ASIAN APPROACH

South Korea has taken Azerbaijan's economy by storm. The country is preparing to lead the list of major investors in our country, planning to invest up to $2bn here in the next few years. The Koreans are interested in literally everything - from mini-factories for meat and dairy production to the 400-million project to relocate Baku International Port to Alat and exploiting the Inam oil field. Considering the immense results achieved by Korean businessmen in reviving and developing their own economy without having any oil or gas revenue, their arrival in Azerbaijan could provide an appreciable stimulus to various sectors in industry and infrastructure.

According to Economic Development Minister Heydar Babayev, reciprocal visits of the presidents of both countries and business forums have helped to increase bilateral trade turnover by 80 per cent. In the first six months of 2007 turnover topped $157m and might reach $300m by the end of the year. In a very short time the sides have discussed 40 joint projects.

Koreans entrust Inam to Shell

Importantly, Koreans can do business quickly without lengthy studies and analytical procedures - in an instant they assess the importance and profitability of a project and then persistently achieve their involvement. This Korean business characteristic could be clearly seen in the talks on acquiring a share in the Azerbaijani Inam oil project.

The Korean National Oil Corporation (KNOC), which operates in this surprising country with which hardly any oil at all, has expressed a desire to take part in working the Inam oil field and took a 20 per cent share in the project. KNOC representatives said openly that their interest in the project is based on an assessment of technical data by Korean specialists, which considers the likelihood of oil reserves at the Inam prospect very high but exploitation of the field to be accompanied by major risks. KNOC suggested carrying out a reassessment of the project's reserves to SOCAR.

Initially the Koreans intended to buy a share from the Azerbaijani State Oil Company, which owns 50-per-cent of the project, but SOCAR, which seemed at first to have agreed on a deal, then carefully analysed the situation and decided to reject the offer. It is an entirely sensible decision, as SOCAR does not contribute a penny to the project in the exploratory phase - the project's operator BP (25 per cent) and Shell (25 per cent) bear all the costs.

This was no reason for the persistent Koreans to pull out. On the contrary, they began negotiations with Shell straightaway and convinced the company to give up 20 per cent of their stake in Inam. Now the other partners and the Azerbaijani government just have to confirm the deal. Maybe after this, work will be stepped up on the project - the first exploratory well, INX-1 with a planned depth of 5,025 metres, was drilled in 2000-01. However, because of unusually high reservoir pressure, which was too much for the Istiqlal rig's drilling equipment, drilling was stopped at 4,550 metres. The well was mothballed and since then the project's shareholders have been looking for the best way to start up drilling work again. They considered the option of returning to INX-1 and continuing work with special equipment or drilling a new well altogether. After long discussions it was decided to drill INX-2 in the third and fourth quarters of 2007 (Fineco).

Pioneers are always prepared!

The Korean companies have an even greater appetite in the non-oil sector. First, they decided to occupy the vacant niche in the electricity sector, pioneering the implementation of two projects in this sector - construction of the first private power station with a capacity of 350-700 megawatts and the first wind farm in Azerbaijan. Both are expensive projects, but they have a worldwide reputation for profitability. Specialists calculate that private power stations cost at least $1bn while wind farms cost around 40m. It is not yet known whether Korea's Kepco will be the full owner of both stations, but they are already working on the feasibility study for the first, and have asked for customs duty and tax concessions from the Azerbaijani government and favourable terms for the use of land, etc. for the second. Azerbaijan does not yet have a mechanism as such for exploiting private power stations and it is not yet clear who will sell the electricity produced and on what terms and, more important, whether or not it will affect tariffs. But one thing is clear: once the facilities are put into operation, Azerenerji's monopoly on power generation will be broken.

Tasty morsel

However, even against the backdrop of such major projects, the tastiest morsel for the Koreans is Azerbaijan's transport sector, in which they are ready to invest $3.5bn, according to the South Korean deputy minister for commerce, industry and energy, Lee Jae Hoon.

Korea's GSE&S has received a contract worth around $400m to build the new sea port in the village of Alat in Qaradag District. In early September the company presented the already prepared project to Azerbaijani President Ilham Aliyev.

The new maritime port has great significance both in commercial and trade terms and from the point of view of freight forwarding. As was noted at the presentation, the project has several attractive features. First, it will make a contribution to the development of shipping in Azerbaijan and it will play a role in boosting the country's industrial potential. The Sanqacal oil terminal, famed worldwide for its capacity, is also located at Alat. A new power station is also being built there. Construction of the maritime port will be a new stage in the development of Alat and will promote the social and economic progress of Qaradag District. The project includes a plan to construct a ship-building works, which will boost Azerbaijan's image as a sea power.

One of the reasons for the relocation of the port is the expansion of the Seafront National Park, which President Aliyev mentioned. The ecological situation will be improved here, major improvements will be made and the right conditions created for the recreation of the capital's residents.

The Koreans also have a huge number of proposals in other transport spheres - they are ready to supply new buses and taxis to Azerbaijan, to help set up high-speed train services, etc., etc. For example, it is known that the Azerbaijani government will soon announce their conclusion on a project by Korean specialists to introduce high-speed trains between Baku and the Georgian border. Two projects have been drawn up. The first, costing $3bn, suggests increasing speed on the current sector up to 160 km per hour and the second, costing $10bn, suggests laying a new track for high-speed trains. Both projects are expensive and so do not suit the Azerbaijani side. If the government does make a positive decision after all, then the high-speed trains can come into operation after 2010.

The Baku Bay Sea Bridge, designed by a subsidiary of Dong Sung Engineering, eclipses all these projects in scope and originality. Under the project, a 13.3 km bridge will be built from Qaradag District to the settlement of Zix. The bridge envisages two-way, four-lane traffic and will be linked by a ring road around Baku. The bridge will help to get rid of traffic jams in Baku and at the same time will play an important role in developing tourism on Narqin Island in Baku Bay. "The grand scale and beauty of this road is attractive," the Azerbaijani Transport Ministry said. The latter think that construction will take eight to 10 years.

Saline land

The Korean side has made quite a significant package of proposals for agriculture, both in terms of content and figures. South Korean companies are interested in creating mini-factories in Azerbaijan to produce meat and dairy products. They are also ready to package production and even deliver it to supermarkets.

Korea is ready to help Azerbaijan to clean up saline land. Deputy Agriculture Minister Bahram Aliyev said that Azerbaijan has 3.61bn hectares of land damaged by erosion and more than 1m hectares of desert. The problem is greatest in Ucar, Kurdamir, Salyan and Sabirabad. The irrigation and drainage systems built in the Soviet era are already obsolete and no longer work. They need reconstruction today. While the level of ground water used to be 1.5 metres, it is already 1.8. Since the figure has exceeded the critical norm, there is a large amount of evaporation leading to the salification of the upper stratum of soil. "This is a step towards desertification. We have worked out a number of measures to avert the process, in which Korean companies are ready to take part," Bahram Aliyev said.

Azerbaijan has water reserves of 30.3bn cubic metres, Aliyev said. During the hot period of the year the flow of sources falls to 23bn cubic metres, leading to a water shortage. "In these conditions it is essential to use new irrigation technology to save water. Azerbaijan has the technology, but it is better in Korea, so we are ready to involve their specialists in this project," the deputy minister said. Working protocols on the project have already been signed, envisaging the construction of a small factory to produce advanced irrigation systems, according to the deputy minister. "To begin with, they will bring their technology and if it can be adapted here, we will talk about setting up an enterprise," Aliyev said, adding that initially it would be a question of just the Korean companies' involvement in the project, but in future they might invest in it too.

All these projects show that the mentioned sum of $2bn dollars is wholly realistic and that it might even be exceeded. Azerbaijan will, therefore, gain a reliable economic partner for the long term, not only in Europe, but also in Asia, and will be able to implement the most expensive infrastructure projects.