Identifier
Created
Classification
Origin
06BAKU1395
2006-09-22 12:44:00
CONFIDENTIAL
Embassy Baku
Cable title:
AZERBAIJAN: TDA VISIT/PROGRESS ON ECONOMIC
how-toVZCZCXRO7258 RR RUEHDBU DE RUEHKB #1395/01 2651244 ZNY CCCCC ZZH R 221244Z SEP 06 FM AMEMBASSY BAKU TO RUEHC/SECSTATE WASHDC 1302 INFO RUCNCIS/CIS COLLECTIVE RUEHAK/AMEMBASSY ANKARA 1725 RUEHGV/USMISSION GENEVA SZ 0190 RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHDC RHMFISS/CDR USEUCOM VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 03 BAKU 001395
SIPDIS
SIPDIS
DEPT PLEASE PASS TO USTDA DAN STEIN
GENEVA FOR AMBASSADOR ALLGEIER
E.O. 12958: DECL: 09/22/2016
TAGS: ECON EFIN ETRD EPET ENRG PREL AJ
SUBJECT: AZERBAIJAN: TDA VISIT/PROGRESS ON ECONOMIC
DEVELOPMENT PROJECTS
Classified By: AMBASSADOR ANNE E. DERSE, PER REASONS 1.4 (B, D)
C O N F I D E N T I A L SECTION 01 OF 03 BAKU 001395
SIPDIS
SIPDIS
DEPT PLEASE PASS TO USTDA DAN STEIN
GENEVA FOR AMBASSADOR ALLGEIER
E.O. 12958: DECL: 09/22/2016
TAGS: ECON EFIN ETRD EPET ENRG PREL AJ
SUBJECT: AZERBAIJAN: TDA VISIT/PROGRESS ON ECONOMIC
DEVELOPMENT PROJECTS
Classified By: AMBASSADOR ANNE E. DERSE, PER REASONS 1.4 (B, D)
1. (C) SUMMARY: In meetings with the Executive Director of
the State Oil Fund Shahmar Movsumov, Minister of Finance
Samir Sharifov and the Chairman of the State Protection Fund
over the course of his visit to Azerbaijan September 10-13,
Trade and Development Agency Regional Director Dan Stein
discussed current and proposed TDA technical assistance
projects. All of the Government of Azerbaijan (GOAJ)
interlocutors welcomed additional TDA projects, noting the
value of the assistance and professionalism of TDA
contractors. As a result of the visit, TDA plans to review
Phase II of its project with the State Oil Fund and will
examine the possibility of assisting the State Protection
Fund with its new project to develop individual pension
retirement accounts linked to the Oil Fund. Minister
Sharifov again urged U.S. engagement with the Government of
Turkey to advance the discussions regarding a transit
agreement for Azerbaijani gas to Europe. END SUMMARY.
OIL FUND TDA PHASE I AND II
--------------
2. (C) In a meeting with Oil Fund Executive Director Shahmar
Movsumov on September 11, Stein discussed with Movsumov the
conclusions reached in TDA's Phase I technical assistance at
the Oil Fund and the terms of reference for beginning Phase
II. Movsumov highlighted the benefits of TDA assistance,
noting that TDA's technical assistance project Phase I had
been extremely productive and "built a sound foundation for
the fund's future asset management." (NOTE: As part of Phase
I and Phase II, U.S. asset management company Overture
Financial provided technical asset management assistance.)
3. (C) Regarding Phase II, Movsumov stated that the Oil Fund
wanted to move forward, adding that the World Bank Treasury
would provide Reserve Asset Management Process technical
assistance with the Oil Fund's asset allocation as part of
the project. Movsumov explained that at his previous job as
Director General of the National Bank, the National Bank had
also worked successfully with the World Bank in asset
management assistance. Stein told Movsumov that Overture
would also be able to provide similar asset management
services for the Oil Fund if it wished.
MINISTER OF FINANCE
--------------
4. (C) In a meeting with Ambassador and Stein on September
12, Minister of Finance Samir Sharifov praised TDA and U.S.
technical assistance to the State Oil Fund. In addition,
Sharifov reiterated that the GOAJ and Oil Fund are "ready to
move forward" with Phase II. Sharifov, who was the Executive
Director of the Oil Fund prior to being appointed as Minister
of Finance, has an excellent working knowledge of the Oil
Fund and TDA's technical assistance project. Regarding the
Oil Fund's agreement with the World Bank Treasury to provide
asset management assistance, Sharifov said that the Oil Fund
was aware of "TDA's financial constraints" and sought a
"contingency plan." Sharifov explained that the World Bank
Treasury would manage USD 200 million of the Oil Fund assets
and in turn provide asset management assistance. Sharifov
told Stein that TDA's projects are assisting many U.S.
companies, including Overture and Bank of New York, as the
Oil Fund's custodian.
5. (C) Sharifov indicated that he had heard the World Bank
and its current international lending strategy was "crowding
out" many financial institutions globally, including possibly
in Azerbaijan. He continued that there were fewer and fewer
countries to which the Bank could lend money and its current
operations were competing with the private sector. Sharifov
also said that World Bank loans are useful due to the
conditionality that improves corporate governance in
state-owned institutions.
6. (C) Minister Sharifov agreed that it is important to
elevate the U.S.-Azerbaijan economic dialogue through a new
Economic Partnership Commission. Sharifov indicated that he
is interested in seeing the proposed agenda, which the
Ambassador told him would be ready shortly. In addition,
Sharifov told the Ambassador that Moody's would publish a new
Azerbaijan sovereign debt rating (the country's second debt
BAKU 00001395 002 OF 003
rating) this week. Based on the rating, the GOAJ would
decide whether to float a bond issue in 2006 or later in 2007.
INDIVIDUAL RETIREMENT ACCOUNTS
--------------
7. (C) Stein asked Minister Sharifov about the GOAJ's plans
to link individual citizen pension retirement accounts to the
Oil Fund. Sharifov said that the Chairman of the State
Protection Fund was leading the initiative, along with the
Ministry of Finance and Oil Fund. Sharifov said that
Overture, the Oil Fund consultant, had already had
discussions with the State Protection Fund about the project,
adding that the GOAJ would consider co-financing a
feasibility study for the project. Minister Sharifov told
Stein that he should meet with Chairman Muslumov at the State
Protection Fund and instructed an aide to arrange a meeting
that afternoon. Sharifov said that the GOAJ wanted to create
a system to develop individual retirement accounts for
Azerbaijani citizens linked to the Oil Fund.
8. (C) During their meeting, Social Protection Fund Chairman
Muslumov explained to Stein that the GOAJ is considering
creating two sub-accounts for Azerbaijani nationals at the
State Protection Fund. One pension account would accumulate
social security contributions and the other "virtual" pension
account would be linked to an account at the State Oil Fund.
The goal was to have this system developed and implemented
prior to the 2008 presidential elections. The system would
also be beneficial in controlling GOAJ access to Oil Fund
assets, by allocating them to individual accounts while
maintaining the money at the Oil Fund. Muslumov stated that
many details of the proposal still need to be studied. He
indicated that he would formally request from TDA assistance
in funding part of the feasibility study and that he had USD
1.2 million budgeted to pay for the study. Stein said that
he was encouraged with the project, noting its macroeconomic
benefits, and upon receipt of the Social Protection Fund's
request, would study the proposal. Embassy will follow-up
with the Social Protection Fund regarding the request and
provide any additional assistance.
NEW PETROCHEMICAL PLANT
--------------
9. (C) Sharifov told Stein that the GOAJ had commissioned a
feasibility study with an unnamed U.S. company to examine the
possibility of building a gas-powered petrochemical plant in
Sumgayit or near the Sangachal terminal south of Baku. He
explained that the GOAJ would not directly fund the project
but rather the GOAJ would use financing from the State
Investment Fund and international borrowers to provide the
costs associated with the project.
SOCAR REORGANIZATION PROJECT FINANCING
--------------
10. (C) Sharifov told Stein that SOCAR was likely to pre-pay
the USD 150 million EBRD loan that was part of the TDA SOCAR
restructuring project Phase I (details of Stein's meeting
with SOCAR President Abdullayev septel). Sharifov indicated
that SOCAR had implemented some of the recommendations from
Phase I and was interested in continuing its reorganization
process, including the option of co-financing with TDA the
next phase. EBRD's local representative, Raymond Conway,
told Stein in a separate meeting that SOCAR planned to pay
back the loan early, incurring "penalties" that could total
USD 300,000. Conway was dismayed at SOCAR's insistence on
pre-paying the loan since EBRD had been interested in
restructuring the loan to SOCAR's benefit.
GOAJ WTO ADVISOR
--------------
11. (C) Noting that he wanted to be clear on this point,
Minister Sharifov reiterated the GOAJ's strategic goal of
joining the World Trade Organization. That said, he stressed
that Azerbaijan needed to take a different approach, i.e.,
strengthening certain sectors of the economy before joining.
The Ambassador told Sharifov that the current U.S. Ambassador
to the WTO Peter Allgeier will visit Baku in October and meet
with government officials to discuss WTO membership and
methods other countries use to reform various sectors in
BAKU 00001395 003 OF 003
preparation for WTO accession. Sharifov noted that the GOAJ
was already modernizing and reforming the economy
step-by-step, citing the new law on insurance and the
liberalization of the banking sector. (NOTE: Minister
Sharifov has always been cautious on WTO accession
understanding the fundamental weaknesses of the economy and
its overreliance on energy exports.)
TRANS-CASPIAN PIPELINE & TRANSIT AGREEMENT WITH TURKEY
-------------- --------------
12. (C) Stein told Minister Sharifov that TDA was planning to
move forward with a trans-Caspian pipeline feasibility study
that would be directly awarded to a U.S. company. Sharifov
was pleased with the news of the study. Turning to the
transit agreement with Turkey, Minister Sharifov raised again
the need for U.S. engagement in the effort to obtain an
agreement to conduct a technical survey of the Turkish gas
grid and also draft the legal transit agreement by providing
technical assistance to Azerbaijan which the GOAJ is willing
to co-finance. He stated that the current discussions are
going "nowhere" at the moment and noted that Turkey must
understand that the transit agreement has full U.S. support.
He disagreed with Minister of Industry and Energy Aliyev's
proposal to organize a multi-country working group that
included BP and Statoil, noting that the companies had their
own commercial biases. Sharifov said that the GOAJ was ready
to co-finance any assistance or studies that would lead to
obtaining a transit agreement with Turkey.
MINISTER OF CULTURE SEEKS FURTHER COOPERATION WITH TDA
-------------- --------------
13. (SBU) In a September 15 meeting with the Minister of
Culture and Tourism, Stein reviewed with the minister
cooperation to date in the tourism sector. The minister
asked Stein to consider new TDA projects, including one to
provide expert advice on developing Azerbaijan's cinema
business, which he emphasized would promote the use of
exclusively licensed films, and a follow-on tourism study
looking at one region of Azerbaijan. Stein said he would
study these requests.
DERSE
SIPDIS
SIPDIS
DEPT PLEASE PASS TO USTDA DAN STEIN
GENEVA FOR AMBASSADOR ALLGEIER
E.O. 12958: DECL: 09/22/2016
TAGS: ECON EFIN ETRD EPET ENRG PREL AJ
SUBJECT: AZERBAIJAN: TDA VISIT/PROGRESS ON ECONOMIC
DEVELOPMENT PROJECTS
Classified By: AMBASSADOR ANNE E. DERSE, PER REASONS 1.4 (B, D)
1. (C) SUMMARY: In meetings with the Executive Director of
the State Oil Fund Shahmar Movsumov, Minister of Finance
Samir Sharifov and the Chairman of the State Protection Fund
over the course of his visit to Azerbaijan September 10-13,
Trade and Development Agency Regional Director Dan Stein
discussed current and proposed TDA technical assistance
projects. All of the Government of Azerbaijan (GOAJ)
interlocutors welcomed additional TDA projects, noting the
value of the assistance and professionalism of TDA
contractors. As a result of the visit, TDA plans to review
Phase II of its project with the State Oil Fund and will
examine the possibility of assisting the State Protection
Fund with its new project to develop individual pension
retirement accounts linked to the Oil Fund. Minister
Sharifov again urged U.S. engagement with the Government of
Turkey to advance the discussions regarding a transit
agreement for Azerbaijani gas to Europe. END SUMMARY.
OIL FUND TDA PHASE I AND II
--------------
2. (C) In a meeting with Oil Fund Executive Director Shahmar
Movsumov on September 11, Stein discussed with Movsumov the
conclusions reached in TDA's Phase I technical assistance at
the Oil Fund and the terms of reference for beginning Phase
II. Movsumov highlighted the benefits of TDA assistance,
noting that TDA's technical assistance project Phase I had
been extremely productive and "built a sound foundation for
the fund's future asset management." (NOTE: As part of Phase
I and Phase II, U.S. asset management company Overture
Financial provided technical asset management assistance.)
3. (C) Regarding Phase II, Movsumov stated that the Oil Fund
wanted to move forward, adding that the World Bank Treasury
would provide Reserve Asset Management Process technical
assistance with the Oil Fund's asset allocation as part of
the project. Movsumov explained that at his previous job as
Director General of the National Bank, the National Bank had
also worked successfully with the World Bank in asset
management assistance. Stein told Movsumov that Overture
would also be able to provide similar asset management
services for the Oil Fund if it wished.
MINISTER OF FINANCE
--------------
4. (C) In a meeting with Ambassador and Stein on September
12, Minister of Finance Samir Sharifov praised TDA and U.S.
technical assistance to the State Oil Fund. In addition,
Sharifov reiterated that the GOAJ and Oil Fund are "ready to
move forward" with Phase II. Sharifov, who was the Executive
Director of the Oil Fund prior to being appointed as Minister
of Finance, has an excellent working knowledge of the Oil
Fund and TDA's technical assistance project. Regarding the
Oil Fund's agreement with the World Bank Treasury to provide
asset management assistance, Sharifov said that the Oil Fund
was aware of "TDA's financial constraints" and sought a
"contingency plan." Sharifov explained that the World Bank
Treasury would manage USD 200 million of the Oil Fund assets
and in turn provide asset management assistance. Sharifov
told Stein that TDA's projects are assisting many U.S.
companies, including Overture and Bank of New York, as the
Oil Fund's custodian.
5. (C) Sharifov indicated that he had heard the World Bank
and its current international lending strategy was "crowding
out" many financial institutions globally, including possibly
in Azerbaijan. He continued that there were fewer and fewer
countries to which the Bank could lend money and its current
operations were competing with the private sector. Sharifov
also said that World Bank loans are useful due to the
conditionality that improves corporate governance in
state-owned institutions.
6. (C) Minister Sharifov agreed that it is important to
elevate the U.S.-Azerbaijan economic dialogue through a new
Economic Partnership Commission. Sharifov indicated that he
is interested in seeing the proposed agenda, which the
Ambassador told him would be ready shortly. In addition,
Sharifov told the Ambassador that Moody's would publish a new
Azerbaijan sovereign debt rating (the country's second debt
BAKU 00001395 002 OF 003
rating) this week. Based on the rating, the GOAJ would
decide whether to float a bond issue in 2006 or later in 2007.
INDIVIDUAL RETIREMENT ACCOUNTS
--------------
7. (C) Stein asked Minister Sharifov about the GOAJ's plans
to link individual citizen pension retirement accounts to the
Oil Fund. Sharifov said that the Chairman of the State
Protection Fund was leading the initiative, along with the
Ministry of Finance and Oil Fund. Sharifov said that
Overture, the Oil Fund consultant, had already had
discussions with the State Protection Fund about the project,
adding that the GOAJ would consider co-financing a
feasibility study for the project. Minister Sharifov told
Stein that he should meet with Chairman Muslumov at the State
Protection Fund and instructed an aide to arrange a meeting
that afternoon. Sharifov said that the GOAJ wanted to create
a system to develop individual retirement accounts for
Azerbaijani citizens linked to the Oil Fund.
8. (C) During their meeting, Social Protection Fund Chairman
Muslumov explained to Stein that the GOAJ is considering
creating two sub-accounts for Azerbaijani nationals at the
State Protection Fund. One pension account would accumulate
social security contributions and the other "virtual" pension
account would be linked to an account at the State Oil Fund.
The goal was to have this system developed and implemented
prior to the 2008 presidential elections. The system would
also be beneficial in controlling GOAJ access to Oil Fund
assets, by allocating them to individual accounts while
maintaining the money at the Oil Fund. Muslumov stated that
many details of the proposal still need to be studied. He
indicated that he would formally request from TDA assistance
in funding part of the feasibility study and that he had USD
1.2 million budgeted to pay for the study. Stein said that
he was encouraged with the project, noting its macroeconomic
benefits, and upon receipt of the Social Protection Fund's
request, would study the proposal. Embassy will follow-up
with the Social Protection Fund regarding the request and
provide any additional assistance.
NEW PETROCHEMICAL PLANT
--------------
9. (C) Sharifov told Stein that the GOAJ had commissioned a
feasibility study with an unnamed U.S. company to examine the
possibility of building a gas-powered petrochemical plant in
Sumgayit or near the Sangachal terminal south of Baku. He
explained that the GOAJ would not directly fund the project
but rather the GOAJ would use financing from the State
Investment Fund and international borrowers to provide the
costs associated with the project.
SOCAR REORGANIZATION PROJECT FINANCING
--------------
10. (C) Sharifov told Stein that SOCAR was likely to pre-pay
the USD 150 million EBRD loan that was part of the TDA SOCAR
restructuring project Phase I (details of Stein's meeting
with SOCAR President Abdullayev septel). Sharifov indicated
that SOCAR had implemented some of the recommendations from
Phase I and was interested in continuing its reorganization
process, including the option of co-financing with TDA the
next phase. EBRD's local representative, Raymond Conway,
told Stein in a separate meeting that SOCAR planned to pay
back the loan early, incurring "penalties" that could total
USD 300,000. Conway was dismayed at SOCAR's insistence on
pre-paying the loan since EBRD had been interested in
restructuring the loan to SOCAR's benefit.
GOAJ WTO ADVISOR
--------------
11. (C) Noting that he wanted to be clear on this point,
Minister Sharifov reiterated the GOAJ's strategic goal of
joining the World Trade Organization. That said, he stressed
that Azerbaijan needed to take a different approach, i.e.,
strengthening certain sectors of the economy before joining.
The Ambassador told Sharifov that the current U.S. Ambassador
to the WTO Peter Allgeier will visit Baku in October and meet
with government officials to discuss WTO membership and
methods other countries use to reform various sectors in
BAKU 00001395 003 OF 003
preparation for WTO accession. Sharifov noted that the GOAJ
was already modernizing and reforming the economy
step-by-step, citing the new law on insurance and the
liberalization of the banking sector. (NOTE: Minister
Sharifov has always been cautious on WTO accession
understanding the fundamental weaknesses of the economy and
its overreliance on energy exports.)
TRANS-CASPIAN PIPELINE & TRANSIT AGREEMENT WITH TURKEY
-------------- --------------
12. (C) Stein told Minister Sharifov that TDA was planning to
move forward with a trans-Caspian pipeline feasibility study
that would be directly awarded to a U.S. company. Sharifov
was pleased with the news of the study. Turning to the
transit agreement with Turkey, Minister Sharifov raised again
the need for U.S. engagement in the effort to obtain an
agreement to conduct a technical survey of the Turkish gas
grid and also draft the legal transit agreement by providing
technical assistance to Azerbaijan which the GOAJ is willing
to co-finance. He stated that the current discussions are
going "nowhere" at the moment and noted that Turkey must
understand that the transit agreement has full U.S. support.
He disagreed with Minister of Industry and Energy Aliyev's
proposal to organize a multi-country working group that
included BP and Statoil, noting that the companies had their
own commercial biases. Sharifov said that the GOAJ was ready
to co-finance any assistance or studies that would lead to
obtaining a transit agreement with Turkey.
MINISTER OF CULTURE SEEKS FURTHER COOPERATION WITH TDA
-------------- --------------
13. (SBU) In a September 15 meeting with the Minister of
Culture and Tourism, Stein reviewed with the minister
cooperation to date in the tourism sector. The minister
asked Stein to consider new TDA projects, including one to
provide expert advice on developing Azerbaijan's cinema
business, which he emphasized would promote the use of
exclusively licensed films, and a follow-on tourism study
looking at one region of Azerbaijan. Stein said he would
study these requests.
DERSE