Identifier
Created
Classification
Origin
06BAKU218
2006-02-14 13:39:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Baku
Cable title:
AZERBAIJAN: AMBASSADOR DISCUSSES UPCOMING CAS
how-toVZCZCXRO6540 RR RUEHDBU RUEHLN RUEHVK RUEHYG DE RUEHKB #0218/01 0451339 ZNR UUUUU ZZH R 141339Z FEB 06 FM AMEMBASSY BAKU TO RUEHC/SECSTATE WASHDC 9601 INFO RUCNCIS/CIS COLLECTIVE RUEHAK/AMEMBASSY ANKARA 1471 RUEAIIA/CIA WASHINGTON DC RUCPDOC/DEPT OF COMMERCE WASHDC RUEHRC/DEPT OF AGRICULTURE WASHDC RHEBAAA/DEPT OF ENERGY WASHDC RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 03 BAKU 000218
SIPDIS
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ENRG EAID PREL PGOV ADB IBRD AJ
SUBJECT: AZERBAIJAN: AMBASSADOR DISCUSSES UPCOMING CAS
DRAFT WITH WORLD BANK MISSION
REF: STATE 5622
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION -
HANDLE ACCORDINGLY.
UNCLAS SECTION 01 OF 03 BAKU 000218
SIPDIS
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ENRG EAID PREL PGOV ADB IBRD AJ
SUBJECT: AZERBAIJAN: AMBASSADOR DISCUSSES UPCOMING CAS
DRAFT WITH WORLD BANK MISSION
REF: STATE 5622
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION -
HANDLE ACCORDINGLY.
1. (SBU) SUMMARY: According to the World Bank mission, the
Country Assistance Strategy (CAS) for Azerbaijan will focus
upon the goals and projects outlined in the April 2005
Poverty Reduction Support Credit agreement between the GOAJ
and the World Bank. According to the Bank mission, the total
lending envelope for all investment projects in Azerbaijan
will total approximately USD 1 billion, of which a yet
undetermined amount of funding would come from the
International Development Association for health, education,
and social projects. The draft CAS envisions 100 percent of
the lending to Azerbaijan be for "investment projects." The
mission broadly outlined its goals which includes focusing on
improving government accountability, reforms in the utility
and transportation sectors, and agricultural and rural
development. END SUMMARY.
2. (SBU) On February 3 Ambassador Harnish met with World Bank
lead economist for the South Caucasus, Christian Petersen,
and other members of the visiting Work Bank mission to
discuss the draft Azerbaijan Country Assistance Strategy
(CAS) for 2005-2009. The World Bank mission emphasized its
desire to cooperate on the planning of the CAS with the U.S.
mission, and especially USAID, to ensure that Bank and USAID
projects complement one another. USAID Country Coordinator
told the team that USAID plans to liaise closely with the
Bank team during its visit and would provide additional
details on proposed USAID projects and the focus areas of
U.S. assistance. The team noted that the Azerbaijan CAS will
be presented to the World Bank Board in May 2006.
General Outline of Draft CAS
--------------
3. (SBU) Petersen told Ambassador Harnish that the CAS draft
will focus on supporting the current reforms outlined in the
April 2005 Poverty Reduction Support Credit agreement between
the World Bank and Azerbaijan. Overall, U.S. assistance to
Azerbaijan complements most of the policy areas within the
Policy Framework Matrix of the Poverty Reduction Support
Credit plan. Petersen told the Ambassador that the CAS,s
total lending envelope for all investment projects would
total approximately USD 1 billion. Of the USD 1 billion, a
yet undetermined amount of funding would come from the
International Development Association for health, education,
and social projects. Ambassador Harnish emphasized the need
to maintain IDA funding, particularly for health projects in
Azerbaijan, past 2007 when it would end. According to
Petersen, the draft CAS envisions 100 percent of the lending
to Azerbaijan will be for "investment projects."
Corporate Governance and Accounting
--------------
4. (SBU) Petersen outlined to Ambassador Harnish the Bank,s
interest in working with the Ministry of Finance to improve
Azerbaijan,s corporate governance and accounting. This
project would work to implement international financial
reporting standards for larger commercial entities,
particularly the large state-owned entities. It also will
focus on implementing public sector accounting standards and
will create endowments or faculties at local universities to
train new accountants. The project would also support
internal controls within the GOAJ and strengthen the Chamber
of Accounts (the government auditor).
5. (SBU) The U.S. is working in partnership with the World
Bank to develop and install a Treasury Information System at
the Ministry of Finance. The U.S. is funding the development
of the TIMS software and the World Bank is handling the
procurement of the hardware. The U.S. and the World Bank
also maintain close coordination to improve public sector
accounting, macroeconomic modeling capacity and economic
policy coordination of the GOAJ. In other areas the U.S. is
working in parallel with the World Bank such as in the area
of protection against unfair competition. The World Bank
assisted in the development of a new anti-monopoly law and
the U.S. is providing training. Similarly, the U.S. is
providing support to the National Bank of Azerbaijan to
improve its supervision and monetary functions and develop
BAKU 00000218 002 OF 003
its legal and regulatory framework as outlined in World Bank
and IMF recommendations.
6. (SBU) The World Bank team briefed on its judicial reform
project, which was shaped with active engagement by Embassy
officers, scheduled for June 2006. The World Bank had
originally planned to focus on other areas of judicial reform
but revised its approach after discussing GOAJ needs with
Embassy officers. The Project envisions creating greater
citizen access to the judicial branch through the development
of a legal resource center and attorney client consultation
rooms. The project also develops greater institutional
transparency with the creation of a case assignment and
management system and a system to begin recording and
transcribing judicial proceedings. The project would also
build capacity at the Ministry of Justice by modernizing
judicial buildings and assisting with training of new and
existing judges.
State Program on Communications and Information Technology
-------------- --------------
7. (SBU) The Bank,s approach in the communication and IT
field includes a project to promote e-government, expand
Internet access throughout Azerbaijan,s schools and
universities. In addition, the project would increase
Internet and information technology knowledge among youth.
Tariff Council - Moving Along
--------------
8. (SBU) Regarding the Azerbaijani Tariff Council, Petersen
noted that the GOAJ,s efforts to strengthen its mandate as
positive, despite disappointment that the GOAJ had decided
not to move forward with its commitment to implement an
independent regulator. Citing as an example of the
council,s increased independence, Petersen noted that it had
decided to double the price of diesel from 900 manats a liter
(19 cents) to 1,800 manats (39 cents) in early January 2006.
Petersen noted that the council is creating a 20-person
secretariat to assist with the council's work. The Ministry
SIPDIS
of Economic Development has told the World Bank that it plans
to develop the Tariff Council secretariat eventually into a
permanent regulatory body. The World Bank team lamented the
lack of additional funding to PA Consulting,s contract to
build an energy regulator, citing PA,s work as extremely
useful.
Transportation Sector
--------------
9. (SBU) The World Bank envisions focusing upon improving
Azerbaijan,s transportation infrastructure, including
projects to construct roads and upgrade the railroad system.
Agriculture and Rural Development Sector
--------------
10. (SBU) Petersen told Ambassador Harnish that the Bank
plans to continue with the Agriculture Credit Development
Program, improve Azerbaijan,s veterinary services, bolster
its capacity to respond to crises, such as avian influenza,
continue to fund farm and cooperative financing and fund
rural development irrigation projects. Petersen said that
the GOAJ had decided to support the development of a unified
land registry after the GOAJ,s decision to combine the two
national land registries into a single registry.
11. (SBU) U.S. assistance is active is the commercial
agriculture sector with projects focusing on improving the
business practices of processors and exporters and bringing
farmers more into the marketing chain. An area where the
World Bank could support U.S. assistance projects is with
agricultural sector policy reform, focusing upon creating a
more market-oriented sector and financing improvements to the
physical infrastructure (road construction, etc.).
GOAJ,s Public Equity Fund
--------------
12. (SBU) The World Bank team discussed the use of investment
and loan funds by the GOAJ which are distorting certain
sectors of the economy. In 2006, the GOAJ plans to spend USD
80 million in equity investments to help enterprises get
BAKU 00000218 003 OF 003
established and grow. The GOAJ is also funding an
Entrepreneurship Fund with USD 100 million for subsidized
lending. The Bank questions the manner in which the GOAJ
will select projects and set interest rates. Bank economists
opined that the GOAJ has recognized the investment weakness
of the banking sector and is stepping in to provide financing
in rural areas to improve rural industry. The Bank team
noted that the business climate in Azerbaijan has worsened
since 2002 and the team did not support the GOAJ investment
and loan funds. The Bank also is hoping to provide some
professional management oversight of the funds through IFC.
Utility Sector
--------------
13. (SBU) Petersen told the Ambassador that based upon
previous difficulty working with the GOAJ on water projects,
future water projects may not be included in the CAS.
Petersen cited the USD 50 million water project which the
GOAJ canceled days prior to beginning final negotiations.
The GOAJ informed the Bank that it no longer needed the money
and would fund the project from its budget. Petersen
indicated that the Bank would like to replicate the Asian
Development Bank,s "City,s Development Strategy" program to
provide urban planning assistance to develop specific
Azerbaijani cities.
14. (SBU) On the energy side, Petersen said that the Bank has
discussed projects with the Ministry of Energy focusing on
improving storage facilities, treating natural gas (NOTE: 60
percent of Azerbaijan,s gas goes untreated into its
pipelines),and rehabilitating pipelines (including gas
leakage prevention). The Bank said it would use "carbon
lending" with the energy projects to raise the GOAJ,s
awareness of environmental costs and externalities to ensure
environmentally sound projects.
Health and Human Development
--------------
15. (SBU) Petersen said that hopefully the Bank,s health
project will go to the Board by June 2006 (and thus ensure
IDA financing). In addition, the Bank looks to focus upon
tertiary educational issues. The U.S. is currently funding a
Primary Health Care (PHC) Strengthening project in Azerbaijan
which was designed to collaborate with a World Bank funded
health project that deals with primary health care. Although
the GOAJ has not yet approved the World Bank loan terms, the
new Minister of Health is actively engaged in designing the
World Bank health project with technical assistance from the
USAID/PHC Strengthening project.
16. (SBU) USAID/PHC Strengthening project will work in the
same pilot regions as the World Bank health project. Loan
funds will be used to procure medical equipment and for
clinic renovations. In these pilot sites, the USAID/PHC
Strengthening project will provide technical assistance on
resource management, implementation of PHC services, quality
of care, and health promotion and communication. At the
policy level the USAID/PHC Strengthening project is providing
technical assistance to the MOH as they work to determine the
scope of PHC services and the structure of PHC system. These
goals are shared by the World Bank health team. Furthermore,
the USAID/PHC Strengthening project will participate with
World Bank Health Appraisal Team expected in March 2006.
HARNISH
SIPDIS
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ENRG EAID PREL PGOV ADB IBRD AJ
SUBJECT: AZERBAIJAN: AMBASSADOR DISCUSSES UPCOMING CAS
DRAFT WITH WORLD BANK MISSION
REF: STATE 5622
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION -
HANDLE ACCORDINGLY.
1. (SBU) SUMMARY: According to the World Bank mission, the
Country Assistance Strategy (CAS) for Azerbaijan will focus
upon the goals and projects outlined in the April 2005
Poverty Reduction Support Credit agreement between the GOAJ
and the World Bank. According to the Bank mission, the total
lending envelope for all investment projects in Azerbaijan
will total approximately USD 1 billion, of which a yet
undetermined amount of funding would come from the
International Development Association for health, education,
and social projects. The draft CAS envisions 100 percent of
the lending to Azerbaijan be for "investment projects." The
mission broadly outlined its goals which includes focusing on
improving government accountability, reforms in the utility
and transportation sectors, and agricultural and rural
development. END SUMMARY.
2. (SBU) On February 3 Ambassador Harnish met with World Bank
lead economist for the South Caucasus, Christian Petersen,
and other members of the visiting Work Bank mission to
discuss the draft Azerbaijan Country Assistance Strategy
(CAS) for 2005-2009. The World Bank mission emphasized its
desire to cooperate on the planning of the CAS with the U.S.
mission, and especially USAID, to ensure that Bank and USAID
projects complement one another. USAID Country Coordinator
told the team that USAID plans to liaise closely with the
Bank team during its visit and would provide additional
details on proposed USAID projects and the focus areas of
U.S. assistance. The team noted that the Azerbaijan CAS will
be presented to the World Bank Board in May 2006.
General Outline of Draft CAS
--------------
3. (SBU) Petersen told Ambassador Harnish that the CAS draft
will focus on supporting the current reforms outlined in the
April 2005 Poverty Reduction Support Credit agreement between
the World Bank and Azerbaijan. Overall, U.S. assistance to
Azerbaijan complements most of the policy areas within the
Policy Framework Matrix of the Poverty Reduction Support
Credit plan. Petersen told the Ambassador that the CAS,s
total lending envelope for all investment projects would
total approximately USD 1 billion. Of the USD 1 billion, a
yet undetermined amount of funding would come from the
International Development Association for health, education,
and social projects. Ambassador Harnish emphasized the need
to maintain IDA funding, particularly for health projects in
Azerbaijan, past 2007 when it would end. According to
Petersen, the draft CAS envisions 100 percent of the lending
to Azerbaijan will be for "investment projects."
Corporate Governance and Accounting
--------------
4. (SBU) Petersen outlined to Ambassador Harnish the Bank,s
interest in working with the Ministry of Finance to improve
Azerbaijan,s corporate governance and accounting. This
project would work to implement international financial
reporting standards for larger commercial entities,
particularly the large state-owned entities. It also will
focus on implementing public sector accounting standards and
will create endowments or faculties at local universities to
train new accountants. The project would also support
internal controls within the GOAJ and strengthen the Chamber
of Accounts (the government auditor).
5. (SBU) The U.S. is working in partnership with the World
Bank to develop and install a Treasury Information System at
the Ministry of Finance. The U.S. is funding the development
of the TIMS software and the World Bank is handling the
procurement of the hardware. The U.S. and the World Bank
also maintain close coordination to improve public sector
accounting, macroeconomic modeling capacity and economic
policy coordination of the GOAJ. In other areas the U.S. is
working in parallel with the World Bank such as in the area
of protection against unfair competition. The World Bank
assisted in the development of a new anti-monopoly law and
the U.S. is providing training. Similarly, the U.S. is
providing support to the National Bank of Azerbaijan to
improve its supervision and monetary functions and develop
BAKU 00000218 002 OF 003
its legal and regulatory framework as outlined in World Bank
and IMF recommendations.
6. (SBU) The World Bank team briefed on its judicial reform
project, which was shaped with active engagement by Embassy
officers, scheduled for June 2006. The World Bank had
originally planned to focus on other areas of judicial reform
but revised its approach after discussing GOAJ needs with
Embassy officers. The Project envisions creating greater
citizen access to the judicial branch through the development
of a legal resource center and attorney client consultation
rooms. The project also develops greater institutional
transparency with the creation of a case assignment and
management system and a system to begin recording and
transcribing judicial proceedings. The project would also
build capacity at the Ministry of Justice by modernizing
judicial buildings and assisting with training of new and
existing judges.
State Program on Communications and Information Technology
-------------- --------------
7. (SBU) The Bank,s approach in the communication and IT
field includes a project to promote e-government, expand
Internet access throughout Azerbaijan,s schools and
universities. In addition, the project would increase
Internet and information technology knowledge among youth.
Tariff Council - Moving Along
--------------
8. (SBU) Regarding the Azerbaijani Tariff Council, Petersen
noted that the GOAJ,s efforts to strengthen its mandate as
positive, despite disappointment that the GOAJ had decided
not to move forward with its commitment to implement an
independent regulator. Citing as an example of the
council,s increased independence, Petersen noted that it had
decided to double the price of diesel from 900 manats a liter
(19 cents) to 1,800 manats (39 cents) in early January 2006.
Petersen noted that the council is creating a 20-person
secretariat to assist with the council's work. The Ministry
SIPDIS
of Economic Development has told the World Bank that it plans
to develop the Tariff Council secretariat eventually into a
permanent regulatory body. The World Bank team lamented the
lack of additional funding to PA Consulting,s contract to
build an energy regulator, citing PA,s work as extremely
useful.
Transportation Sector
--------------
9. (SBU) The World Bank envisions focusing upon improving
Azerbaijan,s transportation infrastructure, including
projects to construct roads and upgrade the railroad system.
Agriculture and Rural Development Sector
--------------
10. (SBU) Petersen told Ambassador Harnish that the Bank
plans to continue with the Agriculture Credit Development
Program, improve Azerbaijan,s veterinary services, bolster
its capacity to respond to crises, such as avian influenza,
continue to fund farm and cooperative financing and fund
rural development irrigation projects. Petersen said that
the GOAJ had decided to support the development of a unified
land registry after the GOAJ,s decision to combine the two
national land registries into a single registry.
11. (SBU) U.S. assistance is active is the commercial
agriculture sector with projects focusing on improving the
business practices of processors and exporters and bringing
farmers more into the marketing chain. An area where the
World Bank could support U.S. assistance projects is with
agricultural sector policy reform, focusing upon creating a
more market-oriented sector and financing improvements to the
physical infrastructure (road construction, etc.).
GOAJ,s Public Equity Fund
--------------
12. (SBU) The World Bank team discussed the use of investment
and loan funds by the GOAJ which are distorting certain
sectors of the economy. In 2006, the GOAJ plans to spend USD
80 million in equity investments to help enterprises get
BAKU 00000218 003 OF 003
established and grow. The GOAJ is also funding an
Entrepreneurship Fund with USD 100 million for subsidized
lending. The Bank questions the manner in which the GOAJ
will select projects and set interest rates. Bank economists
opined that the GOAJ has recognized the investment weakness
of the banking sector and is stepping in to provide financing
in rural areas to improve rural industry. The Bank team
noted that the business climate in Azerbaijan has worsened
since 2002 and the team did not support the GOAJ investment
and loan funds. The Bank also is hoping to provide some
professional management oversight of the funds through IFC.
Utility Sector
--------------
13. (SBU) Petersen told the Ambassador that based upon
previous difficulty working with the GOAJ on water projects,
future water projects may not be included in the CAS.
Petersen cited the USD 50 million water project which the
GOAJ canceled days prior to beginning final negotiations.
The GOAJ informed the Bank that it no longer needed the money
and would fund the project from its budget. Petersen
indicated that the Bank would like to replicate the Asian
Development Bank,s "City,s Development Strategy" program to
provide urban planning assistance to develop specific
Azerbaijani cities.
14. (SBU) On the energy side, Petersen said that the Bank has
discussed projects with the Ministry of Energy focusing on
improving storage facilities, treating natural gas (NOTE: 60
percent of Azerbaijan,s gas goes untreated into its
pipelines),and rehabilitating pipelines (including gas
leakage prevention). The Bank said it would use "carbon
lending" with the energy projects to raise the GOAJ,s
awareness of environmental costs and externalities to ensure
environmentally sound projects.
Health and Human Development
--------------
15. (SBU) Petersen said that hopefully the Bank,s health
project will go to the Board by June 2006 (and thus ensure
IDA financing). In addition, the Bank looks to focus upon
tertiary educational issues. The U.S. is currently funding a
Primary Health Care (PHC) Strengthening project in Azerbaijan
which was designed to collaborate with a World Bank funded
health project that deals with primary health care. Although
the GOAJ has not yet approved the World Bank loan terms, the
new Minister of Health is actively engaged in designing the
World Bank health project with technical assistance from the
USAID/PHC Strengthening project.
16. (SBU) USAID/PHC Strengthening project will work in the
same pilot regions as the World Bank health project. Loan
funds will be used to procure medical equipment and for
clinic renovations. In these pilot sites, the USAID/PHC
Strengthening project will provide technical assistance on
resource management, implementation of PHC services, quality
of care, and health promotion and communication. At the
policy level the USAID/PHC Strengthening project is providing
technical assistance to the MOH as they work to determine the
scope of PHC services and the structure of PHC system. These
goals are shared by the World Bank health team. Furthermore,
the USAID/PHC Strengthening project will participate with
World Bank Health Appraisal Team expected in March 2006.
HARNISH