AZERBAIJAN: 2008 REPORT ON INVESTMENT DISPUTES AND

UNCLAS SECTION 01 OF 02 BAKU 000593

SIPDIS
SENSITIVE

STATE FOR EUR/CARC, EB/IFD/OIA, L/CID, USDOC FOR
4201/ITA/MAC/DSTARKS

E.O. 12958: N/A
TAGS: ECON EINV KIDE PGOV AJ
SUBJECT: AZERBAIJAN: 2008 REPORT ON INVESTMENT DISPUTES AND
EXPROPRIATION CLAIMS



1. (U) Sensitive but unclassified. This cable contains
proprietary business information and should be handled
accordingly.


2. (U) This cable responds to request in reftel for
information on current business disputes and expropriation
claims for inclusion in the Department's annual report to
Congress required by the FY94-95 Foreign Relations
Authorization Act.


3. (SBU) Embassy reports the following cases:

a. Claimant A

b. 2004

c. Claimant A is an airline based in Georgia that served
regional routes to Azerbaijan, Armenia, and Russia (Sochi and
Minvodi). Claimant A had a commercial agreement with AZAL,
the Azerbaijani flag carrier, governing frequency of flights
and fares on its Baku-Tbilisi route. AZAL admitted that
beginning in March 2004 it sold tickets below the negotiated
price under the "political" direction of both Azerbaijani and
Georgian presidents, which claimant A contended was a
violation of the commercial agreement.

Claimant A stopped flights to Baku on September 2, 2004 on
grounds that the route was no longer profitable given AZAL's
actions. In October 2004 Claimant A ceased operations
entirely, allegedly due to the failure of its Baku-Tbilisi
route. In November 2004 the GOG sent notification to
Claimant A of the potential withdrawal of its license if the
company failed to resume flights. In December 2004, the GOG
officially withdrew Claimant A's license.

In previous years, the U.S. Embassy in Baku held multiple
meetings with AZAL and Azerbaijani Civil Aviation Authority
(CAA) officials, which included an observation of direct
talks between Claimant A and AZAL airline representatives.
The Embassy also raised this issue with the Minister of
Economic Development and the President's Office. The Embassy
is not aware of any legal action taken within Azerbaijan to
date with respect to this claim, and we therefore have not
taken any action during the reporting period.

a. Claimant B

b. 1996

c. Claimant B established a joint venture with the City of
Baku to develop a piece of property and build a trade center.
Claimant B claims that the then-Mayor of Baku transferred
title of a piece of property to the joint venture in 1996.
Claimant B claims that its subsequent efforts to develop the
property were frustrated by the refusal of the City to issue
necessary permits for construction. Claimant B has been
unable to gain access to the property, and the current Mayor
of Baku denies that title to the property was ever
transferred to the joint venture.

The U.S. Ambassador met with the Mayor and Claimant B
partners in May 2004 to move forward discussion of the
claims. In early 2006, Claimant B partners reported to the
Embassy some progress in pressing their claims to Azerbaijani
government officials. As a result, in March 2006 the Embassy
accompanied Claimant B partners to several meetings with
government of Azerbaijan officials, including the mayor of
Baku, Minister of Communications, and Minister of Economic
Development. Following these meetings, Claimant B partners
reported that some progress had been made toward resolving
the dispute and that government officials appeared to be more
interested in a resolution of the issue.

a. Claimant C

b. 1996

c. According to Claimant C, during the mid-1990s Claimant C
purchased over 150,000 tons of cotton from the Government of
Azerbaijan through the state-owned cotton-ginning business
"Agroincom." Three contracts were successfully delivered.
In 1996, however, Agroincom defaulted on a portion of a
fourth contract. After repeated failed attempts to resolve
the situation, in 1998 an international arbiter ordered
Agroincom to pay USD 7.7 million. To date, no payments have
been made by the Government of Azerbaijan.


BAKU 00000593 002 OF 002



4. (SBU) Claimant A is Caucasus Airlines. The report of
Claimant A's case is unchanged from the past year, as the
Embassy has received no additional information regarding the
claim. Claimant B is the Baku World Trade Center Joint
Venture. The report of Claimant B's case is unchanged from
the past year, as the Embassy has received no additional
information regarding the claim. The Embassy has not
approached these firms to request a privacy waiver for the
purposes of this cable. Claimant C is Cargill. Over the past
24 months Claimant C has been actively seeking payment from
the Government of Azerbaijan for its long-standing debt.
DERSE