| No 4 | July to August 2007

AZERBAIJAN | Trends in Conflict and Cooperation

In the period under review Azerbaijan was pursuing a multi-vectored foreign policy and was strengthening bilateral relations with interested states. has successfully maintained its high level of international cooperation (see graph) by balancing relations between the USA, , and without forgetting its own interests by signing Cooperative International Events (relative) agreements on economical cooperation with other countries. The probably most important event for regional stability took place on August 21 when Iranian President Mahmoud Ahmadinejad paid his first official visit to Baku, in a move that some regional experts see as ’s effort to counter US influence on the energy-rich country. Ahmadinejad and Azerbaijani President emphasized the ethnic, religious and economic ties between the two nations but security and defense issues were the focus of the talks. During the visit several bilateral agreements were signed and both sides attempted to highlight the positive aspects of their relationship. Azerbaijan and Iran also agreed to meet at a summit in Tehran in October 2007 with other Caspian states – Russia, Kazakhstan and Turkmenistan – to break the impasse over the division of access to the sea’s resources. The Iranian president, meanwhile, in what was Source: FAST event data perhaps a reference to US interests in Azerbaijan said that unidentified "forces" are trying to "create problems between Iran and Azerbaijan." He added that efforts to drive a wedge between the two countries have no chance because the friendship between them has a long history and is successfully developing. In addition to political cooperation with Iran, Aliyev mentioned the possibility of cooperation on projects connected to the , which will ease the distribution of natural gas from the through to – a policy which is strongly supported by Turkey as well because it would help to reduce its reliance on Russia. The project may also include Central Asian, Iranian and Egyptian gas as well. Azeri diplomats stressed that the participation of Iran in Nabucco would help the EU to diversify its energy supplies. However, this bilateral cooperation would be diametrically opposed to the interests of the US, who wants to make sure that countries like key-ally Azerbaijan use the East-West corridor without letting Iran participate in Nabucco. Secondly, it would be to ’s disadvantage, which has much less to offer Iran than Azerbaijan. Azerbaijan has also shown some interest in cooperating with the Shanghai Cooperation Organization (SCO). Novruz Mamedov, Head of the International Affairs Section of the administration of President Ilham Aliyev, said in an interview in August that the is considering this possibility. This can be seen as another signal to the West that Baku has different opportunities and is also considering them – at least as a potential option. Members of the SCO include Russia, China, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan and it has the original purpose as serving as a counterbalance to NATO and the United States. Nevertheless, officially Baku was not neglecting constructive cooperation with the USA during this reporting period. In August a bilateral American-Azeri document about a grant for a Trans-Caspian Oil and Gas Pipelines feasibility study was signed in Azerbaijan's Foreign Ministry by the State Oil Company of Azerbaijan Republic (SOCAR) and the U.S. Trade and Development Agency (USTDA). Their signatures have been confirmed by Azerbaijan's Foreign Minister Elmar Mamedyarov and the Deputy U.S. State Secretary Daniel Sullivan. The agreement provides for the construction of two pipelines; for the transportation of Kazakhstan oil to the Baku-Tiflis-Ceyhan Pipeline (BTC) and a gas pipeline to transport Kazakh gas and oil from other states through the Caspian Sea. At the ceremony the Head of SOCAR Rovnag Abdullayev said that the document will promote the strengthening of regional and energy safety. Daniel Sullivan noted that an open tender for this grant will be announced by SOCAR and USTDA. "It is very important for the USA to provide oil transportation from East to West, and Azerbaijan's role in the realization of these projects is very great," said Sullivan. Another US official compared the significance of the document with the significance of the BTC project. Less positive for Baku have been the recent hearings at the meeting of the Human Rights Commission of the European Parliament in Brussels concerning the human rights aspects of the EU's Neighborhood Policy (ENP). Senior European Commission official Rutger Wissels said that the deteriorating human rights situation in Azerbaijan is "not acceptable" for the EU. Wissels added that the negative trend in Azerbaijan runs counter to the spirit and purpose of the ENP Action Plan with Azerbaijan, which contains precise commitments concerning human rights, including freedom. While the ENP offers "positive conditions" such as trade benefits, it remains unable to sanction countries, which ignore its human rights agenda. It was no surprise that Azerbaijan's Ambassador to the EU, Emin Eyubov, refuted these accusations declaring that the “improvement” of the human rights situation is an “essential priority” of the government. Eyubov also mentioned the low level of professional ethics of journalists and the weakness of Azerbaijani institutes, which is partially true but no excuse for the worsening human rights situation in the country. FAST Update | Azerbaijan | No 4 | July to August 2007

Besides the human rights situation, corruption is still one of the most serious challenges for Azerbaijan today. Last year, Transparency International, which monitors global corruption, placed Azerbaijan 137th on a list of 159 corrupt countries. While some experts say that about 90 percent of the oil industry's profit ends up in the pockets of government officials overseeing it, others see the situation in Azerbaijan as improving; in May, the State Oil Fund of the Republic of Azerbaijan (SOFAZ) won the 2007 U.N. Public Service Award in the category of "Improving transparency, accountability and responsiveness in the Public Service." Another step towards improvement and the confirmation of the government’s earnestness in fighting against corruption is the signing of a decree by President Ilham Aliyev on 21 August about the establishment of a law "on ethical standards in behavior of civil servants." The law shall serve as a legal mechanism for an establishment of principles and rules of ethical attitudes for civil servants, which shall help to increase the trust of citizens towards state bodies and state employees, and to enhance efficiency and transparency in their activities, as well as preventing corruption and conflict of interest of employees. How acute and real the danger of corruption still is became again obvious on 28 August when a 16-storey apartment block constructed by the company ”Mutafakkir” collapsed and at least 25 people died. The building collapsed due to a violation of construction safety rules and the failure to observe relevant building technology requirements, said specialists. The police have already arrested the CEO of the construction company, two construction managers and announced on 30 August that high-ranking officials may be detained in connection to this incident as well. Some construction experts, however, are calling for more: the resignation of Baku Mayor Hajibala Abutalibov. Because even worse, it was not an isolated incident – already seven buildings under construction have entirely or partially collapsed since the start of the year, killing 40 people. Finally, there was some governmental response: On 31 August President Ilham Aliyev signed a decree on tightening state control in the construction sphere. The government is instructed to stop the construction on all public buildings and apartment blocks that are being built in violation of existing norms and to conduct a technical expert examination of all structures, which were built in Baku after 2001. A special group will be set up to study all necessary parameters of new houses, including their seismic resistance. With over 1,200 new buildings approved for construction since January 2007, the chances of another tragic collapse would appear to be high. Especially a major earthquake could cause significant damage and loss of life. The last major earthquake took place in Baku in November 2000. Over the past year around 15 tremors have been reported in Azerbaijan which hit Yardimly, , Guba, Astara, and other .

Many people are complaining about the sharp hike in bread prices, blaming the government for the rising cost of this integral part of their traditional nutrition. After months of steady price increases and double-digit inflation, the causes were revealed: The price increase was caused not only by a disappointing grain harvest, due to unstable weather conditions and the reduction of the area being sown, but also due to an increase in the price of wheat imported from Russia and Kazakhstan. The imported grain – about half a million tons per year – meet 35% of the country’s needs. Therefore experts believe that the bread prices, already 50% higher than in 2006, will increase another 25-45% in the near future. This can become a serious problem for the government as well because bread prices have traditionally played a key role in shaping popular attitudes toward the government in post-Soviet countries. The conclusion that the government is not able to control bread prices could lead to a chain reaction with prices of other agriculture goods also increasing in the nearer future. Another problem is that poultry farms are in a bad financial position in the country because of high poultry feed costs. Already 70-80% of small household poultry farms have been closed. The government seems to take this issue very seriously and is trying to prevent a price hike for bread. For instance it has instituted a one-year moratorium on the 18% Value Added Tax (VAT) applied to grain imports from July 27 on. At first glance it is obvious that this measure is insufficient because it will not have a big impact on the market price. The situation is aggravating because according to the International Grain Council, wheat stocks are at their lowest level since 25 years, while consumption is rising. All this makes it very difficult to accommodate the domestic demand for grain in Azerbaijan.

In the upcoming months, economical and social problems will become a more and more serious challenge for the president and his team. The danger is now very real that the government is failing to relieve inflationary pressure on the economy and to protect the population from the rising costs of staple foods like bread. All this could not only lead to social unrest in the medium term but also to a further deterioration of the human rights situation and even more restrictions on the media.

Contact FAST International is the early warning program of swisspeace, FAST International covering 25 countries/regions in , and Europe. Based in Country Team: Azerbaijan Bern, Switzerland, the program is funded and utilized by an Sonnenbergstrasse 17 international consortium of development agencies, including the 3000 Bern 7 Austrian Development Agency (ADA), the Canadian International Switzerland Development Agency (CIDA), the Swedish International Development [email protected] Cooperation Agency (Sida) and the Swiss Agency for Development and www.swisspeace.org Cooperation (SDC).