Identifier
Created
Classification
Origin
06BAKU989
2006-07-10 16:05:00
CONFIDENTIAL
Embassy Baku
Cable title:  

AMBASSADOR'S INTRODUCTORY CALL ON ECONOMIC

Tags:  ECON EFIN ETRD EPET AJ IR RU ABLD 
pdf how-to read a cable
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R 101605Z JUL 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 0716
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1643
RUEHTH/AMEMBASSY ATHENS 0217
RUEHRO/AMEMBASSY ROME 0217
RUEHIT/AMCONSUL ISTANBUL 0430
RUEHBS/USEU BRUSSELS
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHMFISS/CDR USEUCOM VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000989 

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COMMERCE FOR U/S LAVIN
DEPT FOR OBO, EUR/EX, EUR/CARC

E.O. 12958: DECL: 07/11/2016
TAGS: ECON EFIN ETRD EPET AJ IR RU ABLD
SUBJECT: AMBASSADOR'S INTRODUCTORY CALL ON ECONOMIC
DEVELOPMENT MINISTER HEYDAR BABAYEV

Classified By: AMBASSADOR ANNE E. DERSE PER 1.4 (B,D).

C O N F I D E N T I A L SECTION 01 OF 03 BAKU 000989

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COMMERCE FOR U/S LAVIN
DEPT FOR OBO, EUR/EX, EUR/CARC

E.O. 12958: DECL: 07/11/2016
TAGS: ECON EFIN ETRD EPET AJ IR RU ABLD
SUBJECT: AMBASSADOR'S INTRODUCTORY CALL ON ECONOMIC
DEVELOPMENT MINISTER HEYDAR BABAYEV

Classified By: AMBASSADOR ANNE E. DERSE PER 1.4 (B,D).


1. (C) SUMMARY: In her July 7 introductory meeting with
Minister of Economic Development Heydar Babayev, Ambassador
Derse raised the importance of WTO membership, development of
the non-oil sector, energy security and development of the
banking sector. Babayev noted that he was not satisfied with
the GOAJ's progress towards WTO membership but was hopeful
that in 2007 Azerbaijan would show some more progress.
Turning to Azerbaijan's growing role as regional energy
provider, Babayev said that Azerbaijan wanted to grow also as
an important energy transit country with the completion of
BTC. He told the Ambassador that the GOAJ was anticipating
Gazprom would increase gas tariffs this year and for this
reason President Aliyev had ordered measures to increase
domestic gas production. He added that the GOAJ was in
negotiations with Iran and Georgia to supply Georgia with
Iranian gas transiting Azerbaijan. Babayev briefed the
Ambassador on several initiatives the GOAJ is promoting to
diversify the economy and noted that the government is
looking to strengthen the banking sector. Babayev strongly
seconded the Ambassador's interest in improving commercial
ties, noting that bilateral trade amounts to only USD 271
million and that Azerbaijan wants to purchase American goods.
He said that President Aliyev asked Commerce Secretary
Gutierrez to restore the Commerce FCS office in Baku and that
Secretary Gutierrez said the issue would be addressed, and a

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trade mission sent to Azerbaijan. Babayev said that he had
heard nothing further on either point as yet (see action
requested in para 4). The Ambassador promised to follow-up
with the USDOC and get back to Babayev. END SUMMARY.


2. (C) Ambassador Derse paid an introductory call on Economic
Development Minister Heydar Babayev on July 7. The

Ambassador reviewed U.S. economic priorities for the
bilateral relationship, highlighting the importance of WTO
accession, energy security and increasing U.S. commercial
engagement in Azerbaijan. The Ambassador also requested
Minister's Babayev's support in assisting the Embassy to find
a new embassy compound, providing the minister with details
on two separate sites. Babayev said he would review the
documents, discuss with the President the issues, and "lend
his support." Babayev told Ambassador Derse that the
U.S.-Azerbaijan relationship was important and that without
U.S. support Azerbaijan would not be in its current position,
with the successful completion of BTC and a growing, dynamic
economy. Babayev noted that in 2005 Azerbaijan's gross
domestic product grew 26 percent, with the non-oil sector
contributing 11 percent. Ambassador Derse briefly reviewed
the U.S.-funded Public Investment Policy Project's efforts to
assist the GOAJ with macroeconomic and budget processes.
Babayev noted the benefits of the project, adding that he had
recently approved the nomination of one of the Azerbaijani
PIPP consultants as a deputy minister.

U.S.-AZERBAIJAN TRADE
--------------


3. (C) Minister Babayev told the Ambassador that during
President Aliyev's April visit to the U.S., he discussed with
Commerce Secretary Gutierrez the importance of improving
U.S.-Azerbaijan trade links, highlighting that
U.S.-Azerbaijan trade was embarrassingly low at USD 271
million. He added that Azerbaijan traded more that USD 2
billion worth of goods and services with Russia and Dubai.
Babayev continued that Azerbaijan wanted more U.S. goods,
including American cars and furniture. Ambassador Derse
highlighted the usefulness of organizing a U.S. city speaking
tour with Minister Babayev, adding that such a tour would
provide an excellent occasion to present Azerbaijan's
business opportunities. In addition, Babayev said that
President Aliyev had discussed with Secretary Gutierrez the
return of the U.S. commercial service to Azerbaijan. Babayev
said that Secretary Gutierrez promised to address the issue
and also send a mission to look into expanding trade.
Babayev told the Ambassador that he did not understand the
reason the commercial program had ended in Azerbaijan. The
Ambassador said that she would follow-up with the Commerce
Department and on the return of the commercial service

BAKU 00000989 002 OF 003


position in the Embassy.


4. (U) ACTION REQUESTED: Please advise on how Post should
respond to GOAJ interest in heightened USDOC presence and a
trade mission. We note that we look forward to detailed
feedback from the regional commerce attache's office on the
Embassy Baku's draft commercial strategy paper. Embassy is
eager to ensure that U.S. firms are able to take advantage of
commercial opportunities in the world's fastest growing
country.

GOAJ WTO EFFORTS
--------------


5. (C) Babayev briefed the Ambassador on Azerbaijan's efforts
to enter the WTO. Babayev said that the GOAJ is attempting
to change legislation and has created a special commission to
review and analyze legislative changes and investigate
potential effects on the economy. Babayev told the
Ambassador that the process is not moving as fast as he would
like and he is "not satisfied" with the progress. He noted
with some frustration that Azerbaijan may be the "last
country" to enter the WTO. Babayev noted that cooperation
with other ministries regarding WTO has not always been easy.
Babayev said the Government of Switzerland was assisting the
GOAJ with the WTO process; he also recognized the assistance
of the TDA-financed WTO consultant. Babayev expressed hope
that in 2007 Azerbaijan would see better results in the WTO
process. Regarding Azerbaijan's longer-term economic
priorities, Babayev said that improving the country's
infrastructure and routes, building the country's human
resources capacity, strengthening the non-oil sector, and
developing the agriculture and telecommunications sectors
were critical to sustainable development.

AZERBAIJAN'S STRATEGIC ENERGY ROLE
--------------


6. (C) Babayev told the Ambassador that Azerbaijan looked to
use its geographic location to capitalize on the growing
importance of diversifying global energy resources. With the
completion of BTC, Babayev continued, Azerbaijan now wanted
to grow as an energy transit country, building on BTC.
Babayev said that the Shah Deniz project had more than a
trillion cubic meters of gas that Azerbaijan looked to export
to Europe and also consume domestically. He noted that
Deputy Minister of Economic Development Jabbarov was in
Athens negotiating with the Government of Greece gas purchase
and sales agreements.


7. (C) Babayev said that Azerbaijan currently imports natural
gas from Russia's Gazprom and the GOAJ expects Gazprom to
increase tariffs this winter, characterizing the increase as
"regional blackmail." Babayev clearly blamed Russia for
creating this problem, adding that Azerbaijan is better
positioned than Ukraine to manage energy disruptions. In
anticipation of the increase, Babayev said the President has
instructed AzeriGas to increase domestic natural gas
production. In addition, he noted that the GOAJ was
contemplating increasing domestic gas prices to reduce
consumption and ending several other subsidy schemes in the
utility sector to reduce costs and consumption. Babayev also
hoped that the GOAJ would improve its tariff collection
efforts in order to boost revenues.

IRANIAN GAS TO GEORGIA
--------------


8. (C) Babayev told the Ambassador that the GOAJ was involved
in negotiations between Iran and Georgia to provide Iranian
gas to Georgia using existing pipelines that transit
Azerbaijan. Babayev noted, however, that Iran's conditions
made the discussions difficult. Babayev said that Azerbaijan
was looking to use the situation created by Gazprom and
Russia to its own advantage by acting as a transit country
for Iranian gas to Georgia and decreasing Gazprom's regional
leverage.

BABAYEV'S TAKE ON GENERAL ECONOMIC ENVIRONMENT

BAKU 00000989 003 OF 003


-------------- -


9. (C) Babayev said that the GOAJ is monitoring closely the
macroeconomic effects on consumer prices and the potential
damaging effects of the Azerbaijani manat's appreciation on
the export sector. Babayev noted that prices have increased
in all aspects of the economy, adding that energy companies
are also experiencing a sharp increase in costs. Calling
Azerbaijan's total potential energy revenue amount of USD 150
billion "not much money," Babayev said that the GOAJ had to
avoid spending all the money and needed to save for future
generations. Babayev briefed the Ambassador on the GOAJ
efforts to diversify the economy using state-controlled fund
companies, such as the State Investment Fund Company and the
Entrepreneur Fund Company. He noted that the GOAJ planned to
use the State Investment Fund Company as collateral in a bond
issue worth USD 500 million.


10. (C) Babayev also said that the GOAJ was negotiating deals
to build a petrochemical plant and to rehabilitate AzerKimia.
In addition, he noted the GOAJ agreed to invest 25 percent
in an EBRD project to fund a new development venture at the
Garadagh cement company. Regarding the idea of developing an
information technology park in Azerbaijan, Babayev thought it
was a good idea and said that the Ministry of Economic
Development was assisting the Ministry of Communication and
Information Technology in its development. Babayev also
noted to the Ambassador that the GOAJ is reviewing plans to
develop a duty free economic trade zone for financial and
industrial sectors. Babayev did not provide any additional
details to the duty free zone, noting that all the details
had yet to be finalized.

BANKING SECTOR DEVELOPMENT
--------------


11. (C) Babayev said that the GOAJ wanted to develop
Azerbaijan's banking sector. He characterized the banking
sector as small but reliable. He noted the need to balance
funding from the state-controlled funds to finance non-oil
sector companies and projects while supporting the growing
banking sector and its need to provide project financing.
Babayev explained that the GOAJ might change the structure of
the funds in order to avoid any detrimental economic
distortion. He added that the banking sector needed to
develop, noting that International Bank of Azerbaijan's
dominating market position made it difficult for small to
medium private banks to compete.
DERSE