A Word from the Executive Director of AmCham

Dear Members and Friends,

Autumn / Issue 13 I hope this issue of IMPACT will reach you as you are Credits returning from your winter holidays, rested, relaxed and looking forward to the challenges of the new year. AmCham Executive Director: Nargiz Nasrullayeva-Muduroglu In this edition of IMPACT Azerbaijan, we will be looking closely at the issues surrounding Electronic Governance, Editor: collectively known as “e-Government”. Experts from the ICT Jeyhun Atayev sector together with colleagues from banks and investment companies have kindly shared their views. Design & layout: Quadro M Media Agency As many of you may know, AmCham Azerbaijan organized a well-attended "Towards the Future" ICT conference last November. Several companies, in themselves Photographer: global and regional leaders in the field of electronic information and communication Huseyn Azimzade technologies, joined together to discuss their experiences of developing and implementing various e-Strategies in the 21st century. Articles contributed by: Elmir Habibullayev Zulfiya Aghakishiyeva We have also been active in pursuing a wider range of activities since the summer Elshan Musayev edition of IMPACT Azerbaijan. You can read about all the events of the past quarter Kent Babin in this issue. Mais Yusifov Anar Karimov Enjoy! Nihad Azizli and Turgay Teymurov

Advertisers: Nargiz Nasrullayeva-Muduroglu Unibank Bakcell Globus Plaza PANALPINA Editor’s Comment ITECA Mozaik LLC Pasha Construction Dear Readers, Pasha Insurance SINAM This issue of IMPACT presents an assessment of the role SAZZ Azqtel of the ICT sector in enhancing public service delivery and The Landmark Hotel improving the efficiency and productivity of government processes and systems. This issue will cover the “Art-of- Cover artwork: Real-time” – the concept of e-Government and the supporting Quadro M mechanisms.

Printing: We are proud that members of AmCham are playing Nurlar an essential role in this process, adding impetus to the implementation of e-Government through their various Publisher: areas of expertise, and contributing to the further development of the ICT sector in American Chamber of Commerce cooperation with different institutions and state agencies. in Azerbaijan Tel: (+994 12) 497 13 33 Fax: (+994 12) 497 10 91 The current issue has been compiled to encompass the wide variety of interests www.amchamaz.org among our readership, under the general theme of e-Government mechanisms in Azerbaijan. We hope you enjoy the articles we have selected for this issue and that Advertising opportunities: they may provide inspiration for you in your work and day to day activities. Please contact the Editor Jeyhun Atayev Until the spring, [email protected] Tel: (+994 12) 497 13 33 Jeyhun Atayev The articles in IMPACT AZERBAIJAN express the opinions of the authors and do not necessarily reflect the position of the American Chamber of Commerce in Azerbaijan. 1 contents

IN FOCUS 6 Interview: Minister of Communications and 18 Azerbaijan is close to establishing Information Technologies e-government

Ali Abbasov, Minister of Communications “E-government” is a term, that combines the and Information Technologies, speaks to vital elements of transparency and modern IMPACT on establishing of e –Government in public administration. Azerbaijan 21 Electronic services offered by banking 10 Electronic governance and cloud computing system in Azerbaijan The rapid growth of 12 First steps towards Electronic government electronic banking products in recent years is becoming an important driver of the future development of the banking system.

23 Baku becomes part of the world’s leading mobile community With the gathering pace of the information revolution, many developing countries have looked at IT as a potential tool to solve the endemic problems of poverty, bad governance, and poor economic growth.

16 E-Government in Azerbaijan: What Lies Ahead Definitions of e-Government vary depending on who you ask. It involves a government using the Internet and other forms of One Monday of each month, more than 100 communication to provide information and cities worldwide bring together mobile experts services to citizens. e-Government also aims with new and exciting ideas for the mobile to assist the sharing of information amongst industry, including mobile communications government agencies and institutions. services.

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Member contribution AMCHAM AZERBAIJAN 26 The top 10 risks for oil & gas companies 38 About us

Recent global multi-sector survey, which included 39 Government Relations 82 oil and gas executives in 15 countries.

30 Islamic Insurance: Emerging Concept in Azerbaijan A look at the concept of Islamic insurance – Takaful - vis-a-vis conventional insurance.

40 Business Events : Monthly Member Luncheons

34 Azerbaijan’s exhibitions have drawn attention from around the world

As another season of industry exhibitions draws to a close, we invited Mr. Farid Mamedov, Executive Director of ITECA Caspian to reflect upon the group’s experiences and achievements over the past year.

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AMCHAM AZERBAIJAN AMCHAM AZERBAIJAN

42 Business Events : Towards the Future” ICT 54 Social Events : 7th Annual B&W Ball Conference

43 Committee Highlights 56 Projects

46 AmCham Legal update

50 Members’ News and Events

52 Corporate Social Responsibility 57 New Members

59 (M2M) Discount Program

60 AmCham Calendar of Activities

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Interview: Mr. Ali Abbasov, Minister of Communications & Information Technologies “I believe that people are ready for electronic services”

The Minister of Communications and Information Technology, Ali Abbasov, has been leading sustainable reform in Azerbaijan’s ITC sector over the past seven years. He shared his insights on e–Government with IMPACT.

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Thank you for joining us, Mr. Minister. electronic applications for university and public service jobs, are also being offered in Azerbaijan. President Aliyev’s May At the moment, the concept of e-government includes 23rd 2011 decree on the provision of electronic services approximately twenty different services, of which by state bodies provided a major impetus for extending the twelve are for private citizens and 8 for businesses. scope of this process. What activities have been implemented in Azerbaijan to support the establishment of e-government? Azerbaijan’s e-government strategy has moreover attracted How will these concepts be realized? What are the attention of international organizations. Azerbaijan’s the characteristics of e-communication and data ranking in the UN’s “e-Government survey 2010” was 83rd exchange tools as used by state bodies? among 192 states, which is up six places from 2008. In the same UN report, Azerbaijan’s ranking in the “e-participation As you know, the development of e-government is an index” was 68th among 157 states. integral part of Azerbaijan’s strategy for information and communication technology. There is tremendous interest The implementation of e-signatures is one of the key in the implementation of e-governance, which enables the components of the “E-government” concept. What transition to an information society, the implementation of is the advantage of using e-signatures, and what effective and transparent public administration, the active is the current status of this particular strategy in participation of citizens in decision making processes – Azerbaijan? including strengthening anti-corruption initiatives – amongst many other important issues. Public Key infrastructure and the National Certification Services Center, both of which focus on the implementation A range of actions towards establishing the infrastructure of a secure and efficient e-signature system, are working to and legislative framework of e-government and the ensure the delivery of high quality electronic services and implementation of e-government solutions, including the their public use. As of September of this year, the Center application of electronic services across all spheres of is ready to provide e-signature services to state bodies, government administration and public life are already citizens and businesses. underway. Key legislation on “e-signatures and electronic documents”, e-commerce, “the State register of the Special discounted prices are being offered to encourage the population of the Republic of Azerbaijan”, “the acquisition use of e-signatures. Currently, the processing of applications of information”, and personal data has been adopted, along for these services and the issuance of e-signature cards with an Action Plan for organizational, legal and technical is being implemented in dedicated registration centers reform. established in post offices. Using e-signatures will make it easier for people to use the electronic services of state There now exists a unified network infrastructure bodies, as well as ensuring improved convenience and encompassing all state bodies, an e-governance gateway quality in terms of service delivery. At a national level, that enables data exchange between various information the e-signature system will bring e-commerce and the systems and the National Certification Services Center, development of information technologies to a new level. supported by the e-signature system. In order to ensure that the electronic services of state bodies are delivered as a Mr. Minister, in your mind, what will be the economic “one-stop-shop”, the newly established e-government portal impact of e-government in Azerbaijan? For local will provide a platform for the integration of all relevant state businesses, for investors? services. Implementation of this unified electronic document circulation system is currently being refined, with the goal of Broadly speaking, e-government will save both time effective data exchange between state bodies. and money. Furthermore, it will increase efficiency and transparency, reduce corruption and bureaucracy, It should be noted that some Ministries – notably taxation, streamline and improve the operation of state bodies, reduce customs, education, health, culture, justice, internal of the service delivery period provided by state bodies, and affairs, social protection and others - are actively applying decrease expenditures at all levels of public administration. e-government solutions. The data search systems, registers As for the opportunities that e-government opens up for and other information resources already established in these businesses and potential investors, representatives of this spheres have streamlined the relationship between state, sector will more easily be able to establish contacts with state citizen, and corporate entity, via the provision of modern bodies. Using services such as e-license, e-declaration, electronic services. Today, the bulk of the most common e-procurement and e-auction will increase their economic e-services available to citizens and business sectors in EU activity and competitiveness. countries, including issuance of documentation, electronic submission of tax and customs declarations and statistics What about the issue of information security? reports, employment searches via recruitment agencies, Can users of e-government services rest assured

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that their data is protected and that conditions of Development Program (UNDP). First of all, this network confidentiality are properly safeguarded? Which enables the provision of rapid connections between Baku countries have been used as models for data and the regions, and supports the development of internet protection and information security? capacity in the regions. In order to eliminate the “digital divide”, particular attention is paid to the expansion internet The provision of information security, including the service providers and internet cafes in the regions. Regional protection of individual data, is a very important issue in information and computer centers are being established to e-government. Particular focus has been given to the increase availability and accessibility of ICT to the regional development of legislative, regulatory and methodological population, including people with disabilities and IDPs. structures. As part of the MCIT’s socially oriented strategy, the The law of the Republic of Azerbaijan on “Individual Data”, “People’s Computers” project is being realized to ensure as well as the regulatory articles that stem from the same that different levels of the population can obtain computers law, have been developed to ensure that the compilation, at discounted prices. These kind of measures will continue processing and protection of individual data in information in the future. systems is fully regulated. In order to increase the level of information security, ten national standards and relevant How do you assess the readiness of the population to regulations have been drafted, approved and implemented use e-government services ? based on the standards of International Standardization Organization (ISO). An additional six standards are being I believe that people are ready for electronic services. In negotiated with the relevant organizations. line with the development of Azerbaijan’s internet sector, reductions of internet tariffs, and the arrival of modern In answer to the second part of your question, let me say internet connections, including high-bandwidth, wireless that international experience other countries in this field and mobile connections, approximately 65% of population is widely used to provide for the security of e-government are internet users, with half of that number being high- solutions. bandwidth internet users.

The digital document circulation system of The use of mobile telephones to access internet is also e-government gives rise to a need for data analysis at a very high level. In order to increase the accessibility and processing centers as part of state bodies. Do of e-government infrastructure and services, we are such centers exist, and are they prepared to process developing high-bandwidth network infrastructure and large volumes of data? setting up internet stations to provide access to electronic services. Yes, there are data centers available at some state bodies, which are run in line with modern technological standards Mr. Minister, thank you very much for this detailed and enable high-volume data processing. In parallel, the information on e-government. And the last question: Ministry of Communications and Information Technologies what is being planned for the near future? Will the (MCIT) has submitted proposals for the establishment of a new e-government services be implemented? Will the unified e-government data center, in accordance with the relevant legislation be drafted? “Action Program for the development of e-government”. First of all, the e-government portal will be commissioned This centralized data center will support the secure and in the next three months, and new electronic services reliable storage of information resources, the provision will be put into operation based on the list of the types of of sustainable communications, simultaneously reducing electronic services approved by the Cabinet of Ministers. costs and maximizing the effective use and capacity of These services offer valuable opportunities that will be of human resources. immediate and pressing interest for citizens and businesses. With regard to the new legislative acts, the draft law of the How is the problem of the “digital divide” between Republic of Azerbaijan on e-government and a number the capital city and regions being resolved? of other associated documents are under consideration by MCIT specialists, who are consulting with international The entire country has access to a telephone network, experts. and a stable telephone network has been digitized. This means that all residential areas in Azerbaijan have internet access. In order to bridge the “digital divide” between the Baku and the regions, the countrywide AZDATACOM Mr. Minister, thank you for the interview. network was established by the MCIT together with UN

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Electronic Governance and Cloud Computing

The worldwide revolution in Internet is changing our lives computer (server), they run on a shared data center. In in terms of the way we work, learn and interact. These case of using an application that runs in the cloud, a user changes naturally should reflect the way government just logs in, customizes it, and starts using it. That’s the functions in terms of the organization of the government, power of cloud computing. its relationship with its citizens, institutions and businesses and cooperation with other governments. Efficiency of E-governance could be increased with using Cloud Computing. E-governance requirements may Also, the increasing generalization of technology access be driven by economic, political, technical and cultural by citizen and organizations brings expectations and reasons. E-governance requires applications to be demands on government. At the same time, governments secure and protect the privacy of end users. are also proactive in this domain and are planning new ways of interacting, improving services, optimizing Cloud Computing for E-governance can: processes and revitalizing democracy by spending amount on IT. It aims to deliver more interactive services • Reduce IT labor cost by 50% to citizens and businesses through E-Governance. For this, cloud computing may lead to significant cost savings. • Improve capital utilization by 75%, significantly It entails use over the Internet of computing hardware and reducing license costs software infrastructure and applications that are remotely hosted. • Provides much needed scalability - E-Governance applications face dataoutburst, cloud computing can The question is: What is cloud computing and how scale better this newly emerged paradigm of cloud computing can be helpful for E-Governance? • Offers unlimited supply of CPU, storage and bandwidth

Here it would be appropriate to mention some definitions • Provides efficient management and disaster recovery of cloud computing put forwarded with famous worldwide IT companies: • Helps government to go green, by centralizing all resources and efficient utilization GARTNER definition: • Helps to increase the number of resources dynamically A style of computing where massively scalable IT-related to maintain quality of service intact even at the times of capabilities are provided “as a service” using Internet high load, which generally happens in E-Governance technologies to connect multiple external customers • E-Governance applications can manage the policies NIST (National Institute of Standards and Technology) well by providing security and adoptability definition: • Various E-Governance applications can be integrated Cloud computing is a model for enabling convenient, on- easily. demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, Cloud Computing architecture requirements: applications, and services) that can be rapidly provisioned and released with minimal management effort or service • Cloud architecture is build with SOA principles provider interaction • Cloud architecture is highly flexible and modular and Sales Force definition: can integrate with other systems Cloud provides a solid foundation for the introduction of Cloud computing is a better way to run business widespread provision of services to various stakeholders. processes. Instead of running the applications in a local

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ISO 9001:2008

Applications designed using the principles of Service are keys for the government to measure how well the Oriented Architecture and deployed in cloud architectures services are being performed and provided by the will benefit the government in reducing operating costs and government. Cloud helps enabling E-Governing services increasing the governance. SOA and cloud architectures faster and cheaper thereby accelerating the adoption when properly applied to developing E-Governance and use of Information Technology for e-services. Cloud applications have the capability to transform the nation architectures allow rapid deployment of turnkey test into an Information Society. Service Level Agreements environments with little or no customization.

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First steps towards Electronic government

Zulfiya Aghakishiyeva Lawyer Smart Systems Technology

With the gathering pace of the information revolution, many developing countries have looked at IT as a potential tool to solve the endemic problems of poverty, bad governance, and poor economic growth.

While developed countries have benefited enormously from the wide-ranging uses of IT, many developing countries are still thinking about how best to use IT to address development issues. This trend also applies to e-Governance. In Azerbaijan, e-Governance has been 2. government to businesses; 3. government to discussed for a long time, and some government offices employees; 4. government to governments; 5. citizens have even taken innovative steps towards specific to governments. E-Government should enable anyone e-Government projects. Since this is a new concept for visiting a state website to communicate and interact government officials, the majority of whom have spent with city employees via the Internet (via a graphical their careers working within the same infrastructural user interface), instant-communication, audio/video framework, the prospect of e-Governance is often met messaging. These mechanisms provide more interactive with resistance and fear. But the good news is that in and more sophisticated alternatives to a simple email Azerbaijan, e-Governance is being taken very seriously, to the address provided on the site, supporting “the use and the process of creating an e-government has of technology to enhance the access to and delivery begun. On 23 May, the President of Azerbaijan, Ilham of government services to benefit citizens, business Aliyev, signed a decree “On Certain Actions in the Field partners and employees”. The focus should be on: 1. of Organization of Rendering Electronic Services by The use of Information and communication technologies, the Government Agencies”. This decree holds great and particularly the Internet, as a tool to achieve better importance not only for the development of electronic government; 2. The use of information and communication government but also in the continuing fight against technologies in all facets of the operations of a government corruption. According to the decree, within three months, organization; 3. The continuous optimization of service the website of every government agency will include a delivery, constituency participation and governance by specific electronic service section. This section will transforming internal and external relationships through include the title of the service to be provided, a detailed technology, the Internet and new media. list of the required documents for providing the service, and any electronic documents that the applicant needs to The main disadvantages concerning e-government are complete. the lack of equality in public access to the internet, reliability of information on the web, and hidden agendas What exactly is e-government? E-Government (short for of online groups that could influence public opinion. There electronic government) is digital interaction between a are numerous considerations and potential implications government and its citizens, government and businesses/ in implementing and designing e-government, including Commerce, government and employees, and also disintermediation of government and citizens, possible between government and governmental agencies. impacts on economic, social, and political issues, Essentially, the e-Government delivery models can vulnerability to cyber attacks, and disturbances to the be briefly summed up as: 1. government to citizens; status quo in these areas.

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Nonetheless, there are more advantages than of Conservation & Natural Resources, Wal-Mart and disadvantages to e-government. The ultimate goal of the NIC together developed an online hunting and fishing E-Government is to offer an increased portfolio of public license service utilizing an existing computer network services to citizens in an efficient and cost effective to automate the licensing process. More than 140,000 manner. E-government enables improved government licenses were purchased at Wal-Mart stores during the transparency. Government transparency is important first hunting season. because it enables the public to be informed about government actions and policies. Simple tasks may be One of the main goals of e-government is “the paperless easier to perform via electronic methods, for example office”. Proponents of e-government argue that online registering changes to marital status or home addresses government services would lessen the need for hard copy can be a lengthy process that requires a great deal of forms. Due to recent pressures from environmentalist paper work. E-government allows these tasks to be groups, the media, and the public, and some governments performed efficiently and more conveniently. Furthermore, and organizations have turned to the Internet to reduce e-government is an easy way for the public to be more paper use. For example, the US government supports involved in political campaigns. It could increase voter online “internal government forms for federal employees”, awareness, which could lead to an increase in citizen thereby significantly reducing paper usage. participation in elections. It is convenient and cost- effective for businesses, and the public benefits from easy access to the most current information available, E-government allows citizens to interact with computers without having to spend any extra time, energy or money. to achieve their needs at any time and any location, and eliminates the necessity for physical presence in front of government employees sitting behind desks E-government streamlines bureacratic processes and and windows. Improved accounting and record keeping improves access to government information for public can be noted through computerization, and information sector agencies and citizens. For example, the Indiana and forms can be easily accessed, meaning quicker Bureau of Motor Vehicles in the US simplified the process processing time. On the administrative side, access to of certifying driver records for county court proceedings. help find or retrieve files and linked information can now Indiana became the first state to allow government be stored in databases, versus hardcopies stored in records to be digitally signed, legally certified and multiple locations. Individuals with disabilities or health delivered electronically by using Electronic Postmark conditions no longer need to be physically mobile to be technology. In addition to its simplicity, e-democracy active in government- they can participate in government services can reduce costs. The Alabama Department processes from the comfort of their own homes.

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Every country that has established e-government has In less developed countries, for example India, the majority encountered numerous obstacles. Almost all early of the population is very poor and basic infrastructure is e-government initiatives were too expensive, and delivered inadequate. too little; this remains the case. The reasons for this are many, but they boil down the three basic failures: 1. Bad Under such conditions it is very difficult to provide strategy; 2. Poor delivery; 3. No management of benefits. government services to the people, for a number of The UK government commissioned research in to the reasons: issues affecting the project life cycle of e-government projects. In 2005, it published a paper on “The Common 1. Poverty: Causes of Project Failure”, defining and analyzing the 7 classic causes of failure: Internet access is too expensive, and installing the necessary telephone lines for internet or email access is 1) Lack of strategic clarity: Many projects fail because equally problematic in most poor countries. the project team and its key stakeholders do not have a common view of what the project is trying to achieve, and 2. Technical illiteracy: how its success should be measured. There is general lack of technical literacy as well as 2) Lack of sustained leadership at political and senior traditional literacy in countries like India. The correlation management level. between education and ability to use ICT methods are quite significant. 3) Poor understanding and fragmentation of user needs. 3. Language Dominance: 4) Lack of effective engagement with stakeholders. Most ICT-enabled projects in the public sector involve complex The dominance of English on the Internet limits the sets of stakeholders – users, suppliers, delivery partners access of the non-English-speaking population. Of all the elsewhere in the public, private and voluntary sector, webpages in the world, about 84 percent are in English, politicians and the media. followed by 4.5 percent in German, 3.1 percent in Japanese, 1.8 percent in French, 1.2 percent in Spanish, 5) Lack of skills: in addition to standard IT delivery and 1.1 percent in Swedish, 1 percent in Italian and less than program/project management skills, transformative 1 percent in all other languages. e-Government programs require a mix of broader skills: for example, change management, process mapping 4 Lack of awareness: and redesign, channel management, marketing, and communications. There is general lack of awareness regarding the benefits of e-governance as well as the process involved in 6) Poor supplier management: strong partnerships with implementing successful G-C, G-G and G-B projects. The suppliers are essential. administrative structure is not geared towards maintaining, storing and retrieving information electronically. 7) “Big Bang” implementation. 5. Lack of Participation from Social, Public and Private sectors:

designing any application requires close interaction between the government department and the agency developing the solutions. At present the users in the government departments are not contributing significantly to the design of the problem-solving architecture. Consequently the solutions that are developed and implemented do not meet the requirements of an e-governance project and hence are not implemented.

6. Inequality: Inequality in access to public sector services between various demographics- particularly the divides between urban and rural communities, the educated and illiterate, and the rich and poor.

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well as the redefining of administrative procedures and formats which finds resistance in almost all departments at all levels. 9. Operational Reluctance:

The psychology of civil servants is quite different to that of private sector employees. Traditionally, civil servants have been important repositories of government data. Thus any effort to implement document management and workflow technologies, or to change the system is met with resistance.

Azerbaijan is assimilating and applying European expertise to avoid such difficulties. There are many existing frameworks and models for the assessment of 7. Infrastructure: e-governance projects once they have been implemented. Using these frameworks, one can determine the success A lack of necessary infrastructure like electricity, and impact of the project. However, this amounts to internet, technology and communications will delay a post mortem exercise. What is needed is a tool or implementation. framework that will enable the decision makers to determine what is most required and what is most likely 8 Impediments to the re-engineering process: to succeed. The anticipated benefits of e-government in Azerbaijan include efficiency, improved services, better Implementation of e-governance projects require access to public services, and increased transparency significant restructuring to administrative processes, as and accountability.

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E-Government in Azerbaijan: What Lies Ahead solutions that allow citizens and businesses to complete Kent Babin tasks like business registration and permit renewals. Director of Software Development GoldenPay LLC The Ministry of Information and Communication Technology recently announced that the country’s first e-Government portal would be launched during the BakuTel exhibition at the end of November. So far, a handful of agencies and institutions have connected, with more expected in the Definitions of e-Government vary depending on who coming weeks. This would appear to be the country’s first you ask. For the purposes of this article, it involves major step in providing a consistent set of services to its a government (at the federal, regional, or municipal citizens. In many ways the country is ready. Most citizens level) using the Internet and other modern forms of have access to the Internet, television, or a mobile phone, communication to provide information and services to so the reaching citizens will not be a problem. As well, its citizens. It can also be stated that e-Government aims payment gateways have already been established that can to assist the sharing of information amongst government facilitate financial transactions made on e-Government agencies and institutions. websites.

The first definition can be broken down into two parts: one- South Korea, the United States, and Canada have taken way interaction and two-way interaction. In the case of the a lead role in e-Government implementation over the last former, a government would simply provide information on ten years. This is to be expected as all three countries a website that the citizen would consume. This information are considered developed and connected. But there would be updated frequently and would act mainly as a are also many successful examples of e-Government in reference. The latter case sees a government providing developing countries. In Rwanda, the government has a means for the citizen to both interact and receive a setup an “eRegulations” website that provides information response. Through this interaction, a government wants on everything from registering a patent to getting a work to achieve three things: a) providing better and timelier permit. Each process is broken down into steps describing services to citizens, b) cutting costs associated with older where you need to go, what you need to submit, and what communication methods, and c) getting the citizens to be you should expect to receive. Most impressive is the ability more actively involved in the governing of the country. to create an e-signature and register a business online. A good example at the municipal level would be a Within minutes, you can have an electronic copy of your government that offers it citizens the ability to participate business license. In Egypt, the city of Alexandria has in discussions about what to do with a budget surplus. implemented a solution for accepting and issuing license

E-Government in Azerbaijan today consists mainly of one-way interaction. Almost all agencies and institutions have functioning websites that provide information. Other services offer a slightly more complex layer of interaction. The Ministry of Taxes and the State Migration Service have implemented a short-code hotline that aids in the dissemination of information. AZPROMO employs Facebook and Twitter to keep the business community informed about events and import/export opportunities. The Ministry of Economic Development (MoED) has partnered with the International Finance Corporation (IFC) to create biznesinfo.az—a business information site. Perhaps the best example right now is GoMap.az—an interactive map of Azerbaijan setup by the Ministry of Culture and Tourism. You can find detailed geographical information about all major cities in the country. What is missing overall, however, is a large-scale effort that provides online

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and permit applications online. This has saved the city a be available online as well, which means you can find significant amount of money and streamlined a previously out when your bus is coming regardless of where you complicated process. As a citizen, you know that you will are. There is another project underway, also between not have to go from window to window trying to get your the MoED and IFC, regarding the issuance of licenses paperwork submitted. Instead, you can submit everything and permits. It will also help create e-Government habits online and receive a response much faster. Chile has also amongst the population. seen successful e-Government implementation in many areas. Specifically, taxes can be paid and most forms can What does this mean for citizens and businesses? To be submitted online. There is even an online portal for start with, more sophisticated e-Government will hopefully businesses and the government to buy and sell with each mean the simplification of arduous tasks. This will make other. everyone’s life easier and more efficient. In addition, there will be better access to government information. Things The fact that Azerbaijan has its entire e-Government like transit schedules, procurement tenders, and traffic future ahead of it can be seen as good news. It has the reports will be easy to find and displayed in a user-friendly luxury of learning from the mistakes of other countries and manner. Most importantly, the gap between government emulating the successful ones. The process will be a long and governed will narrow considerably. We will see one, though. As we are witnessing with e-Commerce, it communication channels with the government that did will take quite a while for people to develop trust in online not previously exist. And we should have a better overall services. It is, therefore, imperative for the government understanding of each other’s requirements—something to not assume the “build it and they will come” attitude. that is necessary in order for a government to be more Instead, active engagement and education will be efficient. Of course, this is only possible if the government paramount in getting citizens and businesses to switch remains committed to a successful e-Government from the status quo. One service that will certainly help implementation. In turn, the citizens and businesses of the transition process is currently being installed at bus the country need to actively embrace this new reality and stops around Baku. Commuters will soon be able to see engage the government to make the implemented services up-to-the-minute bus schedule information. This will likely better.

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Azerbaijan is close to establishing e-government

Mais Yusifov, Director AtaTechnology LLC

“E-government” is a new term, one that combines the vital elements of transparency and modern public administration. This concept is a consolidation of assignments and responsibilities in a digital format. E-government is an information exchange between government bodies and citizens which enables any citizen to obtain the information he or she needs, without having to be physically present at the government body in question. Citizens can apply quickly receive responses accordingly.

The following issues should be the main targets for establishing and improving the “e-government” system: • Transparency of the state management system; • Fast and effective operation of public administration mechanisms; • Ensuring citizen participation at all levels; • Preventing the replication of information and work according to newly established information exchanges When looking through the history of “e-government” across between structures; the world, it is clear that this is a recent concept. One key example might be the ‘Access America” e-government • Speeding up the decision making process and project, launched in the USA in 1993. This initiative planned application processing; to implement all government services via a single portal by • To improve the living standards of all citizens 2003. On the basis of this project, the “firstgov” portal was established and launched in 2001. The following benefits can be derived from the Here, the story of e-government began with the “National establishment of “e-government”: strategy (2003-2012) for the development of information and • Improved efficiency in terms of saving both time and communication technologies in the Republic of Azerbaijan”. money; This single portal should be operational by the end of this year.

• Improved confidence in the government; • Creation of the necessary legal basis – this is one of • Improved living standards of citizens; the main requirements. Currently, the experience of other countries is being studied in order to implement • Reduced use of paper; a law on e-government in Azerbaijan.

As one of the key sectors in Azerbaijan’s economy, ICT is • Establishing of technical infrastructure – Different developing rapidly in this globalized world. The establishment technical strategies must be organized and and development of the “e-government” project is an important implemented in a short period of time. There are issue, crucial to bringing Azerbaijan up to international significant investment projects being carried out standards in the fields of public administration and ICT. by the Ministry of Information and Communication

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Technologies, as well as by private companies. The taken a major step in this field. It is now time to expand the increase in the number of internet users and resources application of e-signatures and to educate people. Developing compared to the past years in Azerbaijan must be e-commerce and educating people in this field are two crucial taken into account. factors. The banking and IT sectors should be prioritized in this process, as they can offer a complete solution via electronic • Financing the e-government project – sufficient state services for their customers. financial resources have already been allocated. The State Authorities should prepare a single classification of • The human factor – trainings should be provided for the public services being provided, and submit the full list of citizens and government. the services to the Government. Government bodies should inform people of these services via diverse means. In recent • The establishment of the service system – appropriate years, a number of government bodies in Azerbaijan have service technologies must be selected and applied in carried out a series of successful projects in this field, such as order to achieve efficient usage practices. “e-tax”, “e-health”, “e-duty”. This means that citizens can solve • Protection of security and privacy– User information their problems without leaving their homes or workplaces. If must be protected and users must be assured of this system could be implemented across all the government the privacy of their information in the e-government bodies via a single portal in a related information exchange system. format, it could be said that e-government has already been achieved in Azerbaijan. There is no doubt that this project will The “e-signature” project, launched in 2011, is one of the key be realized successfully, given Azerbaijan’s existing financial components of the e-government project. Azerbaijan has and human resources.

20 Summer / Issue 12 in focus

Electronic services offered by banking system in Azerbaijan

Elmir Habibullayev Director, Retail Banking Department The International Bank of Azerbaijan

Retail business enables banks to diversify their customer and funding bases, as well as to increase their profitability and efficiency. The rapid growth of electronic banking products in recent years is becoming an important driver of the future development of the banking system. The expansion of e-banking from retail to the corporate segment would ensure sustainable development of comprehensive banking services. Given the numerous challenges to their operation along with the increasing competition, banks are becoming more careful about introducing new products and services. As a result, a great deal of time and efforts is spent on the development of the whole chain from financial engineering to marketing and assessment. However, the development of internet technologies makes the electronic banking segment extremely capacious. Therefore, in the important client. short term, we can expect overall growth in this market, and an increase in the number of users. With the increasing “MobilBank” is also becoming increasingly important - understanding of internet banking among clients, the range modern mobile banking channels allow clients to easily of products will also be gradually increasing and enhanced and comfortably manage their finances via personal mobile with new features. devices.

It has been many years since IBA first started to provide its IBA’s internet banking and “MobilBank” products allow our clients with a broad range of electronic banking services, clients to manage their accounts, use all kinds of payments and it has achieved notable success. IBA was the first Bank and receive detailed information about transactions. The in the domestic market to offer electronic banking products depth, flexibility and the range of internet banking services such as internet banking and “MobilBank”. has been constantly increasing. Until recently, clients could only make payments for international and mobile telephone Internet banking is, as a rule, an alternative channel of calls (Azercell, Bakcell, Narmobile), utility bills (electricity) customer service, the essence of which lies in the client’s and insurance, but now it is also possible to pay for the ability to safely exchange with bank information and perform internet (Azeronline, Adanet, Connect, Elcell etc), and travel transactions from anywhere in the world, as long as they services with SW Travel. Moreover, it is also possible to have an internet connection. This service allows customers perform “KartTransfer” operations, which allows the transfer to carry out fundamental banking transactions such as of funds from the client’s card to any other card issued by the transfer of funds, card transactions, bill payments, IBA, as well cards issued by a number of other local banks. foreign currency exchange, in addition to being able to With IBA’s increasing number of bilateral agreements, it receive information on bank products, submit applications is not possible to use the “KartTransfer” service with the for new products and subscribe to various services. The country’s leading banks, which makes this type of electronic key advantages of internet banking include the reduced banking very appealing. expenditute of time, effort, and money. This is a convenient service that bypasses the need to queue or to use paper. The range of electronic services is constantly expanding. It is a personal bank at home, which opens and closes Today, IBA offers its customers such essential electronic according to your needs, and where you are the most

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services as e-commerce (online purchase and sale of Thus, the customer will instantly be informed of any products and services), electronic depositing (an opportunity account. The account will be monitored 7 days a week, day for customers with banking cards to make deposits under a and night, regardless of the time and place. The customer fixed period for a bill of credit) and to receive cash instantly will also receive notifications of unsuccessful transactions, via ATMs even if the receiver does not have a bank card. i.e. notification of any attempt to conduct a transaction with We would like to emphasize that these services are also insufficent funds, expiry of the card, and so on. possible at the International Bank of Azerbaijan-Moscow, our subsidiary bank, which creates additional opportunities Electronic banking is become more and more popular. for the rapid and effective implementation of remittances for Customers prefer to carry out their daily transactions IBA and IBA-Moscow clients. The launch of IBA-Georgia is (payment mobile bills, internet, utilities, etc.) at their also planned for the near future. personal convenience – at home or at work. Every daily transaction is characterized by comfort and convenience, I would like to note that in line with the active work on and customers receive the same high quality, whether it is developing existing products as well as new ones, all a card, loan or deposit transaction. As electronic banking necessary measures are taken to ensure safety and security becomes an increasingly active channel for the same of of any transaction. However, even the most advanced bank products, the face of the Bank and its branding is protection system will not be absolutely safe if clients forget increasingly “electronic”. basic security rules regarding the storage of personal data (login/password, PIN, etc.). Our future plans consist of developing internet banking as the most advanced instantiation of electronic banking, along In order to prevent fraudulent transactions with banking with remote home banking services, and “Telebanking”. As cards, IBA offers the “SMS Notification” service, whereby our client base and customer requests increase, we will an SMS is immediately sent following account activity. expand our functionality accordingly.

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Baku becomes part of the world’s leading mobile community Azerbaijan and the World Bank’s InfoDev project. Elshan Musayev President Caspian Investment Center Bakcell is the principal partner of MoMo Baku Bakcell is interested in creating and developing mobile social networking in Azerbaijan. The mobile services market requires innovation. As a key player in the Azerbaijan telecoms sector, Bakcell understands its As of October 2011, Baku hosts Mobile Monday events obligation to help develop this rapidly growing industry. When mobile phones were first introduced, people accepted them only as a mobile form of the standard telephone service, providing person-to-person communications on a daily basis.

Today mobile phones have become a critical component of our everyday lives, as well as part of the fabric of international popular culture. Nowadays, people use phones not only for person-to-person communication, but also for business. One Monday of each month, more than 100 cities worldwide bring together mobile experts with new and exciting ideas for the mobile industry, The CEO of Bakcell Mr. Richard Shearer emphasizes the including mobile communications services. Now there is importance of launching an innovative mobile platform one Monday industry developers in Azerbaijan can look in Azerbaijan for the future development of the national forward to! mobile sector: “The mobile industry plays a key role in shaping any society. MoMo has been proven to be a Community-based practices and social platforms have successful tool in helping this highly dynamic industry introduced new elements of interactivity and transparency achieve benefits by spreading knowledge and engaging to our daily lives. Since 2000, Mobile Monday chapters everyone - especially young people - to act on their have been meeting at monthly events around the world ideas. Innovation is the foundation for Bakcell operations to explore the vast number of new opportunities in this and we take pride in becoming the principal business rapidly growing industry. This platform enables members supporting MoMo in Azerbaijan. We are strongly to connect with developments in the community, which committed to responding to the rapidly changing market spans over 100 locations worldwide. conditions through investigating the latest technology innovations, and bringing to life new projects that offer the greatest benefits to our valued customers. I expect Baku – 123rd city joining Mobile Monday MoMo to become a fascinating platform within the mobile sector that will lead to new technology projects in the Baku is the 123rd city to join Mobile Monday (MoMo). Azerbaijan market”. MoMo in Azerbaijan is aiming to foster innovation within the mobile sector of Azerbaijan by presenting technological innovations from the local and world About MoMo mobile marketplace, and implementing new projects and applications of modern technologies. MobileMonday is a global mobile entrepreneur community that originated in Finland in 2000. For over ten years, The official inauguration ceremony of Baku MoMo was MobileMonday has been attracting mobile professionals held on October 24. MoMo Baku was established by the to events to exchange ideas on developments and news Caspian Investment Center (CIC) in partnership with of in mobile business. It has been an open community for Bakcell, Azerbaijan’s the first mobile operator. The project all those working in the mobile field and with an interest is also supported by the Ministry of Youth and Sport of in the sector, seeking to bring together developers, policy

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makers, researchers and sponsors through monthly born. Towards the end of 2004, the movement started events, international summits, web communities and to spread to other areas of the world, and new MoMo news services. chapters were started in Tokyo, Japan, Silicon Valley, USA, as well as Rome and Milan, Italy. Since then, MoMo is a tool to help the worldwide industry achieve the number of Mobile Monday chapters and members wide-reaching benefits by spreading knowledge and has dramatically increased, making Mobile Monday the encouraging people with good ideas to take action. world’s leading mobile community. One Monday of every month an informal meeting of the represetatives of mobile operators, ICT companies and young specialists on mobile technologies is held, to share MoMo worldwide ideas and discuss innovative visions, trends, studies and forecasts from the mobile marketplace and the potential It is remarkable to note that various international cities, for new projects using mobile technologies. in Germany, Finland, Norway, Ukraine, Russia, Hungary, Romania, Switzerland, Canada, Ireland, New Zealand, In 2011, more than 1000 MobileMonday events in more Denmark, and Turkey, for example, are already members than 130 cities worldwide were organized. These events of the MoMo platform. were attended by some 200 000 visitors. These figures make MobileMonday a global leader in organizing mobile What will MoMo bring to Azerbaijan? industry events.

"MoMo will be a very important project in the Azerbaijani History of MoMo business sector. This mobile social network will bring new technologies to Azerbaijan and support the establishment In 2000, a couple of well-known Finnish visionaries met at of new business through mobile technologies", says a pub for an informal get-together. The only suitable time Elshan Musayev, the President of Caspian Investment for them was Monday evening. After meeting many new Center and founder of MoMo Baku. faces and discussing the latest in mobile technologies, the group decided to continue meeting on the first Today many areas of Azerbaijan economy are Monday of each month. This is how MobileMonday was developing. The oil and gas sector is still the leading

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area, but the government of Azerbaijan is interested network that brings together people with a shared interest in the diversification of the economy, and so attention and passion. is also being paid to the development of other sectors. ICT is one of Azerbaijan’s most innovative and fast MoMo will also serve as a “school”. People who are growing sectors. New technologies are being constantly interested in mobile technologies can join and learn a introduced to the market, and so innovations are critical in huge amount through this platform. Different seminars remaining competitive in this rapidly developing market. and trainings will be organized as part of MoMo Baku. MoMo Azerbaijan can provide a foundation for a new The applications, which have already gained international business culture in Azerbaijan. success, will also be be introduced via MoMo Baku. MoMo is creating cross-generational services that appeal New mobile business fields are being established using to all ages. mobile technologies. Day by day the the number of these technologies are expanding and increasing the mobile “Smile, it is Monday!”: that is MoMo’s slogan, playing on sector’s share in the national economy. Although it was the common dislike of Monday as the first day back to only three years ago that IStore was set up, the number work following the weekend. But as the slogan suggests, of people who have made significant amounts of money at MoMo, Monday is a day of new acquaintances and new – even become millionaires – is relatively high. MoMo information; it is the way to innovation. is also interested in establishing developer groups in Azerbaijan. These groups are being recruited by creating When Baku joined MoMo and was confirmed as the 123rd different games, entertainment and business apps. MoMo city, people joked that 123 was a lucky number. We believe that establishment of MoMo Baku will make a tremendous contribution to the Azerbaijan economy. There are programs seeking to involve young people in the business. MoMO will be especially interesting for We invite all mobile people to get involved in Mobile Monday! the youth. One way to understand MoMo is as a social Now there is a Monday you can look forward to!

25 member contribution

The top 10 risks for Oil & Gas companies

risk for the oil and gas industry. Lack of progress on Nihad Azizli policy debates, including US energy policy, greenhouse Assurance Senior, gas reduction measures to replace the Kyoto protocol, Ernst & Young deepwater drilling and environmental standards are Turgay Teymurov causes for serious concerns within the industry. Assurance Partner, Ernst & Young 3. Cost containment

Political constraints in North Africa and the Middle Companies are facing increasing pressure on their cost East and competition for proven reserves is the #1 risk containment efforts as a result of a number of factors. for oil and gas companies, according to a recent study Firstly, operating environments for oil and gas companies published by Ernst & Young (EY). The ranking is based have become more complex, posing both physical on interviews with oil and gas commentators and EY's challenges (resulting from, for instance, deepwater global multi-sector survey, which included 82 oil and gas drilling or Arctic exploration and production) and political executives in 15 countries. challenges. Secondly, increased and constantly changing safety and environmental reporting requirements are This article identifies and examines the top 10 risks for causing substantial increases in compliance costs. the industry today: 4. Worsening fiscal terms 1. Access to reserves (political constraints and competition for proven reserves) The fiscal and contractual terms offered by host countries change over time and depend on a multitude of factors, The survey indicates that a combination of political unrest including the size and complexity of the resource, in North Africa and the Middle East, high oil prices and current levels of investment, the degree of competition the growth of new government-backed rivals have pushed and national experience. However, governments tend this risk to the top of the list. to take a more assertive stance when prices rise. Under uncertain market conditions, governments often make regulatory changes to their benefit. This has previously In many new market opportunities, companies are been the case in the petroleum industry, and we are confronted with either very strong local markets or starting to see this again. ownership provisions (such as Brazil where companies must partner with a local organization), or situations Domestic supply obligations and changes to fiscal whereby the government does not allow companies to regimes are re-emerging, which will affect upstream participate in the market on an equity basis, in effect limiting investment. participation to service contracts. The trend of increasing competition from government-owned and government- 5. Health, safety and environmental ("HSE") risks backed companies shows no sign of diminishing. High commodity prices encourage governments to establish or expand National Oil Companies ("NOCs"). Today, HSE issues have risen on the oil and gas industry's Chinese companies are gaining the headlines, but the oil agenda over recent years. This reflects an increased and gas sector is also likely to see the internationalization desire on the part of oil and gas companies to achieve of NOCs from other emerging economies including Brazil, a more sustainable and robust operating model, coupled Russia, India and Korea. withthe fact that the industry is facing more complex operational challenges than ever before. 2. Uncertain energy policy A stronger emphasis on HSE issues may affect the Uncertainty over the future energy policy of both ability of companies to explore and produce oil and gas consuming and producing countries remains a high-level in certain regions, particularly ecologically sensitive

26 Autumn / Issue 13 areas. Specifically, there are growing public and political proportion of the industry's workforce will retire in the concerns over the environmental impact of unconventional next 5 to 10 years, and there does not appear to be oil and gas exploitation (for example, shale gas). an adequate labor force to replace this knowledge and expertise. In the aftermath of the Gulf of Mexico spill, both the industry and the regulatory bodies are evaluating the suitability of Another contributing factor here is the deteriorating brand the different regulations and the effectiveness of safety image of the oil and gas industry. It has long been a management practices among operators and suppliers. target for environmental activism, and periodically suffers high-profile environmental incidents. This could amplify 6. Human capital deficit the flight of talent to more "fashionable" sectors, such as renewables. While the oil and gas sector is by no means in crisis in 7. New operational challenges, including, unfamiliar terms of available talent, a serious situation could arise if environments insufficient action is taken to develop the next generation of skilled workers. "An aging workforce and a shortage of new recruits will remain critical factors in an era where There is a shared recognition in the industry that the time fossil fuels are seen by many as a 'dirty' or ‘sunset’ of "easy" oil and gas is over for most International Oil industry," noted one industry expert. Companies ("IOCs"), and many NOCs too. For this reason, the challenge of unfamiliar operational environments Almost 45% of workers are currently over 45. A significant has been included into the risk ranking. Because oil and

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gas reserves are getting harder to access as supplies 9. Price volatility are being consumed and political barriers increase, the industry is being pushed toward the pursuit of less Price volatility tends to be caused by geopolitical or accessible sources. Companies face both physically macroeconomic shocks. While capital-intensive oil and challenging environments, such as ultra deep water and gas projects will benefit from sustained high oil prices, the Arctic, as well as politically testing environments, the global economy is likely to be impacted negatively, such as insecure regions and areas governed by unstable and the problems created may be persistent. regimes. Small to mid-cap companies and large independents are Operating in new environments requires the management particularly exposed to price volatility, while major IOCs of several challenges. These include technological or NOCs are at an advantage. As Marcela Donadio, developments; changes to the way companies can Ernst & Young Americas Oil & Gas Leader, pointed out: execute and operate across the value chain; the need for "Companies cannot be in this business and ignore the wider ranging and new skill sets from future employees; volatility of pricing, because investment decisions are and the need for different organizational models between very long term and the volatility of the price curve is very the host country, operator, partners and suppliers. extreme."

8. Climate change concerns 10. Competition from new technologies

The survey found that some 14% of oil and gas respondents Despite the slow progress of international climate reported difficulty in managing emerging technology risks. talks, oil and gas companies face pressure from many The most commonly reported driver of the risk is the failure stakeholders to address climate change concerns. to develop a culture of innovation culture and the attendant Though the Copenhagen summit of 2009 failed to achieve processes. a breakthrough, pressure on companies can come from other stakeholders. Given that intergovernmental In addition to new technologies for exploration and negotiations over climate change have failed to produce production, the sector is impacted by broader technological legislation with binding targets to replace the Kyoto advancements. For instance, the cost of alternative power Protocol (which will expire in 2012), civil society groups generation is expected to fall, which in the long term could may turn directly to companies to address climate change. threaten the market share of the oil and gas companies that Oil and gas companies will increasingly be evaluated by fail to adapt. public opinion on their climate change policies.

Turgay Teymurov’s short biography Nihad Azizli’s short biography

Mr. Teymurov joined Ernst & Young in 2000 and is currently Mr. Azizli joined Ernst & Young in 2008 and is currently an an Assurance Partner, leading EY Baku Energy, Chemicals Assurance Senior. He focuses on Oil & Gas sector and and Utilities group, and additionally serves banks and other provides assurance services to the largest foreign Oil and Gas financial institutions. He has an outstanding track record Companies operating in Azerbaijan, Georgia and Turkey. of serving largest foreign and local companies operating in Azerbaijan, Kazakhstan, Georgia and Turkey. He’s experienced in Oil and Gas Accounting, PSA Accounting, IFRS Reporting, SOX 404 Reporting, Azeri statutory audits Turgay Teymurov has extensive experience in audits of and UK GAAP Reporting. financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), accounting He also had experience of co-teaching Intermediate principles generally accepted in the United States of America Accounting course at Azerbaijan State Economic University, (“USGAAP”) and in the United Kingdom (“UKGAAP”), as well Special Talents Group. as PSA accounting Nihad Azizli graduated with honor from Azerbaijan State Turgay Teymurov graduated with honor from the Azerbaijan Economic University, Faculty of International Economic State Economic University, major of Finance and Credit Relations (B.A., Special Talents Group, 2008; M.A., 2010). (1992-1997). He also holds Certificate from Georgetown University for He is a US Certified Public Accountant and a Licensed attending American Institute on Political and Economic Auditor of the Azerbaijan Republic. He is fluent in Azerbaijani, Systems. He is fluent in Azerbaijani, Russian, and English. Russian, and English

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member contribution

Islamic Insurance: Emerging Concept in Azerbaijan

Anar Karimov Partner EKVITA Law Firm

Introduction

In the light of a unique project recently launched by Islamic Corporation for Development of Private Sector, a multinational member of Islamic Development Bank Group, together with a local bank to establish Azerbaijan’s first Islamic insurance company, it is good moment to take a look at the concept of Islamic insurance – Takaful - particularly vis-a-vis conventional insurance.

Human endeavors obviously include elements of risk and uncertainty. The instruments developed over time do not entirely eliminate risk and uncertainty; they aim to reduce them in order to increase the possibilities for certainty. A conventional definition of the term “insurance” is a form of risk management primarily used to hedge the risk of a contingent, uncertain loss. Another common approach defines insurance as the equitable transfer of the risk of a participants in case of need, whereby the participants loss, from one entity to another, in exchange for payment. mutually undertake to contribute solely for that purpose”.

Features The concept of insurance is one of the instruments adopted by society to cope with risk and uncertainty which Takaful resembles conventional insurance in the sense may result in financial and physical loss from unexpected that it is a financial remedy to aid those who encounter events. Nowadays, insurance is a vital and integral part loss. But Islamic insurance is based on the concept of most financial, trade and industrial transactions. of social solidarity: mutual assistance, trusteeship and cooperation, inspired by the teachings of Islam in Islam is a religion complete with various business rules, the conduct of daily affairs. Indeed, Takaful is literally and in addition to providing spiritual and moral guidance, translated as “guaranteeing each other”. it presents its own insurance regulations. Insurance practices were known before the time of Prophet Muhammad (s.a.w.) and had developed by the early 19th The cooperation aspect of Takaful is derived from the fact century, when Islamic scholars defined it through the that the participants are simultaneously the insured and conceptual and legal basis of an insurance contract. the insurers. In contrast to conventional insurance, there is no transfer of risk, as all the losses are distributed by Insurance regulations in national legislation where Islamic the participants themselves. Consequently, there should law comprises a part of local jurisprudence determine be a legitimate relationship between the policy buyer and Takaful similarly to non-Islamic insurance. For example, the beneficiaries. the Malaysian Takaful Act 1984 defines Takaful as “a scheme based on brotherhood, solidarity and mutual In insurance practice, such a relationship is known as assistance which provides for mutual financial aid to the an insurable interest. Therefore, the policy shall not be

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held valid unless there is an insurable interest between benefit and safe-guarding, and every policy-holder the policy buyer and the expected beneficiary. This is pays his subscription in order to assist those who need because having a policy without ensuring an insurable assistance. It is considered as a donation contract, which interest is like a policy for gain, which is not compatible aims to reduces losses and evenly share responsibility with Sharia law. In addition, in the case of Islamic life among participants. A Takaful contract, which represents insurance, if the policy-holder wishes to surrender his the concept of cooperation and mutual assistance, should policy before the maturity date, all the premiums he therefore include the following conditions: has paid within the policy term will be returned to him, together with the profit earned on any investment of the (i) Speciality condition; premium paid. (ii) Partnership condition; (iii) Investment condition; Differences (iv) Management condition.

Takaful differs from the conventional insurance due to absence of the following elements: The speciality condition ensures compliance with Islamic cooperative principles and serves to ensure that the company functions according to such principles. The • Uncertainty (Gharar) – Uncertainty is forbidden partnership condition imposes upon the policyholders in contractual relations according to Islamic the right to entitlement of surplus profits, but at the same jurisprudence. It is an integral part of the service time render them liable to pay in additional amounts if provided by conventional insurance companies, since the initial subscriptions made during a particular year they transfer losses arising from unforeseeable future are insufficient to cover all the losses. The investment occurrences associated with risk, in return for pre- condition requires the company to invest its funds in agreed payment. Sharia-compliant sources and which do not indulge in forbidden practices. Lastly, the management condition stipulates that the policy-holders are to have adequate • Interest (Riba) – This is another important difference representation on the board of directors of the company between conventional insurance and Takaful. In and confers on them a right to scrutinize its accounts. conventional insurance, the insured receives an amount far greater that the premiums paid. Further to Legal paperwork that, conventional insurance is based on interest, and the money collected by the insurance companies may be, and often is, invested in interest bearing accounts Legal paperwork used in Takaful is similar to that which and other non-Sharia compliant operations; is used in conventional insurance. A subscription form is filled out and a premium is to be paid according to the package. Upon verification of the participant, a cover • Gambling (Maisir) arising out of Gharar – This element note or a statement of the account describing the details also emerges in conventional insurance contracts as an of the Takaful is issued. Further, the policy containing the inevitable result of Gharar since any person engaged terms and conditions of the insurance will be provided in contractual relations, which include uncertainty, to the participant. The general law governing Takaful actually participates in a form of gambling. In such rests on the general principles of the contract, wherein gambling, the parties have interest in the stake to be there must be an offer (Ijab) and acceptance (Qabul). won or lost by the determination of the event. As an insurance contract, there must be consideration,

• Other differences - (i) In contrast to conventional insurance, there is no agency relationship in Takaful between insurers and the insured parties. (ii) The concept of Tabarru (donate or contribute) – participants agree to relinquish as a donation a part of their instalments to a common pool of compensation.

Conditions

Islamic insurance relies upon cooperation, since policy- holders cooperate amongst themselves for mutual

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which is constituted by the payment of the premium for the insurer and indemnity by the insurer for the insured. Other elements include the legal capacity to contract, insurable interest, specification of the insurance policy period, and the absence of non-Sharia complaints, such as Riba, Gharar and Maisir.

Takaful in Azerbaijan: challenges

The insurance industry in Azerbaijan is primarily regulated by the Insurance Activity Law, the Civil Code and other insurance and licensing related laws, presidential and ministerial decrees, regulations of the Ministry of Finance, etc. Since there is no specific regulatory framework for Islamic insurance, Takaful is subject to the general insurance laws and regulations.

These regulations seem to be compatible with regard to the standard requirements relating to the incorporation of the Takaful company, founders, and establishment process. For example, according to the Insurance Activity Law, the insurance company may only be incorporated in the form of an open joint stock company. The law allows local citizens, local legal entities, international financial organizations to which Azerbaijan is a member, and foreign insurers to act as founder(s) of an insurance company. The establishment process of the Takaful Company in Azerbaijan consists of the following steps: initial document screening (the Ministry of Finance); State registration (Tax Ministry); final license application (the Ministry of Finance); and registration of shares (State Securities Committee). Concluding remarks

However, with respect to the operation of the Takaful The biggest difference between Takaful and conventional company and the implementation of Islamic insurance insurance is that with Takaful, the company is not the insurer products under the current legislation, a range of insuring the participants or members. The people participating challenges are anticipated. Respective insurance rules in the scheme mutually insure one another, which explains (terms of the product) must be agreed with the regulator why Islamic insurance is cooperative insurance and is based along with obtaining the license. Because Takaful is a on mutual assistance, unlike conventional insurance which new insurance concept in Azerbaijan, the issuance of the is based on common law principles and their operations are license and granting of approval for the product would based on the principles of interest. The Takaful company be at the discretion of the regulator. Another aspect to merely handles the matters of investment and business be taken into account is that in Azerbaijan an insurance and administration, and as such it is a facilitator of the risk company may undertake insurance activities either in mitigation process. life insurance or non-life type (general) insurance, i.e., the insurance company may not simultaneously engage The values of solidarity and cooperation are embraced in life insurance and property insurance. The next by Islam, and these principles can be seen clearly in the challenge is that the Insurance Activity Law prescribes operation of Islamic insurance. This concept is further specific name requirements for insurance companies, i.e. strengthened by the fact that the Takaful scheme is not the name should be defined in the Azerbaijani language; driven by self-enrichment. Therefore, specific regulatory it may not contain non-translated words or capital letter; amendments should be discussed and addressed in order to the word “insurance” should appear in the full name support the implementation of Takaful in Azerbaijan, so that of the company, etc. A question arises regarding that people can benefit from its insurance products, which seek to issue on whether and how the term “Takaful” or “Islamic apply trusteeship in line with elements of cooperation, mutual insurance” would appear in the Takaful company name. assistance and shared responsibility.

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member contribution

Azerbaijan’s exhibitions draw attention from around the world Interview with Mr Farid Mamedov, Executive Director of ITECA Caspian

As another season of Iteca Caspian industry exhibitions draws to a close, we invited Company Director Mr Farid Mamedov to reflect upon the group’s experiences and achievements over the past year.

1. Mr Mamedov, we know that despite the unstable situation in the global markets, all of last year’s exhibitions in Azerbaijan were successful. How would you rate the exhibition season this year?

This year, we held exhibitions covering 23 trade sectors. Obviously, these included our best-known exhibitions: AutoShow, Azerbaijan’s international automotive exhibition; AITF, the international travel and tourism exhibition; WorldFood, the international food industry exhibition; the Caspian Oil and Gas Exhibition; TransCaspian, Azerbaijan’s international transport and logistics exhibition; BIHE, the international healthcare exhibition; Education and Career; BakuBuild, the international construction exhibition; and BakuTel, the telecommunications and information technologies exhibition. situation in Azerbaijan, along with healthy predictions for growth and development over the coming years. This year has also seen a number of new launches: Plastex Caspian, the Caspian international plastics and rubber 2. Traditionally, Azerbaijan’s exhibitions have drawn exhibition; Caspian Power, the Caspian international power attention from around the world and regularly attract and alternative energy exhibition; and Road & Traffic, the influential visitors. Is there anyone you would point out Caspian international road infrastructure and public transport this year? exhibition. This November, we held the first international environmental exhibition – Caspian: Technologies for the Definitely! We were honoured by the presence of the Environment (CTE 2011), supported by the Ministry of President of Azerbaijan, H.E. Mr Ilham Aliyev, at a Ecology and Natural Resources of Azerbaijan Republic. number of our exhibitions this year. The Caspian Oil & These new shows proved very successful, and given the Gas Exhibition and Conference welcomed a large party pace of development within these sectors, we are confident of VIPs, including His Royal Highness Haakon, Crown that they will continue to grow in size and popularity. Prince of Norway; Gunther Oettinger, EU Commissioner for Energy; Richard Morningstar, the Special Envoy of the In general, we are very pleased with this year’s exhibition United States Secretary of State for Eurasian Energy; and season. Almost all of the events have grown by over 20%, Alexander Khetaguri, Minister for Energy of Georgia. The and some even more than that – BakuTel, for example, leaders of the USA, Great Britain, Turkey and the EU sent has more than doubled in size. BakuBuild, the biggest welcome letters to be read at the opening ceremony. We exhibition in the Caspian region, occupied all three of the were also joined by Mr Igor Levitin, Minister for Transport of Baku Expo Center’s available Exhibition halls in the as well the Russian Federation, at the TransCaspian Conference, as the outside area, making the October 2011 event one and Mr Lino Baranyao, Minister for Science, Technology of the most successful to date. One of the key factors in and Product Innovation of Argentina, at CTE 2011. our success has been the stable financial and economic

34 Autumn / Issue 13 member contribution

This year’s BakuTel exhibition featured 18 international The new venue also offers opportunities for developing the stands, many of which were supported by their relevant exhibitions, both in terms of size and quality, as it has the ministers, including representatives from Jordan, Senegal, capacity to host larger events, and offers exhibitors more Israel and Turkey. In addition, Jan Kubis, Chairman of flexibility with regard to the individual design of their stands. the Committee of Ministers of the Council of Europe; We look forward to strengthening and consolidating out Hamadoun Toure, Secretary General of the International relationship with the Baku Expo Center over the coming Telecommunication Union (ITU); Ambassador Abdul Mois years. Bukhari, Deputy Secretary General of the Organization of Islamic Cooperation (OIC); Prof. Dr. Atta-ur-Rahman, 4. Are you worried that the development of the exhibition Coordinator General of the OIC Ministerial Standing industry will see increased competition? Committee on Scientific and Technological Cooperation (COMSTECH) and many others flew into Baku for the event. Increased competition is certainly something we anticipate. However, we have a number of advantages over our 3. Baku Expo Center has now been open for more than competitors. first is our strong partnership with ITE Group a year. How has the availability of a purpose-built space PLC and with its international brands. Iteca Caspian” with impacted the exhibitions? “ITE Group PLC are well known outside of Azerbaijan, and leading international companies trust us to deliver. Our The availability of a modern exhibition complex that meets regular participants support our initiatives and join us in our customers’ expectations is significant both for the entering new markets. exhibition industry and the economy as a whole. It is a huge step towards establishing Baku as a regional business hub. ITE Group PLC also has a wide network of international We have now hosted two seasons at the Baku Expo Center offices and agents, with offices located in our clients’ key and feedback from our exhibitors and visitors has been markets: UK, Germany, Dubai, China, Poland, Turkey, extremely positive, reaffirming the importance of having a Russia and throughout Central Asia. venue that meets international standards. Although the complex is located outside of the city center, transportation was not a problem – visitors made use of a free shuttle Furthermore, we have a professional local team. Our service to and from central Baku. And, in fact, its proximity employees undergo international training, taking advantage to the airport, the rapid growth of the city and the protection of the experience of our partners and attending the world's from city-center traffic will secure its popularity. leading exhibition schools.

35 member contribution

Another important factor in the success of our exhibitions is 6. Can you share your plans for the future with us? the level of state support we receive in Azerbaijan. The status and credibility of our exhibitions is enhanced by the regular Our agenda for the next few years is not a little daunting! attendance of Azerbaijani President H.E. Mr Ilham Aliyev at Our focus remains the same – the development of our the opening ceremonies of exhibitions – for example, Caspian exhibition business, both in terms of quality and quantity. At Oil and Gas, BakuTel and AITF. The events organized by each show, we conduct market research, which enables us Iteca Caspian are also officially supported by government to understand the needs and expectations of producers and bodies such as the Ministry of Health, the Ministry of consumers, and track future market developments. We are Culture and Tourism, the Ministry of Emergency Situations, always seeking to add new sectors to our portfolio in order the Ministry of Industry and Energy, the Ministry of Ecology to attract exhibitors from adjacent industries. Exhibitions and Natural Resources, the Ministry of Communications covering 25 trade sectors have been scheduled for 2012, and Information Technologies, the Ministry of Transport, the including the first ‘IPACK Caspian’ – the Caspian International State Oil Company of Azerbaijan Republic (SOCAR), the Packaging, Packing, Label and Printing Exhibition. In the Main State Traffic Police Department, the State Committee past, this sector was part of the WorldFood Azerbaijan on Urban Planning and Architecture, the Azerbaijan Export exhibition, but in response to the growing demand for these and Investment Promotion Foundation (AZPROMO) and products, we are now offering it as a stand alone event the National Confederation of Entrepreneurs’ (Employers’) under the IPACK brand, whose events cover Russia, Turkey, Organizations of the Republic of Azerbaijan. Kazakhstan, Uzbekistan and Ukraine. We are confident that this event will prove a success in Azerbaijan. In other news, Some of the exhibitions are also supported at an international in response to feedback from participants, the Education level by organizations such as the UN, the International and Career Exhibition will now be a biannual event, held in Telecommunication Union (ITU), the UN World Tourism spring and in autumn. Organization (UNWTO), the Permanent Secretariat of the IGC TRACECA, the UN-established Global Alliance for ICT 7. Mr Mammadov, Iteca Caspian has been a member of and Development (GAID), the Regional Commonwealth in AMCHAM for several years. How would you assess this the field of Communications and the Association of Tourism co-operation? Exhibitions Organizers. We are very proud that Iteca Caspian has been a member Naturally, we are extremely grateful for continued support of AMCHAM for eight years. AMCHAM has 230 members from these various bodies. covering a wide range of industries. Many of the member companies and associations are regular participants in our 5. 2011 has been declared the Year of Tourism in exhibitions. Regular meetings within the framework of the Azerbaijan. What contribution have your exhibitions Chamber, as well as activities that gather the members made towards the development of tourism? together undoubtedly help to establish new contacts and build relationships. Actually, this year, AMCHAM celebrates Answering that question is easy! This year’s exhibitions its fifteenth anniversary – I would like to congratulate them have brought over 1,600 exhibiting companies to Baku, as on this achievement and wish AMCHAM and IMPACT every well as over 50,000 visitors. Around 20% of the visitors and success in the future. 40% of exhibitors were from abroad and, for many, this was their first visit to Azerbaijan. I believe they left with a strong impression of Azerbaijan’s economic successes, the scale Farid Mamedov, Director of Iteca Caspian LLC, was born in of construction that is going on, the level of local production 1974 in Baku. He attended secondary school from 1981 to and, of course, the country’s resource wealth . 1991. In 1992, he entered the State Economic Regulation Faculty at Azerbaijan State Economic University (ASEU). Additionally, every year, Iteca Caspian, supported by the Ministry of Culture and Tourism of Azerbaijan Republic, In April 1992, he was employed by the Ministry of Material organizes the country’s international travel and tourism Resources. From 1992 to 1994, Mr Mamedov undertook exhibition (AITF). This event promotes local tourism, as well military service. as providing information on travel opportunities available to Azerbaijani tourists - both domestic and international. Every On his return from military service in 1994, Mr Mamedov year, the number of companies exhibiting at AITF increases, continued his education whilst working at the Ministry of with more and more countries choosing to participate. Material Resources until 2000. He graduated from ASEU in 1998. He has worked for Iteca Caspian LLC since 2000.

I feel that speak for Iteca Caspian to say that we are In 2007 he completed an UFI course on the Organisation and proud of the role we have played in developing tourism in Management of Exhibitions. Azerbaijan.

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AmCham Azerbaijan

The American Chamber of Commerce in Azerbaijan is a private, non-profit business About us association supporting and promoting the interests of business in Azerbaijan.

Established in 1996, AmCham is com- posed of over 220 members and asso­ ciates active in every sector of the Azer­ baijani economy. We represent 80% of all foreign investment, as well as a significant portion of local investment which allows us to promote American, Azerbaijani and multinational corpora- tions. This includes leading companies in Energy, Banking, ICT, Legislative/ Financial Consulting, Professional Ser­ vices, Education, Real Estate Develop- ment, Health, Transportation, Travel and Production fields.

An active and positive influence in Azerbaijan, we conduct our mission with integrity and respect for the country, observing all local laws and insisting Membership To apply on the highest ethical standards in all relationships and transactions. There are two types of affiliation with To apply for affiliation with AmCham, AmCham: Member and Associate. a candidate must submit a written application in the form adopted by Why join? Member status includes voting privileges the Board of Directors. Membership and eligibility for Board and committee applications are available at the Key member benefit – chairmanships in addition to the privileges AmCham office or on our website at best networking opportunities in granted to Associates. For affiliation as www.amchamaz.org. The application Azerbaijan! a Member, a candidate must be a legal form should be completed and sent to entity, registered and doing business in our office with the company registration As a member of AmCham, your Azerbaijan and be in good standing in the certificate issued by the Ministry of company has access to a vast network community, as determined by the Board Justice of Azerbaijan. of business information and contacts in of Directors. Azerbaijan and in the US government, A candidate meeting the objective and as well as valuable information on US A legal entity, branch or representative subjective requirements for affiliation businesses across Europe through office of a legal entity is eligible to be ECACC (European Council of American affiliated with AmCham as an Associate, with AmCham is accepted as either a Chambers of Commerce) and US subject to the Board of Directors’ Member or Associate upon receiving Chamber of Commerce. determination of good standing in the an affirmative majority vote of the community. Board of Directors and paying the first Additional Member Benefits include: year’s fee for the candidate’s category Associates are eligible to participate in of affiliation. Annual Employee Salary Survey various activities; receive our regular Quarterly Inflation Survey publications, including the Membership To maintain affiliation with AmCham, AmCham Membership Directory Directory, Annual National Employee Members and Associates must continue AmCham Resource Library Salary Survey and Quarterly Inflation to meet our eligibility requirements, be Survey. Associates, however, are not in good standing in the community, and For more detailed information please entitled to vote or serve on our Board be current with all financial obligations visit our website www.amchamaz.org of Directors. to AmCham.

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Government relations: September – December 2011

During the reporting period, AmCham sustained an intensive and direct dialogue with the Government of Azerbaijan to discuss sector-specific issues. On September 13, we met with Mr. Shahmar Movsumov, the Executive Director of the State Oil Fund and Head of the Working Group on the National Education Strategy, in order to discuss Azerbaijan’s 2011-2021 Education Strategy, which is currently under preparation. We also met Mr Ali Huseynli, Head of the State Building and Legal Policy Committee of the Parliament, on November 25 to discuss national legislative processes and the possibility of cooperation with the body chaired by Mr Husenyli. Throughout this period AmCham maintained a dialogue with the State Migration Service (SMS), and on 29 November, we met with the Head of the SMS Mr. Arzu Rahimov, to discuss and clarify new requirements concerning medical certificates effective from November 1. Following the meeting, Mr Rahimov clarified number of questions that had arisen with the introduction of these new guidelines. Moreover, Mr Rahimov agreed to AmCham’s proposal to answer questions from AmCham Members on migration issues in the form of a ‘Frequently Asked Questions’ On a working level, representatives of Ministry of Tourism, Ministry piece. of Economic Development and State Customs Committee As part of the follow up on the AmCham White Paper, on participated in various AmCham Committee meetings. AmCham 1 December 2011 we had a meeting with Mr Adil Aliyev. The hosted the Deputy Chief of the Tourism Department of the meeting addressed AmCham proposals for improvement Ministry of Taxes along with representatives of AZAL at the to legislation across different fields, in addition to AmCham Tourism Committee’s October meeting. In November, AmCham position papers on different legislative acts. A number of issues hosted the Chief of the Legal Department of the State Customs surrounding legislative practices in Azerbaijan were also clarified. Committee to discuss new the Customs Code, which will come into effect on 1 January 2012. AmCham also hosted a Leading On 29 September AmCham hosted Deputy Minister of Taxes Mr. Advisor of the Ministry of Economic Development, who spoke Sahib Alakbarov as the guest speaker at the Monthly Members’ about the status of the Azerbaijan’s WTO accession process. Luncheon. He was accompanied by the Head of the Tax Policy and Analytical Department of the Ministry of Taxes, Mr. Akif In addition to initiating dialogues, AmCham was also on the Musayev. receiving end of invitations from government officials. Various state bodies invited us to participate in their events. AmCham took part On December 8 AmCham hosted Mr. Kamaladdin Heydarov, in a seminar devoted to “Increasing the role of public associations Minister of Emergency Situations, as a guest speaker at the of entrepreneurs in informing, teaching and promoting services Monthly Members’ Luncheon. Mr. Heydarov updated members provided to tax payers”, organized by the Ministry of Taxes (19- on the developments following the establishment of the Ministry 20 October). The Deputy Minister of Labor and Social Protection of Emergency Situations, and touched upon improvements in the invited AmCham to the Ministry’s conference on “The role of the local economic climate. State Employment Service in providing decent jobs: modern AmCham also prepared two position papers: “The Higher approaches and priorities” on 26 October. Education System of Azerbaijan” and “The Action Plan for the AmCham is continuing to pursue a number of other projects Year of Tourism approved by President of Azerbaijan on 20 July involving different state agencies and institutions. We will keep you 2011”, which were sent to the relevant state bodies. AmCham updated on all our activities for the establishment, maintenance plans to take further measures to follow up on these position and promotion of our policy dialogue with the Government of papers, and members will be duly informed such action. Azerbaijan.

39 AmCham Azerbaijan

Business Events Monthly Member Luncheons

29 September 2011 Mr. Sahib Alakparov, the Deputy Tax Minister of Azerbaijan, was invited as our Special Guest Speaker at the first Monthly Members’ Luncheon after the summer break. Mr. Alakparov spoke on the topic of tax reform, both in terms of policy and administration, including the application of international best practices and modern technologies. The luncheon also featured a presentation by AmCham’s Member Relations & PR Manager, Mrs. Aysel Suleymanova, who introduced the exciting new features and benefits available for our Full Members within the Member-to-Member (M2M) discount program. The director of the American Chamber of Commerce, Ms. Nargiz Nasrullayeva-Muduroglu, welcomed Hilton Baku and Ekvita Law firm as new members of AmCham. Following the speeches, we heard presentations from Eldar Alimuradov of Hilton Baku and Huseyn Huseynzade from the UNDP Office in Azerbaijan. 27 October 2011 In October we were delighted to welcome US Ambassador to Azerbaijan Matthew Bryza, the Honorary President of the American Chamber of Commerce in Azerbaijan, and to hear his insights on "Perceptions and Partnership on Economic Reform in Azerbaijan", following his 10 month tenure in the country. Director of Amcham Ms. Nargiz Nasrullayeva-Muduroglu and Legislative Liaison and Policy Coordinator Shahid Shukurov updated guests on the Chamber’s cooperation with the State Migration Service and recent legal developments in the country.

40 Summer / Issue 12 AmCham Azerbaijan

We also had presentations from Elshan Musayev of Caspian Investment Centre and Zaur Abdullazade of Expert SM – two new members of the Chamber, who were introduced by the Director. 8 December 2011 Our Special Guest Speaker this month was the Minister of Emergency Situations Mr. Kamaladdin Heydarov. On the 5th anniversary of his Ministry, Mr. Heydarov briefed guests on the Ministry’s activities and achievements. In his capacity as a member of Cabinet of Ministers of Azerbaijan, he also shared his vision for Azerbaijan’s economic development. Following their official introduction, the Kempinski Hotel Badamdar Baku and Norm LLC gave presentations. The luncheon also featured a presentation on the outcomes of AmCham Azerbaijan’s 13th Annual National Employee Salary Survey, which covers the latest trends in the national labor market, based on the participation of a record number of 120 of the largest foreign and local companies operating in Azerbaijan.

41 AmCham Azerbaijan

“TOWARDS THE FUTURE” ICT CONFERENCE

The Ministry of Communication and Information Technologies of the Republic of Azerbaijan and the American Chamber of Commerce in Azerbaijan hosted "Towards the Future" ICT Conference within the framework of "Bakutel" International Exhibition organized by Iteca Caspian. The conference took place on Thursday, 24 November 2011. The program of the conference featured leading ICT technologies, innovations as well as positive and negative impact of their possible implementation in Azerbaijan. Cloud Computing and Mobile Broadband topics covered two panel discussions by leading professionals from HP, Microsoft, PwC, Azerfon-Vodafone, Nokia Siemens and Sazz. The event was carried out in an interactive Davos format and provided an excellent opportunity for guests to get the latest trends in ICT from the invited industry leaders and get involved in discussion with key stakeholders. The program consisted of two panels and followed by a networking lunch.

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Committee Highlights HR Committee 27 September 2011 AmCham has been requested by the World Bank to prepare a list of ten key areas for reform in the education system of Azerbaijan, from the perspective of employers. These issues will be raised at the next World Bank Experts Forum with the Government of Azerbaijan on economic diversification. The Committee appointed its September session to discuss recommendations for the improvement of the education systems, to be developed by members for further discussion with the Government during the Forum. Later on, representatives of the International Labor Organization (ILO) delivered a presentation on their projects and activities in Azerbaijan, and discussed the Multinational Enterprises Declaration with Committee Members. At the end, Nargiz Nasrullayeva-Muduroglu updated members on the current status of the 2011 Salary Survey Review, and encouraged all HR professionals within the group to participate in the project.

28 November 2011 The meeting discussed the Preliminary Review of Salary Survey 2012. Olga Romanova of the US Embassy gave a presentation on the Women Entrepreneurship Project, initiated by AmCham and the U.S. Embassy in Azerbaijan. The program’s objective is to empower the next generation of female business leaders and to develop the business skills of young women. ICT Committee 8 September 2011 The September meeting of the Committee was called to discuss the upcoming ICT Conference, scheduled for November 2011. Mrs. Nasrullayeva-Muduroglu shared AmCham’s best practice model – seen in the recent Tax Conference - and suggested that the ICT conference have a similar interactive format, involving government officials and representatives of various youth organizations. The Committee agreed that the conference would be held as a one-day event, exploring the following topics: (a) Social networking, (b) Cloud computing and (c) Mobile broadband. The second part of the meeting was dedicated to the next edition of IMPACT Magazine, which would cover the issues surrounding the development of Electronic Governance in Azerbaijan.

43 AmCham Azerbaijan

Travel, Hospitality and Tourism Committee 20 September 2011 Mr. Mahir Qahramanov, the Deputy Chief of the Tourism Department of the Ministry of Culture and Tourism, updated the Committee on the Action Plan currently being implemented by the Ministry. This plan covers social and economic development in the regions; creation of infrastructure for further development of tourism; preservation of national cultural heritage, promoting Azerbaijan as a tourist destination, development of human resources, visa procedures, legislative framework, etc. Following this, the Executive Director of AmCham updated members on the recently released position paper on tourism, and asked members for their feedback. Mr. Elnur Huseynov of AIT – HRG Azerbaijan has been elected the Chairman of AmCham Travel, Hospitality and Tourism Committee for the years 2001-2012. At the end of the Meeting, faced by Directors and Managers in Azerbaijan, and how the Committee decided to send an official letter to the Ministry AKDMA can help them to resolve these problems. of Culture and Tourism request them to delegate an official contact person for AmCham. Mr. Shahid Shukurov, Legislative Liaison and Policy Coordinator of AmCham Azerbaijan, briefed committee members on the 2 November 2011 New Law on Compulsory Insurance, signed by the President on 15 September 2011. The law covers the following types of The November meeting of the Committee started with a insurance: (a) Real Estate, (b) Civil Liabilities and (c) Passengers presentation form Mr. Jamil Manizade, Deputy Executive and Vehicle Owners. Mr. Shukurov also talked about the follow- Director of Silk Way Travel, which covered the company’s up process and the ‘Review of the BFI’ section of the AmCham current activities and new initiatives. The presentation was White Paper, which was shared with President Ilham Aliyev in followed by a Q&A session and a discussion of improvements June 2011. in the tourism sector and problems experienced by members at Heydar Aliyev International airport - including poor choice Mr. Chingiz Mekhtiyev of AzRe provided members with a and quality of food and beverages, as well as long queues at general overview of the insurance market. Mr. Daniel Fitzpatrick passport control and check-in. of Sibley International briefed committee members on the upcoming joint USAID / IFC conference on secured transactions As a result of discussion, the Committee decided to send letter to legislation, and encouraged experts from the banking sector to the appropriate state and private bodies regarding improvement participate. of the quality of airport services. 30 November 2011 13 December 2011 Two speakers were invited to the last committee meeting of During the final Tourism Committee meeting of 2011, we 2011. First, Mr. Rashad Abbasov, First Deputy Chairman of the discussed this year’s main industry news and updates. The Executive Board of AXA MBASK, who talked about AXA’s entry "International Buyer Program" was presented by US Embassy into the Azerbaijani insurance market and its role in the future representatives. development of the market. Mr. Henning Seemann, Team Leader at SBFIC, followed with his views on how to improve Banking, Finance and Insurance financial literacy in Azerbaijan and tackling over-reliance on Committee credit. Tax and Customs Committee 26 September 2011 Mr. Murad Alizadeh, Founder & Chairman of the Executive 6 October 2011 Board of the Azerbaijan Corporate Directors and Management The meeting opened with a briefing on the current stage of what Association (AKDMA) was invited as a Guest Speaker for the has so far been a very promising dialogue between AmCham September meeting of the Committee to discuss the issues and the Ministry of Taxes, and on two recent meetings with the

44 Summer / Issue 12 AmCham Azerbaijan

Deputy Ministers - Mr. Natig Amirov and Mr. Sahib Alekberov. This was followed by a presentation on the status of customs code by Mr. Shahid Shukurov, Legislative Liaison and Policy Coordinator of AmCham Azerbaijan. 3 November 2011 The New Customs Code of the Republic of Azerbaijan was introduced by Mr. Sanan Mukhtarov, the Head of the Legal Department of the State Customs Committee. 2 December 2011 In the final meeting of 2011, Committee Members shared perspectives on the current status of Azerbaijan’s accession to WTO with Mr Mirze Aliyev, the lead consultant from the Ministry of Economic Development. CSR Committee 11 October Over the past couple of years, AmCham HSE Committee has successfully implemented a number of important social initiatives, including amongst others the Tree Planting Campaign (2011), a New Year’s Eve Visit to the Orphanage (2011), Trainings on Ecology in city schools (2011), Trainings on Office Safety (2007), Trainings on Stress Management (2007), Trainings on Road Safety for kids (2006). The primary focus of this committee has been to target corporate social activity. This work has generated a strong initiative for the restructuring of the current body into a brand new Corporate Social Responsibility (CSR) Committee. We believe that this entity will become an integral and strategically important part of your operations. As a natural platform for sharing information among AmCham members, this committee will aim to raise the level of awareness on CSR issues, share best practices, and implement joint projects. The first meeting discussed the Concept Paper, along with the mission, vision goal and key directions of activities under the newly established Committee. Attendees introduced various CSR projects implemented by their companies. At the end of a meeting, it was proposed to develop CSR Awards for the most socially responsible members of AmCham. 1 November Following online voting and the final resolution by AmCham’s Board of Directors, Leyla Seyidzadehof P&G was elected as Committee Chairman, and Samir Mammadov of Save the Children as Vice-Chairman. The concept paper was approved, taking into consideration a few comments on wording suggested by Agil Gurbanov, PwC. Dr. Israil Iskenderov from “Umid” NGO gave a presentation on the Position Paper compiled in cooperation with AmCham. As a part of their CSR activities, AmCham and P&G agreed to implement a joint Donor Project before end of 2011.

45 AmCham Azerbaijan

AmCham Legal Update construction; real estate that is in a dangerous condition, illegally LAW ON MANDATORY built real estate (Art. 35). The insurable amount for buildings and building under construction that are not for residential purposes INSURANCES buildings and buildings under construction is the reconstruction cost, for non-residential areas it is the average market value (Art The Law will come into force on October 15, 2011. It 39.1). The insurable amount for residential property is AZN 25,000 will replace the law On mandatory insurance of the (twenty-five thousand) for real estate in Baku (Art 39.3.1) and AZN civil liability of vehicle owners, the law On mandatory 20,000 (twenty thousand) in Ganja, Sumgait and Nakhchivan (Art ecological insurance, the law On mandatory insurance of 39. 3.2), AZN 15,000 (fifteen thousand) for the rest of the country. passengers’, and the law On mandatory fire insurance. The insurance premium for residential property is not to exceed 0.2 % of the insurable amount, i.e. AZN 50 in Baku. To regulate issues relating to mandatory insurance, the Ministry of Finance is tasked with establishing an Insurance Bureau within Insurance of civil liability related to the use of a real two months from September 15, 2011. The Insurance Bureau estate: will be responsible for protecting the interests of insurers; making proposals for improvements to the legislation and practice relating This relates to insurance by an ‘owner’ of property against damage to mandatory insurance; preparing guidance for the investigation to the health and property of third parties that might occur during of claims; payment of compensation to third parties for damage to renovation, construction, reconstruction and other works on real health (in the event that the insurer is insolvent, personal injury is estate. The ‘owner’ of property, for the purposes of this insurance, is caused by an unknown vehicle, if the damage is caused by a driver any person who has ownership or actual possession of the property, whose civil liability is not insured and where the claim against the including a lessee of the property or one managing the property driver has been turned down)]. based on a power of attorney or persons using the property on any other legal basis (Art 43.1). The insurable amount for physical In order to provide insurance cover of the type specified in the injury caused by an accident to third parties is AZN 50,000 (fifty law, an insurance company must be approved by the Bureau and thousand), (not exceeding AZN 5,000 (five thousand) for person) should pay the appropriate fee. The Ministry of Finance is tasked and AZN 50,000 (fifty thousand) for damage to property (Art 47). It is with defining additional requirements for issuing permits to insurance the responsibility of the 'owner' to take out the insurance. Since both companies, to introduce a new form of insurance certificate etc. lessor and lessee can be deemed the owner under the wording of within two months. The Ministry of Finance should define the amount Art 43.1 it can be either lessor or lessee. Art 45.2 says that regardless of the fee by November 15, 2011. of the person on whose behalf the insurance certificate is issued, the person legally using or present on the premises is deemed to be The new law regulates four types of mandatory insurance: insurance insured. Thus, civil liability can be insured only by one person] of real estate insurance of civil liability related to the use of real estate (a form of occupiers' liability), insurance of the civil liability of vehicle Mandatory insurance of the civil liability of motor vehicle owners, and insurance with respect to air, water, rail and automobile owners: passengers. The purpose of this insurance is to insure the civil liability of motor Insurance of real estate: vehicle ‘owners’ for compensation for physical injury of the physical persons as well as for damage to the property of physical and legal The main difference between the new law and the repealed law On persons (Art 50.1). The law provides the categories of motor vehicles Mandatory Fire Insurance is its extension to events beyond fire e.g. (by engine size etc.) civil liability with respect to which should be natural disasters (earthquakes, volcanoes, storms, floods, overflow, insured (Art 50.2). The insurance covers third parties, including etc.) as well as to damage by motor vehicles (Art 36.1). Real estate passengers in the motor vehicle (Art 54). Insurance accident under insurance is also applicable in the case of lightning; gas explosions; the new law is the fact creating the civil liability for the compensation electrical short circuits; explosions of machinery, devices, gas of the damage to the health and/or to the property of third persons pipelines, gas depots, steam boilers; accidents on water, heating, resulted from the use of the motor vehicle. Unlike law on insuring canalization pipelines and at fire-extinguishing systems as well as civil liability of vehicle owners (that new law will be replacing) new flooding as the result of the water escaping from other apartments, law defines what the use of the vehicle is and what is not the use of buildings, rooms, neighboring buildings, residential or non-residential the vehicle (Art 52). In doing so, the new law does not list instances areas; and influence as the result of the dropping, throwing, spilling, that will not be reckoned as insurance accident for the purposes of floating of any object (Art 36.1). Compulsory insurance is not law. An ‘owner’ of a motor vehicle, for the purpose of this insurance, required for structures ordered to be demolished by the decision is any person who owns the vehicle or who exercises actual control of state or local government institutions; real estate that is under over the vehicle as well as any person hiring the vehicle or driving

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the vehicle on the basis of a power of attorney or any person using process the goods faster. the vehicle on any other legal basis (Art 53.1). The insurable amount will be AZN 5,000 per person (not exceeding AZN 50,000 for each Authorized economic operators (Chapter 5 / Art 31 -32): event) and AZN 5,000 for damage to property (Art 56). The new law also provides for the creation of a single electronic information Under the new Code, an Authorized Economic Operator is defined database including relevant information on this type of insurance as a legal person which has been authorized to use simplified forms (Art. 59, 60, 61).If the vehicle is a hire car, the law does not exactly and methods of customs control for the purposes of delivering say who is responsible for taking out the insurance. But if the vehicle goods in a safe and secure manner and facilitating the foreign is subject of a leasing agreement, it is the owner who should take trade (Art 31.1). To providing services as an Authorized Economic care of the insurance. The party paying the insurance and being Operator, the AEO should be licensed by the Customs Committee party to an insurance agreement is deemed to be the insured. And (Art 31.2). The status of an AEO issued by foreign countries may be as in case of property, regardless of the person on whose behalf recognized by the Customs Committee on the basis of international the insurance certificate is issued, any person using the vehicle on a agreement (Art 31.6). legal basis is deemed insured. (Post-clearance) Customs Audit (Art 98): Mandatory Personal Accident Insurance of the Passengers: The new Code enables customs officers to examine the commercial records on operations and international trade transactions of Insurance cover with respect to injury to passengers of air, water, rail entrepreneurs and legal persons. A Customs Audit can be and automobile services must be purchased by the owners of the conducted within 3 years after the goods have been released from relevant transport (Art 64, 65). However, this requirement does not customs control. Thus, records must be maintained for at least 3 apply to owners of urban transport (Art 65.3). The insurable amount years (Art 70.2) is AZN 5,000 per passenger in accordance with the maximum passenger capacity of the vehicle (Art 68.1.1). The amount of the premium has still to be defined by the Ministry of Finance (Art 69). Cabinet of Ministers Resolutions: CUSTOMS CODE On making amendments to the CoM Resolution No 14 of A new Customs Code has been signed by the President and will January 25 2008 On ‘Norms of Business Trip Expenses’ take effect from the January 1, 2012. Paragraph 1.1.1 of the Resolution was redacted. Thus, under It introduces new concepts and practices to the customs regime new redaction costs of one day business trip increased to 65 of the Republic. Unlike the previous Customs Code, it provides AZN for Baku (formerly 35 AZN), 50 AZN for Ganja, Sumgait for binding rulings, pre-arrival declarations, risk assessment and and Nakhchivan (instead of 25 AZN), and 45 AZN for other cities, risk management, (post-clearance) customs audits, and the districts, settlements and villages (formerly 20 AZN /15 AZN). 80% establishment of authorized economic operators. of these costs should cover hotel expenditures.

The new Customs Code also promotes the application of information The Resolution was also amended to provide that if the necessary technologies. validating documents for hotel expenses are not submitted, only 50% of the costs determined for hotels should be paid (Par1-1). Binding Ruling (Art 50): For employees whose work is of a nature that requires constant A person may apply in writing to a customs office for an advance travelling etc., the supplement to their salaries is increased to 10 determination of the classification of goods, customs value, country AZN per day, instead of 5 AZN. of origin and the amount of customs duties. The decision of the customs authorities in this regard is binding on all parties. Binding On making amendments to CoM Resolution No 214 of decisions take effect from the date the respective notification is 6 December 2000 on ‘Rules on issuing personal (work) submitted to the person applying (Art 50.2). permits to foreign persons for paid work on the territory of Azerbaijan and on approving a sample thereof’ Summary import declarations (Pre-arrival declaration) (Art 113): The State Migration Service is now made responsible for issuing work permits. Previously the responsibility for this lay with the The general purpose of a summary import declaration is to provide Ministry of Labor and Social Protection. better risk assessment. A summary import declaration can be submitted electronically prior to arrival of the goods. Having been There is now also a fixed term for processing work permit applications informed in advance, the customs authorities should be able to at the State Migration Service of 20 days, which includes the

47 AmCham Azerbaijan

processing period of 5 days allotted to the Ministry of Labour and taxpayer fails to fulfill with tax obligations within 30 days upon the Social Protection (Par. 2.2). Previously, no period for processing inventory of taxpayers property, tax (as a mean to secure execution work permits was stipulated. of a tax obligation) authority may appeal to the court for sale of the inventoried property in necessary quantities on a specialized open On making amendments to CoM Resolution No 86 of 4 June auction. 2009 on “Rules to determine quotas for labor migration” According to Sumgayit Court there is an ambiguity in legislation In future, the State Migration Services will be responsible for providing concerning requirements of mentioned Articles: ambiguity on the commission determining labour quotas with information on claiming financial sanctions through courts and on claims of the tax (a) the number of the foreign workers in the country, including authorities brought to the courts for the sale of tax payer’s inventoried the country of origin and profession and expected number of property (who is in breach of the tax obligation) in a specialized open prolongations; (b) the status of use of the quotas during the previous auction or implementing decisions of the tax authorities, that are year; (c) cases of breach of the rules for attracting foreign labour; considered to be administrative acts, in accordance with the Law on (d) general prognosis on the need of companies to attract foreign Administrative Procedures. In this sense Sumgayit Court requested labour. Before the amendments this information was provided by the Constitutional Court to interpret mentioned articles in order to Ministry of Labour and Social Protection. clarify the ambiguities.

Constitutional Court noted that property rights are constitutional Decrees and Orders of President right of person. Therefore, seizure of property under Tax Code is regulated with a special procedure. Implementation of administrative Decree on certain issues of system of license and permits fines lacks such procedure. Moreover, under the rules of Art 90.1 of in order to engage in certain entrepreneurial fields the Tax Code sale of a taxpayer’s inventoried property in auctions is within the competence of courts. Thus, Art 82.2 of the Law on President of Azerbaijan tasked the Cabinet of Ministers to Administrative Proceeding is not applicable to a sale of taxpayer’s prepare a draft of the “Law on Licenses and Permits” within 3 property in auctions. In this context, Constitutional Court ruled that month. Within three month Ministry of Economic Development property of a taxpayer can be sold in the specialized open auctions should launch an internet portal with information on all permits only after a court decision. and licenses provided by local and central executive authorities. In this context, local and central executive authorities should cooperate with the Ministry of Economic Development and Baku Appeals Court Economic- provide it with all necessary information. Administrative Board: Court Decisions and Tax disputes

Resolutions: Resolution: Case No. 2-1(103)-467/11, M.I.C. Ltd vs. Ministry of Taxes Baku Tax Department Constitutional Court: As the result of an offsite tax audit, the Baku Tax Department (BTD) Decision on Interpretation of Art 82 of the Law on deemed a number of invoices issued by the taxpayer illegal and Administrative Proceeding and Art 52 and 90.1 of the Tax imposed a tax liability on the taxpayer. The taxpayer challenged the Code decision of BTD. Baku Administrative-Economic Court No. 1 (Court of First Instance (CFI) ) granted the claim of the taxpayer against The tax authorities took an inventory of a taxpayer’s property under BTD and ruled that invoices are legal and imposed sanctions should Art 52 and sold the property of a taxpayer in a specialized open be deleted. BTD appealed the decision of CFI. Court of Appeal did auction as the result of which a case was brought in the Sumgait not grant the appeal and left the decision of CFI in force. Administrative-Economic Court. The Sumgait Court referred a Court of Appeal noted that ‘centralized ordering, sale and registering question to the Constitutional Court asking for an interpretation of of invoices’ and ‘preparation and implementation of strict reporting Article 82 of the Law on Execution of Administrative Orders (LEAO) blanks of enterprises and organizations as well as of physical and Articles 52 and 90.1 of the Tax Code. persons engaged in commercial activity’ is regulated under Cabinet of Ministers (CoM) Resolutions No. 71 and No. 118, respectively. Art 82 of the LEAO states “an administrative organ taking an Under the Part II of the CoM Resolution No 118 it is the responsibility administrative decision is entitled to take a decision to implement the of the Ministry of Finance to prepare such blanks and responsibility claims stipulated in the administrative act”. Art 52 of the Tax Code of the tax payer to fill them out. Court of Appeal also noted that “tax authorities can seek collection of financial sanctions imposed Ministry of Finance adopted the Rules of application and registration on a tax payer as the result of its decision through courts or under of the strict reporting blanks on 14.11.2007. Section 3 of this Rules Art 65 of the Tax Code. According to Art 90.1 of the Tax Code if the is on filling the strict reporting blanks. It states that ‘in strict reporting

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blanks filled with hand all requisites should be written clearly, ‘state of the obedience with the rules of the cash transactions’ for numbers and words should be clearly readable, rough copies and not registering 5.20 AZN in cash-control-device and imposed fine of corrections are not allowed. Strict reporting blanks with corrections, 1200 AZN on taxpayer. Taxpayer c challenged the decision of TAD strikes, in an unfit condition are deemed invalid’. In the context of the in the Baku Administrative-Economic Court No. 1 (Court of First last provision (section 3.2) Court of Appeal mentioned that invalidity Instance (CFI)). CFI granted the request of the claimant to annul the of partially filled invoices is not stated in the rules. In light of above act adopted by the Tax Audit Department (TAD). TAD appealed the mentioned, Court of Appeals ruled that under the current wording decision. However, Court of Appeal left the decision of the CFI in of the Art 176.4 of the Tax Code in it is unclear who the address force and did not grant the appeal of the TAD. of the requirement to comply with the procedure of composing the invoices in accordance with determined rules is. Under Art 3.11 of Thus, Court of Appeal found that in its decision TAD did not bring the Tax Code in case of ambiguity Tax Code should be interpreted in sufficient reasons as provided in Art 50.2 (basis for operative tax favor of a taxpayer. Therefore, the decision of Baku Administrative- control) of the Tax Code for conducting operative tax control. Also Economic Court No. 1 remained in force. tax official did not collected evidences about the breach of law. Prepared act did not include the information on person breaching Decision: Case No. 2-1inz(103)-168/2011, L.D. Ltd vs. the law. Explanation on the case was not taken and information on Ministry of Taxes Baku Tax Department what was delivered to client was not stated in the act. The act itself in contradiction to requirements of laws was not submitted to the As the result of cameral tax audit Baku Tax Department (BTD) taxpayer. Stating that under Art 53.3 taxpayer is not obliged to prove adopted an act imposing tax liability on a tax payer for falsification of its innocence and it is tax authorities obligation to prove the guilt of labor contracts with its employees. BTD argued that due to enough the taxpayer, Court of Appeal did not grant the appeal of the TAD. sufficient controversies between the information of tax authority and those on submitted declarations about the average monthly Decision: Case No. 2-1 inz (103)-209/2011, I.R.A (physical salaries of employees, it can impose additional taxes in a cameral person) vs. Ministry of Taxes Tax Audit Department way on taxpayer. Tax payer claimed against the act at Court of First Instance (CFI - Baku Administrative-Economic Court No. 2). CFI As the result of an irregular tax audit, Tax Audit Department granted the claim of L.D. Ltd to annul tax debts imposed on it on (TAD) adopted an act imposing financial sanctions and calculated the bases that labor contracts are falsified and did not meet costs of additional taxes on an entrepreneur for deliberate decrease of the employees with high education. BTD appealed the decision of CFI. rental price of the premises he owned. Entrepreneur disputed the Court of Appeal did not grant the appeal and left the decision of the act and requested the Court of First Instance (CFI) to deem the act of CFI in force. TAD invalid. CFI granted the request. TAD appealed the decision of CFI at the Court of Appeal. However, Court of Appeal did not grant Baku Court of Appeal stated that under Art 67.5 of the Tax Code tax the appeal of the TAD. authority calculates the amount of the income tax on the basis of average monthly salary in two cases: if it is impossible to calculate Court of Appeal did not find any legal basis in the Tax Code for the income tax for the contract-based-employee on the basis of calculation of additional taxes on the ground that rental prices related information and if the employment of physical person is not were lower than the market price. It found that current case lacks documented. Since, none of these conditions were present in this conditions mentioned in Art 14 of the Tax Code. Moreover, Court case, Court of Appeal did not recognize right of the BTD to calculate of Appeal found that the claim of the respondent that rental price the taxes on the basis of an average monthly salary in the country. It is lower than market price is contradicting with the Civil Law also did not establish any evidence that labor contracts are falsified. principles of contractual freedom, free will of the subjects of civil law and independence of the participants of civil relationship with Court also considered BTD’s evidences on application of Articles respect to their property (Art 6 of Civil Code). Court also ruled 18.2.2 (interdependent persons) and 14.3.2 (calculation of taxes that as observed under Cabinet of Ministers Resolution 191 from with consideration of market price) of the Tax Code to this case. 29.11.2007 (on minimum rental price for the lease of state property) Referring to Art 13.2.11 (Article introduces an exclusion of contract- rental prices for private properties cannot be regulated through based-employment from services) of the Tax Code and explaining administrative means. Therefore, tax authority is not empowered what the service (work) for the purposes of Code is, the Appeals to determine rental price of the private property and price of such Court stated that for the purposes of the Code (labor) contract- property is owners will. In addition to these, Court of Appeal based-employment is an exception to services. Therefore, Art 14 doubted authenticity of expert opinion and responsibility of expert of the Code is not applicable to this case. In the light of mentioned, involved by TAD to give the market price of the premises subject to Court of Appeal left the decision of Baku Administrative-Economic the case. Court of Appeal also found that the act adopted by TAD Court No. 2 in force and did not grant the appeal of Baku Tax was improperly prepared. Department. Resolution: Case No. 2-1 (103) – 572/11, M.L.F. Ltd vs. Decision: Case No. 2-1 inz (103) – 196/11, A.A.A. (physical Ministry of Taxes Tax Audit Department person) vs. Ministry of Taxes Tax Audit Department As the result of the irregular tax audit, Tax Audit Department (TAD) As the result of an operative tax control, TAD adopted an act on adopted an act to impose financial sanctions and additional taxes on

49 AmCham Azerbaijan

taxpayer for decrease of the construction materials to evade taxes. a labor pension for the appellant on a preferential term Taxpayer disputed TAD’s act at Court of First Instance (CFI) and (receiving labor pension from the age of 51 for having 20 requested its annulment. CFI granted the request. TAD appealed years of general seniority at least 10 of which is in specifically the decision of CFI. However, Court of Appeal did not grant the harmful and hard works) on the basis that under current appeal of the TAD and left the decision of CFI in force. legislation appellant has no right to such pension from the age of 51. Appellant sued the State Social Protection Fund Court of Appeal (Court) found that Tax authorities did not state in ( SPF Khatai d. branch) at the Court of First Instance (CFI) their act on the basis of which exact condition named in Art 14.3 requesting the CFI to appoint a labor pension for him on a (conditions for calculating taxes on the basis of market price) of preferential terms from the age of 51. CFI granted the request Tax Code they decided to calculate additional taxes and financial of appellant. SPF Khatai branch appealed the decision of sanction on the ground of market price. In the current case, Court CFI. However, Court of Appeal did not grant the appeal and could not establish any condition named in Art 14.3. Therefore, left the decision of CFI in force. Court ruled that without conditions stated in Art 14.3 calculation of additional taxes and sanctions under Art 14.6.6 on the basis of Court of Appeal grounded its decision with the possibility market prices is contradicting requirements of this article. of appointing the pension on preferential terms from the age of 51. Thus, Court of Appeal found that under Art 9.8 of the Labor Disputes current ‘Law on Labor Pensions’ for the works specified in Art 9 of that law, pension on preferential terms is appointed Decision: Case No. 2-1 inz (103)-170/2011, A.V.F (citizen) on the basis of previous legislation (that was in force). Under vs. State Social Protection Fund Branch in Baku Xatai previous legislation (in force until 01/08/1997 and reformed until district 01/08/2000) the claimant had right to pensions with preferential terms. Social Protection Fund Khatai branch rejected to appoint Members’ News and Events KPMG reopened its Azerbaijan practice

KPMG reopened its Azerbaijan this role.” practice and Vugar Farman Aliyev is appointed as Managing Partner KPMG will be providing a full range of audit, tax and advisory of KPMG in Azerbaijan. services to its local and multinational clients in Azerbaijan. Besides Vugar, KPMG Azerbaijan has a strong team of local Vugar Aliyev has over fifteen professionals represented by Sanan Mammadov, Senior years of experience in professional Manager and Head of Audit, Samir Gurbanov, Manager and services providing audit and Head of Tax and Legal Group, and Ramin Hasanov, Manager advisory services to companies and Head of Financial Services Group. operating in financial services, telecommunication, consumer, hotel About KPMG in the CIS and energy industries in Azerbaijan, Russia, Turkey, Romania, Kazakhstan and other countries. KPMG is a global network of professional firms providing Audit, Vugar was previously an Audit Partner in the Azerbaijan office of Tax and Advisory services. We operate in 150 countries with PricewaterhouseCoopers (PwC), leading the Financial Services 138,000 people working in member firms around the world. The practice of PwC in Azerbaijan and Georgia. independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Andrew Cranston, Senior Partner of KPMG in the CIS stated Swiss entity. Each KPMG firm is a legally distinct and separate that “We are excited about the opportunity to re-establish our entity and describes itself as such. presence in Azerbaijan. We look forward to becoming an KPMG has been operating in Russia for twenty years. In integral part of the business community and to contribute to the CIS, KPMG now has offices in Moscow, St. Petersburg, the ongoing development of the capital markets in Azerbaijan. Yekaterinburg, Kazan, Nizhny Novgorod, Novosibirsk, Rostov- We are especially pleased that Vugar has agreed to lead our on-Don, Krasnoyarsk, Kazan, Almaty, Astana, Atyrau, Baku, practice. His experience, local knowledge and commitment to Bishkek, Kiev, Donetsk, Lviv, Tbilisi and other cities, employing delivering quality services to clients makes him ideal to take on together over 3,500 people.

50 Autumn / Issue 13 AmCham Azerbaijan

Members’ News and Events BASF Kids’ labs Fascinating experiments on chemistry for children (BASF Kids’ Lab) have been opened in several elementary schools of Azerbaijan for the first time.

Project BASF Kids’ Labs, an in-house development of BASF, is being realized in many countries of the world. Amazing experiments, bright paraphernalia, and fantastic images of virtual assistants - children in 24 countries of BASF presence enjoy visiting gaming chemical classes, thereby obtaining a basic knowledge of chemistry. The program preparation involved teachers, psychologists, specialists on work with children, and experts. The experiments focus on studying the properties of water, which is the valuable but finite resource on the Earth. According to the UN, already today shortage of water, including agricultural and industrial needs, is estimated at 230 bn cu m a year.

"Interactive lessons teach children the careful attitude to the most important natural resource – water," said Umit Bashdash, CEO of BASF Caspian.

Kid’s Lab project was supported by the Ministry of Education of Azerbaijan. "We applaud these initiatives from BASF and are grateful for the experiments in our schools. Chemical experiments are great catalysts, when through the positive emotions one can find his way to a genuine interest in children and instill in them a love for this branch of knowledge. Children express joy, admiration, and surprise when obtain chemical reactions obtained as a result of experiments. "How so?" they ask, when they become participants in something seen for the first time in their life,” said head of the Department of Education & Work with Extracurricular Institutions Agababa Ibrahimov.

The total number of children who participated in the Kid’s Lab experiments in Azerbaijan reached 350 people. The project covered elementary classes of secondary schools, experiments were conducted in schools #24 and #31 Sumgait, in lyceum #43, British School in Baku, Baku Turkish Primary School and in Sumgait–based boarding school #1 as well. "You can judge how easy chemistry has won today the hearts of pupils on their warm invitations: “Come again!",” said Kamalya Badalova, head teacher of lyceum #43, joining the wishes of children.

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Corporate social responsibility “Donate blood. Save 3 lives” Blood donation is a key issue in Azerbaijan, as there are over 1500 children who suffer from thalassemia – a genetic blood disease unique to Azerbaijan in the Caucasus region. Patients require blood transfusions every two weeks.

On 25 and 26 November, P&G, American Chamber of Commerce in Azerbaijan and The Landmark Hotel organized a blood donation drive in Baku. A total of 140 people expressed an interest in donating blood, and 100 were able to do so following a medical checkup.

25 liters of blood were collected with the support of the National Blood Bank and the Azerbaijan Association of Thalassemia. Each donor was able to track his/her personal donation and to access information on the child who received the particular donation.

The program was conducted in compliance with all national regulations on blood donation procedures.

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Impact Azerbaijan Impact Azerbaijan is the official publication of the American Chamber of Commerce in Azerbaijan. The first issue was published in November 2007 and it has grown from 36 to 60 pages over the last four years, a testament of the increasing interest and contributions from the business community. Our magazine is widely recognized as one of the best publications in Azerbaijan, with a consistently high quality of content and production values. Impact Azerbaijan is published quarterly, with issues in Spring, Summer, Autumn and Winter. The magazine is distributed free of charge to all of our members. We also distribute to all major hotels, agencies of the government, international organizations and the business class of the airlines. The print run is 1500 to 2000 copies. Every issue of the magazine devoted to the special topic and is divided into four sections: In Focus This section features articles relating to the chosen theme of the magazine. Past themes have included Energy Security, the World Bank Doing Business Report, Banking and Finance, the Global Economic Crisis and Travel and Tourism. It includes interviews with officials of the government and AmCham members active in the sector. Member contribution This section features articles written by member companies on various aspects of doing business in Azerbaijan, tax and legal updates and overviews of draft legislation. All members are welcome to write for our magazine. The articles are published three of charge. This is an opportunity for our members to share best practices and draw attention to their knowledge and expertise, thus increasing their desirability as business partners. AmCham Azerbaijan This section reports on AmCham’s cooperation with various organizations and governmental agencies ,business and social events, the important work done by various AmCham committees, and projects undertaken by AmCham, such as the Salary Survey, Consumer Price Index and Membership Surveys aimed at increasing the effectiveness of the work of the Chamber. The Member to Member Discount Programme is also included in this section. Members News Members’ News Section publicizes members’ achievements and milestones such as awards and anniversaries. It introduces new personnel to the business community and highlights our members’ valuable contributions to the community through CSR and CSI programs. Additionally, Impact Azerbaijan offers advertising opportunities to both members and non-members to enhance the visibility and networking of your companies. Advertising in Impact Azerbaijan brings benefit to your business in Azerbaijan and also provides valuable financial support for the continued publication of our magazine. For all queries about advertising or publishing an article, please contact [email protected]

53 AmCham Azerbaijan

Social Events October 2011 7th Annual Black & White Ball On Saturday October 15th 2011, AmCham hosted its 7th Annual Black& White Ball. This year, with an unprecedented number of guests and top quality entertainment, we exceeded our own expectations. The spectacular ballroom of the brand new Hilton Hotel provided a perfect setting for a truly exceptional experience.

As always, this event gave Chamber members and guests an opportunity to entertain friends, clients, colleagues and business associates in a unique and glamorous environment. The AmCham Black & White Ball was an unforgettable evening of elegance, music and dancing. As well as a four-course gourmet dinner prepared by the Hilton's Executive Chef, our guests enjoyed a champagne cocktail reception, a professional DJ, a surprise prize draw, a live band, and dancing till dawn.

Every year, this black tie functions is one of Baku’s most prestigious social events, where companies can achieve high levels of visibility. We were pleased to be able to provide a number of sponsorship opportunities, in order to showcase Baku’s business landscape to a distinguished audience of the city’s leading decision makers.

We would like to say a huge thank you to our lead sponsor Pasha Bank, our main sponsors Bakcell, Austrian Airlines, BMI, Lufthansa, and SAZZ, all of our other donors, and our members, partners, colleagues and friends for their continued involvement and valuable support.

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55 AmCham Azerbaijan

Projects Salary Survey-Sep-Dec 2011 With 120 companies participating, AmCham Azerbaijan 7. Social Services (Diplomatic Missions, completed its 13th Annual National Employee Salary Survey Education, Health & Medical, NGO & Other) 2.67% and released the Final Report to members in December 8. Production & Manufacturing 4.47% 2011. 9. Pharmacy 0.39% 10. Other 3.08% BREAKDOWN OF EMPLOYEES BY BUSINESS SECTOR

1. Oil & Gas Exploration, Development, Production 14.30% 2. Industrial, Engineering, Const & Energy Support Services 14.25% 3. Hospitality, Hotel, Restaurant, Travel & Tourism 5.54% 4. IT/Communications 12.60% 5. Transportation & Logistics 1.45% 6. Legal, Finance, Banking, Tax/ Audit, Insurance & Professional Services 41.25%

AmCham wishes to thank all members who participated in the Salary Survey Inflation survey Oct 2011 Over the last year (the base is 100 at 30 September 2010) 1.02 for Expatriate consumers. The largest upward effects the AAIP rose by 7.56 percent for Azerbaijani consumers and on the AAIP rate came from Meats, poultry, fish & meat 8.11 for Expatriate consumers. In the 3rd quarter of 2011 the products and Fruits and Vegetables where Index of Prices AAIP rose by 1.41 percent for Azerbaijani consumers and rose by 2.55 and 1.31 percent respectively.

Breakdown of AAIP changes (the base is 100 at 31 March 2009) III Q/2009 IV Q/2009 I Q/2010 II Q/2010 II Q/2010 IV Q/2010 I Q/2011 II Q/2011

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New Members

MCCANN ERICKSON Baku Consulting Group AZENCO Kempinsky Hotel

Abbott Products GmbH SGS Azeri Ltd. Genercon Delta Group

Schering-Plough Fairmont Baku Pasha Life Insurance Gulf drilling Azerbaijan Central East AG

Jumeirah Bilgah Beach Hotel JW Marriot Baku EKVITA KMPG

Protective&Marine Sheraton Baku ABB Baku Oil Services Coatings-Caspian Sea

B&B TV Hilton Baku Intertek MINIMAX

Four Seasons Hotel CIFAL Group Ritz Veblens RW Armstrong

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AmCham Azerbaijan

(M2M) Discount Program How to join the Program: Members willing to join the Program and offer their products/services at special discount to AmCham Regular Members have to inform the AmCham office in writing. A discount provider has to indicate the product(s) or service(s) and discount rate(s).

How to obtain discounts: All Regular Members, no matter whether they provide discounts as part of the Program or not, can obtain discounts. Members can find information about the discounts in the M2M Section of our website www.amchamaz.org How is M2M advertised?

The program will only be advertised internally through the AmCham communications channels: AmCham Website and AmCham Quarterly Magazine – “IMPACT Azerbaijan”.

Note: The cards are for personal use only. A card holder is committed to return the card to AmCham in case he/she leaves a Member establishment.

TRAVEL, HOSPITALITY AND PHILOSOPHY TRAVEL LEISURE -5% on any travel arrangements MOZAIK

HYATT -10% on all products -15% on all restaurants and bar FORMAG BAKU (PATRICK HELLMANN) - 15% on laundry and dry cleaning -20% discount on Patrick Hellmann BAKER & PARTNERS collection -up to 25% on various services EXCELSIOR -10% on all catering contracted with CITIMART SEABAK rentals and on F&B in Belvedere -5 discount on all groceries and entire -up to 10% on onsite helpdesk restaurant purchase -up to 15% on remote administration -15% on rentals of conference rooms and Duke and Heritage rooms -20% on Aura Spa PRODUCTS AND SERVICES LANGUAGE SERVICES DIRECT -5 % on all services AZEL PARK INN -up to 10% -10% on all F&B outlets BANKING, FINANCE AND 3M INSURANCE RADISSON - 10% on following 3M products: -10% on all published Retail Room rates Visuals AG BANK Construction -50% on AG Club Premium Package Stationary -20% on AG Club Gold Package AIRPORT HOTEL -10% on all F&B outlets ATA HOLDING OFFICE SYSTEMS CRESCENT BEACH HOTEL -15% on all types of insurance -10% on accommodation -20% on hard furniture -15% on all office chairs -10% on F&B A GROUP INSURANCE -15% on all types of insurance CROWN HOTEL PROFESSIONAL SERVICES INDIAN CLINIC -10% on all Conference Rooms -15% on medical services -15% on Fitness & Leisure Center -10% on all F&B restaurants WICKLOW CORPORATE SERVICES CONSTRUCTION -5% discount on hourly fee rates ALTES GROUP LUFTHANSA -5% on all apartments -up to 7% on tickets PURPLE CREATIVE AGENCY lounge in H. Aliyev Airport is included -20% on all creative services

59 AmCham Azerbaijan

AmCham Calendar of Activities September- December 2011

8 September 20 September 26 September 27 September ICT Committee Travel, Hospitality Banking, Finance Human Resource Meeting and Tourism and Insurance Committee Committee Committee Meeting Meeting meeting 29 September 6 October AmCham Monthly Tax and Customs Members’ Committee Luncheon Meeting

11 October 15 October 27 October 1 November Corporate and 7th Annual AmCham Corporate and Social Respon- Black & White Monthly Mem- Social Respon- sibility Com- Ball bers’ Luncheon sibility Com- mittee meeting mittee meeting 2 November 3 November Travel, Hospitality Tax and Customs and Tourism Committee Committee Meeting Meeting 24 November 28 November 30 November 2 December "TOWARDS THE Human Banking, Finance Tax and FUTURE" ICT Resource and Insurance Customs Conference Committee Committee Committee Meeting meeting Meeting 8 December 13 December AmCham Monthly Travel, Hospitality Members’ and Tourism Luncheon Committee Meeting

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