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