AZERBAIJAN: STATE OIL COMPANY COMMITTED TO

C O N F I D E N T I A L BAKU 000086

SIPDIS

SIPDIS

DEPT PLEASE PASS TO USTDA DAN STEIN
DEPT FOR EEB, EUR/CARC,OES, G
BUDAPEST PLEASE PASS TO SAM KOTIS

E.O. 12958: DECL: 09/10/2017
TAGS: ECON SENV PGOV PREL AJ
SUBJECT: AZERBAIJAN: STATE OIL COMPANY COMMITTED TO
ENVIRONMENTAL CLEAN-UP?

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


1. (C) SUMMARY: In 2006 President Aliyev issued a decree
mandating a five-year effort to clean up the notoriously
polluted Azerbaijani environment. As part of these efforts,
in January 2008 the State Oil Company of Azerbaijan (SOCAR)
created a new position, Vice-President for Ecology. The
newly appointed SOCAR VP sees his primary goals as both
spearheading an effort to clean up the environmental mess
caused by over 150 years of oil extraction, but more
importantly to inculcate a new mentality in SOCAR that
emphasizes preserving the environment while extracting
hydrocarbons. It remains to be seen whether he will be able
to muster the institutional "buy-in" at SOCAR for his
ambitious plans to make it an "environmentally friendly"
company. The appointment of a new VP for Environmental
issues at SOCAR could be the bureaucratic change necessary to
kick the GOAJ,s clean-up plan into high gear, as SOCAR
controls the resources and money needed to do the job and the
Minister of Ecology has had relatively little institutional
clout to fulfill its mission. The GOAJ is interested in
attracting US environmental goods and services companies to
support its environmental clean-up. END SUMMARY.


2. (SBU) In September 2006, President Ilham Aliyev issued
Presidential Decree 458 on the "Comprehensive Action Plan on
Improving the Environmental Situation in Azerbaijan for
2006-2010." The decree's primary goals were cleaning up the
Absheron Peninsula, in particular oil contamination of the
land and Baku Bay, and creating facilities for water
treatment and sewage throughout the country. The decree
named the responsible ministries and agencies, with
responsibility shared by Ministry of Ecology (MEC),State Oil
Company of Azerbaijan (SOCAR),the Ministry of Emergency
Situations (MES) and Azerbaijan Water Company (AzerSu),with
the Ministry of Finance and Ministry of Economic Development
(MED) assigned primarily financial roles.

SOCAR - An Oil Company with an Environmental Agenda
-------------- --------------


3. (C) On January 17, Econoffs met with newly-appointed SOCAR
VP for Ecology, Mukhtar Babayev, to discuss his goals and
plans carrying out his department's mission. With 15 years
experience in SOCAR's marketing department, Babayev said that
his new role is to coordinate current clean-up activities and
write a comprehensive environmental policy. He said that
Azerbaijan will need new legislation to establish and enforce
a country-wide environmental policy. Most importantly,
Babayev said, he has to change SOCAR's attitude towards the
environment, ensuring that it preserves the environment while
fulfilling its mission to develop Azerbaijan's hydrocarbon
resources. Babayev joked that after his appointment to his
new position he told SOCAR First Vice-President for Geology,
Geophysics and Field Development Issues Khoshbakht Yusifzade,
(the "grand old man" of SOCAR),that they were now "enemies,"
since Yusifzade wanted to continue "business as usual,"
whereas Babayev wanted to change the way SOCAR developed its
resources. On a broader scale, Babayev said his mission was
to "change the mentality" of Azerbaijanis about their
responsibilities to preserve the environment.


4. (C) When asked how much money SOCAR would dedicate to its
environmental efforts, Babayev did not give a number but
instead shifted the conversation to explain how he envisioned
spending the money. Babayev said that initially SOCAR should
use only its own resources to finance environmental projects,
to encourage careful spending and prevent waste. He said he
intended to meet with Ecology Minister Bagirov and other GOAJ
agencies to coordinate environmental activities. Foreign
entities could play an important role, particularly as
advisors with specialized expertise. Babayev noted that
already SOCAR is discussing environmental proposals with the
World Bank and is in the process of trying to establish a
"master plan" for cleaning-up the Absheron Peninsula, which
150 years of oil production and the former Soviet chemical
industrial complex have devastated. Babayev candidly
explained why the "master plan" is his priority -- without an
environmental plan that President Aliyev personally approves,
he will not have the authority to advocate for and enforce
any new legislation or clean-up activities which are sure to
encounter strong resistance from powerful elites.



5. (C) Babayev said that in 2007 SOCAR started several
projects to improve the situation in the oil fields and
offshore to comply with President Aliyev's 2006 decree. In
fact, SOCAR has paid for specialized equipment to process and
clean-up oil-contaminated waste water and the first unit is
already functioning. However, while the activities were
enough to meet the May 2008 timeline to show some improvement
in the Bibi Heybet oil field, one of Azerbaijan's oldest
fields still running with outdated Soviet technology, the
efforts were scattershot and an inefficient use of limited
environmental funding.

Ministry of Ecology - Sidelined on Environmental Issues
-------------- --------------


6. (C) In his discussion with Econoffs, Minister of Ecology
Husseyn Bagirov alluded to his limited scope of work and
power within the GOAJ to effect real change. He explained
that his activities are heavily focused on water treatment
and sewage, one of the major areas of the President's 2006
decree. The Ministry's new approach for producing clean
drinking water is a trial with 50 villages along the Kura
River, Bagirov said. Along with a small "clean it where it
is" water treatment plant, the MEC provides pipelines to
several designated water distribution storage tanks in each
village which is more cost-effective than providing piping to
each household. For sewage treatment, Bagirov said the
ministry purchases and assembles midsize modular sewage
treatment plants from Turkey. Seven of eight plants already
have been installed on the Absheron Peninsula, Bagirov said.
He said the Ministry's budget is primarily spent to purchase
the equipment from Turkey (primarily U.S. made, he pointed
out) and maintain pumping stations, with small amounts spent
on local equipment purchase and labor as well as electricity
stabilizing equipment. Separately, he said another smaller
project is the MEC's effort to make Azerbaijan more "green,"
but said he is powerless to do anything to stop the largest
ecological problem - overgrazing.


7. (C) The Ministry of Ecology is only one part, Bagirov
said, pointing to the World Bank's coordination with other
ministries and agencies like SOCAR, Azersu and the MES that
also play a role on environmental issues. He questioned the
other agencies' outdated systems and the limited
functionality of their efforts, while admitting that his
agency had little influence over them and no empowerment to
coordinate their efforts. For example, he said he had made a
recommendation to the MED on solid waste disposal, but the
MED chose another route. When asked, he claimed that
President Aliyev thought the environment was important, but
said frankly that the Cabinet of Ministers was "not
supportive."


8. (C) Minister Bagirov said he would like to see more
proposals for equipment and projects from American companies.
He said there had been an American filter and treatment
system company working in Azerbaijan that "spoiled the image
of American companies," but then noted his disappointment
that a proposal from another U.S. company for planting
equipment that had been submitted had not won. (Comment:
Bagirov again seemed to be alluding to the fact that he has
little control and is not the final decision maker on many
environmental issues.) He asked Econoff if the USG could
help him attract more reputable American companies interested
in providing either parts or whole sewage and water treatment
plants and equipment. He also pointed to the Blacksmith
Institute's report listing Sumgayit as the most polluted
place on earth with frustration, admitting that there were
serious problems to be resolved but disputing the final
findings. Despite his repeated attempts to begin a dialogue,
he said, he was frustrated about the lack of response and
lack of "constructive" criticism within government circles.


Outside Perspectives
--------------


9. (C) Along with small programs from the Norwegians, French,
Japanese and Germans, the World Bank currently manages two
environmental programs focused on small rural environmental
projects and on national parks. The World Bank contributes

approximately 50 percent through grants and credit loans, and
the GOAJ contributes the other half, the World Bank's
environmental expert Gulhana Hajiyeva said. Beginning with
the 2006 Presidential decree, Hajiyeva said the GOAJ has made
some improvements through new programs, amendments to
legislation, establishing a new SOCAR VP and an environmental
management body to coordinate across sectors. However,
Hajiyeva said that there was little actual coordination, and
that the Ministry of Ecology was limited in what it could do
because it had no real authority to enforce compliance with
existing rules and regulations. Hajiyev pointed out that the
World Bank is dialoguing with the Ministry of Ecology, SOCAR,
the Ministry of Emergency Situations, Azersu and Azerenergy
on possible projects to rehabilitate the Absheron Peninsula
per the President's 2006 decree. The first step would be a
environmental impact and feasibility study for our projects:
SOCAR - oil contamination land andsea clean-up, MES -
decontamination of radioactie waste, Ministry of Ecology -
creation of a dataase and standards, and MED - creating
proceduresfor solid waste and landfills. Hajiyeva said she
had been most impressed with SOCAR because it was looking for
an overall strategy rather than for individual projects.


10. (C) One of Azerbaijan's environmental NGO's that
currently receives much of its funding from American
universities and international foundations, EcoCenter, has
also seen a surge in financial resources directed towards the
environment. Director Arif Islamzadeh said "Programs (the
GOAJ's many plans and efforts to-date) look good on paper,
and at the moment, the GOAJ has allocated substantial funding
for this sector. The problem is, there is no way to check
the quality of the implementation. We can only hope."
Islamzadeh pointed out that the oil industry has caused much
of the pollution on the Absheron, but that today the same
industry receives money for planing and implementing clean-up
projects, while retaining control over the entire process and
reporting to itself. "This is absurd," he said. However, he
praised the President's 2006 environmental decree, saying it
was a sign of the GOAJ's resolve to "do something" about the
environmental problems. While the government's priorities
are generally heading in the right direction, Islamzadeh
said, there are many unresolved issues that remain
unaddressed and are potential problems for the future.

Opportunities for Training and Commerce
--------------


11. (U) SOCAR's Babayev was enthusiastic about possible USG
cooperation and said he would welcome experts to help him
fulfill his mission, to include help with drafting of an
environmental action plan (master plan) and new legislation.
He also said he would welcome American environmental clean-up
companies and would be happy to meet with them personally.
Babayev also explained that what had previously been a
department of four people dealing with a range of issues
would now become an begin dealing exclusively with
environmental issues an would have increased staffing. He
asked for assistance with training and capacity building,
perhaps from the Department of Energy or from the U.S. Trade
and Development Agency (USTDA). Minister of Ecology Bagirov
also asked for assistance from the USG to help identify
American environmental companies interested in working in
Azerbaijan.

Comment
--------------


12. (C) While the reaction to President Aliyev's 2006
environmental decree was unanimously positive, subsequent
implementation has been sporadic. The appointment of a new
VP for Environmental issues at SOCAR could be the
bureaucratic change necessary to kick the clean-up plan into
high gear. With only 15 days on the job SOCAR Environment VP
Babayev seems enthusiastic and in possession of a clear
vision of what he hopes to accomplish, while fully aware of
the challenges he will face as he tries to address
long-ignored environmental challenges in Azerbaijan's
all-important oil and gas industry. Without an
environmentally conscious constituency demanding change that
he can point to when convincing GOAJ officials of the
importance of his work, it remains to be seen if he will
provide progress or become sidelined like Minister of Ecology

Bagirov. The Embassy will seek to support GOAJ's
environmental efforts, to include seeking training and
consultations for VP Babayev and his personnel.


13. (C) Recalling that FonMin Mammadyarov had proposed
cooperation on environmental matters as a promising new area
for bilateral engagement, and given SOCAR VP Babayev's
interest in our help to develop a master strategy for
clean-up, we would welcome Washington agencies' ideas on how
we should engage and support the GOAJ in their their clean-up
efforts, to include how to bring Azerbaijan's efforts in this
regard to the attention of US firms. END COMMENT.
DERSE