"EXEMPLARY" COOPERATION IN A NON-EXEMPLARY REGION

Is there anything you would not do for a friend, especially if it is a strategic friend? For example, for the sake of good relations with Georgia, Azerbaijan has issued a low-rate credit for the construction of the Kars-Akhalkalaki railway, sells natural gas for commercially (and politically) low prices (though gas is a strategic product), puts up with discrimination against Georgian Azerbaijanis and makes a lot of other concessions. According to Georgian Prime Minister Zurab Noghaideli, energy and transport cooperation between the two neighbours is "a good example of cooperation in any region of the world".

But it turns out that this is not everything. Azerbaijan has an exemplary influence on Georgia. According to Noghaideli, the pace of economic growth in Azerbaijan also affects Georgia, which is proved by the 12 per cent growth in Georgian GDP. In other words, Georgia benefits from its cooperation with Azerbaijan. They say that we benefit from this friendship as well. Firstly, Georgia is an important link in the transport chain that connects Azerbaijan and Europe. Secondly, it is one of the first countries where major Azerbaijani businesses such as the State Oil Company of Azerbaijan, the banking sector and others have started investing.

All these mutual interests have given an impetus to the growth in the commodity turnover between the two countries which totaled 301.6 million dollars in January-August 2007. This is 46.6 per cent higher in comparison with the same period of last year. Azerbaijan's export to Georgia accounted for 147.6 per cent (up to 253.7 million dollars) and Georgian export to Azerbaijan - 141.7 per cent (up to 47.9 million dollars).

More to come!

Of course, the two countries are not going to stop at what they have achieved, which is why they are working on a long-term economic cooperation programme till 2018. The two countries have potential opportunities to expand the amount of supplies and stimulate cooperation in the sphere of small and medium-sized businesses, involving investors in the implementation of mutually beneficial projects and strengthening direct relations between economic entities.

For example, it is planned to create a mechanism to export Azerbaijani and Georgian agricultural produce to foreign markets. Apart from that, it is planned to create joint ventures in the agro-industrial complex and light industry. It is planned to set up a joint venture to produce juices and dairy products in Dmanisi and Sagareji districts, wine - in Bolnisi District, carpet-weaving and textile workshops in Marneuli, Gardabani and other regions of Georgia. The issue of creating a market of nitrogen fertilizers is also being considered.

In order to bring in investment and establish direct contracts between business circles, it is planned to organize business forums and investment fairs in border areas. The Ministries of Economic Development and Agriculture of Azerbaijan and Georgia will help organize leasing of agricultural equipment and tools manufactured by the two countries.

As we said, Azerbaijani enterprises are actively working in Tbilisi. The Azerbaijani State Oil Company has opened an office in Tbilisi and invested in the Kulevi oil terminal. A daughter bank, the International Bank of Azerbaijan - Georgia, has also been set up. The Azerbaijani company Embawood has started manufacturing furniture.

There are 76 enterprises and organizations with Georgian capital in Azerbaijan at the moment. Forty-two of them are joint ventures, while nine are enterprises with 100 per cent Georgian capital. There are also 25 representative offices and branches. As for the future prospects of bilateral projects, they cover only the energy and transport spheres for the time being.

A trilateral alliance again

Recently, Azerbaijan and Georgia reached an agreement to develop power lines between the two countries, which will serve to create a single energy system between Azerbaijan, Georgia and Turkey.

Azarenerji and the Georgian State Power System intend to carry out all technical measures by the end of 2007 to connect the Kavkasioni (500 kW), Derbent (330 kW) and Gardabani (330 kW) power lines.

In order to expand the exchange of energy between the countries, a decision has been made to restore the 500 kW power line Mukhranis-Veli between the Azerbaijani State District Power Station and the Gardabani 500 substation (Georgia). In the future, this system will connect to the Turkish energy system. Its establishment will make it possible to increase the volume of power supplies between the three countries, synchronize the three countries' energy systems and connect to the European power generating system. At the same time, 40 per cent of the power lines that will be covered by this project in Azerbaijan need repairing. In Georgia, it is necessary to repair about 90 per cent of all power lines. In Turkey, there is a total absence of components required for power lines. This information was obtained during a survey of power lines.

For the time being, power is supplied by the currently operating energy network. Azarenerji and the Commercial Operator of the Power Generating System are preparing to extend the term of the contract on energy exchange between the power generating systems of Azerbaijan and Georgia, which was signed in November 2006.

The negotiations on natural gas supplies from Azerbaijan to Georgian consumers next year will also be completed within two months. The term of the current agreement expires in early October, but it was implemented as the export of gas was suspended. Azerbaijan is supposed to supply 30 million cubic metres of gas to Georgia every month at a rate of 120 dollars for 1,000 cubic metres. More than 250 million cubic metres were supplied for Georgia's domestic needs in the first six months.

Azerbaijani Minister of Industry and Energy Natiq Aliyev thinks that the continuation of export depends on Azerbaijan's gas balance and on the possibility of meeting the country's domestic needs. Azerbaijan's daily demand for gas is 28-29 million cubic metres today, while the country extracts only 25 million cubic metres.

Apart from SOCAR's own gas, Georgia has also received gas from Sah Daniz - 0.8 million cubic metres per day. In 2007, the volume of gas supplies is expected to be from 500 to 700 million cubic metres. Next year, Georgia will get about 300 million cubic metres from Sah Daniz. Negotiations are currently continuing with Azariqaz on possible volumes of export. The tariff for gas supplies from Sah Daniz is 63 dollars for 1,000 cubic metres.

A new road and more flights…

As far as the transport sector is concerned, it is dominated by the project on the construction of the Kars-Akhalkalaki-Tbilisi-Baku railway transport corridor. Minister of Transport Ziya Mammadov thinks that the first construction work on the Georgian sector will begin in mid-November. The Azerbaijani government has allocated 200 million dollars to Georgia from the State Oil Fund of Azerbaijan with an annual rate of one per cent for 25 years in order to carry out work on the Georgian sector. The credit will be used in two years. The money is transferred through the International Bank of Azerbaijan and its daughter bank in Georgia - IBA-Georgia.

For the time being, the Marabda-Kartsakhi Railway limited liability company has been given 280,000 dollars for the project - to pay salaries and so on. After the tender to select a construction contractor, the main sum will be paid. It is planned to transfer the first part of the credit - 40 million dollars - in 2007.

It must be noted that the project of the Kars-Akhalkalaki-Tbilisi-Baku railway transport corridor includes the construction of the 98 km Kars-Akhalkalaki railroad, of which 68 km will be in Turkish and 30 km in Georgian territory. Some reconstruction work is also required in the Akhalkalaki-Tbilisi sector. A point to replace mounted axles will be built on the Georgian-Turkish border. Construction work in Turkey is estimated at 220 million and in Georgia - at 202 million dollars.

Apart from the railway, Azerbaijan and Georgia have decided to pay attention to possible cooperation in other transport spheres. For example, an agreement was reached recently to increase flight safety and lift restrictions on containers, frequencies, tariffs and destinations in the sphere of air communications and air transport. In early 2008, it is planned to sign an additional protocol to the agreement on international air communications. Noghaideli believes that the protocol will make it possible to increase the frequency of bilateral air communications to two or three flights per day. Ten Baku-Tbilisi-Baku flights are carried out every week right now. Apart from that, the issue of opening air flights between Baku and Batumi will be considered as well.

Is Azerbaijani cargo still going to Armenia?

However, sometimes friends fail each other. This has happened in Azerbaijani-Georgian relations before. The State Customs Committee (SCC) of Azerbaijan supposes that some cargo bound for Georgia still goes to Armenia, a country that has occupied 20 per cent of Azerbaijani territory. However, the Georgians say that all this is being done unbeknown to them. But just in case, both sides have drawn up a new agreement in order to improve the mechanism of preventing the redirection of cargo going through the territory of the two countries.

There is another problem - Georgia owes Azerbaijan more than 16 million dollars, a debt that accumulated in 1992-94 as a result of economic operations between state enterprises. According to the agreement between the two countries' governments on the restructuring of the debt, which was signed in Batumi on 17 August 2006, the debt will be paid off in three stages. In the first stage, it was planned to pay 2.7 million dollars by the end of 2006, which has already been done. In the second stage, Georgia will pay 3.239 million from 2007 to 2021. The third part of the debt will be paid off from 2010 to 2025. The interest rate on the debt is three per cent annually, which the Georgian side is paying in a timely fashion.

Now Georgian financiers have made new proposals on the one-off privileged payment of the debt ahead of schedule. Pointing out their experience in repaying their debts to other countries, such as Austria, they suggest writing off half of the debt and paying the rest of it ahead of time.

However, the government of Azerbaijan does not agree with this way of payment. Considering the nature of relations with Georgia, we may suppose that our government will not be so insistent on this issue...