Could the Southern Gas Corridor provide a roadmap for reform in Azerbaijan?

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Radio Azadliq in Azerbaijani.


“It is impossible not to notice the effects of cheaper world market oil prices in Baku. Azerbaijan’s formerly glittering capital has turned into a receded and dusty city. Everywhere in the streets, at every step, you can see buildings with signs in Azerbaijani, Russian and English reading: ‘for rent.’ “

Jack Farchy in the Financial Times writes that this year, the International Monetary fund predicted that Azerbaijan’s economy would shrink by 3%. This is the weakest financial indicator Azerbaijan has seen in the past 20 years of its existence. Shops are already closing one by one in the capital. Officially, Baku says that it is trying to bring real reforms to Azerbaijan’s oil – dependent and corruption – tarnished economy.

The author writes that the West and international financial organizations, that have long gritted their teeth in the face of the human rights abuses of Ilham Aliyev’s regime, are finally asking for real changes. Baku needs billions of dollars, and for that reason has softened its position towards the West, and has released several political prisoners:

“In the past year, the country’s currency has lost much of its strength, and the political basis of the country has been shaken. The country has quickly come face to face with its economic-political policy, and will be forced to make big changes.”

Livia Paggi, the regional director for risk consulting company GPW, says “now, the government needs international financing, and for that reason, it is willing to lend an ear to the West’s grievances on human rights abuses in the country and other financial practices.”

A road map in the making

Heading up the reforms in the country is former Deputy Minister of Taxes, Natiq Amirov, who called the unrest and protests in the countryside after the manat’s second devaluation, “local and small”, though he did admit that the government had been placed in a difficult position given the sharp downtown in oil prices.

“After the second devaluation, great commotion was seen on the commercial markets and we should have taken immediate emergency measures. We expected that we would enter the post – oil era in about 10 – 15 years. But, is more reasonable to say that we are currently in that era. In the last few years, we should have quickened the reforms we started to prepare for this crisis.” Natiq Amirov says.

Mr. Amirov hired “McKinsey” consulting company, who has been preparing a ‘road map’ for the country’s economy up until 2025. This plan will be presented in October. But in the article, it is noted that the government has not waited for this report to appear.

After all, investors have been complaining of corruption for a long time now that the country’s oil wealth has been concentrated in the hands of the ruling family.

Legal fees

The author did, however, underline the fact that the customs service of Azerbaijan has undergone serious changes, and that the taking of bribes for imports into the country has been effectively dealt with to an extent. In any case, that is what businessmen and bankers say.

One banker noted though most products do come through and are imported into the country on legal grounds, the new official payment schedule exceeds the amount that was earlier taken for bribes, which in turn has given rise to many complaints against the system. In this year alone, the income of Azerbaijan’s customs’ service has risen 30% in the first six months:

“Even if it’s a lot, it’s still legal. The president took the question of the customs service under his own supervision, and we keep him informed on a daily and weekly basis.”

It’s about 5 billion.

Analysts believes that Baku’s change of heart towards the West is a result of actions that were going to be taken by the US congress that would have placed sanctions on Azerbaijan.

But the author notes that Baku’s need for several billions of dollars has also played a roll. One of Baku’s most important and pressing projects is the 46 billion Southern Gas Corridor. This corridor would deliver Caspian gas straight into Europe.

The priority of the project is to make up for lost oil revenue in the middle and long term. This corridor will also create a physical corridor with Europe. The Finance Minister, Samir Sharifov, says that Azerbaijan itself is willing to invest 13 billion dollars in the project, and the government wishes to attract an additional 5 billion from international financial institutions.

The author claims that international institutions are using these financial discussions as political pressure – the Extractive Industries Transparency Initiative (EITI) is one of these institutions. An example of this is the organization’s lowering of Azerbaijan’s financial status in 2014 after a new wave of oppression on civil society in the country. The head of the European Bank of Reconstruction and Development (EBRD), Suma Chakrabarti raised the question of the country’s status in May at a meeting with president Ilham Aliyev.

The message to Azerbaijan is clear, says EITI energy director, Riccardo Puliti: “We are expecting serious improvements from Azerbaijan.”

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