (now the
Hyatt’s Conference Centre). It was not quite Las Vegas but
it was a place where there was late-night entertainment (not
just the gambling but a singer or pianist) and a cosy place
for a relaxed meal. Other casinos opened, the biggest in the
Europe Hotel, a stone’s throw from the Hyatt, and casinotourism from Turkey and Israel came into vogue for a while.
It is hard to know what Baku would have looked like if the
Hyatt had not opened. Of course, other developers would
eventually have moved in. But the Hyatt Regency earns
the distinction of having been the pioneer which spurred
economic development in Azerbaijan.
in focus
The Development of Aviation
in Azerbaijan
Rifat Roy Kocal
Azerbaijan Airlines, Baku
Gular Almazova
Azerbaijan Airlines, Baku
As the Republic of Azerbaijan gained its independence in
1993, the newly recognized Government developed a vision
for the future, and the foundation of a modern Azerbaijan
was established. The political and economical policies and
oil strategy developed by the National Leaders lead the
development path of the country. Many business sectors that
existed in those early years of development advanced at a fast
pace. One of those fields is civil aviation.
It would be interesting to note that the history of civil aviation
began at the beginning of the 20th century. Increasing interest
prompted the first flight abroad on the 3rd of August, 1923
when the first passenger airplane “Junkers” made a flight from
Baku to Tbilisi. As the national economy developed, the need
for the first airport became apparent. In 1931, the groundwork
began for the first airport in the capital city of Baku. It was
completed and operational in just two years and Ivan Kucharev
was appointed the first director of the Baku Airport. In 1934, the
Trascaucasian Civil Aviation Administration was established.
The civil aviation of Azerbaijan operated within that structure
and in 1938, the first air group was created in Azerbaijan.
Independent development of civil aviation in our country also
started in that period.
This also stimulated expansion of the geographical coverage
of flights. Flights to Kharkov, Rostov, Makhachkala, and
Astrakhan were added to the existing ones to Moscow
and Grozny. World War II slowed the development of
civil aviation to some extent, however, the end of the war
initiated several years of rehabilitation of aviation facilities
and airports.
At this time the decision was made to build airports in other
regions of the Republic and, in 1946, the construction of a
new airport began in the town of Ganja. Two years later,
the airport was completed and operational. In 1950, a new
air base became operational in the settlement of Zabrat
near Baku providing mainly for flights of helicopters Mi-4
and airplanes An-2. In 1955, we saw the first multi-seat
passenger flights on airplanes in the skies of Azerbaijan.
It was after 1959 that new high-speed airplanes Il-14 with
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Summer / Issue 12
high-volume engines graced the ranks of civil aviation in
our country.
The development of civil aviation in our country is associated
with the name of President Heydar Aliyev. He first came into
office in 1969, initiating the start of fundamental changes
and high-standard developments in this field. It was in then
that the construction of flight strips equipped with new, stateof-the-art information and radio-communication systems
were constructed in 11 regions of our country, including the
Nakhchivan Autonomous Republic, Balaken, and Zagatala.
Civil aviation was soon enhanced with jet airplanes Tu-154,
Tu-134, and YAK-40. The construction of additional airports
began in important regions of the country.
Due to personal efforts and activities of then President Heydar
Aliyev, the Civil Aviation Administration of Azerbaijan was
awarded the Order of the October Revolution by the Presidium
of the Supreme Soviet of the USSR. Along with the renewal of
infrastructure, training of national staff in the civil aviation field
during that period saw Nuru Aliyev, Chingiz Agazadeh, and
Faig Mammadov amongst others emerge as honored pilots.
Marketing was presented to increase the interest of the youth
and to encourage the consideration of work in this field. As a
result, the heroes of socialist labor Ali Novruzov, Ali Huseynov
and Jabbar Gafarov were awarded the order of Lenin ranks
shortly thereafter.
In 1993, President Heydar Aliyev returned to office and
successfully continued his campaign for the development of
national civil aviation. The reconstruction of the airport complex
that had been delayed for 10 years was restarted. Soon a new
airport meeting international standards was completed in the
capital city of Baku. The throughput capacity of the new airport
that became operational in 1999 is 1600 passengers per hour.
Shortly thereafter, the basis of civil aviation was replenished
by new Boeing passenger airplanes. Construction of a new
airport complex began in the Nakhchivan AR.
In 1996, the Cabinet of Ministers of the Republic of Azerbaijan
gave International Airport status to the Ganja Airport. In
1998, the ceremonial opening of the flight strip at the Baku
International Airport was held. In 1999, the reconstruction of
the flight management system was completed. The matter of
renewing the aviation system infrastructure was also added
to the list of upgrades. As a result, in 1999, a new aircraft
fuelling station with the capacity of 6000 tons was constructed
at the Baku International Airport and Azerbaijan purchased its
first Boeing 757-200 airplane scheduling the first flight from
in focus
Baku to Paris. In 2004, the airbus A-320 was delivered, and
the purchase of additional airplanes opened new pages in the
history of civil aviation and modern development of Azerbaijan.
Reconstruction of roads from the capital city to the airport
further advanced development and in 2002, improvement
of the road from the Baku–Mardakan Airport crossing to the
Baku International Airport began. Legislation was approved
to support the continued development of civil aviation and
the decision of the Cabinet of Ministers of the Republic of
Azerbaijan “On the Disciplinary Regulation at the Air Transport
and Its Special Service Enterprises” made in 2002 can be
considered a clear example of that support.
This concept of development of the national civil aviation was
persistently continued by President Ilham Aliyev. The year
2004 saw much progress as the construction of the Nakhchivan
International Airport was completed, new lines for internal
flights were added in Baku, the decree for the reconstruction
of the Ganja Airport was signed, and Baku International Airport
was renamed the Heydar Aliyev International Airport by the
decree of President Ilham Aliyev. Nakhchivan Airport received
International Airport status that same year.
A new page was opened in the history of national civil aviation
in Azerbaijan in 2005 as the Baku Cargo Terminal opened
its doors for business, the airbus A-319 was delivered to
the Heydar Aliyev International Airport and the first flight of
an airplane of this type was scheduled to Ankara meeting
international status. In 2006, the Ganja International Airport
was completed and airports in Zagatala and Lyankaran,
which were upgraded to meet modern requirements, were
now operational. These airports located in the regions of
Azerbaijan influenced much the development of the non-oil
sector and tourism in our country. As a result, tourism to the
regions of Azerbaijan increased as did the corresponding
interest of foreign investors.
Due to State support, The Law on Aviation adopted in 2005
determined a new path in development of this field. The Civil
Aviation Administration began its work in 2006, with the 2nd
of June established as Professional Day of the Civil Aviation
Workers, in accordance with the order signed by the President
of Azerbaijan.
In 2007, AZALOIL started the construction of four additional
fuel storages, each with the capacity of 5000 tons. This is
considered an important step in the integration of Azerbaijan
with international air services. International companies then
became interested in development of bilateral relations with
Azerbaijan.
In 2008, by the order of the President, establishment of the
Closed Joint-Stock Company Azerbaijan Airlines (AZAL CJSC)
was complete and, in accordance with the order, Jahangir
Asgarov was appointed president. Various efforts were made
to meet international standards, and in 2010, by Order of the
President of the Republic of Azerbaijan on establishment of the
honorary name, “Honored Pilot” was awarded to the president
of AZAL CJSC.
As a result of the attention and care of this industry by President
Ilham Aliyev, AZAL CJSC purchased new airplanes last years.
In 2007, the ATR42-500 airplane was delivered followed by
three ATR-500 airplanes in 2008. SW Airlines received delivery
of a Boeing-747. In the past year, AZAL CJSC added two new
in focus
Airbus-320 airplanes to their fleet named Lerik and Naftalan.
sector of Azerbaijan.
“May 2011 will see a new Boeing 767-300ER passenger
airplane delivered to Azerbaijan Airlines (AZAL) followed
by another one in May 2012. Two new Boeing 787 will be
delivered in May and June 2014. SW will receive two new
Boeing 767-300ER freighters in May and June of 2012. There
are on going discussions about Boeing’s new model 747-8,”
says Mr. Rifat Roy Kocal, Boeing Field Service (BFSBAK),
Baku.
Rifat Roy Kocal
Education: Graduated from High School in Aviation in New
York and continued at University in California in Aeronautics
Engineering with two years in MS Management. Worked five
years in Research & Development for defense products.
Joined McDonnell Douglas in 1979 as a engineer design / Lab
testing into Flight Testing & Certifications.
"What makes my job easier is the 24/7 support from Boeing to
assist our customers. When you walk through that door, you
have no idea what to expect but Boeing really supports our
customers' requests. Customers always come back and tell us
how appreciative they are with our attention to detail support
and how we go that extra mile."
Mr. Kocal went on to say, “I sometimes feel like a company
"Ambassador". When you tell Azerbaijanis you work for
Boeing, they're very interested and want to know more. A
regular 'Hello' can turn into a half-hour conversation."
These days, the development of the national civil aviation is
regulated by both State and private sectors. The national civil
aviation system controlled by the State is comprised of the
National Aviation Academy, the Heydar Aliyev Airport, Ganja
and Nakhchivan International airports, and Zagatala and
Lyankaran regional airports.
The civil aviation system of Azerbaijan enjoys a good
business relationship at international levels emphasized by
a working agreement signed between AZAL State Concern
and the European Aviation Safety Agency (EASA). It is notable
that in February of this year, AZAL CJSC was granted the
European Services Standard by unanimous decision of the
Board of Directors of the European Economic Chamber of
Trade, Commerce and Industry (EEIG). This is indicative of
the success achieved by this company and the entire aviation
22
Summer / Issue 12
Years at Boeing: 31, including 1.5 in Azerbaijan and 12 in
Turkey.
Job Responsibilities: Assist Boeing products in Azerbaijan
and Georgia to solve aircraft problems in Flight Operations,
Engineering and Technical issues.
Customers: Azerbaijan Airlines, Silk Way Airlines, Silk Way
Technic, Silk Way Business Aviation and Georgian Airways
Born in Istanbul, Rifat was raised and educated in the United
States. He left the United States in 1997 to work in Turkey
for McDonnell Douglas and after 12 years in Turkey, he was
reassigned to Azerbaijan.
Almazova Gular Mirzaaga
Education: Graduated with honors from Nakchivan University
(1993-1997) with a degree in Education and continued in the
Master Program 1997-2002, having several articles published
in magazines and newspapers during this time.
In July 2003 she received an invitation to the USA. Afterwards
publishing articles about the global reputation of Boeing
airplanes and “Dream Liner”, Boeing’s 787.
Seeing her special interest and attention to aviation, Boeing
Vice-President, Craig Johns, invited Almazova to the Air Show
in Moscow, fueling more articles for publication. She attended
another Boeing seminar in Istanbul. Her passion for aviation
continues today.
in focus
General overview of ICT Sector
in Azerbaijan
Cuneyt Turktan
Chairman of the Board of Directors of
Azerfon and Azertelecom Companies in
Azerbaijan
AmCham Azerbaijan is celebrating its 15th Anniversary and,
by coincidence, I arrived in Baku in 1995 just one year earlier
to apply for a GSM license. At that time I was the CEO of
Turkcell trying to establish our first international investment.
After negotiating the terms and conditions of our offer with the
Ministry of Communications, we were given the opportunity
under leadership of Cenab President Heydar Aliyev to invest in
this market. We then launched the first Mobile GSM services
under the name of Azercell. At that time Bakcell was in the
market using a different technology.
In 2004, the Government of Azerbaijan abolished the
Ministry of Communications and established the Ministry of
Communications and Information Technologies to develop
a vision, resources, and a plan of action to build a modern
day information, communication and technology sector. As I
have been in Azerbaijan for the last 16 years, I have had the
opportunity to see the major changes and developments that
have occurred over the past 1 1/2 decades:
In 2005, the World Economic Forum ranked Azerbaijan 29th,
only 10 places behind the U.S., in terms of the level of state
priorities in ICT. Some of its key state programs on ICT
included:
•
•
•
•
National ICT Strategy for development of the Republic of
Azerbaijan (2003-2012)
“State Program on Socio-Economic Development of the
Republic of Azerbaijan” (2004-2008)
“State Program on provision of secondary and primary
schools with the information and communications
technologies” (2005-2007)
State Program on development of communication and
information technologies of the Republic of Azerbaijan
(2010 – 2012) (E-Azerbaijan)
Despite the global financial crisis, the Azerbaijani ICT sector
entered 2010 with optimism due to stable dynamics in recent
years. The main aspects that had a positive impact on market
growth in 2010 were the realization of State support of largescale projects, the growing need of players in the financial
24
Summer / Issue 12
sector, telecommunications and other major companies to
introduce advanced technologies, and the growing market for
retail and home users.
Electronic Azerbaijan - To date, Azerbaijan has implemented
a number of projects to create "Electronic Government." This
is an opportunity to receive information about the activities of
a State institution without having to visit it, saving both time
and money. These applications include e-payment systems for
utilities, services, service providers and others, e-registration
of business organizations by a "single window", submission
of e-tax declaration and e-applications to the State Student
Admission Commission.
The East-West Super Information Highway - A resolution
submitted by Azerbaijan to create an information superhighway
was adopted by the U.N. during its sixty-sixth plenary meeting.
The resolution allows Azerbaijan to act as project coordinator,
both regionally and globally, as well as to attract additional
funding. The project cost is estimated at hundreds of millions
in focus
of dollars. East-West is intended to connect a total of 20
countries. The project will eliminate the information gap existing
between countries in Western Europe and the Pacific basin.
Major regional operators like China Telecom, Turk Telecom,
Rostelecom and Kazakhtelecom, as well as Azerbaijani
operators, are interested in this project. A memorandum on
the formation of a consortium to design the East-West super
information highway is expected to be signed in 2011.
Space Industry - Today, Azerbaijan works on the creation
of the space industry and launching the first national
telecommunications satellite, Azerspace. OJSC Azerkosmos
was established under the Azerbaijani Communications
and IT Ministry to launch the satellite into orbit, manage
and implement maintenance as needed. The company is
completely owned by the State. The income from the satellite
will reach roughly 495 million AZN. The revenue will be
directed to the technological development of the country.
Electronization of the PSTN - Azerbaijan is the first country in
post-Soviet existence that achieved installation of telephones
throughout the Republic by 2008. In the near future, telephone
networks throughout the territory of Azerbaijan will be
converted to electronic form. The share of electronic ATS
in Azerbaijan is currently at 93 percent. At present, the total
number of phones used for every 100 people throughout the
country is 16.2 units.
ICT Market Highlights
•
•
•
•
•
•
•
•
•
By early 2010 mobile penetration in Azerbaijan reached
90%, with mobile subscriber numbers having increased
almost fourfold in just over four years
The country saw overall growth in its mobile subscriber
base, running at an annual rate of just below 20% as of
2009
With two additional operators, Azerfon and Catel, joining
Azercell and Bakcell in the mobile market in 2007,
competition for market share was hot
Fixed-line penetration in Azerbaijan had reached a healthy
15% by 2009, but subsequent growth was slow
The country moved closer to 100% conversion of the fixed
network from analog to digital with over 90% being digital
by 2009, up from just 48% in 2003
All the signs suggest strong growth in Azerbaijan’s internet
usage with user penetration reported at more than 17% at
the start of 2009. Internet usage jumped to 25% by year’s
end
Broadband Internet subscriptions were growing rapidly,
increasing from 15,000 in 2007 to 100,000 in 2009;
however, this still only represented a broadband
penetration of slightly over 1%
The country made good progress in the privatization of
State-owned telecom enterprises; the critical privatization
of Aztelekom is expected in the coming years
A number of positive trends have been observed in the
market in recent years. This is significant subscriber
growth, the introduction of new services, deployment of
3G mobile networks, etc.
Azerbaijan - Key Telecom
Parameters 2009 – 2010
Category
2009
2010 (e)
Fixed-line services:
Total number of subscribers
1.40 million
1.45 million
Annual growth
7%
4%
Fixed-line penetration (population) 15.8%
16.3%
Internet:
Total number of subscribers
521,500
750,000
Annual growth
27%
44%
Internet subscriber penetration (population)6%
8%
Mobile services:
Total number of subscribers
7.7 million
8.8 million
Annual growth
18%
14%
Mobile penetration (population)
88%
97%
Mobile operators - Wireless communication is currently the
most active subsector of the telecom industry. It has received
considerable foreign investment since 1994, when the first
cellular network (Bakcell) was launched. A second operator,
Azercell appeared in 1996 and a third, Azerfon was licensed to
start operations in 2007. Consequently, the number of mobile
telephone subscribers has grown rapidly, from zero in 1993
to 70 per 100 inhabitants in 2008, according to the SSC. A
fourth, Caspian American Telecommunications (CATEL, a USAzerbaijani joint venture), was the first to introduce a CDMA
(Code Division Multiple Access)network.
The largest, Azercell, had an estimated 60% of market
share with 4m subscribers in mid-2009. The second-largest
company is Bakcell, which had 2.5m subscribers at that time.
Bakcell made improvements to its network from 2009-2010
and now covers 82% of Azerbaijan's territory and 95% of the
population. Azerfon is a newcomer to the market and a lead
player with approximately 1.7m subscribers. Azerfon launched
3G services in early 2010. The other two GSM operators—
Azercell and Bakcell—are presently in discussion with the
Azerbaijani Government in reference to securing licences to
offer 3G services.
Azercell's market share has fallen over the past two years from
approximately 80% to 50% due to the competitive environment,
Bakcell’s strong coverage roll out plans and the launch of
GSM services by Azerfon in early 2007. This company, which
is a joint venture between the communications ministry (10%)
and foreign investors, was estimated to have a 20% share
of the market by December 2010, up from just 3% two years
in focus
earlier. Azerfon, which provides services under the NarMobile
brand, signed a contract with Vodafone during 2009 and
launched the Vodafone brand of 3G services for high-value
brand customers.
Four providers offer CDMA services: CATEL, which offers
both fixed wireless and mobile services, and whose coverage
is expanding across the country from Baku to the surrounding
region, Aztelekom, Baktelecom, which is controlled by the
Communications Ministry and a local private company,
AzTRANK.
Azerbaijan has many small system integrators and distributors,
typically employing two to five people. In addition, all the large
global technology providers are present in the country. These
include IBM (US), Siemens (Germany), Motorola, Nokia
(Finland), Microsoft (US), Hewlett-Packard (US), Panasonic
(Japan) and Ericsson. Most of them distribute their products
through local agents. Competition among national small and
medium-sized enterprises (SMEs) is also growing.
Legislative base - The Law on Communications is the main
legislative act that regulates this industry. The Communications
Ministry acts both as a regulator of the telecom industry and
as a joint-venture participant in telecom businesses. The
Government's efforts to improve the investment climate in the
telecom sector includes a Presidential decree approving the
National Information Communication Technology Strategy
for 2003-12. According to the decree, a national action plan
aims to facilitate improvements in ICT, development ITrelated fields, communications infrastructure, e-governance,
e-economy and information security. The Communications
Ministry has announced plans to introduce an independent
telecom regulator by 2012. The creation of such an agency
could help to encourage new investment and increased
competition in the telecom sector.
Internet-market - The Azerbaijani internet market has shown
a steady increase in the number of Internet users in recent
years. The penetration rate of Internet users in Azerbaijan
is more than 44 percent, of which 12 percent are users of
broadband access. Approximately 40 Internet service providers
operate in Azerbaijan. Almost all of them added integration
services to their portfolio to increase profit. Providers began to
develop methods of wireless broadband connection with the
most common being Wi-Fi, iBurst and WiMAX. Azerbaijan has
developed a strategy for development of broadband Internet
from 2011-2013 which aims to extend its usage by becoming
more accessible for the end users.
At the end of the 1st quarter of 2011, based on The State
Statistics Committee of Azerbaijan, there are 7.2 million
active mobile subscribers, an increase of 13.6 million from
the previous quarter by 335 thousand subscribers. During the
same period the turnover of The Information & Communication
Services of Azerbaijan has reached 287.4 million AZN - an
increase of 23.5%.
Cuneyt Turktan
1980 – Middle East Technical University and Bogazici
University (undergraduate and graduate studies). After
graduating, began working at Pricewaterhouse Company in
New York.
1985 - Returned to Istanbul with KPMG.
1988 - Corporate Finance Head, Interbank.
1992 - Appointed as Area Finance Director in Turkey and
Israel, Pepsi Cola International Company
1994 - CEO of Turkcell, the number 1 operator with 12 million
subscribers investing in the foundation of Azercell, Geocell,
Kcell and Moldecell Companies assuming the role of President
and CEO.
2000 - During his tenure, Turkcell became the first Turkish
Company quoted in the New York Stock Exchange .
2002 - President and the CEO of Zapp Company, which played
a large part in establishing the first 3G (CDMA) Network in
Romania, gaining marketshare and increasing revenues by
tenfolds.
2005 - Returned to Turkey and became the CEO of Avea.
During his tenure, the Company took the name of rapid
operator due to the increase of the number of subscribers,
revenue and ebitda.
At present, Mr. Cuneyt Turktan is Executive Vice President of
Telecommunications at the Capital Resources Advisors Group
and the Chairman of the Board of Directors of Azerfon and
Azertelecom Companies in Azerbaijan.
From 1994 Mr. Cuneyt Turktan has been a top manager in
the Telecommunication field and has received many awards
in Turkey and abroad.
Sources: www.mincom.gov.az; www.adb.org; http://unpan1.un.org; www.allbusiness.com; www.internetworldstats.com/asia/
az.htm; https://www.budde.com.au; www.eiu.com; www.eiu.com; www.mincom.gov.az/en/telecom.html; www.allbusiness.com;
http://www.mincom.gov.az/en/telecom.html
26
Summer / Issue 12
in focus
Development of Banking
Industry in Azerbaijan
Faig Huseynov
Chairman of the Management Board
Unibank OJSC
With regards to our activity, we have to hear that the banking
sector of Azerbaijan is a very young and possesses reserve
position for its development. Meanwhile, the level of bank sector
development is considered one of the indicators, estimating the
economic development of the national economy in general. To
a large extent it is connected with the growth rate of banking
in the country that leaves the major macroeconomic indicators
behind. Finance-Banking System of Azerbaijan has reached
signicant results less than for 20 years. Tenfold growth during
2003-2008 is especially impressive. However, nowadays,
every banker knows that the development potential of banking
services market is still behind the demands of citizens and
economy.
Bank assets in bln. AZN
GDP in bln. AZN
The results of the recent years, passing against the background
of tangible consequences of global crisis, proved that the
majority of banks in the country reached “maturity” and were
ready to these events. First of all, it became the outcome of
preventing regulatory measures taken by the Central Bank of
Azerbaijan (CBA) and institutional development inside the bank.
Requirement for quality of assets and collateral security of loans
were made tough promptly with the purpose of bank motivation
for more reserved conduct in the market, as well as improvement
of risk management and corporative management.
Bank deposits in bln. AZN
Banking industry was actively assisted by CBA monetary
policy’s means of appeasement and by reduction of discount
rate for several times, together with the reduction of range of
reservation on involved internal sources, special allowance
of loans, and fivefold increase of amount of deposits insured
by government. Moreover, the government released part
of income from taxation intended for increase of the capital
and Central Bank took measures for straight maintenance of
banks liquidity. All the above-mentioned steps have played a
crucial role not only for stabilization in the market, but also
emphasized the actuality of banking system optimization.
The years of institutional development of this field demonstrates
that Azerbaijan needs both big and medium-sized banks
entirely oriented on the distribution of financial flows on the
domestic scene, and banks have substantial growth potential
Bank loans in bln. AZN
for this.
Meanwhile, taking into consideration that the risks are growing
currently, leading banks of the country behave as if they carry
out repeated market appraisal, change the vector of business
development. Having substantial funds for lending, banks
wish to be confident that their funds refunded in time. It is
considered very risk y if the allotment of distressed loans is
more than 10%. According to the official data, the allotment of
delinquent loans in the overall loan portfolio is two times less.
Retail banking is the development priority for the majority of
banks in the country. Most of the banks began to develop retail
in the regions where the capacity of citizens to pay has been
raising. The appeal of retail service is stipulated with the reason
that corporate clients in most cases demonstrate loyalty to their
in focus
own bank. It is naturally that the competition within banking
segment is high, as there is always 2-3 or even more banks with
whom an average citizen is ready to cooperate.
A client can be interested to have deposits in one bank, to
get the loan from other bank, to get the remittance service
from third one and so on. To increase lending of economy,
banks of Azerbaijan invest each 5 out of 10 manats in the
consumption sector, service and household. On the other
hand, the allotment of funds taken from the private individuals
is increased in the deposit base. Undoubtedly, it is a one more
argument for the increase of population confidence to banks.
Now the deposit base develops at low rates, which is connected
with the decrease of maximal limit of percentage rate on
investments, on which Deposit Insurance Fund of Azerbaijan
provides insurance coverage (up to 12%). Investments involved
by the banks which make more than this rate are not insured by
the fund and the compensation payment is not provided. Thus,
throughout the year the average percentage rate on investments
in manats is decreased for more than 5,2% and makes 11,11%.
Decrease of resource cost first of all will allow to stimulate sale on
account of lowering of the rate on lending resources, but growth of
borrowings in its turn will lead to increase of profitability of the field.
Banks of the country demonstrate stability, as they have financial
liquidity for 60-70% while the existing norm is 30%. Process
of banks capitalization continues for the purpose of absorption
of possible losses. This indicator grows by 10% per year in
average and reaches 3 billion USD under 45 banks in total.
In other words, share of each bank constitutes 60-70 millions
in average. The fact that balance assets of banking system
break the historical maximum each month, increasing on 1015%, suggests the banks development potential. Unit weight
of bank assets makes more than 40% in oil GDP of Azerbaijan.
A considerable part in dynamics of assets growth usually
falls to the share of loan portfolio. Regions where the number
of bank points for sale reaches 400 play an important role in
development of lending. Regional expansion will continue. It can
be surely suggested that in relation to launch of postal-banking
system, activity access to financial services in regions and
the level of competition will expand even more. Postal offices
will get an opportunity to take part in micro crediting, but only
as agents of any big banks. Taking into consideration current
development in the baking field and reforms, implemented
by CBA, we can talk not only about further competition, but
also about result of this competition - significant progress of
banking services quality, as well as about complete realization
of financial cooperation functions by banks. Meanwhile, the
current condition of the Azerbaijani banking system has
its peculiar features part of which can be named “children
diseases”. One of them is insufficient development of financial
markets and especially capital market. It leads to insufficient
diversity of funding resources and in its turn predetermines the
high level of active operations’ risks. Recently, the Central Bank
of Azerbaijan adopted new policy on development of financebanking sector, which bases on studies of global crisis, demand
of national business and future tendencies.
Financial industry plays a crucial role in development of national
economy within the framework of this policy. Competition,
reforms, tendencies and regularities of banking services market
allow to expect further considerable positive changes in the
banking system of Azerbaijan in projected future.
member contribution
A Step Forward: Building
an Investment Fund
Nigar Jafarova
Senior Associate, PwC Azerbaijan
The new version of the Law of the Republic of Azerbaijan “On
Investment Fund” was adopted on 22 October 2010. The Law
provides establishment of new types of investment funds (e.g.
unit investment fund) along with investment companies. The
new two-tier licensing procedure for both investment companies
and management companies (similar to licensing of banking
and insurance activities) is the most significant novel of the law.
At the same time, the Law stipulates additional supervision over
activity of investment funds through relevant requirements to the
fund’s capital, structure of the assets, management structure,
as well as audit of the funds and management companies. The
Law has received positive feedback of a number of international
experts operating in Azerbaijan.
According to the PwC Azerbaijan 2011 survey conducted in
the financial sector, many Azerbaijani financial institutes are
interested to establish investment funds in offshore jurisdictions
(e.g. Cayman, Luxemburg, Ireland, and Malta are the most
popular destinations). For local banks, it is an opportunity to
offer new service to their clientele that is interested in investing
abroad, and adding one more source of profit, which comes from
the investment fund management. As usual, for establishment
of an investment fund banks use either own funds, funds of
their clients, or both.
What’s an Investment Fund?
Investment Fund is one of the most effective vehicles of collective
investment into various projects via accumulation of investors’
funds. The main advantage of investment funds is the opportunity
that it brings to investors to diversify their portfolios and mitigate
loss risks by investing into different international projects.
Investment fund can be established as a variable capital
investment company, unit trust, common contractual fund
or investment limited partnership depending on investment
strategy, target investor market, and distribution plans and
tax consequences. Bellow, are the most commonly operated
categories of the investment funds:
30
Summer / Issue 12
The Undertakings for Collective Investment in Transferable
Securities (“UCITS”) are permitted, subject to certain criteria,
to invest in transferable securities, money market instruments,
and other open ended and closed ended funds, cash deposits
with credit institutions, structured financial instruments, and
financial derivative instruments.
The Qualifying Investor Fund (“QIF”) being a non-UCITS
fund, is particularly suitable for sale to sophisticated investors
including high net-worth individuals and institutions, such as
banks. QIFs allow more aggressive investment strategies, such
as: hedge funds, real estate funds, infrastructure funds, private
equity funds and venture capital funds.
The Money Market Fund (“MMF”) is a type of a mutual
fund that provides investors with immediate availability of their
money, while offering a return comparable with or better than
some alternatives. Their purpose is to provide investors with a
safe place to invest easily accessible cash-equivalent assets
characterized as a low-risk, low-return investment.
What Are Specifics of
Offshore Jurisdictions?
There is a number of reasons why financial market participants,
banks in particular, prefer to go offshore while establishing
investment funds. The offshore jurisdictions provide the
following operational advantages:
• favorable tax environment: no fund level tax imposed or
no tax on income and capital gains, no withholding tax on
distribution made to investors, no net assets tax, and no
VAT;
• constructive and efficient regulatory framework, including
fund registration timeframes: thus, registration of regulated
investment funds will take maximum up to 3-6 weeks;
• reputation of a qualified financial centre;
• comprehensive range of services (‘one-stop-shop’):
fund set-up/structuring, fund administration and transfer
agency, trustee/custodian services, compliance and
risk management, tax/audit services, legal services,
consultancy and independent management services,
independent resident directors, fund listing, technology and
business solutions;
• moderate registration, compliance and administration
costs.
member contribution
How PwC Can Help You?
Using our global expertise and a pool of talented consultants,
we can help you focus on the key drivers to create the
optimal structure for the investment fund from a tax, legal
and regulatory perspective. This includes consideration of
the location of the investors, the fund’s investments and the
managers of and service providers to the investment fund. We
would help you consider all of these issues to arrive at the best
structure of your investment fund.
In advising on the optimal fund structure, we will typically focus
on flexibility and ongoing viability of the structure, both now
and in the future, from tax, legal, regulatory and commercial
perspectives:
• specifically from legal and regulatory perspective, ensuring
the legal nature of the fund and its regulatory status is
suitable for your target investors. Legal nature of structure
and jurisdiction of domicile and regulation for the fund
meets management objectives as to operation and overall
commercial viability;
• from tax perspective, we would work with our colleagues from
Tax and Legal services division of relevant offshore jurisdictions
to ensure the structure operates as efficiently as possible to
minimise tax exposure to both management and investors;
• from commercial perspective, combining our extensive
market experience with our tax, legal and regulatory
analyses to ensure the chosen structure is optimal for the
management’s investment objectives.
PwC Azerbaijan
Our “One Firm” approach to such instructions – provided
this is what is required – ensures that we can deliver a
comprehensive fund establishment and structuring service
from inception to completion, and beyond. We are associated
with the law firm of PwC in the UK, and a part of the PwC
global network, that includes over 2,000 lawyers, covering all
of Europe and more than 40 countries worldwide. PwC Global
has extensive experience in establishing both onshore and
offshore investment funds for clients.
member contribution
Introduction to the concept
of Islamic Taxation
Samir Hadjiyev &
Yekaterina Kim
Lawyers
Michael Wilson &
Partners, Ltd.
Some people will consider the concept of Islamic Taxation
only as springing from the concept of Islamic Finance which
is in turn covered by the Islamic Law. However, we would
like to broaden our comprehension of the Islamic Taxation as
an institute of Law. Peering into the history of mankind and
the diversity of its relations, it is fair to say that the concept
of all the law in general, and the Islamic Law, in particular, is
rooted in the Holy Scriptures. The basic aspects of Islamic law
are evident in the earliest scriptures, including that of Musa1,
namely Tawrat (Taurat), and Isa Masih, namely Ingil (Injil),
which Muslims believe to be the two of the Islamic Holy Books
given by Allah to prophet Musa and prophet Isa2.
The primary mentioning of taxes in its modern understanding
in Tawrat refers us back to the times of Patriarchs: Ibrahim
returning victoriously from a battle by the Dead Sea, was
hailed by Melchizedek, king of Salem and the priest of the
Most High God, who blessed Ibrahim and the latter gave him
a tenth of everything paying a tribute to the Most High Allah
for every single blessing possessed [Holy Scriptures, Tawrat,
Genesis 14:18-20]3.
To help researchers grasping the concept of Islamic taxation
and its basic economic categories, the overall Islamic doctrine
highlights the four which appear to be major: ownership,
concentration of wealth, justice, and appropriate consumption.
Islamic property rights are not absolute. Allah is the ultimate
owner of everything. He is the only real, actual, and final owner
of everything in and underneath the heaven and the earth4.
People are merely entrusted with wealth for their livelihood in
this world. They are allowed to hold property and enjoy the
benefits so long as they understand that they are holding the
property in trust and they must follow the God’s Rule of Law,
so to speak. It follows, then, that the distribution of wealth and
the outcome of the economic activities and policies, including
taxes, must be “just” and in accordance with the will of the
Quran 005:044
Quran 005:046
3
As the Quran assumes the reader is familiar with the traditions of the
ancestors since the age of the Patriarchs, the modern book names
1
2
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Summer / Issue 12
(1) “There is no other god
beside
Allah.”
(Qur’an
47:19)
(2) “My Lord, make this a
peaceful land, and protect
me and my children from
worshiping idols.” (Qur’an
14:35) There is nothing
whatsoever like unto Him
(Qur’an 42:11)
(3) “And do not misuse
Allah’s (name) as an excuse
… (Qur’an 2:224)
(4) “O you who believe,
when the Congregational
Prayer … you shall hasten
to
the
commemoration
of GOD, and drop all
business.” (Qur’an 62:9)
(5) “....and your parents
shall be honoured. (Qur’an 17:23)
(6) “....anyone who murders any person who had not committed murder
or horrendous crimes, it shall be as if he murdered all the people.” (Qur’an
5:32)
(7) “You shall not commit adultery; it is a gross sin, and an evil behaviour.”
(Qur’an 17:32)
(8) “They shall not steal.” (Qur'an 60:12)
(9) “Do not withhold any testimony by concealing what you had witnessed.
Anyone who withholds a testimony is sinful at heart.” (Qur’an 2:283)
(10) “And do not covet what we bestowed upon any other people. Such are
temporary ornaments of this life, whereby we put them to the test. What
your Lord provides for you is far better, and everlasting.” (Qur’an 20:131)
“Ultimate Owner” as manifested in the principles laid down by
Allah in Quran. Therefore, the Muslim society should oppose
fraud, deception, greed, and any other activity or behaviour
that will lead to concentration of wealth in few hands and
hoarding of idle wealth5.
Regardless of confusing factors such as subjective interpretation
by different authors, the writers’ ideological tendencies, large
and frequently conflicting accounts of events, and outright
mistakes in translation of sources, the outline, intent, and spirit
of the original Islamic taxation, however, are rather clear. Both
the nature of the property as well as the owner’s conditions play
a vital role: various categories of wealth and real properties are
treated and taxed differently and in some cases even items
within the same class of property treated differently.
In addition to the financing of the state activities, the main
objectives of Islamic taxation are targeted at alleviating poverty,
and type of numbering adapted to western culture is used for the
purposes of easing the reading and comprehension of this article.
4
Quran 020:006; 023:084-085
5
Quran 104:1-3
member contribution
improving income distribution, and creation of a just society.
The appropriate tax policy to move the society toward these
goals will be a policy which provides stimulus for investment
and discourages idle hoarding of cash and wealth. The general
scheme is that the uninvested (uncirculated) accumulated or
hoarded wealth plus certain categories of annul income minus
an exemption level (further “Nisaab”), minus a “reasonable
amount for one’s annual expenditure that is commensurate
with the taxpayer’s status in life” will be subject to tax.
The Islamic concept of taxation is that it does not tax Income, it
tax saving. Hence, whatever you left after your expenditure or
whatever you left as saving after your expenses is taxable in
Islam. This intends to be significant impact on economy when
one’s expenditure is someone's income. Therefore, the more
one expenses, the more income is generated for other society
members with an accelerator affect for more job opportunities
to be generated, more businesses to be established etc. All in
all, it reflects the wisdom of Allah which is reflected in Zakaat
- one of the main Islamic commandments6 and reverts back to
the times of Patriarchs when Ibrahim’s grandson Yaqub made
a commitment to give Allah back a tenth of his increase gained
thanks to Allah7.
However, the Quran sometimes uses the term Sadaqah
(alms), in place of Zakaat. As unanimously agreed among
Muslim scholars and lawyers, though, whenever the payment
is compulsory it is Zakaat while Sadaqah is refered to voluntary
payments or charity. In addition to Zakaat, there are taxes
prescribed by Islamic taxation regulations, among which the
main general could be classified as follows:
(1) Zakaat of land or Ushr, which is a flat percentage tax on
some agricultural products8. Sunnah stipulates Ushr as 5% of
the agricultural produce on artificially irrigated lands and 10%
on produce of the lands benefiting from rain or natural spring
only. Some scholars allow Nisaab for some crops. Most of
the Islamic taxation practitioners, however, consider gross
produce to be subject to Ushr and disallow deduction of any
expenses, even the seeds used in cultivation. Sale of the crop
or death of the owner will not eliminate the tax. If taxes are not
paid in time, any loss or destruction is liability of the taxpayer.
Ushr may be paid in kind or in cash.
(2) Zakaat on livestock, which applies to cattle, camels, and
sheep older than one year9. By analogy, this tax is extended
to similar animals such as goats, water-buffalos, and the like.
Horses and riding animals were originally exempt. In general,
when animals are kept for business purposes such as trade,
procreation and breeding, or dairy, they will be taxable. When
the holdings of animals are for personal uses such as meat
Quran 002:110; 002:277
Holy Scriptures, Tawrat, Genesis 28:22
8
Quran 002:267; Holy Scriptures, Tawrat, Exodus 23:19;
9
Quran 006:142-144; Holy Scriptures, Tawrat, Exodus 34:26
10
Quran 008:41; Holy Scriptures, Tawrat, Numbers 31:28-29
6
7
consumption, riding, assisting in agricultural activities, or
transportation, they are not taxed unless these activities are
the owner’s trade. Each category of animals has its own
Nisaab. The rate structure is expressed in quantity and type
of animals. Taxes are calculated and are due in kind, but they
may also be paid in equivalent monetary value.
(3) Khums, literally meaning one-fifth, in its original form was
applied at the rate of 20% to spoils of war10. Later, the tradition
extended this tax to treasure-troves, mines, and all materials
extracted from sea or earth. Currently, the Sunni jurisprudence
maintains that Khums is only applicable to the excavated
articles from land, sea, mines, buried treasures, and spoils of
war at the rate of 20%. In this sense, Khums is partly a “windfall
tax” and partly a tax on selected natural resources. The Shiite
school of thought, while agrees with this assessment, extends
Khums to larger categories of uninvested wealth and income.
Formally, based on Shiite interpretation, Khums is applicable to
seven items. Namely, business profits, mines, treasure-troves,
booty and spoils of war, jewels obtained from the sea through
diving, and a wealth that is mixed with unlawful earnings.
Azerbaijan has stepped into the several DTTs with the Islamic
Republic of Iran, the Hashemite Kingdom of Jordan, Kuwait, the
Islamic Republic of Pakistan, Qatar, the UAE etc.
12
Quran 002:271-274; Holy Scriptures, Ingil, Matta 6:1-4
11
member contribution
For Khums purposes, earnings from wages, dividends, and
other economic activities are treated as “business profit.”
This category, in essence, is equivalent of the “other assets”
category under general Zakaat.
Sunni Muslims treat the cash and paper money like gold and
silver with the same Nisaab, while Shiites tax the excess cash
under Khums. Ornamental gold and silver items follow the
same rule as silver and gold. On other ornaments, precious
stones, artefacts, and jewellery, there are different views:
some exempt these items altogether. Other scholars consider
them subject to Zakaat with a Nisaab equal to that of gold and
silver, even if they are in use.
The money, then, is to be spent on certain categories
specified in Shariah. Sunni schools consider this category
under Zakaat and Shiites treat it under Khums, the
arguments and issues are almost identical and the main
difference is on the tax rate and where the proceeds may
be spent. Therefore, while this category is discussed here
under Zakaat, the statements are valid for Khums as well.
Among the new categories profits of professionals, bank
notes, shares, securities, rental real estates, options, bonds,
and similar assets may be mentioned.
Generally speaking, Islamic taxation recognises individuals
as a taxable source. As such, households, corporations, and
other entities are not taxed. Instead, all income and taxable
items pass through these institutions to individual owners
and are taxed individually. The Islamic taxes are mainly
levied against and calculated based on actual taxable items.
Several items used to be switched back and forth between
taxable and non-taxable categories or their rates were
changed. In terms of implementation of the international
Islamic taxation, the nature of the DTTs eases the various
Islamic countries approach in unifying various categories of
taxation and payment11.
Although Islamic state has the right to impose taxes on the
poor, it tries minimising their tax burden in general. The bulk of
tax revenue should come from the rich of society because they
are economically more capable to contribute towards revenue
collection than the poor. This is way suggestion has been
made that the Islamic state should minimise indirect taxes
which are normally borne by the poor, and concentrate on the
direct taxes which are usually collected from the rich. Islamic
taxation also strongly prescribes charitable contributions such
as Sadaghaat, Ihsaan, and Infaagh to signify truthfulness,
benevolence, and good deed. They please Allah and will be
rewarded by Him12.
Samir M. Hadjiyev is a Lawyer /Country Representative in
Michael Wilson & Partners, Ltd. (MWP) Baku Office. He is a
Native Azerbaijani speaker. Fluent in English and Russian.
Prior to joining MWP, Samir had a broad range of prior
experience, including in corporate, commercial, insurance,
licensing, disputes and in dealing with State officials and
bodies, and national companies. Some of the recent projects
in Azerbaijan, in which Samir has been involved include:
advising Сredit Suisse as to Cross-Border Banking and
Financial Services, a leading international oil & gas company
as to their employee share schemes, with Shearman &
Sterling, MarketAxess Europe Ltd, with Linklaters, as to the
provision of their Multilateral Trading Facility Platform, various
investors on establishing their businesses in Azerbaijan
and in importing and exporting, as well as to a wide variety
Intellectual Property matters. Baku office of MWP advises the
World Bank Group (Financial and Private Sector, Washington
DC) in relation to Doing Business in Azerbaijan, annual series
of reports, since 2006.
Samir holds LLM (with Honours), International Law, Baku
State University, Azerbaijan, 2004; Insurance Foundation
Certificate, The Chartered Insurance Institute, London, UK,
2003; LLB ESC Scientific Educational Centre Tefekkur
University, Baku, Azerbaijan, 2000
Yekaterina Kim is a Lawyer at Michael Wilson & Partners,
Ltd. (MWP). She is a native Russian Speaker. Fluent in
English. Over the last decade, Yekaterina has gained much
legal experience including international private, corporate,
tax, finance (including investment banking), labour, contract
and other issues. She also has successful litigation practice.
Yekaterina was teaching related branches of law in English at
the Kazakh American University. Yekaterina advises the World
Bank Group (Financial and Private Sector, Washington DC) in
relation to Doing Business annual series of reports since 2006.
Yekaterina holds an LLB from the Kazakh State Law Academy,
Almaty, Kazakhstan, 2000, and is admitted to Amsterdam Law
School and Maastricht Law School, the Netherlands.
© 2011 Michael Wilson & Partners, Ltd. All rights reserved. The
statements and comments in this article are of a very general nature
and do not constitute legal advice or opinion and should not be
regarded or otherwise used as a substitute for detailed legal advice in
individual cases. Any unauthorized copying and /or publication and /
or other use of all or any part of this article is permitted only upon the
written consent of MWP constituting misuse or misdeed otherwise.
To obtain a proper legal advice and our recommendations and more information, we encourage you to contact our offices in Azerbaijan (info@
mwp.az) or Kazakhstan ([email protected]), see our websites www.mwp.az or www.mwp.az or find unabridged law firm profile and references in
the global editions of professional legal directories.
34
Summer / Issue 12
member contribution
“Before UN was interested only in states. Nowadays we know that it is not possible to achieve
peace and prosperity without the partnership among states, international organizations,
business and civil society. Today we are closely interconnected.”
Kofi Annan
Importance of Global Compact
for Azerbaijani private sector
Dr. Fariz Ahmadov
Global Compact Network in
Azerbaijan collaborator, Co-Founder
of Junior Chamber International (JCI)
Azerbaijan
Opinions about social responsibility have been discussed
since the early times of history and these opinions have
been changed for the periods passed. This period started
with civilization and religions and continued up to the B.C.
1100, and is called “pre-business period”. Although, during
the period civilizations such as Mesopotamia, China, Ancient
Greece and Rome there hadn’t been any important practical
changes, social responsibility was on persons’ individual
thoughts, religious beliefs, and ethic opinions. Responsibility
is the milestone of philosophy of ethics and it’s considered as
an ethic problem as well. Social responsibility is a mechanism
of causing some positive and negative effects in community by
enterprises along with their business activities.
Development and welfare of a country is possible through the
mechanism of social responsibility. Every person has some
duties individually or in diverse groups and also has some
responsibilities regarding these duties. Today there are lots
of positive or negative opinions and approaches about the
social responsibility of business entities. Classic approach
supporters restrict the responsibility of business groups to
economic responsibilities, while the proponents of modern
approach believe that business owners should have social
responsibilities in addition to their economic responsibilities.
According to Caroll there are four kinds of responsibilities
for the proper and complete fulfillment of legal entities’
obligations. First one of them is economic responsibility that
provides incomes to company owners and shareholders by
means of producing goods of high quality and selling them
for proper prices. Within this field of responsibility companies
provide clients with goods or services of real value open
new work places and promote innovations. Second kind of
responsibility is legal responsibility that obliges companies to
comply with laws in their activities. It means that companies
have to organize their works, reach their goals and realize
their missions in accordance with the requirements of law. In
brief, legal responsibility obliges to follow the law. The third
kind of responsibility is moral responsibility whish means that
companies should also follow unwritten rules, norms and
values of society. In this sense moral responsibility fills the gaps
36
Summer / Issue 12
derived from legal restrictions. The last kind of responsibility
is voluntary responsibility which is apart from economic and
legal responsibility. It means that companies may also act aide
from their economic and legal responsibilities and contribute
their societies voluntarily in the fields of culture, education,
sport and environment.
In a globalizing world private business companies are not only
economic and technical structures, but are also public and social
entities. Since companies are part of economic, public and cultural
structure of the open social system, they need to build reciprocal
and essential relations with the society in which they work. In
order to build these relations successfully companies need to
know current state of social affairs, to recognize social needs and
to contribute for their realization. In a global world one of the main
goals of a company is to improve its competitiveness and provide
its sustainable activity. And a way leading towards this goal is not
only making money, but mostly goes through fulfilling companies’
social responsibility. In order to build its image a company has
to earn pleasure and trust of its clients, partners, employees,
consumers and general public. An important and necessary
precondition for a company on this way is to understand its
social responsibility and come up with a proper mechanism of
its realization, which will further enable a company to provide its
sustainable business activities. Using its business resources and
spending some of its incomes, within the framework of realization
of its social responsibility, a company has to demonstrate not only
its favorable and philanthropic attitude towards the society, but
also behave just and fair. The following list of points is necessary
to consider in terms of understanding the reasons of importance
of social responsibility of business companies:
• Development of professional management;
• Changing the private companies into multi-partnership
structures;
• Fighting against environmental pollution;
• Importance of making good impression of companies in the
society;
• Involving professionals to management;
• Development of trade unions;
• Effective use of limited natural resources;
• Motivation of workers for raising the productivity;
• Producing goods in accordance with the preferences and
expectations of the society;
• Branding. Value of shares grows with the growth of the
value of brands and consequently the financial costs of
debts decrease.
• Fast democratization process in the world;
• Individual values.
member contribution
Definition of the scope of social responsibility has been
extending and companies pay more attention to it since as
a new definition it was accepted to scientific literature with
the book titled “Social Responsibility of the Businessman” in
1953. Competitive environment strengthened by globalization,
changing world economy and deliberate and conscious
masses of people causes the corporate social responsibility
to earn more importance. Especially, some international
documents as Human Rights Covenants in 1966, National
Environmental Policy Convention in 1956, and Convention on
the Reliability of Consumer Goods in 1972 are also among
the reasons of this development. Moreover, there have been
initiatives made by inter-governmental organizations to adopt
rules of behavior referring to social responsibility of companies
and to promote and improve kind of issues worldwide. One of
these important initiatives and a leading approach to social
responsibility and an instrument of supporting efforts on this
way is Global Compact agreement that is effective since July
26, 2000. There are following ten basic rules of this framework
or initiative:
Human rights
1. Business world should support and respect the declared
human rights;
2. Business world shouldn’t be a partner in violations of human
rights.
Azerbaijan. That is why one of the important elements of the
activity of UNDP in Azerbaijan is to promote private sector with
social responsibility and in this way Global Agreement provides
necessary opportunities to UNDP to build a partnership with
business community.
Working standards
3. Business world should support workers in terms of
unionization and collective bargaining rights;
4. All forced and compulsory labor should be prohibited;
5. All child labor should be prohibited;
6. Discrimination on employment and in working process
should be prohibited.
Environment
7. Business world should support precautionary approaches
to environmental problems;
8. Business world should support all forms of environmental
activities;
9. Development and application of environmentally friendly
technologies should be encouraged.
Although in Azerbaijan social responsibility has a deep
historical culture, today domestic business entities mostly care
about their own businesses. And this affects development
and understanding of corporate social responsibility. For
this reason Corporate Social Responsibility (CSR) has been
a new concept in Azerbaijan like in many other countries. In
Azerbaijan various business structures have experience in
CSR. But this experience couldn’t have been institutionalized
and formulated as that of multinational businesses. CSR can
be seen as the basic level of charity in Azerbaijan. Moreover,
while academic theoretical works have been improving in
Azerbaijan, empiric works are still insufficient. As a result of
this, business entities and managers are not able to become
aware of importance of social responsibility unlike in other
developed countries.
Transparency
10. Business world should fight against all forms of corruption
including bribery.
Membership to Global Compact and their activities related
with corporate social responsibility provides lots of privileges
to companies doing business in Azerbaijan.
Global Compact Project of the UNDP is a mechanism for
companies to voluntarily demonstrate their corporate social
responsibility obligations. Within the framework of Global
Compact there is a forum supporting responsible behavior of
private sector. In this framework companies may share their
positive experience and discuss the issues of common interest
and importance. The role of UN is only to bring parties together
and to found and support the sustainability of Global Compact
in various countries. Making sustainable opportunities private
sector plays a huge and increasing role in reducing poverty in
• Companies and also the society will benefit from a better
social environment. Company will be admitted by the
society and as the result of this they will get access to more
work force resources and will more easily find consumers
to goods and services produced by them.
• Voluntary involvement of company in social activities will
pave a way to the strict regulation and intervention of
government in this field and so the company will have more
flexibility and independence in its business activities.
• Companies are systems dependent on modern society and
member contribution
•
•
•
•
interdependence between the society and companies has
a significant impact on business of companies. Business
of company is more secure as the needs of interest groups
around a company are satisfied. Social participation of a
company plays an important role regarding the formation of
public approaches.
Once it is possible to apply innovative position of a
company to its social responsibility, the company can
make profit from a number of activities that can traditionally
seem as cost consuming. Moreover, preemptive activity
is better than rehabilitation, and any delay in resolving
social problems today may cause the problems grow big in
future. Therefore, if companies act preemptively before the
problems reveal their activities and resolution of problems
will cost less with more efficiency.
Company supporting social efforts attains a popular image.
Company with such an image will easily attract consumers,
employees and investors. Better social environment is
important in terms of future welfare and accomplishments
of a company.
Company showing efforts of resolving social problems on
its own account will earn prestigious image in a society.
Companies fulfilling their social responsibilities establish
their ethic obligations and meet the changing needs of
the society and resolve the social problems caused by the
company.
Social responsibility of companies could gain a meaning with
collective efforts of improving working standards. Therefore,
having an excessive need of production and employment
AHMADOV, F. (2010), `Analysis Of The Application Of Social
Responsibility By Domestic Businesses in Azerbaijan and Its Influence
on The Competitiveness of The Country`, X. International Conference
on Corporate Social Responsibility 16-22 May Loyola University New
Orleans, USA, ISBN 9780955157745, UK Publication
HAWKINS, D. E. (2006), Corporate Social Responsibility: Balancing
Tomorrows Sustainability and Today’s Profitability. China, PalgraveMcmillan.
LITZ R, A. (1996), A Resource Based View of the Social Responsible
Firm: Stakeholder Interdepence, Ethical Awaraness and Issue
Responsivenes as Strategic Assets, Journal of Business Ethics, vol:15.
38
Summer / Issue 12
Azerbaijan should review its developing strategies. It would
therefore be important to increase competitive power by
means of technological improvement, increasing the quality of
labor force with a focus on employment, sectoral and regional
planned industrialization, rather than decreasing labor costs.
Otherwise, concept of social responsibility would remain just
as a vehicle of advertisement and problems of employees
would continue increasing.
In Azerbaijan corporate social responsibility (CSR) practices
are limited, because of lack of knowledge about CSR and
its benefits. There are neither positive, nor negative norms
about corporate social responsibility in the tax legislation of
Azerbaijan. Hence, government should enact new laws in
order to promote corporate social responsibility and achieve
its understanding and application in the country. In Azerbaijan
there is a lack of real legal grounds regulating corporate
social responsibility and absence of sufficient education and
institutes in the area of corporate social responsibility. There
is no proper culture of CSR, insufficient number of qualified
experts in CSR, no interest from domestic enterprises and
there is no confidence towards domestic non-governmental
organizations and between government and private sector in
Azerbaijan. In order to strengthen private sector and improve
the understanding, promote and extend the application of
corporate social responsibility it is important to overcome the
impediments and resolve the aforementioned problems.
Existence of companies with consciousness and a sound
understanding of corporate social responsibility is a way to
welfare and happiness of a society.
LOGSDON J.M., YUTHAS K. (1997), Corporate Social Performance,
Stakeholder Orientation, and Organizational Moral Development,
Journal of Business Ethics, Vol-16.
KOTLER,P. Lee. (2005), Kurumsal Sosyal Sorumluluk, MediaCat
Kitaplari, Istanbul,Cevri: Sibel Kacamak.
PORTER, M.E., KRAMER, M.R. (2006), Strategy and Society:
The Link Between Competitive Advantage and Corporate Social
Responsibility, Harvard Business Review, December
WINDSOR D. (2006), Corporate Social Responsibility: Three Key
Approaches, Journal of Management Studies, 43:1, January
member contribution
Islamic Banking: Problems and
Perspectives in Azerbaijan
Kamal Mamedzade
Salans, Baku
Islamic Banking gains popularity throughout the world: as of
today there exist over 300 Islamic banks and other similar
financial institutions. Today, various forms of Islamic financing
are used in more than 40 countries and the total assets of
the global Islamic financial market are estimated at USD 650
billion.
A positive effect of the Islamic banking is clearly evident in
crisis times. Fixed rates of interest used by traditional banks,
during a crisis period generally associated with low rates of
profitability, make the real sectors of economy “unviable” and
provide little ground for the “healthy recovery”. As a margin
applied by traditional banks is fixed and is not dependant
upon the real income of the financed operation, banks are not
ordinarily well interested in the recovery of such enterprises.
This often leads to a situation where a bank prefers to pursue
the option to liquidate the enterprise in an effort to recover
as much funds as possible. In contrast, Islamic banks, which
cannot provide financing with an interest, hold a real interest
in the improvement of the financing standing of the borrower,
which has direct impact upon the income of the bank itself.
Gharar and Riba
General principles of contract in Quran can be outlined as
follows:
• Free mutual consent (without coercion, fraud,
misrepresentation, mistake or in a state of intoxication);
• Prohibition of Gharar;
• Prohibition of Riba;
• Prohibition of Qimar (gambling) and Maysir (games of chance);
• Prohibition of Khilabah and Ghishsh (fraud and
deception);
• Conformity of Contract with the objectives of Shari’ah (which
aims to protect a man’s life, religion, progeny, intellect and
wealth);
• Principle of liability for loss (risk) and entitlement to profit;
• Permissibility as a general rule (everything is permitted
except those explicitly prohibited in Shariah).
Gharar
“Gharar is present in a commercial contract when at least
one party is subject to extreme uncertainty or ambiguity with
respect to the core components of the contract (e.g., a subject
matter, price)”:
• Gharar, along with Riba, forms the foundation of Islamic finance
and is a key differentiating factor from conventional finance;
• Modern banking and finance are riddled with Gharar;
examples include products based on sale of debt,
discounting, derivatives, short selling, insurance contracts,
financial lease, etc;
• Absence of Gharar results in more transparency in trade
transactions and lower probability of disputes between
contracting parties;
• Gharar is carefully avoided in structuring Islamic financial
products.
Gharar is one such principle which is of extreme importance
while dealing in trade transactions; not observing the Shari’ah
ruling on Gharar would make transactions invalid and the
income earned Haram (prohibited)
Riba
• Definition in Hadith: Any conditional excess in a loan over
and above the principal
• Definition in Encyclopedia Britannica: The price paid for the
use of credit or money
• Definition in Wikipedia: Interest is the fee paid on borrowed
money. The lender receives a compensation for foregoing
other uses of their funds, including (for example) deferring
their own consumption
• Working definition: Any predetermined/conditional additional
amount in a loan over and above the principal Bank interest is
prohibited in Islam as explicitly mentioned in the Quran & Hadith.
Islamic banking products
Murabaha
Murabaha is an agreement whereby a bank will buy the
property at an agreed price and then sell it immediately to the
customer for a higher price (agreed price plus markup). The
transactional side of the agreement involves the acquisition
of specific goods by the bank on request of the customer
followed by the resale of those goods to the customer.
member contribution
Typically, payment of the purchase price by the customer is
made on a deferred basis through installments during a predetermined period of time.
Azerbaijan banks are not allowed to carry out trading
transactions which implies that under the existing framework
a local bank may be unable to use Murabaha agreement in its
traditional form.
Although Murabaha could be provided by a bank indirectly
through the establishment of a non-banking subsidiary, the
law prohibits the purchase by Azerbaijan banks of shares and
participation interests in legal entities, except for the cases
stipulated in the law. The analysis of such latter cases indicates
that none of these cases may be applicable such as to permit
the bank’s subsidiary to carry out trading transactions under
Murabaha.
It should be noted, however, that banks are allowed to
acquire shares and participation interests in the charter
capital of leasing organizations. The legislation does not set
restrictions on the leasing company’s activities and allows
it to conduct a wide range of transactions permitted under
the general legislation. This might be interpreted as a right
of leasing companies to be involved in trading transactions.
The restrictions imposed by the banking legislation do not
cover the case of 100% participation of the bank in the charter
capital of a leasing company, provided that the requirement
in respect of aggregate value of participation interests/shares
in the legal entities is met. Accordingly, under one reading of
the law a local bank may establish a subsidiary in the form of
a leasing company and authorize it, in its charter, to conduct
trading transactions (including Murabaha).
Although there is no formal prohibition, it should be noted
that both second tier banks and their subsidiaries may come
under the supervision of the Central Bank of Azerbaijan. It is
well possible that the above-mentioned “extended” capacity
of the leasing company can be challenged by the CBA, which
may limit participation of Azerbaijan banks in the charter
capital of leasing companies to those companies carrying out
exclusively leasing operations.
Mudaraba
Mudaraba is a contract whereby investors (rabb al maal) provide
their funds to a manager (mudareb) based upon a feasibility
report and a projected (although not guaranteed) rate of return.
The manager uses its skills and expertise to invest the funds
and is entitled to a share in the profits. If any losses arise, these
will be solely for the account of the investors.
In general, it appears that Mudaraba may be used for two
varying options:
• while in the first option funds attracted under Mudaraba
are invested by the manager direct into selected projects
40
Summer / Issue 12
(selected either by the manager or by the investor depending
upon the type of Mudaraba),
• in the second option a manager (a bank) may attract funds
into a bank account (current, rather than deposit), build
its relationships with the customer in accordance with
Mudaraba principles and then invest such funds according
to its discretion.
As the main features of this instrument there can be noted the
following:
• the bank does not bear any loss, but remains responsible
for negligence;
Under Article 944 of the Civil Code, further to the bank deposit
agreement a bank undertakes to accept from the depositor
(or a person acting for the depositor) a sum of money and
to return such sum of money to the depositor, as well as to
pay an interest upon such sum. Further provisions of the Civil
Code also presuppose that the legislation requires full return
of funds from the deposit account to the customer (e.g. Article
947, Article 950).
Furthermore, in the banking legislation deposit is defined as
“funds deposited or transferred into current, saving (deposit)
or other accounts maintained in the balances of the bank
and providing for the repayment or transfer of such funds
to a different account with or without payment of interest
or commission fees in accordance with the terms of the
agreement”.
Section LII of the Civil Code dedicated to the general bank
accounts does not contain any express reference to the
obligation of the bank to return the funds in account to a
customer. On the other hand, however, this may be implied
from the reading of the definition of the term “deposit” as
provided by the banking legislation.
In light of the above, it remains to be seen how the
requirement “the bank does not bear any loss, but remains
responsible for negligence” will be incorporated into a
Mudaraba agreement with the customer as potentially
regulator may raise an issue if a contract contains any
provision exempting the bank from liability for loss and
thus, among other things, providing the bank with the right
to return to the customer only part of the funds originally
placed in the relevant account.
• profit from Mudaraba activity is shared between the bank
and account holder in a pre-agreed ratio.
With respect to deposit (savings) accounts the Civil Code in
Article 948 states that the bank must pay to the customer
an interest stipulated in the deposit agreement. The same
Article goes further to state that where the agreement does
not contain provision on interest, interest is to be calculated in
accordance with the procedure referred to in Article 449.1 of
the Civil Code.
On general bank accounts, the Civil Code states that unless
the bank account agreement specifies otherwise, bank should
pay to the customer interest and such interest should be
transferred to the customer’s account.
In the context of Mudaraba, apparently where the regime of
general bank accounts is chosen, it should be possible for
the parties to write into their agreement specific terms as to
distribution of profit as well as fees of Mudarib.
Ijarah
Ijarah is a term which literally means “To give something on
rent”:
The following issues may be distinguished as key for Ijara:
(i) Risk and rewards of ownership lies with the owner, i.e.
any loss to the asset beyond the control of the lessee
should be borne by the lessor;
(ii) Late payment penalty cannot be charged to the income of
the lessor;
(iii) Rentals start after delivery of asset in workable / usable
condition;
(iv) Lease and sale agreement should be separate and not
contingent.
From the perspective of the laws of Azerbaijan the
following may be stated with respect to the above
issues:
(i) Under Article 748-2.1 of the Civil Code, leased property
transferred into temporary possession or use of the lessee
shall remain the property of the lessor, while the lessee
would acquire the right of possession and use of such
leased property (Article 748-2.2);
(ii) The existing legislation does not mandate charging
of any late payment penalty upon the income of the
lessor. Furthermore, Article 748-1.9 of the Civil Code
states that the lessee has the right to charge an interest
in case of failure of the lessee to return the leased
property, thus making such action not an obligation,
but a right of the lessor, which can be waived by a
contractual provision;
(iii) This should be in line with the provisions of legislation
of Azerbaijan. For example, under Article 748-10.4 of
the Civil Code the obligation of the lessee to make lease
payment starts only upon the time when the lessee starts
using the leased property (provided that the agreement
does not indicate otherwise);
(iv) It can be pointed out that under Article 747-5.2 of the
Civil Code a sale and purchase agreement underlying
the lease transaction should, inter alia, contain the
following provisions: (a) that the leased property is being
acquired specifically for the purpose of subsequent
transfer into lease, (b) that, unless the lease agreement
requires otherwise, a lessee should be entitled to
the rights of the purchaser arising out of the sale and
purchase agreement made between the seller and the
lessor. Where interpreted broadly, provisions referred to
in (a) above may be deemed as making the two contracts
contingent.
In conclusion, it appears that practical implementation of
the majority of Islamic Finance Products in Azerbaijan may
require:
• significant amendments to the Azerbaijan’s banking laws
regarding conceptual issues of implementation;
• “technical” amendments to make Islamic banking feasible
practically (issues of taxation, accounting, regulatory, etc).
In legal practice since 1997, Mr. Mamedzade joined Salans as
an associate in 1999 and he was promoted to Of Counsel in
2008. He focuses on banking & finance projects, derivatives
and securities law in Azerbaijan and Kazakhstan. He is
experienced in corporate and M&A transactions, restructurings,
foreign investment, energy and natural resources and project
financing in Azerbaijan, Kazakhstan and other CIS countries.
Chambers Global lists Kamal in ‘Leaders in their Field’ for
2011 and he was ranked as a leading lawyer in Azerbaijan by
IFLR 1000 for 2011.
Kamal Mamedzade attended George Mason University
in Virginia, USA (1996-1997) and graduated from Khazar
University, Faculty of Law and Social Sciences (B.Sc., 1996;
J.D., 1999) and from Manchester University (LL.M. with merit,
2001). He is fluent in Azerbaijani, Russian, and English.
AmCham Azerbaijan
The American Chamber of
Commerce in Azerbaijan is a
private, non-profit business
association supporting and
promoting the interests of
business in Azerbaijan.
About us
Established in 1996, AmCham is composed of over 220 members and asso­
ciates active in every sector of the Azer­
baijani economy. We represent 80%
of all foreign investment, as well as a
significant portion of local investment
which allows us to promote American,
Azerbaijani and multinational corporations. This includes leading companies
in Energy, Banking, ICT, Legislative/
Financial Consulting, Professional Ser­
vices, Education, Real Estate Development, Health, Transportation, Travel and
Production fields.
An active and positive influence in
Azerbaijan, we conduct our mission with
integrity and respect for the country,
observing all local laws and insisting
on the highest ethical standards in all
relationships and transactions.
Why join?
Key member benefit –
best networking opportunities in
Azerbaijan!
As a member of AmCham, your
company has access to a vast network
of business information and contacts in
Azerbaijan and in the US government,
as well as valuable information on US
businesses across Europe through
ECACC (European Council of American
Chambers of Commerce) and US
Chamber of Commerce.
Membership
To apply
There are two types of affiliation with
AmCham: Member and Associate.
To apply for affiliation with AmCham,
a candidate must submit a written
application in the form adopted by
the Board of Directors. Membership
applications are available at the
AmCham office or on our website at
www.amchamaz.org. The application
form should be completed and sent to
our office with the company registration
certificate issued by the Ministry of
Justice of Azerbaijan.
Member status includes voting privileges
and eligibility for Board and committee
chairmanships in addition to the privileges
granted to Associates. For affiliation as
a Member, a candidate must be a legal
entity, registered and doing business in
Azerbaijan and be in good standing in the
community, as determined by the Board
of Directors.
A legal entity, branch or representative
office of a legal entity is eligible to be
affiliated with AmCham as an Associate,
subject to the Board of Directors’
determination of good standing in the
community.
Additional Member Benefits include:
Annual Employee Salary Survey
Quarterly Inflation Survey
AmCham Membership Directory
AmCham Resource Library
For more detailed information please
visit our website www.amchamaz.org
42
Summer / Issue 12
Associates are eligible to participate in
various activities; receive our regular
publications, including the Membership
Directory, Annual National Employee
Salary Survey and Quarterly Inflation
Survey. Associates, however, are not
entitled to vote or serve on our Board
of Directors.
A candidate meeting the objective and
subjective requirements for affiliation
with AmCham is accepted as either a
Member or Associate upon receiving
an affirmative majority vote of the
Board of Directors and paying the first
year’s fee for the candidate’s category
of affiliation.
To maintain affiliation with AmCham,
Members and Associates must continue
to meet our eligibility requirements, be
in good standing in the community, and
be current with all financial obligations
to AmCham.
AmCham Azerbaijan
Business Events
Monthly Member Luncheon
January 2011
On our first Monthly Members' Luncheon for the year we
presented Mr Jo Owen, the new Country Manager of World
Bank for Azerbaijan as our Special Guest Speaker. Based
on his quarter of a century experience in the Bank, Mr Owen
shared his vision on the World Bank's Evolving Partnership
Strategy in Azerbaijan: - its successes, challenges and
opportunities.
Mr. Joseph Owen, an Indian national, joined the World Bank in
1985 as a Young Professional. He helped to open the Bank's
first office in Romania in 1992 and later established the Bank's
office in Tbilisi, Georgia in 1996 where he served as the
Country Manager. In 2000, he moved to the Latin America and
Caribbean region and was the Country Manager in Honduras
till 2005, the Country Manager in Nicaragua till 2010 and is
presently the Country Manager for Azerbaijan .
Mr. Owen was born in Kenya, completed his schooling in
Zambia and then obtained a Bachelor of Technology in
Chemical Engineering from the Indian Institute of Technology,
Madras in 1978. Between 1980 and 1982, Mr. Owen worked
as an oilfield engineer with Schlumberger Wireline Services
in Algeria. Subsequently, Mr. Owen went to the United States
and obtained his Masters in Business Administration from the
Wharton School of Finance, University of Pennsylvania, in
1985.
Euroconvention Conferences Azerbaijan Investment
Summit 2011
Being the largest business association representing the key
foreign investors in Azerbaijan, we as AmCham were pleased
to provide informational support to Azerbaijan Investment
Summit 2011 as the main partner organization.
Azerbaijan continues to undergo rapid development, gaining
a further role on the world stage. The government's priorities
include continuing its growth as an energy provider and
transport country, strengthening infrastructure, creating new
jobs, developing the non-oil economy, and creating an anchor
of stability and prosperity in the region.
While much of the economy has benefited from the oil and
gas industry, myriad business opportunities exist in non-oil
sectors: construction, building material, engineering services,
infrastructure, transportation and aviation, telecommunications
equipment and services, agriculture and food processing, and
last but not least alternative energy.
43
AmCham Azerbaijan
Business Events
February 2011
Featuring new US Ambassador to
Azerbaijan Matthew J.Bryza
We were delighted and proud to present our Special Guest
Speaker - new US Ambassador to Azerbaijan Matthew J.
Bryza. As an Honorary President of AmCham Ambassador
Bryza addressed our group within his first 30 days in office!
Matthew J. Bryza was appointed by President Barack Obama
to serve as U.S. Ambassador to Azerbaijan. He arrived in
Baku on February 6, 2011. Mr. Bryza served most recently as
Deputy Assistant Secretary of State for European and Eurasian
Affairs, responsible for policy oversight and management of
relations with countries in the South Caucasus and Southern
Europe. He served concurrently as the U.S. Co-Chair of
the OSCE Minsk Group, leading U.S. efforts to advance
a peaceful settlement of the Nagorno-Karabakh conflict.
Additionally, Mr. Bryza coordinated U.S. energy policy in the
regions surrounding the Black and Caspian Seas.
In April 2001, Mr. Bryza joined the National Security Council
as Director for Europe and Eurasia, with responsibility for
coordinating U.S. policy on Turkey, Greece, Cyprus, the South
Caucasus, Central Asia, and Caspian energy. Mr. Bryza served
as the deputy to the Special Advisor to the President and Secretary
of State on Caspian Basin Energy Diplomacy from July 1998 to
March 2001. During 1997-1998, Mr. Bryza was special advisor
to the Coordinator of U.S. Government assistance programs on
economic reform in the Caucasus and Central Asia.
Mr. Bryza has also held positions in the State Department's
Office of Russian Affairs (1991-1995) and has served at the
U.S. Embassies in Moscow (1995-1997) and Warsaw (19891991). He joined the United States Foreign Service in August,
1988.
Mr. Bryza graduated from Stanford University with a bachelor's
degree in international relations. He received his master's degree
in the same field from the Fletcher School of Law and Diplomacy.
He is fluent in Russian and Polish, and also speaks German and
Spanish, as well as conversational Azerbaijani.
Amcham General Assembly
AmCham held its Annual General Meeting at the February
Member's Luncheon. Six out of ten members of AmCham
Board of Directors were elected by members, with voting
that took place during the luncheon and election results
announced immediately afterwards. We were delighted to
congratulate the following board members and wish them
good luck in their outstanding mission for the upcoming
two years: Allen Gordon, AIMROC; Bakhtiyar Mammadov,
Halliburton Bob Dastmalchi, Chevron; Ilgar Veliyev, Ernst &
Young Seymour Khalilov, BP; Wayne Walz, Caspian Region
Oilfield Services.
44
Summer / Issue 12
AmCham Azerbaijan
IT Seminar on “Communication
Threads and Security Measures”
The seminar was led by Mr Clemens Kammer of Omnisec,
one of world's leading communication security specialists
visited Azerbaijan from Geneva, Switzerland. Based on his
over 40 years professional experience in the Information &
Communication Technology business, Mr. Kammer shared
with members risks, challenges and protection technology
for valuable information and communication. Mr. Clemens
Kammer, Swiss national, joined Omnisec AG, an independent
Swiss communication security company, in 2009 as the CEO
and President.
Seminar on “Novelties of the
new Law on Normative Acts and
President’s Decree on Inspections”
Seminar was organized in cooperation with EU Twinning
Project – “Support to the Milli Mejlis (Parliament) of
the Republic of Azerbaijan” and International Finance
Cooperation (IFC).
EU Resident Twinning Adviser Mr. Jonas Cekuolis was
presenting on Novelties and Lacks of the new Law on
Normative Acts. Experts of the IFC informed participants on
President’s Decree on Regulation of the Form of the Unified
Registry of Inspections of Entrepreneurs and Rules on
Inspections”.
Monthly Member Luncheon
March 2011
Our Special Guest Speaker in March was Mr Francis
Delaey, the Head of Baku office of European Bank for
Reconstruction and Development (EBRD), one of the major
international institutions aiming to support the diversification
of Azerbaijan's economy through investments in private
enterprise, financial institutions and infrastructure. In his
presentation, Francis Delaey gave us a brief overview of
EBRD’s activities in Azerbaijan, discuss Azerbaijan’s macroeconomic performance, highlight some of the main challenges
it needs to address and conclude with a general outlook for
the country. "Azerbaijan has everything to succeed but it
has to act now", mentioned Mr Delay in his address to the
business community.
April 2011
In April we focused on the impact of a number of recent events
including Gulf of Mexico oil spill out, political events in the
Middle East and North Africa and the devastating earthquake
and tsunami in Japan on the global energy industry. This
presentation was given to us by Bob Dastmalchi, Country
Manager of Chevron’s Azerbaijan responsible for representing
Chevron’s interests in AIOC and BTC joint ventures, as well as
supporting transportation of Chevron’s Caspian crude through
Azerbaijan.
45
AmCham Azerbaijan
Business Events
Tax Conference
On 28 April 2011 AmCham organized a Tax Conference
titled “Taxation in Azerbaijan: Finding the Right Path”.
Conference was supported by Backer&McKenzie, Ernst
and Young, Deloitte and PriceWaterHauseCoopers. The
Conference found huge interest among member companies,
international organizations and embassies. Participants of
the event included also representatives from the Parliament
of Azerbaijan. Speakers of the event included Chief of
the Tax Policy and Strategic Research Department of the
Ministry of Taxes Mr. Akif Musayev who provided participants
with the position of the Ministry on future perspectives of the
tax system. Chief of the Large Tax Payers Department of
the Ministry of Taxes Mr. Zaur Fatizadeh answered to the
question of participants on issues of concern. It was decided
to publish a book compiling presentations of the speakers
of the Tax Conference. Conference found serious media
coverage. Proposals made by AmCham and conference
speakers were published by leading news agencies and
newspapers.
May 2011
AmCham held its Monthly Member Luncheon on 25 May. The
luncheon featured Ms Danica Starks - Senior Policy Advisor for
Caucasus and Central Asia, US Department of Commerc as
well as a number of member presentations and announcements.
We welcomed our new members - British School in Baku,
Language Services and Triton who introduced their companies
with three minutes presentations.
June 2011
Our Special Guest Speaker this month was Mr Olly Norojono,
the Resident Representative of Asian Development Bank
(ADB) for Azerbaijan. The presentation gave our guests
an overview of ADB's strategic directions and operations;
it also highlighted ADB's business plan for Azerbaijan for
2011-2013. It also discussed project cycle in ADB operations
and business opportunities, and challenges in project
implementation.
46
Summer / Issue 12
AmCham Azerbaijan
Government Relations
AmCham Azerbaijan is regularly involved in promoting a healthy
dialogue between its member companies and Azerbaijani
officials at different levels. The chamber regularly meets
directly with representatives of both the US and Azerbaijani
governments, often addressing sector-specific issues and
those affecting a broad range of members. These issues often
include the drafting and revising of laws and regulations that
address business climate in the country including, tax and
customs policies, banking, finance and insurance, human
resources, telecommunication, information technologies (IT),
tourism, anticorruption measures and transparency.
To improve the business climate AmCham organized several
events and issued policy documents addressing legislative
initiatives considered by the government of Azerbaijan.
On 15th of December 2010, in cooperation with USAID,
AmCham organized a Seminar devoted to Draft Competition
Code of Azerbaijan currently considered at Parliament.
Representatives of the Parliament, international organizations
and member companies came together to discuss redrafting
process of the Competition Code, initiated by the government
of Azerbaijan Republic. As a result of the discussions it was
decided to establish a working group to prepare document to
express position of private sector on the draft competition code.
Representatives of the Parliament agreed to provide copies
of the draft competition code considered. After discussions in
working group AmCham Position Paper on Draft Competition
Code addressing concerns of the private sector was issued
and submitted to the Parliament of Azerbaijan on 15 March
2011.
AmCham also established a working group to analyse
draft Customs Code currently under consideration at the
Parliament. Working Group met on 11th February 2011. As
the result of the meeting it was decided to prepare position
paper addressing concerns of the private sector with regard
to issues raised during the meeting. As the result of analysis
and discussions Position Paper on Draft Customs Code was
issued and sent to the Parliament on 3 May 2011.
AmCham was closely involved in dialogue with Ministry of
Finance and Ministry of Taxes to submit its proposals to the
Government in the process of the Amendments to the Tax
Code and reform of the social protection system. In frames
of this dialogue AmCham Tax and Customs Committee
hosted Mr. Jamil Alizade Head of the Tax Policy and Revenue
Department of the Ministry of Finance during its meeting on
18 March 2011. On Mr. Alizade’s suggestion it was decided to
organize another meeting dedicated to tax code amendments.
The meeting was held on 4 April 2011 at the Ministry of Finance
and proposals on tax code and social legislation prepared by
AmCham was submitted to the Mr. Alizade. AmCham issued
two separate position papers respectively on tax code and
social legislation and submitted them to Tax and Finance
Ministers and to the Parliament.
In cooperation with EU Twinning Project for Support to the Milli
Mejlis of Azerbaijan and International Finance Corporation
(IFC) on 28 February 2011 AmCham organized a Seminar to
inform its members about newly adopted Constitutional Law
on Normative legal Acts and President’s Decree on Registry
of Inspections. Resident Twinning Advisor of the EU twinning
Project Mr. Jonas Cekuolis and Experts of the IFC informed
participants on new development in the laws.
To address concerns of the member companies over migration
issues AmCham addressed Head of the Department for Work
with Law Enforcement Institutions at the President Adminstration
Mr. Fuad Alasgarov raising number of exact points: (a) Inability
to use consulting firms to represent the company at the State
Migration Service which contradicts well established practice
corresponding to Azerbaijani legislation; (b) necessity to resubmit the originals of certain documents while prolonging
temporary residence permits which creates additional burden for
the subjects of international business (exp: apostles of university
diplomas, marriage certificates); (c) State Migration Service’s
usual reference to “internal rules” when asking for the legal
basis for the prohibitions that is not corresponding to principles
of transparency recognized in the Republic of Azerbaijan. In a
meeting organized to discuss these issues Head of the State
Migration Service Mr. Arzu Rahimov last two points (‘b’ and ‘c’)
were agreed upon. Thus, Mr Rahimov confirmed that (a) in case
of prolonging of residency/work permits, a photocopy of legalized
diplomas/certificates will suffice (provided the original was
submitted at the initial application); (b) copies of internal decrees
of SMS will be released to AmCham. With suggestion from Mr.
Rahimov on 21 April 2011 AmCham organized a meeting with
the senior management of the member companies, where issues
of direct concern were tackled.
47
AmCham Azerbaijan
AMCHAM organized a meeting of member companies with
State Customs Committee officials Fikret Alasgarli (Chief of
the investigations at the main department for prevention of
infringement of customs norms) and Orkhan Shixli (Chief of
the main department for organization of customs control). The
subject of discussion was counterfeit products and ways to
prevent their access to the Azerbaijani market. As the result of
meeting, parties agreed to conduct a seminar for employees
of State Customs Committee and to meet regularly to discuss
issues of concern rising in the working process.
On June 12 AMCHAM released 4th Edition of its White
Paper on Observations and Recommendations for Improving
Azerbaijan’s Business Climate delivered to the President of
country personally.
White Paper found wide recognition by government of
Azerbaijan. AMCHAM got feedbacks from Ministry of Finance,
Ministry of Tourism and Culture, Social Protection Fund,
President’s Office and Cabinet of Ministers.
On 3 August AMCHAM Executive Director and Policy and
Legal Coordinator met Mr. Eldar Hadjiyev Vice-President of
AZAL State Enterprise to discuss relevant parts of the White
Paper. Mr. Hadjiyev accepted kind invitation of AMCHAM
to cooperate more intensively to address issues of mutual
concern in frames of the Tourism Committee of AMCHAM
On 10 August AMCHAM Board met the First Deputy Minister
of Taxes Mr. Natiq Amirov to discuss in details Taxation
and Banking, Finance and Insurance Parts of the White
Paper. Mr. Amirov generally acknowledged that the issues
mentioned in the taxation part of the White Paper exist
and Ministry will undertake necessary steps to address
them. Thus, Ministry plans to reform the personal income
tax and reduce it. However, the reform will not be radical,
but gradual. Ministry will also start internal discussions on
unification of the tax base for calculation of the both personal
income tax and social security contribution. So far, this item
has not been on the agenda of the Ministry of Taxes and
they agreed to include it to their agenda. Ministry’s position
on recommendation of AMCHAM to account VAT payment
and recovery on a cash basis instead of mix of the cash and
accrual basis as it is currently practiced was less receptive.
Mr. Amirov acknowledged that it results in problems for some
companies, but emphasized that this is not a general problem.
Therefore, he suggested having this item as a last point of
the reform that Ministry of Taxes will address. On the tax
issues mentioned in Banking, Finance and Insurance parts
of the White Paper Mr. Amirov suggested to meet separately
during coming weeks. Nevertheless, on “Taxation of Share
Premiums” Deputy Minister asked AMCHAM to prepare
a paper on practices of other countries. Deputy Minister
also suggested meeting quarterly to discuss all issues that
private sector rises. He nominated Head of the International
Relations Department, who together with AMCHAM will work
out the schedule of the meetings, their subject and will be
48
Summer / Issue 12
contact person for all issues relevant to organization of these
meetings.
As part of its work with the Government and Parliament of
Azerbaijan AMCHAM released 5 Position Papers on following
subjects:
(a) Draft Customs Code;
(b) Draft Competition Code;
(c) Tax Legislation
(d) Improvement of the Social Protection Legislation
(e) Establishment of the President’s Business Council.
All Position Papers were sent to relevant state bodies.
On 17 of August AMCHAM hosted a dinner for US
congressional staffers. The message that AMCHAM
delivered during the dinner was importance of having an US
Ambassador in Azerbaijan, which facilitates business of US
companies and impact the general attitude to the American
Chamber of Commerce.
AmCham Azerbaijan
AmCham Legal Update
AmCham started issuing biweekly Legal Updates covering
all legal acts enacted by legislative and executive branches
and relevant court decisions. In this edition of the Impact
we provide some of the most relevant notes of interest to
your attention:
Laws
Constitutional Law on normative legal acts
Under the new law Parliament of Azerbaijan and President of
Azerbaijan should prepare mutually agreed annual plan of the draft
laws (Art 42.1). While preparing drafts of laws proposals of subjects
of the norm-creating activity, other interested organs, scientific
organizations as well as natural and legal persons can be taken
into account (Art 42.3). While suggesting adoption of the normative
legal act it must be justified with accompanying documents such
as letter of justification, expert opinions, list of persons drafting the
act as well as forecast of possible consequences of the adoption
of the act (Art 48). Moreover, normative legal acts and their draft
should run through the process of the mandatory legal, linguistic
exanimation as well as examination on potential abuses (Arts 6169). New is also state registry of normative acts to be organized
and maintained by Ministry of Justice (Arts 78-81). Interestingly,
while registering normative legal act/s the opinion of the relevant
legal expertise should be attached (Art 78.5). Nonetheless, this
does not necessarily imply publication of legal expertise attached
to the legal act/s.
Law on making amendments to the law on entry to,
departure from the country and about passports
Parliament adopted amendments enabling use of electronic
visa applications and implementing upper time limit for issuing
tourist visas at the embassies of Azerbaijan abroad. Thus,
tourist visas should be issued no later than 15 days after
submission of the application. Tourist visas will be issued for
30 days. In countries having no Azerbaijani embassies foreign
citizens (tourists) will be able to apply for visas through travel
agencies without leaving the country.
Laws on making amendments to the tax code
Second paragraph of the Art 90.3 of the Tax Code on collection
of taxes using taxpayer’s property was amended. The word
‘auctions’ was removed from the second paragraph of the
article. Instead with addition Art 90.3-1 executing officials
are entitled to sell the listed property of the taxpayer in trade
networks of their determination.
Tax Code is also amended to include new tax exemptions under
Art 106 of the Tax Code on Exemptions and Privileges from Profit
Taxes of legal persons. Thus, legal persons are exempt from profit
taxes: (a) in cases defined by Cabinet of Ministers, for the value
of the assets transferred free of charge, by decision of the legal
person, from its own balance or balance of the one of its resident
subsidiaries to another subsidiary; (b) for the value of the transfer
of the fixed assets from balance of one legal person to the balance
of another legal person by the decision of relevant executive body
(Cabinet of Ministers has to approve rules on determining the cases
of exemption); (c) for the operations on providing the assets, fixed
assets, movable property and other assets under the exploration,
development and production share agreements for oil-gas resources
(PSA), host government agreements (HSA) and other agreements
of similar nature to the representative of the Azerbaijan Republic.
These items are also exempt from VAT (Art 164.1.14).
With another amendment, sharing profits under PSAs, HASs and
other agreements of similar nature as well as, in cases defined by
relevant executive body, transfers made to the parent company
by its wholly owned subsidiary from the pure profit, in order to
collect the profit in the centralized funds, and the profit itself are
exempt from the withholding tax on dividends (Art 122.3).
An addition was made to Art 183.3 to stipulate that if the
manufacturer and client are the mutually related residents, client
will be the payer of the excise tax. In all other cases it is the
manufacturer who is responsible for the payment of the excise tax.
Operations on providing the assets, fixed assets, movable
property and other assets under the exploration, development
and production share agreements for oil-gas resources (PSA),
host government agreements (HSA) and other agreements of
similar nature to the representative of the Azerbaijan Republic
are exempt from the VAT (Art 164.1.11). Previously only
operations to State Oil Fund were exempt from tax.
Law on making amendments and additions to the Law on
Auditor Services and to the Code of Administrative Offences
Law on Auditor Services is amended to state that audits are
compulsory for the subjects of economy obliged to publish
financial reports according to the law as well as in cases
directly stipulated in law, in all other cases audits are voluntary
(Art. 2). The phrase ‘in accordance with the decision (order) of
the relevant state organs’ is removed from the Law.
Additions are made to the Code of Administrative Offences
to introduce a fine of 300 to 600 AZN for officials and fine
of 1500 to 2500 AZN for legal persons for deviation from the
compulsory audit (Art. 247-3).
Under the Civil Code of Azerbaijan Limited Liability Companies
(Art. 91.4) are required to have external audit of their annual
financial reports. Joint Stock Companies must also have an
external audit of their financial reports while publishing annual
reports and balance sheets (Art. 107.6). Monetary evaluation
of contributions of a participant in a Business Partnership and
Company Association is also subject to audits by agreement
among the founders (Art. 64.9).
Law on making amendments to the Labour Code
Article 10-1 is added to the Code to introduce age limit of
49
AmCham Azerbaijan
65 for the employees working at enterprises financed from
state budget. Period of employment at the enterprise can
be prolonged by the head of the state organ five times with
the period of a year each time. Period of employment can be
prolonged only with the consent of employee.
Article 70 is also enlarged to include reaching age limit by civil
servants as a ground for employer to terminate their labour
contract.
Law on making amendments to the Criminal Code
The Criminal Code is amended to broaden the definition
of corrupt activities encompassed by the law. Under the
amendments, the Code covers not only corruption of
Azerbaijani officials and high ranking persons within the
country, but also corruption of such persons overseas by (a) a
national of Azerbaijan (Art 12.1-1) and (b) by foreign citizens
or persons without citizenship (Art 12.2-1). In both cases,
persons involved should not be convicted abroad for that
crime.
Other amendments: not only the taking of bribes as such, but
also accepting the offer or promise of a bribe is now made a
crime (Art 312-1.1). Furthermore, the offering or promising of a
bribe is also now made a crime (Art 312-1.2). Relevant articles
have also been amended to cover bribes paid through third
persons or mediators.
Art 189-1.3 and Art 189-1.4 on ‘Stealing natural gas, electricity
or heat’ have been amended extending responsibility to
senior officials (as well as more junior ones). With the new
amendments all responsible representatives of the relevant
enterprise providing the service may be charged with
negligence in performing (or failing to perform) their duties (Art
189-1.3, 189-1.4) where natural gas etc. is stolen.
Law on making amendments to the law on the Central
Bank of Azerbaijan
Under the previous version of Art 9.2 the Central Bank had
the right to conclude clearing and settlement agreements
and other agreements with foreign public and private clearing
(processing) agencies on its own behalf and on behalf of the
state if empowered to do so. With the amendment made to
Art 9.2, the Central Bank is rendered competent to conclude
such agreements on its own behalf. While applying this right
the Central Bank should take into account the Cabinet of
Ministers’ power to ensure realization of economic programs.
This subordinates the Central Bank to the Cabinet of Ministers
in concluding such agreements.
Court decisions
Decision of the Constitutional Court of Azerbaijan
on interpretation of articles 78.3, 85.4, 90.3 and 93.1
(12/02/2011)
Interpreting Art 78.3 the Court stated that financial sanctions
50
Summer / Issue 12
and interest cannot be imposed on persons convicted of a
crime for the same offence. They are responsible only for
damage caused by the crime. Since the object of the civil
claim part of a judgment in a tax crime case and the object
of cases on financial sanctions and interests is different, the
latter cases should be solved either according to Art. 65 (the
procedure on collecting tax debts) or by court proceedings.
The Court also recommended that Parliament define the
legal status and rights of the tax authorities in bankruptcy
proceedings.
If the period for collecting taxes, interests and applied financial
sanctions as defined in Art 85.4 (5 years) has expired, this
must be deemed as the end of the period for the realization of
the tax obligation as defined in Art 93.1.1. In other words, such
taxes will be written off as bad daebts.
Constitutional Court Decision on the Interpretation of Art
239 of the Labor Code, 15.07.2011
Article 239 of the Labor Code deals with material responsibility
for the death of an employee or damage caused to an
employee’s health as a result of a breach of labor protection
standards. It holds an employer who is wholly or partly liable
to pay in full both compensation for loss or impaired health of
the employee, and his medical bills and also to pay the costs
and other additional expenses, stipulated by the Civil Code.
An employee (or family members and other dependents in
the event the employee has died) who has suffered health
problems as a result of work-related accidents or illness due
to the fault of the employer, shall be paid a lump sum plus
monthly payments, and other extra charges.
The Baku Court of Appeal requested the Constitutional Court
to interpret the meaning of the terms ‘an employer who is
wholly or partly liable’ and ‘due to the fault of the employer’
(terms which are repeated in the implementing Cabinet of
Ministers resolution*), as the State Labor Service was arguing
that this was a case of strict liability and thus there was a
presumption of guilt.
The Constitutional Court found that there is a interrelationship
between Art 239 and Arts 191-194. Consequently, the
Constitutional Court established that ‘fault’/ ‘guilt’ is universally
recognized and a normal condition for legal responsibility and
any exception from this should be stipulated in law directly
and unambiguously. Thus, only an employer whose fault is
established can be made liable for breach of law. Therefore,
until the fault of employer is proven, the presumption of
innocence is applicable. However, the Constitutional Court
also found that an employer has full material responsibility for
damage to the employee once fault is proved regardless of the
degree of fault.
The Plenum of the Constitutional Court determined:
Under Art 239 of Labour Code material responsibility for
the damage to the health of an employee or for the death of
AmCham Azerbaijan
employee, occurs (a) as the result of a breach of the norms
of the labour protection, and (b) if the fault of the employer
is proven in compliance with the conditions established in
Art 191 of Labour Code. Art 191 requires there to be intent
or negligence and where there is a reasonable connection
between the defendant’s illegal action and the result of this
action.
Note: *Cabinet of Ministers Resolution No 3 from 09/01/2003 on
“Rules, conditions and amounts of payments to employees, or to
family members or persons under guardianship of employees who
died, whose health has been impaired as a result of an industrial
accident or occupational disease”
Baku Appeals Court Decision on the case J. Mehdiyev vs.
Tax Audit Department (02/02/2011)
The Appeals Court has upheld the decision of the Baku
Local Economic Court No2. The lower court had ruled that
the Tax Audit Department had breached the property rights
of the citizen by establishing the rent of property. Thus, the
court noted that the rent for property in private ownership of
legal or natural persons is not regulated by law, as opposed
to the state property. In this context, the tax authorities were
not entitled to define the rent of private property and to tax
it. Moreover, the Court referred to Art 3.11 of the Tax Code
stating that any contradictory or ambiguous provisions in the
tax laws must be resolved in favour of the taxpayer.
Case No. 2-1(103)-318/11, Company Z vs. State Social
Protection Fund Department of Work with Legal
Persons
Following an inspection by the Social Protection Fund
Department of Work with Legal Persons (SPF), the SPF had
imposed a fine on Company Z (the Employer) for employing
three individuals without labour contracts. The court of first
instance held against SPF and declared the inspection report
invalid, finding that the report included neither sufficient
information to identify the three persons working without
labour contracts nor information about their positions. The
SPF appealed the ruling but the Court of Appeal denied
the appeal. Referring to the Instructions of the SPF on ‘The
Collection of the Mandatory Social Contributions’, it held
that the SPF had not complied with the rules established by
Instructions and had not explained the violations in sufficient
detail.
Case No. 2(103)-684/2011, Mr. Q.A.C. vs. Azerbaijan
Television and Radio Broadcasting Company (AzTV)
A former employee of AzTV, who had been hired on a shortterm contract, sued the employer for wrongful dismissal.
He argued that the job he was employed in (working as a
producer) was of ‘a permanent nature’ and consequently his
contract should have been extended as it was case with other
employees.
In accordance with Article 45.4 of the Labour Code, “Where
the nature of the work or services is by its terms specified as
permanent according to the job description, the employment
contract must be concluded without a specified term, except
for cases stipulated by Article 47 of [the Labour Code].” The
employee’s situation did not appear to fall into one of the
Article 47 categories.
However, the Court of Appeal, in denying the claim of the
employee, referred to Article 73 of the Code (Procedure for
Terminating a Fixed-Term Employment Contract), which states
that, “A fixed-term employment contract shall be terminated
upon its expiration.
President Decrees / Orders
President’s Decree on Certain Measures for the
Organization of E-services at State Institutions
The President has ordered the Cabinet of Ministers to prepare
within 2 months rules for providing e-services and details of
the fields in which they will be provided. Central Executive
Authorities (Authorities), which include Ministries, State
Committees and State Agencies, are ordered to prepare an
e-service section on their web pages. Authorities are also
required to provide real time online payment of state duties for
services through their web pages.
The Ministry of Communications and Information Technologies
(Ministry) is required to organize the allocation of electronic
signatures to natural and legal persons who request them. To
provide implementation of the “one-stop-shop principle”, the
Ministry is also required to establish an “E-government” Web
Portal.
President approved Charter on the Preparation and Approval
of the Normative Legal Acts of Executive Authorities;
The Charter regulates internal procedures for drafting and
adopting normative acts of the executive branch.
A major requirement of the Charter is the placing of drafts
of normative legal acts prepared by central executive bodies
and the Cabinet of Ministers on the e-government portal once
they have been sent for concordance with existing legislation
to relevant bodies applying government policies in the subject
matter of the normative legal act. Proposals regarding the
draft normative legal act, which are made on the portal will
be taken into account if deemed reasonable; if not the person
making the proposals will be provided with a well-grounded
response (Art 2.4).
Cabinet of Ministers Resolutions
On making amendments to the Cabinet of Ministers’
Resolution on “the Charter for paying and accounting
for payments for the mandatory state social insurance
and relief to employees for the temporary loss of working
ability” No. 189 from 15/09/1998;
AmCham Azerbaijan
A wide range of amendments was made to the Resolution.
Under the amendments during first 14 days of the temporary
loss of the working ability allowances will be paid by the insurer,
the balance will be paid by deduction from payments of the
mandatory social insurance contributions by the employer
(Par 1.1). Previously, it was the insurers’ responsibility to pay
the allowance for the full period.
Certain provisions of the Resolution were removed. Thus,
paragraph 10 regulating conditions for granting allowance
for temporary loss of the working ability on the way to the
workplace was removed. Paragraph 11 regulating payment
of allowances for the temporary loss of the working
ability resulted from domestic injury was also removed.
Allowances for sanatorium and spa treatments were also
abolished. Employees won’t be provided with allowances
for quarantine periods resulting from dismissal by sanitaryepidemiological service for reason of contracting contagious
diseases.
The cases where allowances are not paid has been enlarged
to include cases where the temporary loss of the working
ability of an individual arose when no mandatory social
insurance was being paid with respect to that individual
as well as in cases when injury was caused during the
commission of a crime. Imprisonment and judicial medical
expertise no longer are reasons for excluding payment of
allowances.
Part 62 of the Resolution is amended to raise the thresholds
for identification of persons eligible for relief for temporary
loss of working ability equaling to 100%, 80% and 60% of the
income. Thus, relief equaling to 100% of the income will be
paid to employees with ‘social insurance standing’ of 12 years
instead of 8 years. Relief equaling to 80 % of income will be
paid to employees with ‘social insurance standing’ from 8 to
12 years instead of 5 to 8 years. Relief equaling to 60 % of
the income is paid to the employees with the ‘social insurance
standing’ up to 8 years.
The ways of calculation of the reliefs for employees of
different industries was also amended. In this context a lot of
provisions were removed and Part 28 of the Resolution was
configured as a central provision defining the ways of relief
calculation.
In all parts of the resolution the words ‘overall labor standing/
seniority’ were amended to ‘social insurance standing/
seniority’. The words ‘overall period’ were either replaced with
the words ‘working days’ or the words ‘working days’ added to
‘overall period’ to complete sentences.
Cabinet of Ministers adopted a Resolution ”On
Approving Rules for Negotiating and Concluding
Agreements on the State Registration of Branches and
Representative Offices of NGOs from Foreign States in
Azerbaijan”
52
Summer / Issue 12
With the Cabinet of Ministers Resolution, Foreign NGOs will
need an additional Agreement with the Ministry of Justice
prior to registering their branch or representative office in
Azerbaijan.
Thus, a foreign NGO wishing to establish branch or
representative office should first submit an application with
information about the organization and its purpose in wishing
to start work in Azerbaijan. Together with the application, the
NGO should submit to the Ministry of Justice its constituent
documents (extract from state trade registry, certificate of
registration, etc) and power of attorney issued to responsible
person/s in a translated and verified version (par 2). The
Ministry of Justice will send these documents to relevant
bodies and request their opinion on whether it should enter
into an Agreement for Registration of the foreign NGO (par
2.5). If opinions are positive the Ministry of Justice starts
negotiations.
The activity of foreign NGOs in Azerbaijan are subject to
the conditions that: there must be no involvement in political
or religious propaganda, respect for Azerbaijani national
and spiritual values is shown, there is compliance with the
Azerbaijani Constitution, its laws and normative and legal acts
as well as not engaging in activities in the occupied Azerbaijani
territories (par 3.2).
If the conditions are accepted Ministry of Justice and the
foreign NGO will conclude an Agreement and only after this
can registration of the NGO within periods mentioned in the
legislation may start. No periods for the negotiations are
mentioned in Rules.
Cabinet of Minister adopted a Resolution “On Approval of
Rules of Adopting and Changing Names, Surnames and
Patronymics”
The process of adopting and changing surnames, names and
patronymic is regulated by the Ministry of Justice of Azerbaijan
and Nakhchivan Autonomous Republic , their district (city)
departments and consulates (in respect to Azerbaijanis
residing abroad permanently).
The new rules will also
to national minorities
citizens Azerbaijan, as
of individuals born in
permanent residence.
be applied to persons belonging
and ethnic groups who are
well as with respect to appeals
Azerbaijan but not eligible for
Surnames of persons who reach 18 years of age may be
changed upon application (Art 5.1). Changes in respect to
persons under the age of 18 will be made upon applications by
their parents or legal representatives (Art 5.1). If both parents
change their surname, then the surname of children will be
changed automatically. Endings of the surname of a child over
10 years of age may be changed only after the child’s consent
(Art 5.2).
AmCham Azerbaijan
Social Events
“Meet the Candidate” Cocktail
Reception
February 2011
AmCham Azerbaijan hosted "Meet the Candidate" cocktail
reception to feature our candidates for General Assembly in
February, 2011. To give our members a fresh feel, we held this
traditional event in Baku Mugham Center on the Boulevard.
AmCham welcomed all the candidates and gave them a floor
for introduction to their electorate.
Members of both AmCham Azerbaijan and TEAS,
representatives from Parliament as well as some other guests
enjoyed a gorgeous evening, delicious food and drinks while
networking and socializing in an informal environment on the
roof top of the highest building in the city centre - 20th Floor of
Landmark Plaza!
Cocktail Reception dedicated to the
Republic Day
May 2011
The American Chamber of Commerce in Azerbaijan hosted
cocktail reception dedicated to the Republic Day in an unique
venue, a historic "Ismailiyye" building currently seating the
Headquarters of Azerbaijan Academy of Sciences, where,
early XX century, the first ideas of independence from
Russia started to be expressed in the meetings of Azerbaijani
intellectuals and philanthropists.
We were proud to introduce a very special guest speaker - the
Minister of Finance Mr Samir Sharifov who addressed AmCham
community, embassies and international organizations. Mr
Sharifov expressed greetings of the President Ilham Aliyev to the
participants and highlighted the importance of AmCham activities
in supporting local and international businesses and maintaining
constant dialogues by leasing between the private sector and the
Government of Azerbaijan. The Minister also briefed guests on
the history of the first Democratic Republic established in orient
as well as the current economic situation of the country and
relations between Azerbaijan and the United States.
Among 100 guests attended we were pleased to welcome the
Chairman of Economic Policy Committee of the Parliament Mr
Ziyad Samadzade, the Executive Director of State Oil Fund
Shahmar Movsumov and a number of other government
officials and diplomats from a number of embassies who
found time to attend this unique event.
AmCham - TEAS Joint Cocktail
Reception
March 2011
With incredible success and over 100 guests turnout the first
ever joint function of the American Chamber of Commerce
and the European-Azerbaijan Chamber of Commerce (TEAS)
past on Wednesday, 2 March 2010.
AmCham Azerbaijan
Social Events
July 2011
AmCham 16th Annual
Independence Day Picnic
AmCham held its 16th Annual Independence day Picnic! This
great day has been possible only because of our valuable
members, friends, their partners, clients and families! A
record number of guests - more than 900 people joined us
this year! The guests enjoyed the food, drinks and exclusive
entertainment program designed specifically for our members,
friends, their families and partners!
Celebrating the Independence Day of the United States
of America in a friendly environment gave everyone an
opportunity to leave behind the fatigue of last months and
welcome summer vacations - we had 2 lucky participants who
won the tickets to London kindly offered by BMI! Once again
many thanks go to our generous sponsors for their continued
contribution and support!
16th Annual Independence Day Picnic became a history - a
new record was achieved in raffle draw - all the 3000 raffle
tickets were sold! We are proud to announce that around 9000
USD gathered from the raffle sale and auction goes to our CSR
partner - Save the Children and will be spent on production of
a manual book for children, youth and their parents.
54
Summer / Issue 12
AmCham Azerbaijan
55
AmCham Azerbaijan
Members’ News and Events
Bakcell announces new CEO, Mr. Richard Shearer
Mr. Shearer comes to Bakcell
with strong expertise in leading
the
operations
of
major
telecommunications companies
in some of the world's most
competitive
markets.
His
experience has mainly focused on
provision of telecommunications
services in the wireless segment.
Previously, Mr. Shearer served
as the CEO of DiGi Telecom in
Malaysia, Empower Interactive
Group Ltd and BTC Mobile EOOD (Vivatel) in Bulgaria. He
also acted as the Commercial Director of T-Mobile in UK and
was a Management Board Member of Telkomunikacja Polska
SA, Central and Eastern Europe's largest telco.
Commenting on his new appointment, Mr. Richard Shearer
said: "It's a great honor to join Bakcell, which has such a
strong position in the Azerbaijan telecoms market. My task will
be to build on the company's success to date and continue
our customer expansion. Bakcell will continue to delight its
customers with even better service and even better prices.
Bakcell's high quality network provides a fantastic base upon
which to roll-out more innovative products and services to
meet the demands of today's mobile customers in Azerbaijan.
I look forward to working with the company and our business
partners."
Bakcell was established in 1994 and became the first company
to provide mobile communications services in Azerbaijan.
With significant investments in network development, Bakcell
now covers more than 95% of the population and 82% of the
land area of the country. The number of Bakcell subscribers
has reached 2.5 million.
Kamal Mamedzade is promoted to the Salans Partnership
The international law firm Salans
has announced the promotion of
Kamal Mamedzade to the position
of Partner, effective 1 January 2011.
In legal practice since 1997, Mr.
Mamedzade joined Salans as an
associate in 1999 and he was
promoted to Of Counsel in 2008.
He focuses on banking & finance
projects, derivatives and securities
law in Azerbaijan and Kazakhstan.
He is experienced in corporate and
M&A transactions, restructurings,
foreign investment, energy and natural resources and project
financing in Azerbaijan, Kazakhstan and other CIS countries.
Chambers Global lists Kamal in ‘Leaders in their Field’ for 2011
and he was ranked as a leading lawyer in Azerbaijan by IFLR
1000 for 2011.
Kamal Mamedzade attended George Mason University
in Virginia, USA (1996-1997) and graduated from Khazar
University, Faculty of Law and Social Sciences (B.Sc., 1996;
J.D., 1999) and from Manchester University (LL.M. with merit,
2001). He is fluent in Azerbaijani, Russian, and English.
New Director of “CIECO Azerbaijan” Representative office of
ITOCHU Oil Exploration (Azerbaijan) Inc. Co
Mr. Norio Yamazaki began his 27year career in ITOCHU Corporation
in Japan, Tokyo in 1984. He has held
several head positions in company’s
corporate offices in CIS, Moscow, and
Israel, Tel Aviv, arriving in Azerbaijan,
Baku in April, 2011. He is currently
the General Manager of ITOCHU
Corporation Baku office and Director
of “CIECO Azerbaijan” Representative
office of ITOCHU Oil Exploration
56
Summer / Issue 12
(Azerbaijan) Inc. company. Mr. Yamazaki always wanted to come
to Azerbaijan because of love to “The Land of Fire”.
At present, Azerbaijan is among the countries of the world's
fastest growing oil & gas sector with achieved successes.
ITOCHU Oil Exploration (Azerbaijan) Inc. is a Partner of ACG
and BTC projects.
ITOCHU was founded in 1858 and ITOCHU is one of the
large companies in Japan.
AmCham Azerbaijan
Members’ News and Events
New chairman of the Executive Board has been appointed
to AtaHolding OJSC
New chairman of the Executive
board has been appointed in
Azerbaijan’s key financial &
industrial
group
AtaHolding.
Farid Fuad oglu Asadov has
been carrying out the position of
chairman of the executive board in
AtaHolding since 4 April, 2011.
Gafar Mahir oglu Gurbanov who
held this position from 7 November
2006 to 4 April 2011 has been
elected a member of the AtaHolding
Supervisory Board.
Farid Asadov was born in Ganja on 7 July, 1974. He entered the
Baku Institute of Political Science & Social Management in 1991
and graduated the institute with an honoured diploma in 1996.
In 2007, Farid Asadov continued his education at the Business
Administration Faculty of the National Economy Academy under
the Russian Federation government and in 2009 received the
highest degree MBA in the speciality of “Business Management
Company”.
From March 2000 to June 2001 Farid Asadov worked as deputy
general director for conclusion of insurance contracts in an
English-Azerbaijani insurance company. From August 2002 to
March 2004 he held office of the head of Marketing & Business
Relations Department, and from April 2004 the office of the sales
& marketing director in the International Insurance Company.
On 15 October 2005 Farid Asadov was appointed the deputy
chairman of the Executive board in AtaSigorta OJSC, and on
April, 2 2007 by decision of the AtaSigorta Supervisory Board
was appointed chairman of the Executive Board of AtaSigorta.
On June 1, 2009 AtaSigorta realized corporate governance
in compliance with insurance legislation. AtaSigorta Board of
Directors was established according to taken decisions and
Farid Asadov was elected the chairman of the Director’s board
in the Company from 1 June 2009 to the present day.
Azercell becomes Eurovision 2012 Presenting Partner
The European Broadcasting Union (EBU) announced
Azercell, Azerbaijan's largest mobile operator and member
of the TeliaSonera Group, as the Presenting Partner of the
Eurovision Song Contest 2012 in Azerbaijan. The three
shows, Semi-Finals on 22nd and 24th of May and the Final on
26th of May, will be televised live, hosted by the Azeri public
broadcaster Ictimai TV.
Azercell is Azerbaijan's largest mobile operator with over 55
percent market share and known as a trend setter in mobile
communications in Azerbaijan, applying new technologies
and offering a wide range of products and services.
Azercell is part of TeliaSonera, Europe's fifth largest
telecommunication company with presence in the Nordic
and Baltic countries, Spain and the emerging markets of
Eurasia, including Russia and Turkey. TeliaSonera was also
the Presenting Partner of the 2007 Eurovision Song Contest
in Helsinki.
As the Eurovision Song Contest's Presenting Partner for 2012,
Azercell has been granted extensive pan-European media,
association, event and new media rights for the upcoming events
in Azerbaijan.
"We are excited to have Azercell as the Presenting Partner of
the contest already at this stage, manifesting the huge interest
for Europe's favourite TV-show," Jorgen Franck, Director ad
interim of Eurovision TV said.
"We are proud to become a Presenting Partner of the
Eurovision Song Contest 2012 in Baku. Azercell always
places a special importance to promotion of Azerbaijan in
the world and this contest is a remarkable opportunity for
all of us. We are proud to be part of ESC in Baku and share
this joy with our country in 2012.”, said Ali Agan, President
of Azercell Telecom LLC.
The agreement, which is part of an international commercial
and marketing platform developed by the EBU for the
Eurovision Song Contest, was negotiated by T.E.A.M.
(Television Event and Media Marketing AG) based in
Lucerne, Switzerland. T.E.A.M. is the worldwide exclusive
marketing agency for the commercial rights of the Eurovision
Song Contest since 2004.
The Eurovision Song Contest has a rich tradition and
heritage, dating back to 1956. It is one of the few truly
pan-European television programmes transmitted live via
the Eurovision satellite network, in prime time on free-toair television, as well as online. The three shows attract a
total of over 100 million viewers throughout Europe and
beyond.
AmCham Azerbaijan
AmCham
Calendar of Activities
������������������������������
January - July 2011
7 January
14 January
27 January
10 February
Tax & Customs
Committee
Meeting
Human
Resource
Committee
Meeting
AmCham
Monthly
Members’
Luncheon
Human
Resource
Committee
Meeting
16 February
17 February
18 February
24 February
‘Meet the
candidate’
Cocktail/
Reception
IT Seminar on
‘Communication
Threats & Security
Measures
Tax & Customs
Committee
Meeting
AmCham
Monthly
Members’
Luncheon
11 April
21 April
24 February
28 February
18 March
31 March
Banking, Finance
& Insurance
committee
Meeting
Seminar on
’Novelties of the New
Law on Normative
Acts and President’s
Decree on
Inspections’
Tax & Customs
Committee
Meeting
AmCham
Monthly
Members’
Luncheon
1 April
8 April
AmCham
HRCommittee /
JAA-Finals of 2011
National Management
and Economics
Competition
Health, Safety
&Environment
Committee
Meeting
29 April
25 April
1 June
6 June
AmCham
Monthly
Members’
Luncheon
AmCham Monthly
Members’
Luncheon
The presentation of
Political & Economic
data from CRRC’s
2010 Caucasus
Barometr survey
AmCham
Monthly
Members’
Luncheon
10 June
16 June
Business after
Workshop
Hours: ‘Closer to
on Business
Children’ Summer Inspections Survey
Cocktail Party
27 June
30 June
2 July
7 July
Health, Safety
& Environment
Committee
Meeting
AmCham Monthly
Members’
Luncheon
16th Annual
Independence Day
Picnic
Presentation on
BP Statistical
Review of
World Energy
58
Summer / Issue 12
Meeting with
Travel, Hospitality
the
Chairman of
& Tourism
State
Migration
Committee
Service,
Genral Arzu
Meeting
Rahimov
16 June
22 June
Banking, Finance
& Insurance
Committee
Meeting
HR Committee
Meeting
AmCham Azerbaijan
AmCham Azerbaijan
Corporate Social Responsibility
2011 National Management &
Economics Competition
The American Chamber of Commerce and Junior Achievement
Azerbaijan hosted the finals of 2011 National Management and
Economics Competition on April 1 at Landmark Rotunda Hall.
Twenty four students representing eight student-teams from Baku,
Mingechevir high schools and universities competed for the title of
National Champion using the business simulation software. During
the contest, the participants were given CEO roles of student
companies and simulated "business quarters," while making
decisions on price, production, marketing, capital investment, and
research and development, and considering market conditions.
The impact of the decisions is supposed to lead to the success or
failure of each student company. The event was concluded with an
awards ceremony and a friendly match between the students and
the invited representatives of business community.
In 2011, Junior Achievement Azerbaijan engaged in total 142
high school and undergraduate students from Baku, Sumgayit,
Mingechevir, Ismayilli, Agdash, and Kurdamir regions in the
elimination rounds.
2011 Student Business Day
75 participants of the JA Student Companies project, the youth
entrepreneurship initiative, gathered together in Baku for the
annual Student Business Day on 24 May. The event was cohosted by American Chamber of Commerce in Azerbaijan and
Junior Achievement Azerbaijan. During the event the student
teams presented their businesses and products to the panel
of judges, who determined the program winners according to
five nominations.
JA Student Companies project started in November 2010 and
engaged 75 students from 15 schools of Baku, Sumgayit,
Ismayilli, Ganja, Mingechevir, Umid, and Sahil. The project
taught the high school students entrepreneurship and
business plan development with the assistance of teachers
and volunteers from the business community.
The project is conducted within the School Economics
Education Program (SEE), funded by Statoil Absheron,
Chevron Khazar, Bakcell Ltd. and Garadagh Cement OJSC
as main supporters, and Pasha Bank, Saipem Azerbaijan,
American Chamber of Commerce, Nobel Oil, Baker &
McKenzie, PwC, and Deloitte as associate supporters. The
program is implemented in strategic partnership with the
Ministry of Education, the Ministry of Youth and Sports, the
Central Bank and the United States Agency for International
Development. 2011 Student Business Day was conducted in
partnership with HP Azerbaijan and C’est Bon.
The event ended with an awards ceremony, during which
the winning teams and the business volunteers received
appreciation certificates and awards.
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Summer / Issue 12
AmCham Azerbaijan
AmCham and Save the Children
joint party - Closer to children
The event was organized with financial support from Bakcell,
PricewaterHouse Coopers and The Park Hyatt Baku Hotel.
The Jan Bala music band, DJ.China and other young talented
musicians were among the guest performers who kindly
agreed to support the organizers pro-bono.
Representatives from Save the Children partners and
AmCham members are on hand to discuss potential avenues
for successful collaboration to help children in Azerbaijan. The
organizers aimed to promote a culture of charity among the
guests by giving information about current Save the Children
programs and successful partnerships. More than 130 guests
welcomed summer in a friendly environment.
AmCham and Save the Children organized a joint party "Closer to Children" in Landmark Roof on 10 June. With an
amazing turnover of people that reached 130+ the party lasted
till 2 am!
The American Chamber of Commerce in Azerbaijan and Save
the Children teamed up to host this cocktail party for a cause.
The aim was to develop opportunities for socially responsible
businesses and caring individuals to contribute to sound and
sustainable development for children, through private sector
links. Representatives from businesses throughout Baku were
to mingle on and socialize. The "Closer to Children" party
featured live music by talented performers and the guests to
enjoy delicious drinks and snacks.
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AmCham Azerbaijan
New Members
AIMROC
BHM Baku Law
Centre LLC
British School
in Baku
Demirbank
Novartis Pharma
Services AG
Pfizer HCP Corporation
Rep. Office in Azerbaijan
Azqtel LLC
Baku Metal Service
Baku Plaza
Euro Audit
Golfland
Grant Thornton
Iris Consulting
Mace International
Limited Azerbaijan
NAT Co
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Summer / Issue 12
Bank Nikoil
Vallourec Mannesmann
Oil & Gas France Baku
Branch
AmCham Azerbaijan
(M2M) Discount Program
How to join the Program:
Members willing to join the Program and offer their products/services at special discount to AmCham Regular Members have to
inform the AmCham office in writing. A discount provider has to indicate the product(s) or service(s) and discount rate(s).
How to obtain discounts:
All Regular Members, no matter whether they provide discounts as part of the Program or not, can obtain discounts. Members
can find information about the discounts in the M2M Section of our website www.amchamaz.org
How is M2M advertised?
The program will only be advertised internally through the AmCham communications channels: AmCham Website and AmCham
Quarterly Magazine – “IMPACT Azerbaijan”.
Note: The cards are for personal use only. A card holder is committed to return the card to AmCham in case he/she leaves
a Member establishment.
TRAVEL, HOSPITALITY AND LEISURE
lounge in H. Aliyev Airport is included
BANKING, FINANCE AND INSURANCE
HYATT
-15% on all restaurants and bar
- 15% on laundry and dry cleaning
PHILOSOPHY TRAVEL
-5% on any travel arrangements
AG BANK
-50% on AG Club Premium Package
-20% on AG Club Gold Package
EXCELSIOR
-10% on all catering contracted with rentals
and on F&B in
Belvedere restaurant
-15% on rentals of conference rooms and
Duke and Heritage rooms
-20% on Aura Spa
FORMAG BAKU
(PATRICK HELLMANN)
-20% discount on Patrick Hellmann
collection
CITIMART
-5 discount on all groceries and entire
purchase
PROFESSIONAL SERVICES
PARK INN
-10% on all F&B outlets
RADISSON
-10% on all published Retail Room rates
AIRPORT HOTEL
-10% on all F&B outlets
CRESCENT BEACH HOTEL
-10% on accommodation
-10% on F&B
WICKLOW CORPORATE SERVICES
-5% discount on hourly fee rates
PURPLE CREATIVE AGENCY
-20% on all creative services
MOZAIK
-10% on all products
BAKER & PARTNERS
-up to 25% on various services
CROWN HOTEL
-10% on all Conference Rooms
-15% on Fitness & Leisure Center
-10% on all F&B restaurants
SEABAK
-up to 10% on onsite helpdesk
-up to 15% on remote administration
LUFTHANSA
-up to 7% on tickets
LANGUAGE SERVICES DIRECT
-5 % on all services
ATA HOLDING
-15% on all types of insurance
A GROUP INSURANCE
-15% on all types of insurance
INDIAN CLINIC
-15% on medical of services
PRODUCTS AND SERVICES
AZEL
-up to 10%
3M
- 10% on following 3M products:
Visuals; Construction;
Stationary
OFFICE SYSTEMS
-20% on hard furniture
-15% on all office chairs
CONSTRUCTION
ALTES GROUP
-5% on all apartments
INTERNATIONAL
63