AZERBAIJAN MOVING AHEAD ON LARGE ROAD AND MARITIME

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000803 SIPDIS SIPDIS DEPT PLEASE PASS TO TDA - DAN STEIN E.O. 12958: DECL: 06/27/2017 TAGS: ECON ETRD PREL ELTN BEXP BTIO AJ SUBJECT: AZERBAIJAN MOVING AHEAD ON LARGE ROAD AND MARITIME INFRASTRUCTURE PROJECTS REF: BAKU 385 Classified By: ACTING DCM JONATHAN HENICK PER REASONS 1.4 (B,D) ¶1. (SBU) SUMMARY: In a June 21 meeting, Deputy Minister of Transportation Musa Panahov discussed Azerbaijan's road and maritime infrastructure plans, including a Bechtel proposal to build a new four-lane highway and the government's plans to transform the Baku port and construct a new facility outside of town. Panahov stated that while there was "great interest" in Bechtel's plans, the MOT needed a more detailed proposal and asked that Bechtel send a team of experts to Baku to discuss the project with MOT experts. Panahov noted that the GOAJ already is contracting and financing for other similar road projects. Panahov said that the new Baku port project (valued at USD 500-750 million) will include three areas for dry goods, one container area, a ferryboat area and enough extra land to accommodate future expansion plans. Panahov said that several companies had submitted proposals for overall design and construction of the port but welcomed the participation of U.S. firms in specific aspects of the project. Panahov also raised the lack of U.S. participation in the Kars-Tbilisi-Baku railroad, lamenting that U.S. policy "blocked" U.S. companies. END SUMMARY. ¶2. (SBU) Emboffs met with Deputy Minister of Transportation Musa Panahov June 21 to discuss the Government of Azerbaijan's (GOAJ) plans to upgrade key infrastructure, including the national highway system and the Baku seaport. Panahov is a key Ministry of Transportation (MOT) point of contact for development of Azerbaijan's infrastructure, including maritime and road infrastructure projects. The GOAJ has tasked the MOT to coordinate the port's construction while the State Maritime Administration will operate the port once it is built. BECHTEL'S ROAD PROJECT -------------- ¶3. (SBU) Panahov said that there was "great interest" in the GOAJ in Bechtel's road project (reftel) but added that the MOT needed additional, more detailed information on Bechtel's proposal. He asked that a technical, expert-level briefing take place as soon as possible, as MOT is about to begin contracting and financing for the next phase of the project. He stressed that the MOT would welcome a Bechtel team of 
technical experts to come to Baku to meet with MOT experts to exchange views on the details for the Bechtel road project. Embassy commercial officer later passed to Bechtel the MOT's request. ¶4. (SBU) According to Panahov, the MOT appears to be considering two options: adding Bechtel to the mix of contractors implementing the current, patchwork approach to road-building (something we understand Bechtel would not consider); or building a parallel, four-lane toll road next to the new road currently under construction. Panahov had many specific questions about Bechtel's proposal and seemed very eager to engage in a detailed discussion. ¶5. (SBU) Panahov told Embassy officers that there are already plans under way to build a two-lane highway on the same route which could later be expanded to a four-lane highway. The MOT does not understand why an additional Bechtel-built road is necessary. Panahov said that the World Bank had done a study that indicated a two-lane road would be sufficient to meet existing demands; a four-lane road was neither needed nor economically sound. According to Panahov, MOT is building a four-lane road only because President Aliyev said this is part of Azerbaijan's economic vision. Panahov wondered why Azerbaijan would then need two parallel four-lane roads. NEW BAKU PORT -------------- ¶6. (SBU) Panahov briefed Embassy officers on the GOAJ's plans to rehabilitate Baku's harbor area and plans to build a modern port facility at a still undetermined area. He stated that the Alet settlement area (south of Baku) is the most likely location of the new port facility based on a review of other locations. Panahov said that the GOAJ is looking to begin port construction in late 2008/early 2009 and that the project is valued at between USD 500-750 million. Panahov said that the new terminal will include three areas for dry goods, one container area and a technical services and storage facility area to accommodate Caspian Sea traffic. BAKU 00000803 002 OF 002 The port will also have a ferryboat area. Panahov indicated that the Alet location and new port facility will have enough space for future expansions based on the future potential for expanding trade among Caspian countries, particularly between Azerbaijan and Kazakhstan. ¶7. (SBU) Political-Economic Counselor raised Lockheed Martin's interest in providing a harbor navigation command and control system. Panahov agreed that the port would need a high-quality system and that the MOT would review any proposals from Lockheed Martin. Panahov stated that several companies are vying for the contract to build the port, while only a South Korean company has actually submitted concept plans. (Baku port officials separately told emboffs that the contract would be awarded to the South Korean firm.) The MOT envisions there being multiple tenders for construction of different parts of the port. KARS-TBILISI-BAKU RAILROAD -------------- ¶8. (SBU) During the discussion, Panahov stated that he did not understand why more U.S. companies were not active in the development of Azerbaijan's non-energy sector. He then stated that it was too bad the U.S., especially the U.S. Export Import Bank (EXIM),was not participating in the Kars-Tbilisi-Baku (KTB) railroad project and that U.S. policy "blocked" U.S. companies. Political-Economic Counselor explained to Panahov the reasons behind the lack of U.S. government support, noting that the U.S. maintains a neutral stance on the railroad's construction. COMMENT -------------- ¶9. (C) As Azerbaijan's energy revenues grow, the GOAJ plans to invest significant amounts of money into large infrastructure projects. As Panahov stated, the GOAJ seems eager to attract U.S. firms to these projects. On the roads project, for example, it is clear the President's Office has instructed the MOT to explore the feasibility of Bechtel's project despite MOT concerns. The port project - still in the initial tender stage - also seems like a good opportunity for U.S. firms to compete for specific aspects of the project, such as command and control systems. As illustrated by the Baku port example, however, the GOAJ's less-than-transparent tendering process presents serious challenges to U.S. firms seeking to compete in this environment. We will investigate this process and report further information septel. LU