Doing business in Azerbaijan_Azerbaijan Export and Investment Promotion Foundation_2010

“In 2010, the country's economy continued to develop. By and large, 2009 and 2010 will go down in history as a period of economic crisis. These years were a test for us too. I am very pleased that thanks to the reforms under way in Azerbaijan and the sound economic policies, our economy continued to develop both in 2009 and in 2010. In 2009, our Gross Domestic Product grew by 9.3 per cent, while last year our economy grew by a further 5 per cent. If we consider that most countries registered decline both in 2009 and in 2010, then, of course, the value of our successes will further increase.

Of course, underlying all our successes are the sound economic policies and reforms we have been conducting for many years. Our economy is already diversified and no longer relies solely on one sector. Our goal has been to build a diversified economy. Although the oil price dropped almost four times in 2009, our economy continued to grow” —Ilham Aliyev, President of the Republic of Azerbaijan

CONT Country information

Azerbaijan: state, geography and history in brief Snapshot of the Azerbaijani Economy

Business climate

9 sectors review

11 16

21

Foreign Direct Investment climate 22 Establishing legal presence 25 Land and property 30 Licensing 32 Employment 34 Foreign trade regulation 36 Currency regulation & repatriation of profit 37 Taxation 39 Accounting 43 Intellectual property 45 Dispute resolution & arbitration 46 Privatization 48

53

Oil & Gas 54 Energy 57 Alternative Energy 61 Minerals & mining 68 Chemical industry 68 Agriculture 69 Light Industry 72 Food processing 73 ICT 76 Construction 78 Machinery and equipment 82 Transport & logistics 88 Tourism & hotel management 91 Financial sector: banks, insurance & leasing 92 Insurance 102 Capital market 103 Stock Exchanges 104

TENTS overview of the regions 107 useful contacts Absheron 108 Aran 108 Daglig Shirvan 109 Ganja-Gazakh 109 Guba-Khachmaz 112 Lankaran 112 Nakhchivan 113 Sheki-Zagatala 113 Yukhari Garabag and Kelbajar-Lachin 114

GENERAL Information General Information Visas & Work Permits Business etiquette Useful hints

119 120 121 123 133

137

Ministries, State Committees and Agencies 138 Embassies of the Republic of Azerbaijan abroad 141 Hire and rental of cars 146 Hotels 146 Notary offices 147 Emergency phone numbers 147

Annexes & MAPS

151

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n u

y r t

m r o f in

n o i t a

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Country information | Doing business in Azerbaijan

Azerbaijan: state, geography and history in brief

Coat of arms

Flag

Establishment: 28 May 1918 Independence: 18 October 1991 (II republic) Capital: Baku Language: Azerbaijani Currency: Azerbaijani Manat (0,8 AZN=1 USD) Territory: 86.6 ths square km, (11.5% forests, 1.6% water surface, 50% agricultural lands, of which 27% pastures, 36.9% other lands).

The territory also includes Azerbaijani sector of the Caspian Sea. The country is situated between 44° and 52° of east longitude, 38° and 42° of north latitude, Baku is located in 40° parallel.

Climate: Azerbaijan’s climate varies from an arid subtropical and humid subtropical to a mountainous tundra climate. Average annual precipitation is between 200 and 300 mm (8 to 12 inches) in the lowlands and 300 to 900 mm (12 to 35.5 inches) in the highlands, although precipitation is distributed unevenly throughout the year.

On the southern slopes of the Greater Caucasus average annual precipitation ranges between 1,000 and 1,300 mm (39 to 51 inches).

Average temperature ranges in the lowlands between 25 and 27 degrees C (77 and 80 F) in July and 0 to 3 degrees C (32 to 37 degrees F) in January and between minus 3 to minus 6 degrees C (27 to 21 degrees F) in January in the highlands.

Neighbors: Borders with Iran in the south–765 km and Turkey in the south-west–15 km, Russia in the north–390 km, Georgia in the north-west–480 km, Armenia in the west–1,007 km. The widest part of the Azerbaijan section of the Caspian Sea is 456 km.

The country is well placed on the south eastern border of Europe on the shores of the Caspian Sea enriched with hydrocarbon resources.

It has direct access to the extensive and speedily emerging markets of the Central Asian states, Caucasus as well as Middle East.

Azerbaijan declared the policy of openness for international business. It has an excellent record of co-operation with private international businesses, in particular, with oil & gas corporations.

The country by now is well integrated in the international cooperation system through participation in various international organizations such as Council of Europe, OSCE, Commonwealth of Independent States, GUAM (Georgia, Ukraine, Azerbaijan and Moldova alliance), Black Sea Economic Cooperation, Organization of Islamic Conference as well as a system of multilateral and bilateral treaties on security and economic affairs.

Azerbaijan has stakes and is actively engaged with the European Bank for Reconstruction and Development, Asian Development Bank, World Bank, International Monetary Fund, Islamic Development Bank, Black Sea Trade & Development Bank etc. all of which have running projects portfolios in the country.

Political system Azerbaijan has a republican form of government. The three branches of power include: * executive headed by the president (5 year term); * legislative: unicameral national assembly (milli majlis) with 125 deputies (5 year term); * judiciary headed by the supreme court of the republic.

The system of “checks and balances” includes the Constitutional Court and the Constitution with a number of guaranteed rights and freedoms for the people of Azerbaijan.

The country lives a very dynamic political life. A number of parties and politicians compete for the presidency, parliamentary constituencies and municipalities. A well developed electronic and print media community complements public political discourse. The

Doing business in Azerbaijan | Country information

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foreign policy of Azerbaijan is geared towards the establishment of peaceful and mutually beneficial cooperation with all international partners. One of the major foreign priorities of the republic is integration into the common European space. Relations with CIS countries are also important, primarily because of the vitality of the existing and traditional economic cooperation and relations.

for tourism development due to the unique terrain and geography.

Azerbaijan has a number of major natural attractions such as warm sea, mountainous resorts, mineral springs and medicinal mud recreation centres. The historical background of the country on the crossroads where civilizations met for many centuries makes it even more attractive as a place to visit and do business.

Demography and people The population is evenly distributed between urban and rural areas, with 54.2% residing in towns and cities. Some 38% of the estimated three million workforce are engaged in agriculture and related activities, with 11% working in industry and construction.

History One of the countries of the South Caucasus, Azerbaijan was reintroduced on the political map of the world after the collapse of the Soviet block. Independence was regained only in 1991 at the price of thousands of lives of Azerbaijanis lost in the NagornoKarabakh conflict and the Soviet attack against Azerbaijani national movement in Baku in January 1990. Yet despite a short period of independence in the new era, Azerbaijan has an enduring and rich history of statehood and culture.

Today’s Republic of Azerbaijan is the successor of the Azerbaijan Democratic Republic (ADR) declared on 28th May 1918 by the first Azerbaijani parliament—National Assembly (Milli Majlis). Though short lived (was occupied by Bolshevik Russia in 1920), ADR was the very first democratic government in the whole Islamic world.

Such measures as electoral rights for women, representation of ethnic minorities in Parliament, and other progressive initiatives were put in place. These initiatives were ahead of their time, not only in the Middle East and Eurasia, but in the old democracies of Europe as well.

The location of Azerbaijan as the most convenient route for migration from Asia to Europe, and from Eurasia to Middle East, from ancient times until recently forms the country’s ethnic mix of today. It is a mix of Turkic, Caucasian, European and other cultural influences. According to conventional historical tradition, the word “Azerbaijan” descends from the personal name or official title of the local ruler Atropat, IV century B.C., a contemporary of Alexander the Great.

Population in numbers Population, per year Thousands person

2008

2009

8,779

8,997

Urban

53.9%

54.2%

Rural

46.1%

45.8%

101.3

102.7

Population density, per km2

Azerbaijan is a positive model of peaceful co-existence of religious communities. Although predominantly Muslim, the country traditionally served as a safe haven for various ethnic groups, religions, and cultural traditions. Large communities of Christians and Jews traditionally live here. Secularism and non-involvement of the State in religious affairs is a strong local tradition entrenched by law and supported by a liberal and inclusive culture.

The country is the largest and the fastest growing economy in the South Caucasus. Azerbaijan provides the best transport links, connecting South Eastern Europe with the vast regions of growing importance such as Central Asia and the Caspian Sea. An increasing number of professional shipping companies are engaged in the transportation of goods via these transport corridors during the past decade. There are extensive opportunities

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Country information | Doing business in Azerbaijan

Other historians refer to Turkic and Sanskrit languages to trace down the origins of the name of the country. Anyhow, the country bore the name “Atropatan” and later “Aderbagan” for many centuries to come. The name was used to describe territories that include the present Republic of Azerbaijan and the province of the same name within the Islamic Republic of Iran.

The first recorded states on the territory that is now known as Azerbaijan date back to 9th Century B.C. A few states such as Manna, Maday and Albania with their own unique traditions succeeded one another in the period to follow.

In the 4th century A.C. Christianity spread to the northern part of the country while the South remained largely Zoroastrian. In the 8th Century the Arabic conquest of Azerbaijan commenced. The Khalifat had long competed with the Turkic Khazar Kaganat (Judaism was the official religious tradition there) for domination over the north. Eventually Arabs prevailed and Azerbaijan remained under Islamic rule for circa three hundred years with the short period of twenty years when a large scale Hurammi freedom movement led by popular leader Babek overthrew the Arabs in Azerbaijan and parts of Iran.

Azerbaijan is one of the world’s oldest cradles of civilization. Human cultural activities in Azerbaijan were discovered in Gobustan (about 70 km from the capital city Baku) providing indisputable proof that the Azerbaijani culture goes back to approximately the 12th millennium B.C.

From the period of Arabian conquest onwards, Azerbaijan became an integral part of the Islamic cultural tradition. Nizami, Nasimi, Tusi and other Azerbaijani poets and scholars now regarded the patriarchs of this civilization, contributed extensively to the Islamic Renaissance of the 9th to the 13th century.

The Middle Ages was a period of several large regional empires, predominantly Turkic. Some of the mightiest dynasties were of Azerbaijani origin, including the Karakoyunlu, Agkoyunlu and Safavids. Despite the dominance of large states on the regional political arena, northern Azerbaijan (Shirvan) managed to sustain independent or at least semi-independent status throughout the whole period, including the hectic times of the Mongolian invasion and the Teymurids.

By the XVIII century, the country consisted of a few independent Khanliqs (principalities). The new regional power, the Russian Empire, eventually conquered Northern Azerbaijan and after the 1828 Turkmanchay Peace Treaty with Persia the country was divided and southern Azerbaijan was left under Persian sovereignty.

The Turkmanchay division is the current state of affairs between Azerbaijan and Iran.

The Maiden Tower in Old Baku is a UNESCO World Heritage Site built in the 11th–12th century.

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The late XIX­—early XX centuries denotes the period of cultural and economic regeneration of Azerbaijan. In the 1860’s the industrial exploitation of the Azerbaijani oil fields commenced, which witnessed the emergence of international businesses including Nobel brothers, Rothschild, Siemens and others. Quite a few of them made their start in Baku from a small engineering company to a giant transnational corporation of today.

The economic rise led to a cultural revival. The traditional Islamic & oriental cultural stratum was enriched by the ever growing European and Russian influence. The XIX and XX centuries are the period of major advancement in Azerbaijani social life. The first opera in the Muslim world, newspapers and national drama theatre, discussion on the adoption of a “modern” Latin alphabet, the first university, a school for Muslim girls and such like were the cornerstones of this cultural and social development.

After the short lived Azerbaijani Democratic Republic (mentioned above) the 11th Soviet Red Army occupied Azerbaijan in late April 1920. The occupation did not occur without resistance. The remnants of the ADR National Army units, together with the local militia, retreated to the second largest city of Azerbaijan, Ganja, where a

Shah Ismail I (Khatai), the founder of Safavid Dynasty pictured at battle against Abu al-Khayr Khan in a scene from the Tarikh-i Alam-Aray-i.

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Country information | Doing business in Azerbaijan

major clash with joint Bolshevik; Armenian Dashnak forces took place. A period of mass repression of the Azerbaijani intelligentsia, elite and national leaders from 1920 to 1930 followed the defeat of the 1st independent Azerbaijani Democratic Republic.

Thus until 1990, the Azerbaijani Soviet Socialist Republic (AzSSR) was an integral part of the USSR as one of the “founding” republics of the Union and a major industrial and cultural centre of the Empire. The collapse of the Soviet bloc brought independence along with a serious economic and political crisis.

The consequences of the disintegration of the Soviet Union were complicated by the ongoing aggression by the Republic of Armenia.

Armenian nationalists backed by the late Soviet administration launched a separatist movement in Western Azerbaijan (NagornoKarabakh). A long lasting and bloody military conflict started in 1988.

The conflict was further complicated by civil confrontation within Azerbaijan. A few political groups were competing for power in the country. A succession of weak, largely incapable governments ended in 1993 when veteran politician and popular leader Heydar Aliyev was elected President. A decade of rehabilitation and growth started. In 1994 major oil & gas contracts with the consortia of oil

Nobel Brothers’ oil wells at the end of 19 th century, in Balakhani, a suburb of Baku.

Heydar Aliyev, President of the Republic of Azerbaijan, in office June 24, 1993–October 31, 2003.

Snapshot of the Azerbaijani Economy giants such as BP, Amoco, Total and others were concluded. From circa 1997 onwards, major political reforms aimed at bringing Azerbaijan to international standards in the areas of the rule of law, democracy, human rights and freedoms started as well.

Under the leadership of Heydar Aliyev, the government reestablished peace and stability in the country, reinforced state infrastructure and civil rule throughout the country, and launched a proactive foreign policy campaign aimed at the political integration of Azerbaijan internationally.

The era of Heydar Aliyev ended in December 2003 with the decease of the national leader. However, the policy decisions taken by him, including integration into European common space, democratization, the creation of a liberal market economy and socially oriented policies remain the undisputed development vectors for the current government. His far-seeing policy is being successfully continued by his successor Ilham Aliyev who was elected President for two consecutive terms in 2003 and 2008.

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Country information | Doing business in Azerbaijan

Azerbaijan is the fastest growing economy worldwide. Following sharp decline in early 90’s of the last century Azerbaijan achieved stable and rapid growth for 12 consecutive years starting from 1997 (see chart at the end of chapter). Now the country is one of the most rapidly recovering economies in the world. Despite world economic crisis GDP indicator continued to grow in 2009. The GDP annual growth in 2009 was 9.3%. Nominal wages grew by 8.6% in the year 2009. Almost all other major economic indicators point out a similar growth pattern.

Baku is the centre of Azerbaijani economy and the home for most of Azerbaijan's 3,500 industrial enterprises, petroleum extraction and refining, metallurgy, aluminium processing, petrochemicals, chemical production are located in the city and its satellites.

Consumer goods production consists of food processing, textiles, and wine production.

Baku is also strong in services including banks, hotels & restaurants and logistics. Sumgayit production is concentrated on chemical and petrochemical production, textiles, and aluminium smelting; Ganja is the home to an aluminium refinery and also specializes in textiles, machine building and metallurgy.

The effect of the early 1990's economic decline is evident in agriculture—a critically important sector in Azerbaijan, employing about 38% of the labour force. Grain is Azerbaijan's leading crop, together with grape (for wine production), fruits, vegetables, and tobacco.

The country is the regional leader not only in the overall economic growth, but also was a leader in foreign direct investment attraction as well. The 2005 UNCTAD Trade & Investment publication quoted Azerbaijan as the No 1 globally as per the FDI Inflow Performance Index. Azerbaijan is also in top 20 in equity capital attraction in absolute terms. Since opening of the oil

& gas industry for international business in 1994 a number of international contracts for the oil and gas fields were signed with the principal oil businesses such as BP, Statoil, Total, Exxon, Itochu, Lukoil and others.

The "jewel in the crown" of the economy is the Baku-TbilisiCeyhan oil pipeline connecting the Caspian offshore fields with the Mediterranean Turkish port. It is taking crude oil from the ACG (Azeri, Chirag, Guneshli) project led by British Petroleum.

The pipeline pumps crude oil to be sold at the Turkish port of Jeyhan. The transport capacity of the pipe is over 1 million barrel a day. The Azerbaijani government is committed to constructing a network of oil & gas pipelines throughout the region to promote international cooperation and trade. The oil & gas projects have been bringing substantial cash inflow into the country since 2006.

Notwithstanding these apparently bright prospects, the government of the country took a number of steps aimed at the reduction of the country's dependency on the oil revenues and evasion of the so-called "Dutch disease". The State Oil Fund, a transparent state agency under public scrutiny is accumulating the oil revenues from the international contracts. The regional development and non-oil

“I believe that relations between Germany and Azerbaijan are very close and on a good path. This applies especially to cooperation in the economic sector.” ­ —Dr. Angela Merkel, Federal Chancellor of Germany

economy development strategies aimed at the diversification of the economy are also prioritized.

The main source countries of FDI for Azerbaijan are currently the United States, UK and Turkey. The cumulative FDI in the year 2009 amounted for approximately 3 bln USD. Foreign direct investments outside the oil & gas sector currently are mainly in construction, services, transport, telecom and manufacturing.

Azerbaijan is consistently expanding its international trade capacities as well (see chart at the end of this chapter). This was achieved mainly due to two factors: export of ever increasing amounts of Azerbaijani crude and oil products and the expanding internal market which resulted in rise in import of manufacturing equipment and consumer goods in the country. At the moment, the EU is the main export destination for Azerbaijan, with Russia, Turkey and some EU countries remaining the main source of import.

Azerbaijan is also a leader country in South Caucasus on the power of economy. Thus, it holds 75% of the whole economy of this region. The country's domestic product is largely contributed by private business. Its share constituted 81.2% of GDP in 2009. This is the result of several stages of privatization of

"The United States recognizes Azerbaijan’s important contributions to regional and international security” and expresses the hope that “we will be able to broaden and deepen our relationship in the months and years ahead".

—Barack Obama, President of the United States of America

Doing business in Azerbaijan | Country information

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the formerly state owned property and development of new privately owned industries. However, a number of key segments of the economy are still state controlled. Many of them are now "open for privatization" by the Presidential Decrees which creates additional investment opportunities. The government uses several methods of privatization with the most popular being the acquisition by a "strategic investor" or via "investment tender".

Azerbaijan has one of the lowest external debt / GDP ratios in the region and a sound financial system. The fiscal system is further characterized by a very low deficit of state budget not exceeding 1% of GDP in 2009. For more information on current trends in the Azerbaijani economy please refer to the website of the Ministry of Economic Development at www.economy.gov.az and the AZPROMO resource www.azpromo.az

Administrative division Autonomous Republic

66

Towns

77

Districts of cities

13

Settlements Rural territorial division Rural settlements Capital city

GDP

18

Country information | Doing business in Azerbaijan

4253 Baku (2 million)

43 billion USD Annual growth

9.3% 4,874 USD

Inflation

1.5%

Investments

12.7 billion USD

Domestic investments

7.3 bln USD

Foreign investments

5.4 bln USD

Weighted exchange rate for 1 USD

—Georgi Parvanov, President of Bulgaria

258 1700

Some useful macroeconomic indicators (2009)

GDP per capita

In recent years, the intensity of relations has increased in the context of contemporary European relations. “Relations on the level of ministries and other organizations develop very rapidly. But it is also very important that the relations between the state leaders give an impetus to development of relations in every field. These relations and ties are successfully transformed into practical steps in a bilateral context”

1 (Nakhchivan AR)

Districts

0.80 AZN

Share in GDP by sectors (2009) Industry

50%

Agriculture

6.7%

Construction

7.4%

Transport and Communications

8.6%

Wholesale and retail

8.0%

Social services Taxes

11.7% 7.6%

GDP in Azerbaijan 1997-2009

Azerbaijani Foreign Trade

mln. USD

mln. USD

GDP per capita Private share in GDP

%

Share of Azerbaijan in the economy of South Caucasus

Budget Revenues and Expenditures

Doing business in Azerbaijan | Country information

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i s u B

s s e n i m i l c

e t a

Foreign Direct Investment climate The Republic of Azerbaijan is the leading FDI destination in the region. Since mid 90th Azerbaijan doubled its economic potential, enabled and sustained macroeconomic stability and undertook a wide range of economic and regulatory reforms ensuring sustainable business and investment environment. In the period of independence 90 bln USD were invested in our economy, of which more than a half by foreign investors. Azerbaijan made gradual transformation from planned economy into full-fledged market economy based on the developed and active private sector.

A revolutionary legal reform with introduction of new Tax Code, Civil and Civil Procedures Codes, Land Code, Labour Code, Customs Code, Foreign Exchange Law, Law on International Arbitration as well as a number of other laws and regulations enabled significant development of private sector, made legislation more transparent and investor-friendly.

Generally, the Azerbaijani legislation establishes a very open national regime for FDI, where foreign investors are welcome in any sectors the local investor is allowed to invest to. This regime applies also to the participation of foreign investors in the privatization of the state owned property. The major economic policies include an FDI element as well; for example, the Government lifted limitations for foreign participation in the banking sector. There are no special permissions or specific registration requirements for foreign investment.

The licensing was substantially simplified with foreign investors' interests in mind. Any FDI restrictions are strictly limited to national security matters. Foreign investors are particularly welcome to enter the Azerbaijani market with a so called “green field projects”. This is particularly attractive bearing in mind the regional markets and the geographic location of the country as the transportation hub for the Caspian region and Central Asia.

In the recent years, Azerbaijan has significantly improved its business climate in terms of ease of doing business in the

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business climate | Doing business in Azerbaijan

country. With introduction of “one-stop-shop” system in business registration, often also called “single window” system, in 2008 reduced explicitly the red-tape in business registration, costs and paperwork associated with this process. Important reforms were also undertaken in employment regulations, registering property, access to finance, paying taxes and protecting investors.

As a result of these reforms the World Bank Doing Business 2009 Report named Azerbaijan the world’s leading reformer of business regulations which has made a big jump from 97th place to 33rd one in the ranking of ease of doing business - the biggest jump ever recorded by the World Bank. Azerbaijan secured its leading positions in a number of indicators in doing business index in the following years.

These achievements are not only observed by international financial institutions but also by leading international rating agencies. In 2010 the Fitch Ratings agency has improved Azerbaijan’s national long term credit rating to BBB- and short term credit rating to F3, which mean satisfactory level of solvency and an adequate capacity for timely payment of financial commitments.

Along with this there are few major factors that turned Azerbaijan into leading FDI destination and provide sound justification for doing business here.

Abundant resources Azerbaijan is rich in mineral and climatic resources. The Caspian Sea oil & gas reserves are one of the major deposits globally.

Azerbaijan has also explored substantial deposits of precious metals (including gold and silver), ferrous and non-ferrous metals, various construction raw materials deposits etc. One of the major resources of the country is its natural diversity. Despite relatively small size, Azerbaijani territory has a number of distinct climatic zones ranging from humid subtropical climate to semi-arctic due to its complex terrain and geography. This creates unique opportunities in agriculture and tourism.

Favorable location Azerbaijan is located on the very south-eastern border of the European continent and serves as the natural bridge between Europe and Central Asia. It is the most convenient route from the north-east of Europe to the Middle East. The country is the logistics hub for the Caspian region. Excellent infrastructure of Baku (including largest regional sea and air terminal) is the best choice for any business entering the markets of the Caspian Sea region.

Competitive cost of production Azerbaijan has long lasting industrial and trade traditions. The industrial revolution has taken place here in the late XIX century due to expanding and advanced oil production and processing sector. Further industrial development led to growing Research and Development (R&D) base.

A large R&D centre, Academy of Sciences with circa 7,000 research studies, exists in Azerbaijan in parallel with a number of universities and colleges. The country is rich in engineering skills yet the wages are still very competitive. Azerbaijani government’s policies in respect of utilities tariffs are manufacturer friendly.

FDI friendly laws Azerbaijani legislation is evolving in accordance with the strategic goal of the Government which implements the "welcoming policy" for foreign businesses. Foreign investments are protected by certain guarantees provided by the government and legislation, including: * Guarantee against adverse changes in legislation - the general rule is that legislation in force at time of making an investment continues to apply to individual investor for subsequent 10 years, notwithstanding any adverse change in law; * Guarantee against nationalization and requisition - foreign investments are not subject to nationalization (except in cases of harm to population and state) and requisition (except in cases of natural disaster, epidemics, accidents, emergencies).

Foreign investors are guaranteed immediate, adequate and effective compensation in case of nationalization and requisition.

Compensation should be commensurate with the amount of the investment at the time of nationalization or requisition, payable in foreign currency and may be freely transferred abroad; * Guarantee of compensation of damages - foreign investors are entitled to compensation of damages, including lost profits, incurred as a result of unlawful acts of state authorities; * Guarantee of repatriation of profits - foreign investors are entitled to repatriate profits derived from foreign investments subject to payment of applicable taxes and duties.

A new Law on Private Direct Investment Activities is currently under consideration in the Parliament and is expected to reinforce the above guarantees as well as to introduce new legal instruments to protect foreign businesses.

In order to attract domestic and foreign investments, improve investment climate and create new competitive and effective production and service areas a number of works have been implemented for the establishment of Special Economic Zones in Azerbaijan.

Legal base for the establishment of Special Economic Zones was formed and legal background for implementation of new mechanism of state support to entrepreneurship was founded.

Concessional tax and customs regime will be introduced in Special Economic Zones. According to priority directions the SEZs will be created after identification of territories where they will be located.

In terms of trade regulation, there are no general trade barriers or prohibitions for import of any types of goods in Azerbaijan and a minimum non trade barriers level for international trade exists.

The country is not a member of WTO yet, though the Government started the accession process. Exported goods are not subject to any customs duties and restrictions. Regulations exist for the export of strategic commodities such as electricity, petrol, cotton and non-ferrous metals.

Doing business in Azerbaijan | business climate

23

Well-established institutional framework The Government continues to introduce a number of initiatives aimed at the improvement of dialogue with the business community.

Apart from the standard methods of communication with the government via its ministries and agencies, foreign investors can effectively deliver messages via such structures as the Azerbaijan Export & Investment Promotion Foundation (AZPROMO) aimed at the promotion of export & investment mainly in the non-oil sector (for more information please refer to www.azpromo.az).

Another governmental initiative is the Azerbaijani Investment Company JSC, a state-owned joint-stock company, established by the Presidential Decree of 30th March 2006 with charter capital of AZN 90,000,000. The main objective of the AIC is to implement fixed-term equity investments in the private sector and to assist FDI in the non oil sector in Azerbaijan.

Political and economic stability Other substantial comparative advantages of doing business in Azerbaijan include such important factors as macroeconomic and political stability in addition to Baku’s reputation as being the only metropolitan capital on the Caspian Sea. Azerbaijan is one of the leading economies globally in respect of economy growth indicators.

A record GDP growth was observed in 2006 accounting for 34.5%. Even in the period of financial turmoil in the world Azerbaijan managed to keep the high pace of development and finished 2009 with 9.3% of GDP growth.

Wide choice of investment forms Pursuant to the current Law “On the Protection of Foreign Investment�, foreign investments may be in any of the following forms: * Participation in enterprises and organizations established with legal entities and citizens of the Republic of Azerbaijan on a shared basis; * Establishment of enterprises wholly-owned by foreign investors;

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business climate | Doing business in Azerbaijan

* Purchase of enterprises, property, buildings, structures, shares in enterprises, other shares, bonds, securities, and certain other property, which, under the law of the Republic of Azerbaijan, may be owned by foreign investors; * Acquisition of rights to use land and other natural resources, and also other property rights; and * Conclusion of agreements with legal entities and citizens of the Republic of Azerbaijan providing for other forms of foreign investments.

Enterprises with foreign investment include joint ventures, enterprises wholly-owned by foreign investors, and representations (offices and branches) of foreign legal entities. Availability of international instruments for protection of FDIs: Azerbaijan established sound legal basis for promoting and protecting foreign investments.

Along with national legislation it is a party to the UN Convention on the Recognition and Enforcement of Foreign Arbitrate Awards (29.12.1958) and Washington Convention on the Settlement of Investment Disputes between States and Nationals of other States (18.03.1965). The country has also signed bilateral treaties on the mutual protection of investments and treaties on avoiding double taxation.

Bilateral Investment Treaties Azerbaijan has 41 bilateral treaties on the mutual protection of investments. More than twenty-five treaties are currently being negotiated with such countries as The Kingdom of the Netherlands, Bosnia and Herzegovina, Czech Republic, Spain, Russia and others.

Azerbaijan is also a party to a number of multilateral treaties concerning foreign investment. Please see ANNEX 1 for the list of bilateral treaties on the promotion and protection of investments.

According to the Doing Business 2009 World Bank Report Azerbaijan has made a big jump from 97th place to 33rd out of 181 economies. Azerbaijan improved in seven from 10 indicators,

Establishing legal presence catapulting 64 places in the rankings, the biggest jump ever recorded by the World Bank. Reforms affected such areas as Starting a Business, Employing Workers, Registering Property, Getting Credit, Paying Taxes, Protecting Investors. In 2010 Report Azerbaijan has improved its overall ranking significantly in Doing Business Index of the World Bank from 99 among 175 countries in 2007 to 38 among 183 countries 2009 and 2010.

A key component for securing the top ranking was Azerbaijan’s “one-stop shop” also called “single window” system which was introduced this year and decreased the costs and paperwork associated with opening up new business in the country. Azerbaijan is pursuing its goals to ease business conditions and establishing favorable environment for starting business. As for the Global Competitiveness Report 2010-2011 Azerbaijan left behind not only its neighbors but also such countries as Greece, Brazil and CIS countries. In 2010 Fitch Ratings and Standard & Poors improved Azerbaijan’s long term credit rating to “BBB–“ and short term credit rating to “F3”.

The Global Competitiveness Index 2010-2011 Countries

Rank

Iran

69

Azerbaijan

57

Armenia

98

Georgia

93

Kazakhstan

72

Russia

63

Turkey

61

A company may start operations in Azerbaijan from the moment of state registration. Currently, registration authorities for commercial legal entities are carried out by the Ministry of Taxes of the Republic of Azerbaijan.

Without a formal registration with the Ministry of Taxes a company may not open a bank account, clear goods through customs, etc. Effective 1 January 2008 the new system of corporate registration is in place, which significantly simplified the registration process for legal entities. The registration of legal entities is now handled through a single state authority (“one-stop-shop”) – the Ministry of Taxes.

Upon submission of all required documents, within 3 business days the Ministry of Taxes issues an extract from the state register and a unique tax identification number. There are numerous forms in which a legal entity/company can be incorporated in Azerbaijan.

There are no specific rules for the incorporation of companies by foreigners apart from the standard legal and translation requirements. In general, foreign businesses tend to open representative offices/branches or register (incorporate) a local company.

The Law on State Registration of Legal Entities and State Register sets out the requirements of the legal registration process.

One may start his/her own business in Azerbaijan with 100% foreign investment or form a joint venture with a local partner.

There are no specific requirements for the size of share or legal limitations for the foreign element in a company and investment.

With the exception of certain licensed activities described below, there are no additional general approvals or permissions apart from state registration for the start up.

Certain but limited number of documents is required for submission to the Ministry of Taxes for registration purposes (for foreign participants / shareholders, these documents include, inter alia, notarized / apostilled extracts from the companies' register, documents of statute and corporate governance).

Doing business in Azerbaijan | business climate

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The Government House at Freedom square. Baku, Azerbaijan.

Azerbaijan is a party to the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents and legalization requirement ceased to exist in respect of documents produced and executed abroad in the convention member countries.

The new Law on State Registration of Legal Entities and State Register determined the timeframe of the entire process. The basic term for state registration of commercial legal entities is set at 3 working days. The state register of legal entities includes general information on a legal entity and its founders.

Any interested party is entitled to request a copy of the extract from a register. The state duty for the registration of the banks, stock exchanges, insurance companies, representations and branches of foreign legal entities is 220 AZN, for the registration of legal entities involved in agricultural business—3 AZN and that in respect of all other legal entities—11 AZN. Azerbaijani law generally recognizes the following types of commercial legal entities (commercial legal entities are defined as those operating for profit): * General partnership (“GP”) * Limited partnership (“LP”) * Limited liability company (“LLC”) * Additional liability company (“ALC”) * Joint-stock company (open or close JSC) * Cooperatives LLCs and joint stock companies are most popular choices of legal entities. Please see ANNEX 2 for a brief comparative analysis of these two types of legal entities.

General Partnership A general partnership is a legal entity comprised of at least two individuals and/or legal entities. An individual may participate in the creation of a GP only it such individual is registered as an entrepreneur.

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business climate | Doing business in Azerbaijan

Individuals and/or legal entities may only participate in one GP. General partners are jointly and severally liable for the partnership's liabilities. To the extent that the partnership does not have sufficient assets to cover its obligations, the partners are then personally liable for such obligations.

Limited Partnership A limited partnership has one or more general partners and one or more limited partners. General partners are personally liable for the partnership's obligations.

Limited partners' liability is limited to the amount of their contributions. A person may only participate as a general partner in one LP. Similarly, a partner of a GP may not participate as a general partner in a LP. Limited Liability Company A limited liability company is an entity established by one or more individuals and/or legal entities contributing their participatory interests to the charter capital.

An LLC having only one participant may not be a sole participant of another LLC or any other company. The participants of an LLC are normally liable only to the extent of their contributions. An LLC is not normally responsible for the obligations of its participants to third parties.

Additional Liability Company An additional liability company is an entity established by one or more individuals and/or legal entities contributing their shares to the charter capital.

The legal structure of an ALC is similar to a LLC, except that the participants in an ALC may assume liability for the company in excess of their contributions, as regulated by the charter.

Joint Stock Companies A JSC is a legal entity with charter capital divided into a certain number of shares. JSC shareholders are liable for the obligations of the JSC only to the extent of their shares' par value. A single individual or legal entity may be the founder or the shareholder of a JSC. The charter capital of a JSC is divided into a fixed number of shares of a stated par value. A JSC has a Board of Directors comprising at least three individuals who are either shareholders or independent directors.

The Supervisory Board is mandatory for JSCs with more than 50 shareholders. General Meeting of Shareholders (GMS) is the supreme body in JSC. Azerbaijani law sets a minimum amount of share capital required for the establishment of JSCs, which ranges from 2,000 AZN for closed JSC and 4,000 AZN for open JSC. Additional statutory requirements exist for the establishment of banks and insurance companies in the form of JSC. Cooperative (Cooperative, a concept close to a Building Society) A Cooperative is a voluntary union of at least five individuals and/ or legal entities, for the purpose of satisfying needs of its members through the consolidation of their financial or in-kind resources.

Depending on the purpose of their activity, cooperatives may be of different kinds, such as consumer or housing cooperatives.

Non-Commercial Organizations An Azerbaijani non-commercial or not-for-profit organization is an entity created to engage in various public, social and economic activities, not related to the generation of profit and distribution of such profit to its equity holders.

Since an Azerbaijani non-commercial organization is treated as a legal entity, it may own property, enter into contracts, acquire ownership and intellectual property rights, incur obligations in its own name, maintain an independent balance sheet, maintain settlement and other bank accounts, and act as a claimant and defendant in courts and arbitration. Azerbaijani non-commercial organizations are presumed to engage in non-commercial activities.

Under the Civil Code, non-commercial organizations may be created in any of the following forms: public association, foundation and union of legal entities. Other forms permitted include federations, schools, universities and clubs.

Public Associations A public association is a voluntary, not-for-profit organization created by its members to engage in activities of their mutual interest. Azerbaijani law authorizes both individual and corporate membership in public associations.

A member in a public organization loses any ownership or other rights to property transferred to the public association, including their membership contributions. Members of the public association are not responsible for its obligations and, likewise, the public association is not responsible for the obligations of its members.

In the event of the liquidation of a public association, any property remaining after liquidation is allocated for the purposes specified in the charter. If this is not possible, such property is remitted to the state budget.

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Land and property Foundations A foundation is a not-for-profit organization created by individuals and/or legal entities to engage in public, charitable, educational and other kinds of social activities. Since an Azerbaijani foundation is not subject to a minimum requirement for the number of founders, it may be created by one individual or legal entity.

Moreover, they are not based on membership, i.e. the founders do not become its members. A foundation’s founders are not responsible for its obligations. Likewise, a foundation is not responsible for the obligations of its founders.

Unions of Legal Entities A union of legal entities is created by business or non-commercial entities to provide for the cooperation and coordination of their entrepreneurial or non-commercial activities, representation, and the protection of their common interests.

A union is not responsible for the obligations of its corporate members. Corporate members, however, are responsible for the unions’ obligations to the extent provided under the union’s charter.

Subsidiaries A legal entity, whether or not established in Azerbaijan, may form a subsidiary in Azerbaijan in one of the three legal forms available for commercial purposes, i.e. a JSC, an LLC, or an ALC. A subsidiary is a separate and distinct legal entity; the parent enterprise may contribute property to its subsidiary but, typically, is not liable for the obligations of the subsidiary.

A parent company, however, may be held liable for the obligations of its subsidiary in bankruptcy if such bankruptcy was caused through the fault of the parent company in connection with the execution of its instructions. Additionally, a parent company and its subsidiary are jointly liable for obligations incurred by the latter as a direct result of the implementation of instructions of the former, even if the former is not in bankruptcy.

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business climate | Doing business in Azerbaijan

A progressive land reform was implemented in Azerbaijan in the 1990’s. The country was one of the first among the former USSR republics to introduce private ownership of land as well as free trade and transfer of titles to land and distributed the large portion of land to the population.

A lot of formerly state owned real estate was also either sold or distributed to population and businesses. Azerbaijani law provides for the following three basic rights in land: (I) Ownership, (II) Lease, (III) Use. The real estate in the Azerbaijani legislation is best matching the term "immovable property". Pursuant to the Law on State Register of Immovable Property (the “State Registration Law”), creation of rights in property (ownership and other rights), transfers and termination of rights are subject to state registration with the register of immovable property.

The State Registration Law recognizes registration of the rights in immovable property carried out by various state authorities prior to the date of the law and provides for data transfer to the register from various state authorities engaged in registration of rights in immovable property in the past.

The register in accordance to the State Registration Law will be available to a limited list of persons entitled to receive information on data maintained in the Register. As a general rule, registration of property rights over immovable property shall be accomplished within 20 days.

The State Registration Law contains special provisions in respect of registration of certain rights in immovable property: * Ownership and other property rights regarding unfinished construction of immovable property can be registered in advance. * Property right regarding individual apartments in unfinished buildings or non-residential properties and mortgages thereon can also be registered in advance. * In the event immovable property is leased or given for use for a period exceeding 11 months, such right shall be registered by either party of a lease or use agreement.

The concept of ownership in Azerbaijan includes rights to exercise possession, right to use/benefit and the right to dispose of the land (transfer ownership or other rights in land to third parties).

It should be noted that ownership right in land is a privilege of (I) the Republic of Azerbaijan, (II) municipalities, and (III) Azerbaijani individuals and legal entities. Foreigners (individuals and legal entities) and stateless individuals may not own land in Azerbaijan and may not be granted a purchase option on a lease.

However, international organizations, foreign legal entities and foreign citizens and states may lease land in Azerbaijan. Foreigners who acquired ownership rights in land through general legal procedures such as enforcement of security interest, grant or succession shall dispose of their ownership (e.g. through a sale) within one year; otherwise the land shall be acquired by the state or relevant municipality.

There is no legal limitation for ownership of buildings, constructions etc. by foreign individuals and legal subjects.

Certain categories of land plots are in the exclusive ownership of the state or municipalities, and may only be leased by or granted for the use of private persons.

In addition to ownership, the Land Code recognizes perpetual and temporary land use rights, lease rights and easements.

Temporary land use right is granted for up to 99 years and may be extended by the parties. A perpetual land use right is granted for an indefinite period. The holder of such rights is liable only for the land tax for the land use.

Perpetual and temporary land use rights are granted by the state and municipalities only in exceptional circumstances to a limited number of persons listed in the Land Code.

Landowners may grant perpetual or temporary land use rights under an agreement with the land user. Land use terms are defined by an agreement between the landowner and the land user.

Land lease is the use of land for a definite period, for a charge.

Leases are concluded for a period agreed by the parties. Rent payments for the lease of privately held land parcels are freely negotiable. Rent payments for state or municipally owned land parcels are determined according to market conditions, but cannot be less than specified statutory rents. With regard to agricultural land, discounts from statutory rents are available depending on market conditions in the agricultural sector.

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Licensing Under Azerbaijani law license is an official record permitting relevant types of entrepreneurial activities to a legal person irrespective of its organizational and legal form, as well as to a natural person engaged in entrepreneurial activities without creation of a legal entity.

A license is granted without discrimination to any entity that satisfies the requirements for that specific license. Thus (with certain exceptions), foreign investors may obtain licenses under the same conditions and in accordance with the same procedure as Azerbaijani nationals. Normally, a licensee may not transfer a license to another legal entity or individual.

Licensing in Azerbaijan is regulated by the laws, presidential decrees and orders of the Cabinet of Ministers of the Republic of Azerbaijan. The Ministry of Economic Development is the government agency entrusted to exercise overall control in the field of licensing and to maintain a single register of licenses.

However, the right to issue a specific license is given to respective state authorities who control the licensed activity (the Ministry of Transportation, the Ministry of Emergency Situations, the Ministry of Economic Development, etc).

Regulations on procedures for the licensing of specific types of activities are generally issued by the Cabinet of Ministers. An applicant is required to submit all documents specified in the regulations and pay the required fee, upon which (subject to the application meeting all requirements) a license is issued within 15 days. The basic term of most licenses is five years (for production of alcoholic beverages and ethyl (drinking) alcohol—3 years, for import—1 year) and termless for being engaged with banking activities and activities in insurance sector.

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business climate | Doing business in Azerbaijan

The Azerbaijani licensing system was reformed in 2002. The number of business activities requiring a license was reduced from more than 200 to 57. As the result of the reform, the licensing system in Azerbaijan was liberalized.

Licensing differs from the permitting procedure related to special “hazardous” activities such arm trade or nuclear materials storage. In Azerbaijani terms this type of permits is called “special permit”.

A person who wishes to obtain a license to carry out specified entrepreneurial activity should either create a legal entity or register as an individual entrepreneur, i.e. become a “sole proprietor”.

In ANNEX 3 you may see the list of business activities requiring a license. No other business activities require special permits as of the date this publication went to press. The list of documents required for obtaining a license is exhaustive. No other documents may be demanded from a business to issue the license.

The highest Flagpole in the World (162 m), the National Flag Square in Baku.

Employment Labour relations governing the employment of all employees in the Republic of Azerbaijan are regulated by the Labour Code, effective 1 July 1999 (the “Labour Code�), together with other laws issued pursuant to the Labour Code.

The Labour Code codified the legislative acts adopted in the early years of independence and number of lower tier normative legal acts. Employment relations are established by virtue of execution of a written employment contract, which is concluded without a fixed term in most cases.

In limited cases (such as seasonal works, work under a fixed term project or assignment, agreement of employer and employee) employment contract can be made for a fixed term up to 5 years.

Fixed-term contract will be deemed to be extended for the same period unless terminated by a notice within 7 days of the expiration of the original term of the contract.

A contract without a fixed term can be terminated by employer only in cases specified in the Labour Code such as gross violation of labour duties by an employee, redundancies, determination by a competency assessment body of an employee's qualification as inadequate for performance of his/her duties, change of labour conditions etc.

An employer is under a duty to give a termination notice. The general term of such a notice is 2 months (e.g. redundancies).

However, certain exceptions apply (e.g. in case of gross violation of labour duties when no notice is required).

An employee can terminate a contract at any time upon giving a 1-month notice. When employment is terminated by the employer due to redundancy, for a period of 2 months prior to termination the employer shall allocate to an employee a fixed number of days in a working week to allow an employee look for a different workplace.

Termination of employment with certain categories of employees

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business climate | Doing business in Azerbaijan

(e.g. pregnant women, women with children below 3 years of age) is prohibited, unless employer is being liquidated. In cases of termination of employment due to redundancy or liquidation of an enterprise employer shall pay to the employee severance payment, which may total to up to three months of employee's average salary.

Generally, legal entities are required to make monthly social insurance contributions in the amount of 22% of the salary fund of its employees. Legal entities are also under an obligation to withhold employees' social insurance contribution in the amount of 3% of employees' gross salaries and transfer same on behalf of the employees to the State Social Protection Fund.

Individual entrepreneurs are, generally, required to pay social insurance contributions in the amount of 20% of the minimum salary.

Different rates are provided for certain regions and categories of individual entrepreneurs (such as auditors, private notaries, auditors, accountants etc.). Azerbaijani law also provides for obligatory medical insurance to be procured by employers.

Compensation in Foreign Currency All salaries paid in Azerbaijan must be paid in manats unless there is a special agreement (for example, Production Sharing Agreement for development of hydrocarbon reserves) with the Government of Azerbaijan allowing payments in other currencies.

Probationary period A probationary period of up to 3 months is allowed in most cases and, if the probationary period is included in the employment contract, the contract may be terminated by either party upon giving a 3-day notice.

To be enforceable, a probationary period must be stated in an employment contract and may not exceed three months. A probationary period may not be imposed on certain categories of staff listed in the Labour Code.

Minimum Wage Employee remuneration may not be lower than the minimum monthly wage, currently 85 manats (approx US$ 105) per month.

Work Week The regular work week is 40 hours, reduced for certain groups of people and workplaces. Overtime work is not allowed unless necessary for state defence, public safety, ensuring the supply of public utilities, and in certain other situations. The duration of overtime work may not exceed a certain limit established by the Labour Code. For each hour of overtime work, an employee must be compensated at a rate at least twice his or her normal hourly rate.

Holidays Employees are entitled to 19 official public days off, 18 of which are public holidays and one is a day of mourning. The minimum paid annual leave is 21 calendar days, more for certain groups of employees and in certain workplaces.

Overtime and work during days-off (which are Saturdays, Sundays, public holidays and a mourning day) are compensated in the manner provided for in law.

Sick Leave Except for the first 14 days of any absence, compensation for sick leave is provided by the State Social Protection Fund, not the employer.

Maternity Leave Women are entitled to be paid maternity leave for 70 calendar days prior to and 56 days (70 or 110 days in certain cases) after the birth of a child. Maternity pay is provided by the State Social Protection Fund.

Dismissal Grounds for dismissal include, among other things: staff redundancy; employee’s failure to meet required competency standards as determined by the decision of a competency assessment body; liquidation of an enterprise; and violation of employment duties as determined by the employment contract or labour law.

There are statutory restrictions relating to the dismissal of certain categories of employees. In certain cases, an employer is required to report an employee’s dismissal to the appropriate state authorities and/or trade unions.

Cost of Employment Employers are required to pay social security contributions on behalf of their employees.

Income Tax The employer is obliged to withhold income taxes for its employees and certain social contributions.

Foreign Workers in Azerbaijan Foreign employees who are employed by enterprises (affiliates or representative offices) operating in Azerbaijan are subject to Azerbaijani labour law, except for those working in enterprises, branches or representative offices located in Azerbaijan under employment contracts concluded in the foreign state where the employer is located.

Foreign nationals wishing to work in Azerbaijan are required to register at their place of residence and obtain a work permit. Work permits are issued by the Ministry of Labour and Social Protection.

Heads of representative offices and branches of foreign legal entities (and their deputies) and certain other categories of foreign employees are not required to obtain a work permit in Azerbaijan.

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Foreign trade regulation Azerbaijan has started negotiations with WTO on accession to the organization. The government has undertaken a number of steps to liberalize foreign trade. As of the end of 2009, the weighted average import tariff in Azerbaijan was 5.8 % i.e. significantly below the international average. Import and export is one of the most rapidly developing business segments in Azerbaijan.

The average annual growth in foreign trade in recent years is approximately 15%. Azerbaijan is developing trade relations with a number of countries. In 2009, there were trade operations with 138 partners. The European Union remained the major destination for export of Azerbaijani goods. Russia and CIS are the major importers. The main export commodities are oil and petrochemicals, a/c products. The import includes machinery and luxury goods, constructions materials etc.

Azerbaijani law recognizes several customs regimes applicable to goods imported in Azerbaijan, of which most important to foreign investors being transit, customs storage, bonded warehouse, temporary import, processing on and outside customs territories.

In the case of temporary import, no duties are applied and the goods must be re-exported from Azerbaijan until the deadline established by the customs authorities. The goods brought under the temporary import regime should be re-exported without substantial changes in their nature.

Import of goods into Azerbaijan is subject to imposition of imports duties (ad valorem duties ranging from 0% to 15%, per unit duties, duties per metric units). Excise tax applies to certain types of goods (e.g. tobacco and alcohol products). Azerbaijan adopted “destination VAT� principle and VAT (currently set at 18%) is payable (subject, of course, to applicable customs regime) on the declared value of goods (including assessed import duties and excise tax).

Certain categories and types of goods are import exempt and to some others 0% VAT applies. 0.15% customs clearance fee is applicable to all imports/exports with certain minor exceptions.

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business climate | Doing business in Azerbaijan

Exports are exempt from customs duties, except for certain types of metals and metal products.

Under PSA (Production Sharing Agreement) regime, contractors, its agents and sub-contractors are entitled to import and re-export from Azerbaijan free from import duties and restriction goods employed for hydrocarbon activities. Imports under PSA regime are subject to zero rate VAT. Similar regime applies under HGAs (Host Government Agreement). One of main steps on this way is Azerbaijan’s GSP membership. Date of joining the GSP+: December 2008- GSP+ USA and GSP+ EU. Advantages for Azerbaijan: * Access with preferential duties to the markets controlling 53% of all import operations * Exemption of duties for export of more than 7200 names of goods produced in Azerbaijan to EU states, as well as 3400 names to the US. * Diversification of economy and growth of non-oil sector The GSP USA state program makes possible the duty-free import of about 5,000 products from 132 countries to the United States. From early 2009 until late 2011 Azerbaijan receive special trade privileges in the framework of the GSP+ EU plan, proposed in addition to standard privileges, provided in the framework of the generalized system of preferences GSP. Another important development worth mentioning is a number of regional trade initiatives including Central Asia - Caucasus Europe transport corridor (TRACECA) and Russia-Azerbaijan-Iran transport corridor (North-South Transport Corridor). The projects are directed at stimulation of international trade along the above routes via coordination of trade policies and tariffs, upgrade of infrastructure, simplification of customs procedures etc. The impact of the above initiatives on international trade of Azerbaijan and on its status of a regional transportation hub is substantial.

Currency regulation & repatriation of profit Imports and Exports by countries in 2009 (mln USD) Import Total

mln US$

ratio %

14 698.5

100.0

Russian Federation

1 070,93

17,50

Turkey

905,98

14,80

Germany

550,97

9,00

Ukraine

511,65

8,36

China

484,82

7,92

Great Britain

274,77

4,49

USA

264,22

4,32

Japan

146,21

2,39

Italy

142,12

2,32

Belorussia

136,66

2,23

1 631,40

26,67

Total

mln US$

ratio %

6 119,7

100.0

Italy

3 788,44

25,77

USA

1 746,81

11,88

France

1 326,11

9,02

Israel

1 236,20

8,41

Other countries Export

Russian Federation

744,95

5,07

Taiwan

680,39

4,63

Canada

660,65

4,49

Indonesia

587,48

4,00

Malaysia

395,01

2,69

Georgia

387,56

2,64

3 144,90

21,40

Other countries

Foreign exchange Foreign exchange transactions are governed by the Law on Currency Regulation. The Central Bank of Azerbaijan (CBA) administers the overall enforcement of currency regulation. Various aspects of foreign currency regulation also cover precious metals and foreign securities, among other matters.

Azerbaijan’s currency control legislation distinguishes between “residents” and “non-residents”, with more stringent requirements currently applying to residents.

The definition of “resident” includes private individuals having a permanent place of residence in Azerbaijan and legal entities established in accordance with Azerbaijani legislation. Branches and representative offices of foreign entities established in Azerbaijan do not fall within the definition of a resident. Currency operations are divided into routine currency operations and operations involving the movement of capital. Routine currency operations include: * Transfers for payment of goods and services under import/ export contracts with a term of payment not exceeding 180 days; * Transfers in connection with the financing of export/import transactions with a term not exceeding 180 days; * Transfers of dividends, interest, and other income from deposits, investments, credits and other operations; and * Non-commercial transfers, for example including transfers of inheritances, wages, pensions or alimony.

Operations involving the movement of capital are deemed to include all other non routine currency operations, e.g.: * Direct investment in entities for the purpose of deriving profit and obtaining control over the entity; * Purchase of securities; * Payments for ownership and other rights to immovable property; * Import/export transactions under credit terms of more than 180 days; * Deposits by banks of currency values for more than 180 days; and

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* Any other currency operation not deemed as a routine currency operation.

Currency operations involving the movement of capital must be performed in a manner approved by the CBA. No procedure, however, has been established by the CBA on this point and, in effect, no licensing of the currency operations involving the movement of capital is required at present.

Foreign exchange regulations are comparatively less restrictive for non-residents. Non-residents are permitted to hold offshore bank accounts without restriction, may deposit their funds offshore, and are not bound to sell foreign currency proceeds or submit a report upon withdrawal of foreign currency. Non-resident legal entities may purchase foreign currency on the domestic foreign currency market for routine currency operations and in other cases stipulated by legislative acts.

Import/Export of Foreign Currency in cash by Individuals.

Resident and non-resident individuals are treated equally with regard to the import/export of foreign currency in cash. There are no limitations on the amount of foreign currency an individual may bring into Azerbaijan, provided that such amount is declared to the Azerbaijani customs authorities.

Azerbaijani customs authorities are required to issue a certificate to an individual importing more than USD 10,000 or its equivalent into Azerbaijan. Residents can export hard currency in the amount up to the equivalent of USD 10,000 free of tax without any documentation except the tax declaration. Non-residents, however, are required to submit some documents.

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Residents must pay a 1% fee for the amount from USD 1,000 up to USD 10,000. In case the USD 10,000 threshold is exceeded, supporting documentation must be provided in any event. Pursuant to the newly-issued regulations of the Azerbaijani Central Bank, residents may transfer currency (movement of capital) to certain states (member states of the Organization of Economic Development and Cooperation, Russia and those having bilateral investment protection treaties with Azerbaijan) for the purposes stated in the regulation: direct investment, acquisition of securities, real estate purchase, transfer of currency to the resident’s deposit in foreign bank.

There is no specific limitation as to the amount allowed for transfer. Foreign companies and individuals may have both Manat and foreign currency accounts in a local bank.

All settlements within Azerbaijan including payments of employee salary should be made in Manats with a few exceptions. A permission of the Central Bank of Azerbaijan is required to conduct certain transactions in foreign currency.

From 1st January 2006 new Azerbaijani manats were introduced to replace the old ones. The exchange of banknotes is accompanied by denomination of the currency at a rate of 1 to 5,000. The international abbreviation for the new manat is AZN.

Taxation Tax policy and collection of taxes in Azerbaijan is carried out by the Ministry of Taxes. For the purposes of this review we will concentrate on corporate taxation.

Currently, there are two different types of tax regimes in Azerbaijan. The companies that work predominantly in the oil & gas sector under the Production Sharing Agreements (PSA) are subject to the oil consortia tax regime.

The statutory tax regime is applicable to all other legal entities.

The statutory tax regime is regulated by the Tax Code and numerous normative legal acts. The tax legislation in force is regarded as one of the best pieces of legislation among the transition economies.

All Azerbaijani enterprises, representative offices, branches, and individuals engaged in business activities (as well as foreign entities and individuals conducting business activity in Azerbaijan through a “permanent establishment” (“PE”) as defined under the Tax Code) must register with the tax authorities regardless of whether or not their activities are taxable in Azerbaijan. Divisions which have not established a PE are subject to a separate regime.

Double Taxation Treaties Azerbaijan has signed bilateral treaties for the avoidance of double taxation with 40 countries. Double taxation treaty negotiations are currently underway with Bulgaria, Denmark, India and Kyrgyzstan.

Road Tax Legal entities and individuals of foreign states as well as persons owning vehicles in the Republic of Azerbaijan must pay this tax when using the territory of the the Republic of Azerbaijan.

Taxes are assessed on cars, buses and trucks depending on seat number, days spent in Azerbaijan and number of other conditions (e.g. $15 - $25 per day for buses, etc.)

Simplified Tax This tax is intended to ease tax burden for small size businesses and is in lieu of general profit tax. Simplified tax is charged at the following rates on the gross revenue of the taxpayers: * 4% for taxpayers operating in Baku * 2% for taxpayers operating in other regions of Azerbaijan In order to quality for this tax, the total revenue of the legal entity should not exceed 150,000 Azerbaijan manats (approximately 187,500 USD at the current exchange rate) for the previous 12 months period.

The payers of the simplified tax are also exempt from VAT, profits tax and property tax.Quarter shall be the reporting period for simplified tax regime.

Dividend Withholding Tax Dividend withholding tax of 10% applies to both domestic and foreign shareholders. Tax is withheld in the currency in which the dividend is paid.

Double Taxation Treaties (“DTT”) may reduce the rate at which dividend tax applies. See ANNEX 4 for brief information about DTTs in Azerbaijan.

Other Withholding Taxes Foreign legal entities with no permanent presence (permanent establishment) in Azerbaijan are subject to withholding tax on income derived from sources in Azerbaijan at the following rates. * 10% Interest * 14% Rent and Royalty * 6% Freight income * 6% Telecommunication services * 4% Insurance payments

City view at night. Baku, Azerbaijan.

* 10% Interest element of financial lease payments * 10% Other income For detailed information on Tax rates please see ANNEX 5.

From January 2010 the corporate profit tax was reduced from 22% to 20%.

Losses and bad debts Losses may be carried forward over the next five years without any limitations. Losses cannot be carried back. Bad debts may be deducted from taxable income only if recognized as having no value in the accounting books of the company and if they were reflected as income in previous periods.

Losses and bad debts recovered in the future periods shall be recognized as income in the period of their recovery.

VAT registration There are detailed requirements for registration and accounting for VAT, with penalties for non-compliance. Companies with taxable transactions exceeding a certain threshold (currently 150,000 AZN (187,500 USD) during previous 12 months must register as VAT payers.

Other companies carrying out business activity in Azerbaijan may voluntarily register. Only registered VAT payers may charge VAT or claim a credit for input VAT that they pay.

Interest and penalties There are certain interests and penalties applicable for failure to comply with the tax legislation. For example, interest on outstanding tax liabilities accrues at a rate of 0.1 percent per each day of delay.

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Breach* Failure to register as a taxpayer with the tax authorities Failure to file declarations Understatement of tax liability Payments from petty cash while bank accounts are imposed tax sanctions or penalties by the tax authorities Failure to notify tax authorities on changes in a taxpayer’s registration documents

Failure to obtain the certificateduplicate from the tax authorities Failure to remit VAT amounts in accordance with the procedure determined by the Tax Code and a relevant executive authority.

Fine AZN 40 AZN 40 50% of understated tax

50% of expenses paid from petty cash

AZN 40 100% of money transferred to accounts opened in non-resident banks and other non-resident credit institutions for entrepreneurial activity purposes without obtaining a certificateduplicate from tax authorities.

50% of the outstanding VAT amount

*The statute of limitation period for a tax law violation is set as three years.

More detailed information on the Production Sharing Agreements may be obtained from the Oil & Gas (including regulatory environment of the industry) article of this publication.

Accounting The Law on Accounting 2004 stipulates gradual transition to the new accounting standards by the year 2008. Thus the Soviet-era accounting principles will eventually cease to regulate the financial reporting in Azerbaijan. It should be noted however, that Azerbaijan has already made substantial advancement towards new financial reporting philosophy. The banks as well as the companies under Production Sharing Agreements and similar commercial structures are not regulated by the 1995 Law on Accounting.

The new Law charges the Cabinet of Ministers with the task of publishing new National Accounting Standards (“NAS”), which are yet to be developed. The Law stipulates that all significant entities including credit institutions, insurance companies, investment funds and commercial organizations which meet certain criteria will be subject to International Financial Reporting Standards (“IFRS”).

Others (except for small private businesses) will have the choice of using either the IFRS or NAS. Small private businesses will also have the right to choose between the NAS or a simplified method of accounting. All entities registered in Azerbaijan which includes Azerbaijani Legal entities, representative offices and any branches of companies within the territory of Azerbaijan are required to maintain their accounting books and records in local currency, and in accordance with the Azerbaijan accounting legislation (“AAL”). This includes the use of a mandatory, and quite rigid, chart of accounts which, in most cases, will also necessitate the employment of a Full-time, experienced Azerbaijani chief accountant.

The Civil Code 2000 contains general provisions regarding financial reporting and audit requirements for legal entities. Joint stock companies and Limited liability companies are required to use independent auditor to audit their annual financial. Similarly, joint-stock companies are required to publish their annual accounting reports and balance sheets.

Any legal entity with the value of balance sheet exceeding 1 million AZN (1.19 million USD) or annual revenues exceeding 500 thousand AZN (595 thousand USD) is required to conduct an audit of its balance-sheet. Legal entities with balance-sheet value of below 1 million AZN or annual revenues below 500 thousand AZN are permitted to prepare a simplified balance sheet.

Tax Code 2000 also contains certain provisions dealing with accounting matters, such as depreciation. Depreciation is made in accordance with a declining balance method and the following rates apply to these selected categories of assets: * buildings, facilities and installations - up to 7%; * machines, equipment and computers - up to 25%; * vehicles - up to 25%; * intangible assets - up to 10% when life time is not defined or in accordance * with life time when life time is defined; * other fixed assets - up to 20%.

Actual capital expenditures for production purposes made in a current tax year in form of buildings, facilities, installations, machines, equipment, computers vehicles and other assets may be depreciated at a rate of up to 2 times of standard rates, i.e. depreciated in an accelerated manner. A similar accelerated depreciation rate was also recently introduced for leased equipment in order to stimulate this leasing financial service.

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As mentioned above separate chart of accounts based on western accounting principles has been adopted by Azerbaijani commercial banks few years ago. AAL differs from IFRS and generally accepted accounting principles in other countries (e.g., the United States). A summary of the most significant differences is as follows.

Accounting policies AAL do not require detailed disclosure of accounting policies used in the preparation of the financial statements or footnote disclosures that provide additional information, analysis and clarification relating to the financial statements.

Property, plant and equipment (“PPE�)

Property, plant and equipment is maintained under the historical cost convention (at acquisition price or at the cost of production including transportation and assembly costs) as modified by the revaluation of these assets, if re-valued. At various times since 1992, PPE in Azerbaijan have been re-valued in accordance with Government decrees (the latest such revaluation occurred in 1996).

Indexes used for these revaluations did not properly account for the changes in the value of Azerbaijani Manat nor did they result in providing a market value for the fixed assets to which they were applied. Revaluations of property, plant and equipment are generally not required under IFRS and US GAAP under certain circumstances.

Impairment of assets AAL does not permit the recording of an allowance against the carrying value of an impaired asset. This includes setting up an allowance for tangible assets as well as inventories, accounts receivable and other assets.

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business climate | Doing business in Azerbaijan

IFRS requires, among other things, that long-lived assets and certain identifiable intangibles that are held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, allowances may also be made upon the carrying value of short-term assets (for example, accounts receivable) when it is likely that the full carrying value of the asset will not be recovered.

Deferred taxes Deferred tax assets and liabilities under IFRS are recorded for the expected future tax consequences of existing differences between financial reporting and tax reporting basis of assets and liabilities, and loss or tax credit carry forwards. Under AAL rules, there are no such provisions dealing with deterred tax accounting.

Equity In the balance sheet of an Azerbaijani company equity is generally represented by charter capital, paid-in-excess capital, reserve capital, appropriated earnings, social funds and retained earnings for the current and previous years. Deductions can be made directly from reserve funds for non-tax deductible expenses.

Under IFRS, equity is generally represented only by Share capital, additional paid-in capital and retained earnings for the current and previous years.

Intellectual property In 1996 and 1997 Azerbaijan started implementation of the national system for registration and protection of intellectual property rights.

Intellectual property rights in Azerbaijan include: all rights to industrial property (including inventions, industrial designs, utility models, trademarks, and geographic names); and copyright and related rights. Current legislation pertaining to intellectual property includes the Law On Copyrights and Related Rights (the Copyright Law), the Law On Trademarks and Geographic Names, the Law On Patents, and the Law On Topology of Integral Schemes. Under existing legislation, the Cabinet of Ministers is empowered to authorize various state agencies to register and protect intellectual property rights in respective areas.

The State Agency for Standardization, Metrology and Patents is responsible for the issuance of patents and trademark registration.

There is also the State Copyright Agency which is responsible for the registration of the copyrights.

Beyond this however, procedures for the registration and protection of various intellectual property rights differ from one state agency to another.

Azerbaijan is a party to several international agreements concerning the protection of intellectual property including: the Convention Establishing the World Intellectual Property Organization; the Paris Convention for the Protection of Industrial Property, the Madrid Agreement Concerning the International Registration of Trade Marks, the Madrid Protocol, the Patent Cooperation Treaty, and the Eurasian Patent Convention, the Performances and Pho-

nograms Treaty of the World Intellectual Property Organization Copyright Treaty of the World Intellectual Property Organization.

Azerbaijan is a “first to file” and not a “first to use” jurisdiction, meaning early registration of intellectual property rights is essential to ensure protection. Patent protection is granted to an invention if it is novel, inventive and useful. The maximum duration of protection for an invention patent is 20 years. Utility models are granted patent protection if they are new and “industrially applicable”. The term of utility patents is ten years.

An industrial design right is characterized by an artistic and structural form which determines its external appearance. Patent protection is granted if an industrial design is novel, original, and capable of industrial application. The term is ten years.

Patents may be assigned and/or licensed by their owner(s) to natural persons or legal entities. However, an assignment must be registered with the relevant state agencies to be valid. Infringement carries civil, criminal and administrative liability.

The right to a trademark is based on registration with the respective state agencies. Trademark registration is granted for a term of ten years, renewable every ten years. Assignments of licenses for trademarks and geographic names must be registered with the relevant state agencies.

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Dispute resolution & arbitration Legal protection is given to the appellation of origin of goods based on registration with the relevant state agencies, and to trademarks existing under international agreements on the registration thereof or bearing the status of a known trademark.

Violations of intellectual property rights carry civil, criminal, and administrative liability.

The Copyright Law protects works of science, literature and the arts (copyrights) as well as stage productions, phonograms of radio or cable broadcasts, and computer programs and databases (allied rights). Copyright protection is normally granted to the author without registration. The right to use a copyrighted work may be re-assigned. A copyright provides protection for the lifetime of the author and normally for a period of 50 years following his or her death.

Rights to computer programs, databases and topologies of integrated circuits are protected under the Copyright Law and the Law on Topology of Integral Schemes. The unauthorized re-creation (copying) of computer programs, alteration of existing programs, and unlawful accessing of legally protected computer information are criminal offences.

Proper quality is determined by legislative norms and technical specifications applicable to a particular product. Certain goods are subject to mandatory certification by state agencies, in accordance with procedures established by legislation. The advertising and distribution of goods without such certification is prohibited.

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business climate | Doing business in Azerbaijan

Courts Azerbaijan has a three-tier court system—courts of first instance, appellate courts and cassation court. Courts of first instance are the district (city) courts of general jurisdiction, local economic courts, and military courts.

It is necessary to emphasize that Azerbaijani courts are undergoing a critical stage of transition and reforming from a soviet type "just courts" to an independent and modern judiciary. Vital steps such as re-appointment of judges and recent legal reforms are underpinning this process. It is safe to say that Azerbaijani system is becoming more relevant and appropriate for an open market economy Courts of general jurisdiction address disputes arising out of civil, family, or land-related matters, use of natural resources, environmental protection, tax, administrative and other matters, where at least one of the parties to a dispute is a physical person and where he does not have the status of an entrepreneur, or, if he has such status, the dispute arises other than in connection with the carrying out of his entrepreneurial activity.

The economic courts consider cases in respect of economic disputes arising from civil, administrative and other legal relations between legal entities and physical persons with the status of individual entrepreneurs. Pursuant to the Decree of the President, the Economic Court of Appeals was liquidated and the regional appellate courts were established in Baku, Ganja, Sheki, Sumqayit and Shirvan cities.

The decisions of the appeal courts can be further appealed to the court of cassation. The appellate board for civil cases of the Supreme Court considers appeals brought in respect of the decisions of boards for civil case of appellate courts. The appellate board of the Supreme Court for economic cases reviews the decisions of the decisions of boards for civil case of appellate courts. The cassation court is located in Baku.

Mandatory enforcement Enforcement procedures set forth in Law on the Execution of Court Orders apply to judgments of Azerbaijani and foreign courts as well as international arbitration and foreign arbitration awards.

The following documents have the status of execution orders: * court orders (e.g. judgments of Azerbaijani courts, interim orders, awards of international arbitration courts and tribunals, decisions of courts of foreign states and arbitration courts); * notarized agreements concerning the recovery of alimony and a collateral in a mortgage agreement; * execution notes of notaries; * decisions of state bodies (officials) authorized to consider cases relating to administrative offences; * hypothecate lists issued under the agreements for the mortgage of immovable property; * decisions of other state bodies when provided by law.

The documents should be submitted to a bailiff for execution within following periods: * writs issued in accordance with courts decisions and courts orders – one month; * writs issued in accordance with resolutions of courts on taking of measures related to provisional remedies immediately; * execution notes of notaries and decisions of bodies (officials) authorized to consider cases on administrative offences—ten days; * writs issued in accordance with decisions of international arbitration court and arbitration tribunals and decisions of courts of foreign states and arbitration courts—three years.

Failure to voluntarily execute the appropriate decisions triggers obligatory execution. The following are obligatory execution measures: * foreclosure and subsequent sale of assets; * garnishment of salaries and similar payments;

* foreclosure of debtor's assets in possession of third parties; * taking of debtor's assets with subsequent transfer to claimant.

Referral of a dispute to arbitration is a permitted dispute resolution mechanism. In general, matters over which courts have jurisdiction can be arbitrated in cases provided in law, international agreements and upon agreement of the parties.

Azerbaijani courts have exclusive jurisdiction over certain matters which include, inter alia, rights over immovable property located in Azerbaijan, cases concerning the recognition of patents, or other marks or rights, if such were registered (or application for registration was filed) in Azerbaijan, cases where an action is brought against a carrier under a contract for the carriage of goods, or cases relating to the existence of a legal person registered in Azerbaijan or cases where cancellation of a decision taken by a legal person is sought. Interestingly enough, civil procedure legislation does not set forth provisions regulating the conduct of domestic arbitration. Hence, one can naturally assume that the parties are at liberty to provide for these by their agreement. Commendably, Azerbaijan has made significant progress as far as international arbitration is concerned.

Azerbaijan acceded to and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), the 1965 Washington Convention on the Settlement of the Investment Disputes between States and Nationals of Other States (the “Washington Convention”) and the European Convention on Foreign Commercial Arbitration, dated 21 April 1961. Azerbaijan has also enacted the Law on International Arbitration, which basically adopts the UNCITRAL Model Law on International Commercial Arbitration of 21 June 1985. In addition, Azerbaijan is a signatory to 1998 Agreement on the Order of Reciprocal Enforcement of Arbitral Awards and Economic Court Judgments on the Territory of the country-members of the Commonwealth of Independent States.

Privatization Decisions on enforcement and recognition of foreign arbitral awards are taken by the Supreme Court. In certain cases, enforcement can be declined, most notably, if: * an award contravenes legislation, offends public policy or sovereignty of the Republic of Azerbaijan; * the principle of reciprocity is not adhered to; * there is a valid judgment of an Azerbaijani court relating to the same parties and same subject-matter; * an award has not entered into force in the country where it was made.

The New York Convention will certainly not apply to the recognition and enforcement by the Azerbaijani courts of domestic awards (where an award is made in Azerbaijan arbitrate proceedings). In the absence of relevant provisions in the civil procedure law, the Law on International Arbitration could be looked at for guidance.

Under said law an international commercial arbitrate award made in arbitration proceedings in Azerbaijan may be set aside if, inter alia: * the notice of the appointment of an arbitrator or arbitration proceedings were defective; * the dispute does not fall within the scope of the arbitration agreement; * the composition of the arbitration tribunal or the arbitration procedure was not in accordance with the agreement of the parties; * the subject-matter of the dispute is not capable of settlement by arbitration under legislation of the forum state; * the arbitrate award is in conflict with Azerbaijani legislation.

It is noteworthy that under the Constitution of Azerbaijan international treaties ratified by the Republic of Azerbaijan prevail of national (domestic) laws in case of conflict. Therefore, in case of international arbitration under the Washington Convention, the arbitrate award will be enforceable in Azerbaijan as if it were a final judgment of a court in Azerbaijan (Article 54 of the Washington Convention).

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business climate | Doing business in Azerbaijan

Foreign investment under Privatization Programmes Under the Privatization Law, the following are considered to be foreign investors: * Foreign legal entities and their subsidiaries; * Azerbaijani legal entities in which participation of foreign investment exceeds 50% of the entity's charter capital; * Foreign nationals; and * Stateless persons.

To date, Azerbaijan has undergone a long process of transferring from a state-dominated economy to the current situation where 81.2% of the economy is held in private hands. This became possible largely thanks to the denationalization of state owned enterprises and property.

Privatization occurred in two stages. The denationalization of small sized enterprises was carried out within the First Stage Privatization Programme (1995-1998). Thirty-nine thousand enterprises as well as 1.3 million hectares of land were sold and distributed to private persons and legal entities, more than 1,550 medium and large enterprises were transformed into stock-companies.

Few large enterprises were also sold to investors as part of the Programme. They include, among others, a brewery, and cement and steel plants transferred to foreign investors. In general, the sum of revenues from privatization in 1996-2009 was 447,067 million AZN (more than 560 million USD). As a result of privatization, more than 500,000 job places were made available.

Currently, the Second Stage Privatization Programme adopted in 2000 is underway and covers more strategic and broader sectors of economy such as transport, communication, construction, chemical and heavy engineering industry, metallurgy, etc. It stipulates privatization of mainly medium and large enterprises.

Besides this, www.stateproperty.gov.az and www.auksion.az web sites provide comprehensive information about enterprises open for privatization, investment projects in different sectors of economy as well as current situation of privatization of state property.

Revenues from privatization in 1999-2009

mln. AZN

The enterprises are declared "open for privatization" by special Decrees signed by the President. The list of enterprises currently open for privatization is available to the public.

The law also contains the list of exemptions, i.e. enterprises that can not be denationalized. Such enterprises include military and other facilities of strategic importance. Railways, radio and TV stations, irrigation systems are excluded from the privatization as well. The programmes explicitly do not mention any difference as regards as to who may participate in privatization, i.e. foreign national takes part in the process on a non discrimination basis.

The State Committee on Management of State Property is in charge of privatization process. There are few privatization methods legally adopted in Azerbaijan: * direct sale to strategic investor; * sale at the investment tender; * special cash and voucher auctions; * general auctions; * sale to employees on preferential terms.

The Government also practices long term transfer of management to a private operator in accordance with an obligatory investment programme. Presently, the number of medium and large enterprises privatized within both Privatization Programmes is over one thousand. There are, however, still very substantial opportunities in privatization as a mode of entry to the market.

At present privatization process plays a significant role in the development of the economy. hereto, in order to improve the privatization process, a number of measures such as involvement of advisory companies, independent experts and valuators, educational and promotional works, organization of different events with participation of local and foreign investors are being implemented

by State Committee on Management of State Property.

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International Mugam Centre. Baku, Azerbaijan.

t c e s

t

s r o e r

w ie v

Oil & Gas

Natural Gas Production (Mln m3) Years

2005

2006

2007

2008

2009

Production

5732

6537

10832.1

16336

16325

Now the country is on the verge of its’ second oil boom. Azerbaijan attracted a large number of foreign investors to operate in oil fields in accordance with Production Sharing Agreements between the government and the prominent western companies.

By now, most of the global oil & gas corporations either operate or are present in Azerbaijan: Azerbaijan’s crude oil production (total liquids) reached 1032.9 thousand barrels per day (bbl/d) in 2009 and the remainder mainly comes from an international consortium.

To date, more than 30 PSA were concluded between Azerbaijan and translational oil corporations. The shareholders in the largest PSA (Azeri, Chirag, Guneshli) are: BP, Unocal, Inpex, Statoil, ExxonMobil, TPAO, Devon, Itochu, Delta Hess and SOCAR. The oil reserves in this field alone are 630 mln metric tons.

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sectors review | Doing business in Azerbaijan

Oil extraction in Azerbaijan

mln. ton

By the late twentieth century with the discovery of huge oil reserves, Azerbaijan, which at that time was a part of tsarist Russia, quickly became one of the oil industry centres of the world, providing for approximately half of the world’s oil supply. A number of foreign oil companies and powerful investors, including Shell, Rothschild, the Nobel brothers and many others had interests in Azerbaijan.

In the late twentieth century, after gaining its independence from Soviet Union the country again became the hot spot for the oil men of the world. The Azerbaijani government invited the largest international oil companies such as British Petroleum, Amoco, Total, Elf, Lukoil, Itochu and others to jointly develop the previously closed hydrocarbon reserves of the Caspian basin.

Azerbaijani International Operating Company (AIOC).

Around 60% of Azerbaijan’s oil output comes from the State Oil Company. Its portion, however, will decrease as the international contracts are developed.

AIOC’s main offshore field known as Azeri-Chiraq-Gunashli (ACG) has proven crude oil reserves of 1 billion tons (between 40%-70% of Azerbaijan’s total reserves). Total investment for the contract is about $15 bln.

The exploitation of the hydrocarbons in Azerbaijan as well as similar projects in the neighbouring countries led to the development of the regional system of pipelines. Two major pipelines were renovated in late 1990’s: Azerbaijan-Georgia (Baku-Supsa) and Azerbaijan-Russia (Baku-Novorossiysk) and now transport the bulk of Azerbaijani oil.

The new Baku-Tbilisi-Ceyhan (Azerbaijan-Georgia-Turkey) pipeline which costs more than $4 billion and one of the largest energy projects globally is the main oil pipeline in the region.

Parallel to the BTC a gas pipeline Baku-Tbilisi-Erzurum is envisaged. It is to take the natural gas from the recently discovered major Shahdeniz oil field to Turkey and possibly further to Greece and the south east of Europe.

As the BTC pipeline is fully operational and ACG developed, oil production and exports increased dramatically.

Years Oil extraction (including gas condensate), thsd. ton

2007

2008

2009

42.598

44.514

50.416

Natural gas extraction, million m3

16850

23399

23598

The cornerstone of the philosophy behind the Oil Fund is to ensure inter-generational equality of benefit with regard to the country’s oil wealth, whilst improving the economic well-being of the population today and safeguarding economic security for future generations. In December 2009, SOFAZ reported $14.9 billion.

Source: www.azstat.org

Azerbaijan has proven natural gas reserves of 2.2 trillion cubic meters and 1.5 billion ton of oil reserves. (Source: http://az.itv.az/ iqtisadiyyat/12561.html) Azerbaijan’s second biggest natural gas reserve has been discovered in “Umid” field in November, 2010. Umid field, owning 200 bcm gas reserves, is the second largest gas field in independence history of the country. The project depth of the field is 6500 meters.

Exploration works are being conducted by SOCAR. According to the current prices at the market, the total amount of reserves makes $30-40 bln. (Source: http://en.apa.az/news.php?id=135054) State Oil Fund of the Republic of Azerbaijan (SOFAZ) A number of agreements on joint development of oil and gas resources were signed with foreign investors in the frame of Oil Strategy, created by national leader Heydar Aliyev, which has being realized since 1994. The issue on effective management of revenues from implementation of these agreements was brought to agenda.

The State Oil Fund of the Republic of Azerbaijan (SOFAZ) was established in accordance with the Decree of the President of the Republic of Azerbaijan # 240 dated December 29.1999 for the purpose of formation such mechanism.

The country’s leading natural gas producer, the Bahar oil and gas field, is located off the southern tip of the Absheron Peninsula and currently accounts for slightly over half of the country’s natural gas output. The Gunashli field accounts for approximately 67% of the oil and 50% of the natural gas produced in the country.

Azerbaijan opened the Caspian Sea region for international business. The oil & gas sector of the Azerbaijani economy is an excellent example of a successful cooperation between multinationals and the government of a country in transition.

The country’s oil & gas policy proved extremely successful in opening it up for the international businesses in other sectors. At present, a number of international service companies, engineers, shippers in the oil related industries successfully do business in Azerbaijan.

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Extractive Industries Transparency Initiative (EITI) Extractive Industries Transparency Initiative (EITI) was launched by the former UK Prime Minister Tony Blair at the World Summit for Sustainable Development in Johannesburg in September 2002.

The Government of Azerbaijan declared its willingness to join EITI and support the international efforts for higher transparency in the extractive industries and becoming a pioneer country in the implementation process at the EITI Lancaster House Conference on June 17, 2003. Following that the President Ilham Aliyev instructed Cabinet of Ministers of Azerbaijan to establish an interagency National committee on EITI to implement obligations taken at the EITI Conference. Some thirty five countries have either endorsed, or are now actively implementing EITI across the world.

On March 15, 2005 Azerbaijan published the first ever EITI report. Since then, the Government of Azerbaijan successfully disclosed eleven EITI reports.

EITI process is recognised as an international brand of transparency in extractive industries and in order to safeguard this international brand the Validation process has been launched.

Validation is an essential element of the EITI process, and central to the initiative’s status as an international standard. The objective of Validation is to provide an independent assessment of the progress achieved by Implementing Countries on their progress on EITI and what measures they may need to take to make better and faster progress.

Azerbaijani Government tremendously contributed to the development of the validation process and, moreover, Azerbaijan expressed it’s willingness to pilot and test the validation process in the country.

As Azerbaijan was a first country publishing EITI report, Azerbaijan has became a first ever country to successfully complete Validation process and obtain EITI Compliant status.

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sectors review | Doing business in Azerbaijan

Production Sharing Agreements The Government of Azerbaijan in PSA is represented by the national oil company, the State Oil Company of the Republic of Azerbaijan (SOCAR), which has been responsible for implementing Azerbaijan’s state policy for the oil and gas industry. SOCAR has executed all of the PSAs concluded so far between the Government of Azerbaijan and foreign oil companies. Owing to the absence of any national legislation that covers the oil and gas industry and specifically addresses the need for sector growth, such PSAs have been enacted into the legislative system of the Republic of Azerbaijan as laws of the country.

Each PSA does not only constitute a part of the Azerbaijani legal system: it also takes precedence over “general” Azerbaijani legislation in the event of any inconsistency between the PSA and any other Azerbaijani law of general application. To date more than 30 PSAs have been signed and adopted as laws of the Republic of Azerbaijan.

One of the areas of particular interest to foreign oil production and service companies is the tax regime introduced by the PSAs. Given the significance that the Government attaches to the development of the energy sector in Azerbaijan, substantial tax concessions have been granted to the oil companies involved in the development of the energy sector of Azerbaijan under production sharing agreements.

The principal objective of oil and gas taxation is to maintain a balance between obtaining a fair share of revenues from oil- and gas-related activities carried out in the country and retaining the attractiveness of the oil fields in Azerbaijan and the Azerbaijani sector of the Caspian Sea to foreign investors.

Each PSA contains a specific article dealing with the taxation of oil and gas production. In accordance with PSAs (which are uniform with regard to taxation), oil companies pay only one tax: namely, a Profit Tax on the taxable profit derived from sales of oil

Energy and from certain other sources specified in the PSAs, at a fixed rate for a calendar year. The Profit Tax rate varies, depending on the PSA, from 25% to 32%. Oil companies that are parties to a PSA Contract will not be liable to any existing or future taxes (except for the Profit Tax) of any kind whatsoever in respect of their oil and/or gas production. The taxable profit (or loss) of Contractors under PSAs is computed in the generally accepted manner, i.e. sales income less tax-deductible expenses. The list of tax-deductible expenses is specified in each relevant PSA and is usually quite extensive.

The revenues of foreign companies providing services to oil companies under the scope of a PSA (Foreign Sub-contractors) are subject to a withholding tax at different rates varying from 5% to 8% depending on the particular PSA. Only goods and services supplied by Foreign Sub-contractors on the territory of Azerbaijan are subject to this tax. No other taxes are payable by Foreign Sub-contractors operating under any PSA. Value Added Tax is not applicable to any supplies and sales within the ambit of any PSA. Under the PSAs, Double Tax Treaties entered into between Azerbaijan and a relevant country may apply as long as they provide better treatment for persons operating under the PSA.Contractor Parties as well as Sub-contractors (including the Foreign Subcontractors) may import and re-export free of duties and taxes any machinery, equipment, fixed assets, goods, works, and services for use under the PSAs. Although the system of regulation of the industry through PSAs is in place and working effectively, the Government of Azerbaijan continues improving the legislative base of this sector of the economy. A number of laws regulating the oil and gas industry have been approved by the Azerbaijani Parliament (Milli Majlis) over the past few years, including the “Subsoil” and “Use of Energy Resources” laws. As part of restructuring programme taking place in the energy sector of Azerbaijan, a new Ministry of Industry and Energy was established by Presidential Decree on 6 December, 2004.

Azerbaijan’s existing power generation capacity, fuel resources and infrastructure is not only able to satisfy domestic needs for energy but can also offer substantial export opportunities for electricity.

Production and consumption of electricity (million kWh) Year

2005

2006

2007

2008

2009

Energy production

22872

24543

Total consumption

20043

21655

21847

21642

18 869

18176

17884

14499

Source:www.azstat.org

New legislation and a wide-range of reforms have been introduced recently in order to satisfy the demands of the market. The main legislative acts regulating the power sector are the Law On the Use of Energy Resources (the Energy Resources Law), dated 30 May 1996, the Law On Electrical Energy (the Electricity Law), dated 13 June 1998, and the Law On Electricity and Heat Power Stations, dated 28 December 1999.

A medium and long-term strategy for the power sector was prepared recently. A Decree of the President dated October 21, 2004 mandating a new “State Programme on usage of alternative energy sources” gave additional impetus to the industry. In parallel with this, the “State Programme on development of Fuel-energy complex of the Republic of Azerbaijan in 2004-2015” was prepared, and approved by Head of State.

A loan from the Japanese International Cooperation Bank in 2002 facilitated the construction of an oil-associate gas generating plant with capacity of 400 megawatt. An agreement to build another similar plant also reached. The construction of another off-gas processing plant with a capacity of 517 MW by Siemens in Sumgayit has been finished. The goal is to increase energy generation and to achieve better environmental protection. It is also expected that finance for 330-220 KV electric transmission lines designed to link the four national power systems of Azerbaijan, Russia, Iran and Georgia will be provided by international sources.

A project financed by KfW bank of Germany, aimed at replace-

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Oil derricks are inseparable part of Baku's landscape.

ment of some of equipment (transformers, switches etc.) in highvoltage (330-220 and 110 KV) sub-stations of the power supply system is underway.

The construction of new station with the capacity of 300 MW produced by Finnish company “Wartsila” at Sangachal has been considered rational and in February 2007 preparation works of the construction area began. The difference of this station from others is that here will be used gas fuel as well as black oil fuel. This station will play a big role at strengthening of Baku and Absheron peninsula power security in future. The works on the project was finished at the end of 2008. The construction of second power unit with the capacity of 400 MW at “Shimal” power station in Shuvalan is planned. The Japanese company Tepsco and Finnish company Enprima provide advisory services to this project. Now the process of election of lead contractor proceeds. The execution of this project will play the main role at the power maintenance and strengthening of power security of Baku and of the entire Absheron region. Participation of private business in power generation and distribution is permitted by law, and electricity generated by private producers may be delivered to consumers without any restrictions.

Fuel is supplied to private producers may be delivered on the same terms as to state owned power stations.

The Azerbaijani government’s priorities in respect of projects aimed at improvement of energy supply to households and industry are as follows: * Construction of new combined cycle unit (780 MW) at Janub Power Plant * Construction of new medium-sized generating stations (100 MW) by private investors. (intended to improve service to consumers, promote competition and enhance the sustainability of the system) * Construction of small wind farms and hydropower stations.

The expert opinion is that they may be very efficient.

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sectors review | Doing business in Azerbaijan

Private investments are welcome. * Construction of new hydropower stations of over 500 MW capacity on Kura River and 25-MW Fuzuli HPP on Mil Irrigation Channel * Introduction to the Azerbaijani market (or domestic production) of the energy efficiency equipment and technology.

Private capital in the electricity sector is encouraged by legislation in order to support energy efficiency and to increase the confidence of investors. Since independence, the implementation of power sector legislation has been complicated by, among other things, the absence of a state agency performing functions such as the issuance of relevant licenses, tariff regulation, and the conclusion of contracts with investors. The creation of such a regulatory agency became an urgent issue in 2001 in the light of the above mentioned developments in the power sector.

A Presidential Decree “On Establishment of the Ministry of Industry and Energy of the Republic of Azerbaijan” was issued on 6 December 2004. Under this decree, the new Ministry of Industry and Energy is to assume the functions of the previous Ministry of Fuel and Energy and some of the authorities of each of SOCAR, Azerenerji and Azerigaz. Matters within the Ministry’s competence include the preparation and implementation of state policy in the fuel and energy complex, including the production, transportation and processing of oil and gas. Specifically, the Ministry prepares, negotiates, executes and oversees implementation of production sharing or other agreements on behalf of the state with respect to the development of hydrocarbon reserves in the Republic of Azerbaijan. Under the Energy Law, a foreign investor wishing to enter the power market must obtain a permit to do so and, thereafter, conclude a contract with authorized state agencies to conduct certain activities. Contractors are also required to have their business plans approved by central and local state executive authorities. As a general rule, special permissions to carry out activ-

Alternative Energy ity in the power sector are granted and the contractors determined on a tender basis. The Electricity Law requires that individuals and legal entities must obtain special permission for conducting activities in the generation, transportation and distribution of electricity. Such permission is issued by the relevant executive authority pursuant to an application by an interested party. In order to obtain such permission, an applicant is required to meet the quantitative needs for electrical energy, provide for an economical and effective supply of electricity within the boundaries of the area, and prevent possible damage to the environment and historical and cultural monuments. Information of a technical and financial nature must also be provided.

All power projects and production, technological processes and services, facilities and devices connected with or related to the use of energy resources and their production, transmission, and consumption, are subject to mandatory certification, i.e. confirmation that they comply with established ecological, sanitary, fire, construction, and health and safety standards. Additionally, major projects as defined in the Energy Resources Law require a feasibility study by the state commission created for such purposes.

Existing Azerbaijani legislation provides that consumers have the right to choose any energy supplier regardless of its location. Energy is supplied under agreements between consumers and energy suppliers. Agreements on the sale and purchase, transportation and exchange of electricity and heat must comply with the Rules on the Use of Electricity and Heat. Energy consumption is subject to mandatory metering.

The procedure for disconnecting consumers from the network or termination of power supply is regulated by the Rules on the Use of Electricity and Heat as well as by agreements with consumers.

The suspension of a power supply or the disconnection of some consumers is prohibited. The list of such consumers is determined by an authorized state agency.

Although Azerbaijan is rich in oil and gas, the Government is paying greater attention to developing renewable energy. This is reflected

by Azerbaijan’s accession to the newly-established International Renewable Energy Agency (IRENA) in June 2009, the presidential decree on the creation of a National Renewable Energy Agency in July 2009, and the adoption of the State Programme on the Use of Alternative and Renewable Energy Sources for 2005-13.

The objective and major tasks of State Program The objective of State Program is to promote the power generation from renewable and environmentally sound sources and to more efficiently utilize hydrocarbon energy sources. * The major tasks of State Program include: * define the potential of alternative (renewable) energy sources for electric power generation; * raise the efficiency of utilization of country’s energy sources by developing renewable energy sources; * ensure the opening of additional jobs with creation of new energy production sites; Given the existing total capacity of traditional energy sources in Azerbaijan, increase the energy capacities at the expense of alternative energy sources and therefore, achieve the country’s energy security.

Alternative (renewable) energy potential of Azerbaijan Wind power is the more preferable energy source than solar, hydro, geothermal and biomass for its cost, environmental soundness and unlimited availability. Practice shows that many of regions in Azerbaijan have great perspective for application of wind power facilities. Calculations suggest that the Republic of Azerbaijan has about 800 MW annual wind power capacities due to its geographical location, nature and economic infrastructure. This reserve means 2.4 billion kWh of electricity, according to rough calculations.

This would imply the saving up 1 million tons of conditional fuel,

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more importantly, prevention of emitting large quantity of wastes including ozone cracking carbon dioxide. Long-term surveys have determined that convenient windy condition prevails in Absheron Peninsula, Caspian seashore and islands in the north-west of Caspian basin. It is feasible to use medium capacity wind power facilities in Ganja-Dahskesen zone and Sharur-Julfa area of Nakhchevan Autonomous Republic because the annual average speed of wind in those regions is 3-5 m/sec.

Japanese company Tomen, together with Azerbaijan ScientificResearch Energy and Power Design Institute, had installed two wind towers of 30 m and 40 m heights and determined that annual average wind speed is 7.9-8.1 m/sec in Absheron. The company had also prepared a Feasibility Study for installment of 30 MW wind power plant in Gobustan region.

Assessment of Azerbaijan’s renewable energy sources have been conducted in 2002 and it was determined that Absheron Peninsula has large-scale wind power capacity. The average speed of long-lasting wind is more than 6 m/sec which shows the convenient technical-economic potential for using wind power.

The statistical data on wind power gathered in Shimal DRES area have once again justified the above indicators. Based on conducted researches, the presented indicators on Gobustan area 3 have been included into 4th class of wind energy potential, which is considered as a high potential.

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Solar power The climate condition of Azerbaijan opens great opportunities for production of electric and heat energy using solar power. The annual number of sunshine hours in USA and Central Asia is 2500-3000 hours, 500-2000 hours in Russia and 2400-3200 hours in Azerbaijan.

Development of solar power can partially solve energy problem in many regions of Azerbaijan.

Several developed countries have recently started to widely apply Photovoltaic Program (PVP). Involvement of Azerbaijan in this Program can have important role in application of such type of energy systems. It should be noted that the efficiency of solar stations depends on country’s natural climate condition and geographical location. The solar power that comes down to earth totals 1500-2000 kWh/m2 annually in USA, 800-1600 kWh/m2 in Russia, 1200-1400 kWh/m2 in France, 1800-2000 kWh/m2 in China and 1500-2000 kWh/m2 in Azerbaijan. It is obviously clear that the quantity of solar rays in Azerbaijan prevails in comparison with other countries, which might be regarded as one of the efficiency factors for attracting investments to utilization of solar power.

Small hydro power plants The weight of generation capacity of hydro power plants within Azerbaijan’s overall power system is presently 17.8 percent. 2.4 billion kWh of total electricity generated in 2003 was produced by hydro power plants, which constituted 11.4 percent of overall electricity generation. There are some hydropower potentials in the country that are still undeveloped up to date. The researches related to this area showed that overall hydropower potential of rivers in the Republic of Azerbaijan equals 40 billion kWh. The technically feasible potential totals 16 billion kWh, 5 billion kWh of which is related to small hydro power plants.

Construction of hydro power plants has important role in resolution of country-level issues such as regulation of flood waters, environmentally sound electricity generation and creation of new irrigation systems. It is possible to locate dozens of small hydro power plants on rivers and water facilities and these plants can generate up to 3.2 billions kWh annually. For near-term perspective, it would be expedient to install 61 small HPPs. These HPPs can be located on irrigation canals, rives with unregulated flow and water reservoirs that are under-construction.

Use of micro HPPs in electricity supply of objects and settlements that are remote from transmission lines and substations of countrywide grid system can resolve electricity problems, as well social problems.

Given that power system of Nakhchevan Autonomous Republic has no connection with mainland (countrywide) power system, construction of medium, small and micro hydro power plants would be more expedient primarily for Nakhchevan Autonomous Republic.

Biomass power Rapid development of industry, agriculture and social service in the Republic of Azerbaijan opens new opportunities for electricity generation from biomass. The sources of biosubstances in the country include followings: * combustive industrial wastes; * wastes of forestry and wood-working; * agricultural and organic wastes; * domestic and communal wastes; * wastes processed from areas polluted with oil and petroleum products.

Studies suggest that much of composition of production wastes in all industrial sites is biomass substances. It is feasible to produce biogas, bio-liquid and solid biosubstance that can be used for electricity generation. More than 2.0 million tons of solid domestic and production wastes are annually thrown to waste treatment sites in the Republic of Azerbaijan. Utilization (processing) of solid domestic and production wastes would partially resolve the problems in heating public buildings in Baku and other large industrial cities.

Many of European countries have already found the ways to solve these problems. That is, waste combustion plants are built in densely populated areas and domestic wastes are fired in those plants. The nearby residential settlements are then provided with electricity and heat at the expense of energy produced from waste combustion. The remains of fired wastes are widely used as a manure to increase fertility of soil. Therefore, construction of such plants having complex importance would be significant for Azerbaijan, too.

Geothermal power Republic of Azerbaijan is rich with thermal waters. They are usually found in Great and Small Caucasus, Absheron Peninsula, Talish mountain-row zone, Kur lowland and Caspian-Guba area. Exploitation of thermal waters in noted areas would partially cover the domestic and other heat energy needs. Attracting private investments in connection with implementation of actions envisaged under State Program and maximum use of alternative (renewable) energy sources can be conductive for connection additional capacities to power system.

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Actions on utilization of alternative (renewable) energy sources

64

Action

Major executors*

Period (years)

Prepare proposals on improvement of legislative framework in order to further the utilization of alternative (renewable) energy sources

MFE, MED, MENR,SCAC, MJ

Study and application of international experience on utilization of alternative (renewable) energy source

MFE, MENR, MED, ANAS

regularly

Undertake actions towards the encouragement of utilization of alternative (renewable) energy sources

MFE, MED, MF, MT, MJ, SCC, SGMC, local executive authoritie

regularly

Undertake actions on training specialists for utilization of alternative (renewable) energy sources and education of consumers

ME, MFE, ANAS, MENR

regularly

Development of single scientific-methodic coordinating center and database for efficient utilization of alternative (renewable)

MFE, ANAS

2005-2007

2004-2006

Conduct scientific researches to determine the potential of alternative (renewable) Undertake actions towards the furtherance of privatization of existing small hydro power plants (“Guba”, “Gusar”, “Chichakly”, “Zeykhur”, “Nugedi”, “Chinarly”)

MED, MFE, local executive authorities

2004-2006

Undertake actions towards the reconstruction of Varvara Hydro Power Plant

MFE, MED, MWEC, Azerenerji JSC

2005-2007

Design and construction of hydro power plant on Vaykhyr River

MFE, MED, MWEC, Azerenerji JSC

2005-2007

Carry out the construction of small hydro power plants on mountain rivers and irrigation canals in order to use their potential

MFE, MED, MWEC, SGMC

2005-2013

Wide application of wind power plants in accordance with wind power potential in Azerbaijan

MFE, MED, SGMC, ANAS, local executive authorities and municipalities

2004-2013

Study the wind power potential in electricity supply in Nakhchivan Autonomous Republic and secure its utilization

MFE, MED, ANAS, MENR, SGMC, CM NAR

2006-2008

sectors review | Doing business in Azerbaijan

ANAS, MFE, MED

regularly

Application of solar collectors for heating in Absheron Peninsula, Mil-Mugan flatland and Nakhchivan Autonomous Republic Using local scientific-technical potential and raw materials, Increase the efficiency rate of photo elements used in production of solar power and start their production

MFE, MED, SCAC, ANAS, Baku CEA, CM NAR, local executive authorities

2005-2007

MFE, MED, ANAS

2005-2007

Provide heat to residential, institutional and other buildings by using the thermal energy of geothermal waters

MFE, MED, MENR, SCAC, ANAS, local executive authoritie

2005-2013

Application of plastic pipes with lower heat transfer capacity in order to efficiently utilize thermal energy of geothermal water

MFE, MENR, MED, ANAS

2006-2013

Use of geothermal waters for heating greenhouses in fall-winter seasons

Local executive authorities, MA, MFE, MENR, ANAS

Conduct scientific-research works towards the conversion of power of sea high and low tide into electric power Develop modern technologies for production of bio-substances from industrial, agricultural and domestic wastes; undertake works towards construction of small biomass-firing power plants Develop technologies for getting coke brick from oil refinery wastes at refinery plants in order to produce heat energy *Acronyms MFE – Ministry of Fuel and Energy MED – Ministry of Economic Development MENR – Ministry of Ecology and Natural Resources MF – Ministry if Finance MT – Ministry of Taxes ME – Ministry of Education MJ – Ministry of Justice MA – Ministry of Agriculture SCC – State Customs Committee

ANAS, MFE

2005-2010

MFE, ANAS, MENR, MED, Baku CEA, Sumgayit CEA local executive authoritie MFE, ANAS, MENR, SOCAR

regularly

2005-201 2005-2008

ANAS – Azerbaijan National Academy of Sciences SCAC – State Construction and Architecture Committee SGMC – State Geodesy and Mapping Committee MWEC – Melioration and Water Economy Committee under auspices of Cabinet of Ministers SOCAR – State Oil Company of the Republic of Azerbaijan CM NAR – Cabinet of Ministers, Nakhchivan Autonomous Republic Baku CEA – Baku City Executive Authority Sumgayit CEA – Sumgayit City Executive Authority

Source: http://www.carecinstitute.org/uploads/docs/AZE-Renewable-Energy-Strategy-en.pdf

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Sumgayit Power Plant. Sumgayit, Azerbaijan.

Minerals & mining

Chemical industry

Apart from major oil & gas deposits there are numerous mining sites for ferrous and nonferrous metals, unique construction materials. An area to be mentioned specifically is the north west of the country (Dashkesan, in particular). Major deposits of aluminum ore, iron ore and non ferrous metals make the region a very interesting part of Azerbaijan to explore. Apart from metals, construction materials including gypsum, limestone, trim stone etc. scattered all over the country are of particular interest. The deposits of iodine, gold and other precious metals, mineral spring, etc. add up to the diverse geology of Azerbaijan. The processing industry that was inherited from the times of USSR allows for speedy rehabilitation of a number of prospective fields. As mentioned before the laws permit a foreign company to become a manager of the mining fields in Azerbaijan after conclusion of an appropriate agreement with the Government.

Volume of mining industry (mln. manat)

Mining industry

2007

2008

2009

16 512.4

22 780.2

16 798.6

Sectorial structure of mining industry (as per cent of total, at 2000 comparative prices)

2007

2008

2009

Mining industry

65.5

64.3

70.1

Indices of mining industry (in per cent to previous year)

2007

2008

2009

Mining industry

129.1

105.3

112.5

Number of all personnel in mining industry (thsd. person)

Extractive industry

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2007 40.2

sectors review | Doing business in Azerbaijan

2008 40.5

2009 36.4

Chemistry and petrochemical industry based on oil and gas processing plays an important role in the economy of the country. Enterprises involved in this sector are located near raw material sources like Baku and Sumgait and also Ganja, Salyan and Neftchala. Oil and gas, table salt, iodine-bromide mine water, waste of ferrous metals are the basic stuffs of the chemical industry.

The first chemical plant was built in Baku, 1879. Sumgait is the center of chemical industry of the Republic of Azerbaijan. The main chemical products are: synthetic rubber, car tires, plastics, synthetic fiber and mineral fertilizers, soda, chlorine, iodine, washing powder, soap, medicines etc.

The main chemical factories of the Country are: “Organic Synthesis” (1960), “Superphosphate” (1961), “Household Chemistry” (1978), “Synthesis Rubber” (1935) plants in Sumgait and “Baku Car Tire” (1959), “Baku Iodine” (1930), “Baku Chemistry and Pharmaceutics”, “Baku Rubber Products” (1929) plants in Baku, “Industrial Rubber” (1970), “Glass Fiber” (1965) plants in Mingechevir, “Iodine-Bromide” plant in Neftchala (1972) and “Plastic Mass” (1972) plant in Salyan.

Besides there are scientific unions and institutions working in the field of chemistry such as: “Azerizolit”, “Azerkimya Professional Development” Institution, State Scientific Olefin Institution, “Azerkimya” State Scientific Research Institution.

In order to realize oil-chemistry and fertilizer complex project by applying modern technology, Azerbaijan government signed contacts and cooperation memorandums with “Exxon Mobile” (USA), “Ineos”, “KBR” (Britain), «Basell» (The Netherlands), «Uhde» («Thysenn Krupp» - Germany), “Technip” (France).

Agriculture The decision on branch-wise restructuring can become quite effective method to foster non-oil and non-raw material economy in Azerbaijan. For example, a decree on improvement of the chemical industry, which was issued on April 2, 2010 by which chemical company “Azerikimya” was incorporated into the State Oil Company of Azerbaijan (SOCAR), has led to phenomenal growth of chemical production.

According to The Azerbaijani State Statistics Committee, in January to May 2010 production growth in chemical sector was 2.2-fold versus 3.77-fold summarizing the results of four months and as of 1st June commodity output was estimated at AZN 88.3 million (including AZN 26.1 million in May). In parallel, growth of manufacture of rubber and products from it totaled 15.2% (up to AZN 21.8 million, including AZN 5.9 million in May).

Azerbaijan is one of the world’s oldest agricultural centres. The country’s climatic diversity allows a very broad range of crops to be cultivated.

Agriculture hunting and related services accounted for approximately 6.4 % of gross domestic product in 2009. The sector is growing rapidly. The annual average growth since 2000 in the sector has been 10.0 %, i.e. one of the highest sustained growth rates registered. Agriculture and related sectors are the principle employers in the country. The reforms in the agricultural sector of the economy continue, and despite substantial decline in the early years of transition, agriculture in Azerbaijan is now firmly on the way to rehabilitation and growth. Following almost full denationalization of the sector (at the moment circa 99% of the sector is in private ownership) a number of steps were taken by the government to support the farmers as well as producers of processed a/c products.

Production of Azerbaijani agriculture Years Production, mln manat

2005

2006

2007

2008

2009

1732.1

1969.7

2765.0

3308.4

3565.9

Capital investments in agriculture

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69

In addition to meeting most of domestic demand with high quality products, the country’s agricultural producers are traditional suppliers to a number of large regional markets. The most substantial one is the market of the former Soviet Union (including Russia).

Azerbaijani fruits, vegetables, wines and brandy have become brands of Azerbaijan in the region.

Azerbaijan has achieved a record harvest of cereals in 2009 – approximately 3 mln tons. Apart from food products Azerbaijan is also traditionally strong in cultivating such nonfood crops and products as cotton, silk and tobacco.

The sector has already exceeded the best outputs of soviet times for a number of products, such as fresh fruits and vegetables, cattle and poultry. Azerbaijan is strong in such items as wine and brandy production, tea, tobacco and hazelnuts.

Substantial business opportunities are now opening up in the agriculture of Azerbaijan for a number of reasons. The Azerbaijan government has embarked on a very ambitious Programme of Regional Development. The Programme includes development of agriculture and food processing development as one of its key elements. It also includes rehabilitation of major infrastructure, promotion of exports, more effective management of businesses, and rehabilitation of existing facilities and development of greenfield projects.

Along with traditional agricultural products, substantial opportunities exist in export oriented segments.

It is definitely worth mentioning that the Government introduced tax holidays for the producers of a/c production that continues up to now. The measure has undoubtedly stimulated the growth in the sector. The Government also carries out lending activities for development of storehouse network for storage of fruits and vegetables. A lot of storehouses and grain elevators are being constructed now due to preferential terms of financing offered

by National Fond of Entrepreneurship Support and Azerbaijan

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Investment Company. Please see ANNEX 6 for some statistics on major a/c products grown in Azerbaijan.

Vegetables Vegetable growing is the important element of the Azerbaijani agricultural sector. Major vegetable growers are Lankaran-Astara and Guba-Khachmaz regions.

Natural conditions incentivize cultivation of these products in other regions as well. While in 1991 only 39 thousands hectares were utilized for vegetables, in 2008 the figure grew up to 83.2 thousands hectares.

In the period of 1992-1995 the average amount of annual vegetable production was approximately 450-500 thousand tons, in 2009 it constituted 1178.6 thousand tons.

Apart from domestic market niche this segment of a/c remains one of the export commodities (predominantly for the large Russian market). Azerbaijani fresh vegetables (tomatoes, greens, melons, cucumbers etc.) remain trademark of Azerbaijan very well known in the region.

Fruits Fruit growing is one of leading spheres of the local agriculture.

Total territory used for all types of fruits and berries in 2009 was 125 thousand hectares.

Seeded fruits (apples, pears); quince drupaceous (plum, cherry, sweet cherry, peaches); strong scales (nuts, hazel nuts, almond); citruses (lemon, oranges); and subtropical cultures (figs, grenade and persimmons) are the traditional products of the Azerbaijan.

In 2009 total volume of production of all kinds of fruits and berries was 718.2 thousand tons.

There is a very substantial potential in the fruits and vegetables processing. Both newly established enterprises and denationalized facilities stimulate the further development of this segment of agriculture.

Crop production, tsd ton Years

Cereals and dried pulses

Cotton

Vegetables

Vegetables and melons

Sugar beets

Sunflower for seed

2005

2126.7

196.6

7.1

1083.1

1127.3

363.8

36.6

16.1

2006

2078.9

130.1

4.8

999.3

1186.4

362.1

167.2

15.9

2007

2004.4

2008

2498.3

100.1

2.9

1037.3

1227.3

417.6

141.9

13.4

55.4

2.5

1077.1

1228.3

407.7

190.7

16.5

2009

2988.3

31.9

2.6

983.0

1178.6

410.8

188.7

14.4

Tobacco

Potatoes

All categories of farms

Fruits and berries: cultivated area, gross harvest and yield Cultivated area Years 2005 2006 2007 2008 2009

93.0 110.7 114.0 119.9 125.0

of which at fruit-bearing age 1000 ha All categories of farms 84.3 86.6 93.7 96.2 99.0

Gross harvest 1000t

Yield from 1 ha 100 kg

625.7 662.4 677.8 712.8 718.2

73.9 76.2 71.9 73.4 71.9

Products share in agriculture

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Light Industry Azerbaijan has a long tradition of production, spinning and weaving of cotton and silk. Industrial weaving started in the late 19th century. Further industrialization of Azerbaijan in the 20th century stimulated rapid development of light industries including textiles.

The main raw materials for the domestic textile industry are cotton, wool, silk cocoons, leather and synthetic fibre. They are produced locally in abundance.

After a period of crisis in the mid 1990s, cotton cultivation has increased. The sown area for cotton rose by almost 10% between 2002 and 2003, to reach 66800 hectares. Output rose by more than 23% over the same period, to 99500 tonnes. This indicator was 31,9 ths tons of raw cotton in 2009. More than half of the increase was derived from higher productivity. The overall potential production of cotton in Azerbaijan is as much as 800000 tons from approximately 280000 hectares. This level was achieved in mid 1980s with massive capital investment by the Soviet government.

Other raw materials that are also important for the weaving industry of Azerbaijan are wool and silk cocoons. In 2010, the local sheep stock reached 8 million, and approximately 14.9 ths tons of wool was produced.

There is a potential to produce over 9,000 tons of silk cocoons annually by increasing the area of mulberry plantations to 25,000 hectares. Normally, 1 kg of silk cloth is produced from 3.5 kg of local cocoon (the Japanese standard is 1 kg of silk per 2.8 kg of cocoon). So the potential of the local silk industry is 2,600 tons or about 18 million m2 of silk cloth (1 kg - 5-7 m2).

There are also opportunities for leather production and processing in Azerbaijan as livestock-breeding has been growing rapidly for the last few years.

Markets for Azerbaijan’s textiles, in addition to the local market, include Russia, Central Asia and Iran. No export duty is payable on such products. Textile products exported to the EU are free of quotas and permits, and only the import customs duty is payable.

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Products of Azerbaijan origin attract import duties significantly lower than those from other countries. Undoubted comparative advantages of the textile industry in Azerbaijan are: * Cheap labour and low production costs; * Strong historical traditions in weaving; * Local raw materials; * Favorable location; * Direct access to Central Asia and the Caspian Sea region; * Proximity to large potential markets; * The opportunity to locate production in small and middle-sized towns of the country; * Opportunities arising from privatization of state owned textile plants.

Volume of textile products (at factual prices, mln. manat)

Textiles and seving industry

2007

2008

2009

61.9

73.1

62.1

Number of all personnel in textile industry (thsd. person)

Textiles and seving industry

2007

2008

2009

7.2

6.7

5.1

Food processing The food processing industry in Azerbaijan consists of three main segments. These are meat processing, production of dairy products and processing and canning of fruits and vegetables. Food products are high on the Government’s agenda for import substitution. Although this policy has been relatively successful, and food products are declining in prominence within Azerbaijan’s imports, there are still significant opportunities in a number of areas.

Several small businesses are engaged in processing of dairy products and a few medium and large companies undertake packaging and mass sales. There are twelve large meat processing plants in Azerbaijan, mostly in private hands. Forty-three plants are active in the canning industry, and although they were previously state-owned, most of them are also now private.

In 2007 total production of foodstuffs including beverages valued 1457.1 mln AZN. In order to provide markets for local agricultural producers there is still a need for substantial rehabilitation and renovation of storage and processing facilities.

Significant opportunities exist in export-oriented agricultural production and processing. Azerbaijan’s pomegranate, feijoa and grape juices and its olives, hazelnuts and other produce are all competitive in international terms. Azerbaijani wine and brandy are traditional export products. The major markets include Russia, Ukraine and other countries of the region. In 2008 the volume of export was 319.4 mln. USD. Trade turnover by groups of goods in 2009 Names of groups Vegetables a plaiting materials Food products, beverages, spirits and vinegar, tobacco

Imports thsd. US$

%

Exports thsd. US$

%

313 819.2

5.1

226 126.2

1.5

519 606.2

8.5

170 431.2

1.2

Main indicators of food industry meat, thsd. ton sausages, ton milk, mln. dkl cheese and curds, thsd. ton butter, thsd. ton sugar and qranulated sugar, thsd. ton macaroni products, ton vegetable oils, thsd, tons margarine, ton bread and bakery product, thsd. ton champagne, thsd. dkl wine, thsd.dkl malty beer, thsd. dkl natural tea, ton

2007 144.0 2 548.8 49.9 34.2 14.4 305.6 4 517.6 68.4 16 056.0 735.0 52.6 584.2 3 217.5 7898.3

2008 155.2 2 098.6 59.9 41.8 14.1 271.9 7 674.2 77.9 15 199.5 743.7 35.8 816.9 3 229.3 7 134.2

2009 159.5 1 900.7 61.7 37.0 14.2 314.9 5 694.4 70.3 15 535.9 728.8 22.1 443.6 3 534.7 7 727.0

Source: http://www.azstat.org/publications/azfigures/2010/en/012.shtml

Consumption of food stuff (annual per capita, kg)

Meat and meat products calculated as meat ( in natural including fat and offal) Milk and milk products (calculated as milk) Eggs, piece Sugar Vegetable oil Fish and fish products Potatoes Vegetables and market garden products Fruit and berries (excluding wine production) Cereal products (flour, pulses, bread and macaroni calculated as flour)

2007

2008

2009

29.2

30.2

31.2

280.2 123 31.0 8.4 6.6 50.8

282.6 124 31.3 8.4 6.7 51.5

291.3 128 31.4 8.6 6.8 52.2

78.6

78.7

83.5

55.5

57.6

63.0

158.9

156.8

155.7

Source: http://www.azstat.org/publications/azfigures/2010/en/006.shtml

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Caucasus Conserve Plant. Azerbaijan

ICT Azerbaijani telecommunications is the second largest recipient of foreign investment after the oil industry. The first wave of liberalization took place in the 1990’s when a number of foreign investors entered the market. The largest FDI stock is in the mobile telephony, followed by a number of enterprises with the foreign capital in land lines operating companies, internet providers and cable TV companies.

Foreign investors are represented by Turkish, Israeli, UK, Russian, US etc. capital. The sector now is on the verge of further restructuring. One of the major steps taken is continuing privatization of the state shares in the telecoms and IT enterprises. The Azerbaijani telecoms market is expanding rapidly. It is one of the leading sectors contributing to the economy growth. 125 thousand land lines were installed in 2004 only which is above 10% growth.

Number of mobile telephone subscribers exceeded 7 million in 2009 and continues to grow rapidly.

Installation capacity of ATE (automatic telephone exchange)

thousands

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At the present there are 15 telephone sets per 100 inhabitants.

The similar indicator is 33.0 for Baku city and 5.7 for rural areas.

There are more than 3 million Internet users in Azerbaijan with a network of service providers throughout the country.

Further development of the telecoms services is underpinned by the construction of Trans-Asia-Europe fibre-optic cable. It will give an impetus to introduction of new internet related services, international traffic etc.

There are four mobile operators in the country: Bakcell, Azercell and Azerfon with GSM standards and Catel with CDMA standards.

New GSM operator Azerfon entered Azerbaijani mobile market in March 2007. By the end of 2009 the number of subscribers of Azercell reached 3 850 000. Coverage area of the network is 80% of Azerbaijan’s territory. The capital investments have been made

by Azercell since 1996 were more than 600 mln USD. In 2007 the state share in Azercell and Bakcell was privatized.

All the above as well as the developing legal framework aimed at liberalization of the market undoubtedly provides for substantial business opportunities for foreign companies with technologies and skills.

Under the Communications Law, the state has exclusive ownership of all radio frequencies. The State Radio Frequencies Commission is authorized to issue radio frequency use permits to telecommunications businesses. This Commission also prescribes the rules and procedures for obtaining such permits and for operating at various frequencies.

The Communications Law also recognizes the right of foreign individuals and legal entities to own and operate networks and devices in Azerbaijan. Such devices must be jointly certified by the Ministry of Informational Technologies and Communications and the Azerbaijan State Standards Agency and their subordinate bodies, as well as accredited test laboratories.

Foreign capital inflow into the telecommunications industry has evolved primarily in the form of joint ventures with the entities subordinate to the Ministry of Communications, which acts both as the ultimate partner and supervising authority. Such joint ventures are engaged in the production of telecommunications equipment and the operation of telecommunications facilities. However, under the Presidential Instructive Order “On the Privatization of Certain Enterprises and Facilities of the Ministry of and Communications of the Republic of Azerbaijan”, dated 29 March 2001, the Government announced its intention to privatize the state-owned share of joint ventures in which the Ministry of Communications and its subordinate enterprises and institutions have participated.

Projects for the development of Telecommunication and IT sector of Azerbaijan: * Preparation and launching of national communication satellite.

Realization of this project will give an opportunity to use the facilities of this satellite and has an impact on reduction of cost of services. At the same time by realization of this project Azerbaijan will be among countries having its own satellite. * Establishment of regional innovation zone (RIZ). This project aims to establish techno-parks that will support innovation entrepreneurship within RIZ, regional market on production and export of electronic equipment and programs, East-West transit information network enabling to render electronic services to regional countries, as well as establish a research centre and International Information Technologies University.

* “E-Government” (“E-Management”) Academy. This project aims to conduct trainings on ICT for the representatives of government agencies. * “E-Government”. The aim of the project is to increase the introduction level of ICT in state agencies and using modern ICT to render services to citizens. Implementation of this project will enable to increase the quality of services rendering to population * New technologies – New community (E-Kiosk). This project will enable to form electronic services in post offices so that the population could use it. * Establishment of Super Computer Centre. These projects will enable to use expert and information system in making a decision to ensure operativeness of state agencies (G2G), state-citizen (G2C), and state-business (G2B) connections. * People’s Computer. This project is aimed at computerization of low income families by selling high-parameter computers on credit for 3 year by 3-5%.

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Construction

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sectors review | Doing business in Azerbaijan

The Decree also gives relevant instructions to the Ministry of Labour and Social Protection of Population, the Ministry of Taxes and State Committee for Town-planning and Architecture.

As for the law “On the Basics of City Construction” foreigners and foreign legal entities may engage in construction works in Azerbaijan only in conjunction with Azerbaijani nationals or legal entities.

Investments in construction

mln. AZN

Legislation Pursuant to the Presidential Decree “On Measures to Eliminate Monopoly and Privatize the Construction Sector”, dated 2 December 1997, the state monopoly in the construction sector has been eliminated, and private persons may now engage in construction activities.

The above measures along with overall economic development led to a booming real estate market. A number of local and foreign developers are active in the field. The hot spot of the market is undoubtedly capital Baku city.

The 2004 growth in construction sector of 37% is largely attributed to the increasing opportunities on this market. It is increasingly competitive though there are certainly opportunities for newcomers in luxury apartments, guest houses management and international sales areas.

The main laws regulating construction are the Law “On the Basics of City Construction” dated 11 June 1999, and the Civil Code.

Other legislation regulating construction includes: legislative acts of a general nature such as property, land, safety, environmental protection, fire and sanitary regulations; construction rules, norms and standards; and legislative acts regulating specific sectors where structures or facilities are constructed. The construction rules and standards of the USSR (GOST and SNIP) are still effective in Azerbaijan.

According to Presidential Decree dated August 31, 2007 toughening government control over the country’s construction sector Ministry of Emergency situations ensures government control over all stages of construction activities across the country, and stops construction of the public and residential buildings unless the construction regulations in force are observed.

Azerbaijan is a booming construction market. There are several reasons behind the rapid development of the business in Azerbaijan in the last few years. The major one is the large capital investment in local infrastructure related to oil and gas projects.

As a result this business area has evolved into a very competitive sector with a number of strong companies able to deliver the highest international standards in construction.

The sector is growing year by year. Substantial increases in business and residential construction have been registered since the late 1990s in response to the growth of both commercial and household purchasing power.

With the grown of demand for better living conditions the real estate prices in Azerbaijan are increasing on yearly basis.

Investments in construction by sectors

Therefore, it is highly likely that the proportion of residential construction will increase substantially as a result of increasing income of population. However, the construction growth is also observed in agricultural, transport and industrial sectors, which are the results of positive economical reforms and target programs carried out by the Azerbaijan government, for developing the non-oil sectors. The construction sector is a major employer.

Average number of workers in the construction sector

constructions

Year

2005

2006

2007

2008

2009

Ths people

58.8

60.0

63.1

71.9

65.9

As market research in the field shows, there are currently significant opportunities to introduce state-of-the-art construction technology in Azerbaijan, as well as in architectural and engineering services, the production of construction materials and so on.

The construction industry has been undergoing a large further development. Since 2004 the trend changed in favour of residential development. Because the income of the population is growing with the state and industry development, the demand for new construction has been increasing.

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Sumgayit Cable Plant. Sumgayit, Azerbaijan.

Machinery and equipment Rapid progressing of Azerbaijan’s machinery industry has been stimulated through fundamental reforms launched by the Government of the Republic of Azerbaijan. The first decisive step was the Order (#647, 22 march 2001) of the former President of the Republic of Azerbaijan, Mr. Heydar Aliyev “About privatization of state-owned machinery industry enterprises”. According to this Order, sixteen of the huge machinery enterprises were announced for privatization.

In 2002, “The State Program for Development of Machinery Industry During 2002-2005 years in the Republic of Azerbaijan” was approved by the Cabinet of Ministries of the Republic of Azerbaijan.

The main aims of the state program are: developing machinery industry, ensuring competitive product development, meeting the demands of the local market and raising export potential of the machinery products.

The specialized field of this industry is oil machinery which constitutes 4/1 of the total machinery production. Beside the oil machinery, the other fields of industry such as electro-technology, instrument-making, radio electronics are growing rapidly in the Republic of Azerbaijan. “E.H.M” (electronic calculators), “Baku Radio”, “Nord”, “Azon” produce radio electronic equipments.

Transport machinery include automotive and ship building industry. Small and medium sized ships are produced in the ship building factories in Baku. “Oka” cars and “Belarus” tractors are produced in Ganja automotive factories.

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Machine Building Plants of the Republic of Azerbaijan Baku Deep Water Jacket Factory. This unique enterprise having no analogues in the former USSR was established in Azerbaijan due to intensive efforts and under initiative of National Leader of Azeri people Heydar Aliyev.

The factory built under direct leadership of Heydar Aliyev was significant event in development of oil industry in the Republic.

It played exclusive role in production of metallurgical constructions necessary for oil fields developed in 1980 of the last century.

The stationary platforms with 200-300 m boring capacity are constructed in Baku Deep Water Jacket Factory.

Kishly machine building plant. The plant was established in 1895.

Since then, it has been refurbished and modernized many times. It is specialized in manufacturing of drilling-rigs for geophysical and exploratory drilling, elevators, reducing gear for pumping units, tancks for transportation and hydraulic fracturing of formation.

The plant is equipped with necessary technological equipment, it has iron casting shop and all kind of communication including railways. Its main products are designed by the Azerbaijan Petroleum Machinery Research and Development Institute.

“Azneftkimyamash” OJSC. Being established in 2001, “Azneftkimyamash” OJSC consist of 18 ASCs including 14 machine-building plants. Production includes approximately 90 industrial items and more than 600 different types and sizes of oil and gas equipment and other products. “Azneftkimyamash” OJSC also includes four scientific research and development institutes with more than 500 scientists, engineers and technicians involved in research, development and experimental projects.

Sattarkhan engineering plant. Established in 1895 and produce high quality oil field machineries, pumps, christmas trees, reinforcements, pile heads, lifting equipments etc.

Beshir Sardarov machine building plant. Was established in 1926.

The plant specializes in the manufacturing of cranes for round-trip operations, shale shakers, crown-blocks and hooks with a lifting capacity of 15 to 50 ton, work-over rigs with a lifting capacity of 25 ton and 40 ton, diaphragm pumps, pipe-layers, units for servicing the oil field electric units, servicing units for lifting equipment.

The plant’s higly-trained staff and modern technological equipment can provide its customers with cost-effective and quality products. The plant also has developed infrastructure, including convenience rail ways.

“Bakinskiy Rabochiy” machine building plant is a large-scale specialized enterprise producing oil field equipment, and also consumer goods. The Bakinskiy Rabochiy machine-building plant belongs to the State Concern “Azneftkhimmash”. t was founded in 1900 in territory of the section 101 of the Sabunchi settlement, Balakhano-Sabunchi district of Baku, on the basis of small work shop that belonged to the former oil firm “Benkendorff.

The plant’s nomenclature includes: * Rocker-machines of normal series SKD with a lift capacity of 30 KH to 120 KH and with a service depth of 3300 m. * Heat exchangers with a floating head. * Wheel-chairs. * Plant used for opening drilling in operating pipelines. * Motor-reductors. * Mechanized drive for water wells. * Reductor Lp-315, Lp-450

Baku Machine Building Plant - being in the structure of the “Azneftekhimmash” Open Joint-Stock Company (JSC), is one of the oldest enterprises of the Republic of Azerbaijan.

This big enterprise functioning since 1897, specialized in manufacturing of the different types of tool joints for the drilling and geological exploration drilling pipes. Nowadays, the output capacity is 120 thousand sets of tool joints per year.

The introduction of the new progressive technological processes promotes the output of the high quality production. The quality of production is provided by the using of the special progressive equipment, riggings, mechanization and control means.

In 2000 Baku Machine Building Plant, according to the requirements of the standards API Q1, API 7 of the American Petroleum Institute and the International standard ISO 9001, developed and introduced in manufacture the “Quality Assurance System”.

Surahani machine-building plant. According to the resolution of the “Azneft” Amalgamation construction of the plant began in 1923. n 1991 the plant was was renamed how it was called Surahani machine-building plant. Now it is considered one of the leading plants of the “Azneftkimyamash” state Enterprise. (Az oil chemistry machine building) Manufactured by the plant oil and gas mining equipment is widely spread at the oil and gas mining enterprises both in the Republic of Azerbaijan and in the ountries of CIS. The plant manufactures the following: * rod well pumps. * downhole gas lift equipment. * complex of the operating detachable valves. * gas lift valves. * well chambers.

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Machinery Technology Institute was established in 1961. Institute is specialized in developing and application of the technologies of oilfield equipment manufacturing. Institute developments took special place not only for our Republic but also for former Soviet Union countries. Nowadays institutes specialists are developing projects of “AzNEFTECHIMMASH” JSC plants technical refurbishment, implementing into manufacturing modern and economically grounded technologies allowed to increase technical level, save the manufacturing expenses and develop the product quality.

Azerbaijan Electronics Co. Ltd. is located in Shamakhi, is a producer of refrigerators, air conditioners, washing machines, vacuum cleaners, as well as the other electronic products. With the experience in production of Chinese and Malaysian companies, they have produced high quality products.

The factory building covers 20 000 square meters and the annual ability of production is 210 000 refrigerators, 300 000 air conditioners. With the advanced production line and testing equipment all products can be completely guaranteed.

“STAR” refrigerators manufactured at works with no frost system/ “STAR” refrigerator with no frost system, 2 cameras, volume 332 L/ 356 L/ 430L is provided with automatic temperature adjusting thermostat. Refrigerator run noiseless as in intensified as well as in normal regime.

“STAR” washing machines SVS 637/SVS 842 easy operated washing machine possess many functional work principles. These washing machines may be used in several positions, proving clean washing and long-term durability. “STAR” produces high quality TV SETs as well.

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“AzSamand”. As a result of attention of respected president Ilham Aliyev to the private sector another object of heavy industry “AzSamand” plant was registered in October, 2005. The automobiles branded “Aziz” have the “AzSamand” label and “Aziz” means “Azerbaycan inamla zirvelere”, that is “Azerbaijan confidently at the top”. “AzSamand” automobile factory has also been constructed in Shamaki and it produces AzSamand automobiles which respond all the contemporary demands.

These automobiles have different automobile definitions, comfortable cabin, 405 Peugeot Engine, provided with brake system, audio system/CD radio, electric package, and other superior peculiarities. AzSamand brand automobiles have won the sympathy of people both inside the country and abroad.

Ganja automobile plant. In December 2004 Ganja automobile plant began its activity and the first car combined at the factory was issued. The agreement on assembling Belarus tractors and automobiles on the base of Ganja Automobile plant was concluded during Azerbaijani President Ilham Aliyev’s visit to Belarus. The contract for the assembly and sale of the whole range of trucks and tractors produced by Minsk automobile and tractor plants in Azerbaijan was signed in late November 2006 in Minsk. Assemble is conducted in an area of 20,000 square meters.

According to market research, the plant has the opportunity of the annual production level of up to 5,000 units for the local market at existing areas. Besides, Ganja Automobile Plant (Azerbaijan) signed a memorandum of intentions with Minsk Automobile Plant (Belarus) to expand the automotive assembly of equipment based on MAZ chassis at the meeting of Azerbaijan-Belarus intergovernmental commission on trade and economic cooperation. This memorandum envisages assembly on the basis of MAZ municipal machinery produced by German company Haller.

The contract for 10 years involves production of MAZ trucks with equipment made by Haller for transporting waste volume of 16 and 22 cubic meters. The first stage provides for release of about 100-150 units of municipal engineering.

Manufactured equipments are being sold in the markets of Azerbaijan, Turkey and Georgia. Assembly-welding and paint shop businesses have been equipped with modern technologies. Today Ganja Plant also assembles 25-ton cranes on the basis of MAZ. Besides, the construction of cars marked “UAZ” has begun in Ganja Automobile Factory. Till the end of the current year, 74 different models of UAZ cars will be constructed on the base of agreement of Russian partners.

NAZ-LIFAN. In May 2009, during the Azerbaijani-Chinese business forum organized by AZPROMO, NCP and Chongqing Lifan Industry (Group) Imp. & Exp. Co., Ltd. Corporation signed a contract on cooperation. The contract envisaged the assembly of Lifan passenger cars in Nakhchivan.

As a result, the new automobile plant “NAZ Lifan” has been launched in Nakhchivan Autonomous Republic of Azerbaijan in January 11, 2010. The plant has already received 489 machinery complete sets. At present, the company has already assembled 302 Lifan cars. These cars include Lifan-320, Lifan-520 (sedan and hatchback), Lifan-620 (sedan), Lifan-7160 (sedan), Lifan-7162 (sedan). Parts are supplied from China.

The plant uses the latest models of equipment made in Germany, Belgium and Italy. Total plant area is 2.6 hectares. The capacity of the plant is the production of 5,000 cars per year. In the first year, the plant plans to produce 1,000 cars. The plant has 50 workers from the local population. Assembly of motor vehicles is conducted under the supervision of Chinese experts. The cost of Lifan cars varies in the interval from 8,400 to 12,700 manats.

Volume of industrial products (at factual prices, mln. manat)

manufacture of machinery and equipment manufacture of transport means and equipments

2007

2008

2009

98.4

117.7

78.8

165.8

206.8

205.0

Indices of industrial manufacture on kinds of economic activities (in per cent to previous year)

manufacture of machinery and equipment manufacture of transport means and equipment

2005

2006

2007

2008

2009

91.7

158.0

156.8

106.6

84.7

2.1t.

165.2

135.7

123.7

93.1

2007

2008

2009

Number of all personnel in industry by kinds of economical activity (thsd. person)

manufacture of machinery and equipment manufacture of transport means and equipment

2005

2006

6.6

6.9

7.1

6.7

4.9

9.3

9.1

9.3

9.5

9.1

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Nakhchivan Automobile Factory.

Nakhchivan Autonomous Republic, Azerbaijan.

Transport & logistics Azerbaijan has a relatively developed transport infrastructure. It includes about 22,000 km of roads, over 2,000 km of railroads, and 5 international airports, including the largest one in the region, as well as several regional airports. It also has the largest Caspian port.

The challenges for Azerbaijan include both upgrading of existing infrastructure, some of which was poorly maintained in 1990s, and construction of new infrastructure to reinforce its status as a transit point for goods from Central Asia to Europe.

All segments of Azerbaijan’s transport industry are experiencing rapid growth. Shipping, for example, has enjoyed an average annual growth rate of almost 20% since the mid-1990s. Aviation is one of the leading segments, with a cumulative investment exceeding 200 mln USD in recent years. Rails transportation is growing at a similar pace, largely due to ever-increasing volumes of goods in transit across the country. Pipeline transport of oil and gas is also expected to grow rapidly over the next few years as large-scale oil projects come on stream. Total 1328 074 thousand passengers has been conveyed in 2009.

Conveyance of passengers in transport sectors (thsd. passengers)

Total

2005

2006

2007

2008

2009

1000 278

1063 347

1148 328

1242 161

1328 074

5492

5 824

6 598

6 394

6 390

of which: railway sea

17

17

14

14

10

1 211

1 332

1 526

1 396

941

metro

146 952

161 096

175 689

200 412

206 140

road

845 910

894 973

964 501

1 033 945

1 114 593

bus

821 122

867 926

933 889

1 000 194

1 076 509

taxi

24 788

27 047

30 612

33 751

38 084

air

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sectors review | Doing business in Azerbaijan

The transport sector in Azerbaijan, comprising railway, aviation, roads and maritime shipping, amounts for about 7% of domestic output. Azerbaijan has taken significant steps to implement structural reforms in the transport sector and has implemented significant improvements in rehabilitation and construction of roads, railways, and other infrastructure installations. In June 2003 the Ministry of Transport’s functions and duties were radically amended to achieve a clear differentiation between transport policy and transport operation. This was a significant step towards modernizing the transport sector in Azerbaijan.

Total goods transported (2005-2009)

Ths. tons

2005

2006

2007

2008

2009

128 328 145 596 167533 183093 190 372

Particular attention is being paid to the role of multi-modal transport to serve the needs of Euro-Asian logistics. This involves the establishment of a favorable transit environment, delivering smooth transportation of goods and passengers across the region. Azerbaijan stresses the importance of developing efficient Euro-Asian trading links as a means of increasing prosperity and improving the living standards of the people of all countries involved. All this helps Azerbaijan in its effort to integrate into the global economy.

The Government of Azerbaijan together with the private sector is actively involved in the cooperation with international donor agencies and investors in transport. Such institutions as the World Bank, EBRD, EU-TACIS and ADB are active both in the country and in the region.

Azerbaijan strongly supports regional transport initiatives and promotes international transit transportation. Its infrastructure projects include the construction and rehabilitation of railways, highways, ports, and airports.

The European Union (EU) sponsors development of the transport

sector through both TRACECA and national projects. EU goals include linking the East-West transport corridor to the Trans-European Networks. The European Bank for Reconstruction and Development (EBRD) is investing in capital projects in ports, railways, and roads, including involvement with TRACECA. Azerbaijan’s active role in the establishment of the Transport Corridor for Europe, the Caucasus and Central Asia (TRACECA), together with its being the base for the TRACECA Intergovernmental Commission (IGC), is a powerful indication of its open transport policy. The TRACECA IGC, which includes in its membership Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan (Central Asia), the three Caucasian States and Bulgaria, Moldova, Romania, Turkey and Ukraine, was set up to promote transportation on this corridor, remove non-physical barriers, establish transport-related communication links and to promote logistics capabilities and multi-modal transport. More information on TRACECA can be obtained via www.traceca-org.org

Private investors are currently investigating opportunities for an international logistics centre close to Baku, with access to rail, road and water transportation.

The international logistics centre will become the primary hub for transport and industry. Investments in the transport sector are welcome in Azerbaijan and the country offers a variety of Public Private Partnership (PPP) investment models.

In order to bring Azerbaijan roads up to world standards Government invests huge capitals to infrastructure projects (in 2009 total amount of investments was 1.7 bln. AZN). Only in Baku a number of bridges, over- and underground passageways are planned to be build. New concrete surface roads using German technology, connecting Baku with Russia is under construction.

Capital investment to transport Indicator

2005

2006

2007

2008

2009

Total (thsd. manat)

516220.59

629312.81

748295

1991574.25

1705970.4

Land transport (thsd. manat)

362692.69

476834.69

634973.69

1820206.62

181044.8

22502.1

13207.4

4396.2

13386.6

2741.1

114276

309925.41

607098.81

1779641

156437.2

225914.59

153701.91

23478.7

27179

21866.5

Railway transport (thsd. manat) Other land transport (thsd. manat) Pipeline (thsd. manat) Water transport (thsd. manat) Air transport (thsd. manat) Supporting and auxilary transport activities, activities of travel agencies (thsd. manat)

30708.4

41194.2

21235.7

65636.7

35637.5

118079.5

107679.8

82992.1

99847.2

31882.3

4740

3604.1

9093.5

5883.8

1457405.8

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The Baku-Tbilisi-Kars railroad The ideas and discussions about Kars - Akhalkalaki new railway connection was started since the 1993. The historical Declaration on “Baku-Tbilisi Kars new railway connection” project between the Republic of Azerbaijan, Georgia and the Republic of Turkey was signed on 25th May 2005 in Baku by the presidents of Azerbaijan – Ilham Aliyev, Georgia – Mikheil Saakashvili and Turkey – Ahmet Necdet Sezer.

On November 21, 2007, in Marabda (southern Georgia), the Presidents of Azerbaijan, Georgia and Turkey inaugurated the construction of a new railroad between Kars and Baku, via Tbilisi.

This new railroad is supposed to increase the transportation capacity in the South Caucasus and to diversify the nature of the goods that are transported through these three countries. Indeed, after the implementation of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and of the Baku-Tbilisi-Erzurum (BTE) gas pipeline, the Baku-Tbilisi-Kars railroad, also known as the Kars-Akhalkalaki-Tbilisi-Baku railroad, should be another step in the definition of the South Caucasus, and especially of Azerbaijan, Georgia and Turkey, as a major transit corridor between Europe and Asia.

Linking Baku in Azerbaijan with Kars in eastern Turkey via Tbilisi in Georgia, the railway is scheduled to be completed by the end 2011 and will transport goods, especially oil and passengers.

There are plans to extend the railway corridor to Europe under the Marmaris project once a tunnel under the Istanbul strait becomes operational around 2012. The B.T.K. project includes construction of a 29-kilometer segment in Georgia and a 76-kilometer segment in Turkey.

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Moreover, 160 km section of Akhalkalaki-Marabda-Tbilisi railway will be also reconstructed to improve the carrying capacity to 15 mln tons of cargo per year. It is planned to build in Akhalkalaki station a special place for the transition of trains from the track gauges existing in Georgia and also in other post-soviet countries (1520 mm) to the European one (1435 mm). The project is estimated at $422mln and taking into consideration the accompanying infrastructure its cost will comprise $600mln.

The perspective of Baku-Tbilisi-Kars railway The implementation of Baku-Tbilisi-Kars new railway connection line project and meantime, construction of under Bosporus railway under the Marmara project that connect the Trans-European and Trans-Asian railway networks along the construction of the new Sea Trade Port at Alat settlement (Azerbaijan) in line with the advanced technologies would create the fast, safe and shortest railway connection to transport the goods to Europe and vice versa.

The B.T.K. railway is a small, but key segment of the emerging transcontinental corridor that be resulted to significantly racing of the competitiveness of the international transport corridor and transit capacity of countries in a region and also support on creating an integrated freight railway network between Europe and Asia.

Tourism & hotel management Azerbaijan is aiming at promoting itself as a new tourist destination as opposed to traditional “tourist” countries. It just recently reentered the maps of global tour operators. Though a comparatively new this business in Azerbaijan proved to be particularly successful.

This is mainly due to substantial natural potential of Azerbaijan in respect of tourism development. The natural attractions include: rare climatic and terrain diversity, mountains and warm sea, medicinal hot springs, mud volcanoes and natural gas flames areas.

The history of Azerbaijan and the monuments of few civilizations and religions add up to the above.

The oldest Early Christian church, the only operating Fireworshippers Temple in the world, medieval castles scattered all over the country, Old City of Baku and Maiden Tower are located here. Baku has the best developed infrastructure in the region with modern hotels, resorts, international and traditional cuisine, convenient air links to Europe and Asia etc.

The positive impact on the development of tourism in Azerbaijan was made by the years of political stability and economic development in the last decade.

The sector received a further stimulus after establishment of the Ministry with the portfolio which includes tourism. Consistently grows the number of businesses engaged in tourism industry in Azerbaijan.

Measures by the government play key role in sector’s development: After implementation of steps stipulated in the Decree “On Tourism” (June 4, 1999) the number of inward tourists increased significantly.

Total number of visitors to the country is increasing year by year.

Years Number of visitors (foreigners)

2005

2006

2007

2008

2009

1,261,686 1,261,961 1,332,701 1,898,939 1,830,367

Business visits account for the majority of trips to Azerbaijan at the moment (the so called business tourism). Simultaneously, there is at the same time substantial growth in the outward tourism as well.

Opportunities exist for the development of regional tours (the so called Silk Way Tours in countries of the Central Asia & Caucasus).

A number of international hotel chains such as Hyatt, Radisson and Park Inn already have operations in Azerbaijan. Obviously, the potential for development is very high bearing in mind the natural and historical attractions of the country.

The country’s main wealth is its diversity. There are 9 climatic zones present with a number of tourist attractions such as sea and mountain resorts, mineral and medicinal waters and clays, unique Naftalan therapeutic oil, fascinating sceneries etc.

The capital and the countryside are rich in historical monuments, religious shrines of ancient and medieval times. Azerbaijani cuisine and rich flavoured wines as well as the widely known Caucasian hospitality of the people are the brand of the Republic of Azerbaijan.

The tourism industry, including hotels, resorts, restaurants aimed at the domestic consumer is on the verge of a boom following the rapid growth of population’s purchase power.

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Financial sector: banks, insurance & leasing Growth indicators of the banking sector The banking sector of Azerbaijan managed to advance on the path of development in 2009 against the backdrop of the global financial crisis. The banking sector further deepened its financial intermediation functions.

The ratio of bank assets to the non-oil GDP rose from the last year’s 67.6% to 74.4% in 2009, ratio of equity to the non-oil GDP increased from 9.8% to 11.2%, loans to economic sectors to the non-oil GDP rose from 46.2% to 52.5%, while deposits of individuals to the non-oil GDP increased from 12.5% to 14.9%. The enhancing role of mid-sized banks continued as a major trend in the banking system’s development in 2009. Thus, large banks (top 5 banks in terms of assets) had their share of total bank assets reduced from 62.7% to 61% and share of total deposits from 50% down to 49%.

The number of banks with foreign equity investments changed during the year equaling 23 banks.

Despite of the global financial crisis, foreign investments in Azerbaijan’s banking system financed by additional injections from owners and new investors increased by 28.5% (+AZN45.3 million) thus totaling to AZN204.5 million as of 01.01.2010 (which equals 17.7% of the total bank equity). Foreign capital accounted for 28% of the total bank assets as of 01.01.2010 and for 29.2% of the total deposits. Banks continued to expand their structural networks and improve customer access to financial services.

During the year 28 banks opened 63 new branch offices, of which 39 operate in regions. As a result, the number of bank branch offices went up from 567 to 626 and divisions from 99 to 109. 301 of bank branch offices (48.1%) operate in regions. (Source: http:// www.cbar.az/assets/1281/millibank.pdf) The number of other financial institutions that provide limited banking services also increased in parallel to the banking system’s development. They include non-bank credit institutions, including credit unions, credit institutions financed by international humanitar-

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ian organizations and other kinds of financial institutions rose to 96 in number (94 at the beginning of the year), while their branch offices increased up to 66 (64 at the beginning of the year). In parallel to the increasing number of non-bank credit institutions their transactions also gained on in terms of volume.

Thus, although the total assets of such institutions remained flat during the year, their lending increased by 5%. The expanded geographic coverage of the banking infrastructure enhanced the access of economic agents, especially individuals to banking services. As a result, while 9.9 financial institutions served every 100.000 people in the beginning of 2009, this indicator reached 10.6 by the year-end.

Structure of the banking sector’s liabilities In 2009, the total bank liabilities reached AZN 9660.2 million having increased by AZN1091.4 million or 12.7% (52.3% in 2008). In the reported year, funds (deposits) drawn from legal entities (noncredit institutions) and individuals traditionally had a large share in the set up of the banks’ resource base.

In 2009 deposits received from internal sources (non-financial legal entities and individuals) totaled AZN 4654.2 million having decreased by AZN106.5 million or 2.2%. Total deposits represented 48.2% of the total liabilities as at 01.01.2010. In 2009, individual deposits increased by 22.5% to AZN 2334.9 million (the growth rate was 29.7% in 2008), while corporate deposits decreased by 18.8% to AZN 2319.3 million at the year-end.

In addition to the increasing volume of customer resources, term funds also tended to increase their contribution to the overall structure of attracted funding. During the year term deposits rose by 26.3% totaling AZN1814.8 million as at January 1, 2010. Term deposits accounted for 77.7% of the total deposits by the year-end.

No serious changes occurred in the depositor structure.

Deposits of resident individuals amounted to 92%, while those of non-resident individuals to 8%.

During the year funds attracted from financial institutions (loans, deposits and other resources from other banks) totaled to AZN 2.9 billion as of January 1, 2010. These funds amount to 30% of the total bank liabilities.

Structure of Bank Assets During the reported year the total bank assets increased by AZN1391.7 million or 13.5% totaling to AZN11665.2 million as of January 1, 2010. In 2009, loans to the non-financial sector increased by AZN1213.9 million or 17.3% to AZN8230.4 million.

The growth rate of long-term loans (over 1 year) surpassed that of the short-term loans.

Thus, while short-term loans to customers increased by 2.5% long-term loans increased by 24%. As a result, long-term loans increased from 68.8% to 72.8% as percentage of the total loan portfolio. In 2009 Manat-denominated loans accounted for the larger share of the total loan growth. Manat denominated loans totaled to AZN4813.7 million (58.5% of the total loans) as at 01.01.2010 having increased by 35.5% The level of the loan portfolio’s industry concentration decreased. Although loans to households, trade and services sector had traditionally accounted for a large portion of the total loan portfolio their share declined. Thus, loans to trade and services sector totaled to AZN1833.5 million as of January 1, 2010, which makes 22.3% of the loan portfolio (27.2% as at 01.01.09). Loans to households amounted to AZN2171.6 million, which makes 26.4% of the loan portfolio (31% as of 01.01.09). The growth rate of mortgage loans was 28.6%.

Mortgage lending amounted to AZN910 million or 11% of the total loans as of January 1, 2010 (such loans amounted to approximately 10% of the total loans as of the beginning of 2009).

Mortgage loans to individuals amounted to 15.7% of the total loans to individuals (13.1% as of 01.01.09), while their share of the total bank assets made 2.9%.

Securities acquired by banks increased by 4.9% times as of January 1, 2010 thus totaling to AZN784.6 million. Government securities decreased to 24.4% as percentage of the total securities as of January 1, 2010 (39.2% as of January 1, 2009). Banks’ investments in corporate securities increased by 25.2% totaling to AZN567.9 million by the end of 2009.

Interbank claims (loans and deposits) increased by 44.5% during the year amounting to AZN599.5 million. Deposits constituted 76.4% of the total placements with banks.

List and rating of Local Banks By early second quarter of 2009, situation at the market significantly changed. Several banks gave up their positions leaving TOP 3 and TOP 5 of credit institutions.

As a result, 19 banks had assets amounting more than AZN 100 million. The leading was the International Bank of Azerbaijan (IBA) with AZN 3.308 bn, while the group was locked by Muganbank with AZN 108.782 million. Credit portfolio of over AZN 100 million belonged to 13 banks- from Atabank’s AZN 104.9 million up to IBA’s AZN 2.393 bn. Individuals’ deposits exceeded AZN 100 million in 4 banks – from Bank Standard’s AZN 111.583 million up to IBA’s AZN 451.623 million of deposits.

Following the first quarter profit amounting over AZN 1 million belonged to 15 banks – from YapiKrediBank’s AZN 1.325 million up to IBA’s AZN 30.425 million.

Doing business in Azerbaijan | sectors review

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Loans by sector 01.01.2009

01.01.2010

Increase

AZN mln

percentage

AZN mln

percentage

AZN mln

percentage

Trade and services

1910,4

27,2

1833,5

22,3

-76,9

-4,0

Households

2175,8

31,0

2171,6

26,4

-4,2

-0,2

Energy, chemistry and natural resources

855,7

12,2

1522,0

18,5

666,3

77,9

Agriculture and processing

255,4

3,6

389,3

4,7

133,9

52,4

Construction and property

461,3

6,6

576,4

7,0

115,1

25,0

Industry and production

427,3

6,1

536,7

6,5

109,4

25,6

Transport and communications

669,1

9,5

520,4

6,3

-148,7

-22,2

Other loans granted

261,4

3,6

680,5

8,3

419,1

160,3

Source: Central Bank of Azerbaijan

List and rating of Local Banks Assets 1 IBA

94

3 308 796,88

Credit Portfolio 1 IBA

2 393 750,32

2 Bank Standard

539 286,21

2 Bank Standard

383 904,47

3 TexnikaBank

431 482,80

3 TexnikaBank

342 696,92

4 Bank Respublika

386 192,17

4 Xalq Bank

341 894,13

5 Xalq Bank

386 152,70

5 UniBank

292 657,29

6 UniBank

374 181,23

6 Bank Respublika

248 867,14

7 Kapital Bank

341 534,42

7 Nikoil

235 175,64

8 Nikoil

289 248,95

8 AccessBank

187 589,37

9 AccessBank

229 789,60

9 Kapital Bank

169 907,00

10 AzerDemiryolBank

213 028,89

10 AzerDemiryolBank

160 352,02

11 PASHA Bank

207 816,79

11 AzeriGazBank

156 638,47

12 AzeriGazBank

204 766,56

12 Bank of Baku

128 435,34

13 Bank of Baku

166 348,14

13 AtaBank

104 901,86

sectors review | Doing business in Azerbaijan

14 AtaBank

155 913,79

14 Bank of Azerbaijan

89 549,47

15 ZaminBank

136 402,94

15 Royal Bank of Baku

83 112,88

16 Bank of Azerbaijan

117 086,35

16 ZaminBank

82 287,72

17 Royal Bank of Baku

113 086,67

17 RabitaBank

67 890,57

18 Yapi Credi Bank

112 095,67

18 TuranBank

64 903,33

19 MuganBank

108 782,63

19 MuganBank

59 753,05

20 RabitaBank

85 604,71

20 PASHA Bank

57 174,07

21 TuranBank

79 914,37

21 ParaBank

49 099,16

22 ParaBank

71 411,02

22 AmrahBank

45 960,80

23 AmrahBank

61 442,13

23 AzerbaijanSenayeBank

35 133,54

24 AzerbaijanSenayeBank

61 373,02

24 NBC Bank

34 448,07

25 Birlik Bank

49 513,72

25 GunayBank

31 581,97

26 Bank Avrasiya

46 724,06

26 Birlik Bank

28 176,93

27 AzerNagliyatBank

46 419,71

27 TDB

27 418,50

28 Azer-Turk Bank

44 502,97

28 CredoBank

27 229,58

29 CredoBank

43 342,88

29 DebutBank

26 957,04

30 NBC Bank

40 424,58

30 Azerbaijan Credit Bank

26 894,93

31 AtraBank

35 048,18

31 Bank Avrasiya

26 173,82

32 UC Bank

32 598,18

32 Azer-Turk Bank

25 166,31

33 TDB

32 011,54

33 AtraBank

25 122,12

34 DebutBank

30 636,05

34 UC Bank

23 055,38

35 Gandja Bank

30 128,46

35 Gandja Bank

21 015,88

36 Bank Melli Iran

29 987,27

36 AzerNagliyatBank

16 157,45

37 GunayBank

28 580,23

37 Yapi Credi Bank

14 200,06

38 Azerbaijan Credit Bank

27 404,65

38 Bank Melli Iran

5 965,43

39 VTB

16 546,11

39 VTB

5 830,89

Doing business in Azerbaijan | sectors review

95

List and rating of Local Banks (continued) Liabilities 1 IBA

96

2 791 906,02

Deposit Portfolio of corporate clients 1 IBA

785 480,44

2 Bank Standard

431 472,88

2 Xalq Bank

95 957,78

3 TexnikaBank

360 365,10

3 Bank Respublika

57 268,67

4 Bank Respublika

341 884,97

4 TexnikaBank

54 549,54

5 UniBank

323 246,40

5 Kapital Bank

51 013,00

6 Xalq Bank

302 894,53

6 PASHA Bank

45 882,91

7 Kapital Bank

257 018,50

7 AtaBank

43 689,47

8 Nikoil

255 573,25

8 Bank Standard

41 917,59

9 AccessBank

189 329,58

9 AzerNagliyatBank

29 262,47

10 AzerDemiryolBank

173 477,22

10 Yapi Credi Bank

27 688,67

11 AzeriGazBank

169 399,23

11 UniBank

26 921,35

12 Bank of Baku

132 409,82

12 AzeriGazBank

21 218,44

13 AtaBank

127 369,49

13 Nikoil

15 345,80

14 ZaminBank

121 743,70

14 Bank of Baku

12 649,75

15 Bank of Azerbaijan

95 520,20

15 MuganBank

12 447,24

16 PASHA Bank

92 819,13

16 AzerbaijanSenayeBank

11 054,28

17 Royal Bank of Baku

90 432,07

17 Azer-Turk Bank

10 044,29

18 MuganBank

87 402,18

18 AzerDemiryolBank

8 548,51

19 Yapi Credi Bank

72 069,63

19 AmrahBank

7 172,70

20 RabitaBank

70 856,09

20 ZaminBank

7 075,35

21 ParaBank

60 638,34

21 RabitaBank

6 214,20

22 TuranBank

59 121,03

22 Royal Bank of Baku

5 267,54

23 AmrahBank

38 648,60

23 Bank of Azerbaijan

4 776,72

24 AzerbaijanSenayeBank

34 928,13

24 CredoBank

3 852,66

25 AzerNagliyatBank

34 754,17

25 ParaBank

3 027,98

sectors review | Doing business in Azerbaijan

26 Azer-Turk Bank

30 979,17

26 Bank Melli Iran

2 640,67

27 Birlik Bank

30 657,65

27 TuranBank

2 514,87

28 CredoBank

28 743,86

28 AccessBank

1 431,34

29 Bank Avrasiya

24 607,61

29 Birlik Bank

1 043,53

30 NBC Bank

24 153,60

30 TDB

1 043,01

31 AtraBank

21 967,75

31 NBC Bank

757,53

32 TDB

21 568,97

32 AtraBank

651,38

33 DebutBank

20 997,02

33 Azerbaijan Credit Bank

442,83

34 Bank Melli Iran

18 516,80

34 Gandja Bank

276,39

35 Gandja Bank

15 414,18

35 GunayBank

259,85

36 GunayBank

15 369,95

36 UC Bank

223,60

37 UC Bank

14 524,66

37 DebutBank

139,32

38 Azerbaijan Credit Bank

14 423,32

38 Bank Avrasiya

60,71

39 VTB

45,98

39 VTB

8 701,21

Doing business in Azerbaijan | sectors review

97

List and rating of Local Banks (continued) Deposit Portfolio of individual clients

98

Net Income before tax

1 IBA

451 263,19

1

IBA

2 Xalq Bank

174 517,57

2

TexnikaBank

6 830,54

3 Kapital Bank

123 901,00

3

Kapital Bank

6 829,00

4 Bank Standard

111 583,90

4

Xalq Bank

5 046,27

5 AzeriGazBank

83 823,71

5

Bank Standard

3 618,28

6 Bank Respublika

82 773,29

6

PASHA Bank

3 507,32

7 TexnikaBank

75 184,57

7

AccessBank

3 506,34

8 UniBank

62 431,76

8

Bank Respublika

2 790,73

9 AtaBank

60 046,18

9

Bank of Baku

2 771,74

10 Bank of Baku

59 875,54

10

UniBank

2 462,15

11 AzerDemiryolBank

48 365,19

11

AzerDemiryolBank

2 208,15

12 Bank of Azerbaijan

45 213,01

12

AzeriGazBank

1 902,98

13 PASHA Bank

44 546,02

13

Nikoil

1 792,20

14 ZaminBank

40 491,78

14

AtaBank

1 381,81

15 Nikoil

39 651,63

15

Yapi Credi Bank

1 325,79

16 ParaBank

37 028,90

16

TuranBank

946,32

17 RabitaBank

34 511,25

17

AzerbaijanSenayeBank

928,04

18 Royal Bank of Baku

33 430,41

18

NBC Bank

924,35

19 MuganBank

28 963,66

19

GunayBank

872,68

20 AmrahBank

23 969,60

20

Azer-Turk Bank

822,02

21 AccessBank

21 804,99

21

ZaminBank

797,52

22 Bank Avrasiya

21 603,61

22

Azerbaijan Credit Bank

787,67

23 TuranBank

18 466,90

23

Royal Bank of Baku

716,95

24 Yapi Credi Bank

12 005,53

24

AmrahBank

685,90

25 Azer-Turk Bank

11 424,86

25

Gandja Bank

678,69

sectors review | Doing business in Azerbaijan

30 425,74

26 CredoBank

9 966,91

26

Birlik Bank

575,89

27 GunayBank

7 244,52

27

Bank Avrasiya

551,88

28 UC Bank

7 175,58

28

RabitaBank

403,37

29 AzerNagliyatBank

5 272,10

29

AzerNagliyatBank

233,28

30 Azerbaijan Credit Bank

4 745,29

30

CredoBank

172,81

31 NBC Bank

3 942,54

31

AtraBank

84,86

32 AtraBank

3 662,77

32

VTB

50,72

33 AzerbaijanSenayeBank

3 415,50

33

ParaBank

30,44

34 Gandja Bank

2 614,82

34

Bank Melli Iran

16,39

35 Bank Melli Iran

2 002,90

35

UC Bank

36 DebutBank

753,34

36

Bank of Azerbaijan

- 172,81

37 TDB

552,04

37

TDB

- 519,69

38 VTB

125,28

38

MuganBank

- 637,25

40,87

39

DebutBank

- 707,04

39 Birlik Bank

- 50,32

Source: http://www.abc.az/

Doing business in Azerbaijan | sectors review

99

Headquarters of the State Oil Company of the Republic of Azerbaijan (SOCAR) and Heydar Aliyev Foundation buildings. Baku, Azerbaijan.

Insurance Insurance market is one of the most dynamic sectors of the Azerbaijani financial market. Although insurance market is on the first stage of its development, according to analysis of financial indicators it could be said that growth and development direction of the market by and large is on a right path.

There are two public organizations in the field: The Union of Azerbaijani Insurers and Union of Insurance Societies of Azerbaijan.

Activities are directly contributing to the insurance market development and reinforcement of the companies. Seven insurance majors are also the members of the Insurance Council established by the Ministry of Finance of Azerbaijan. A number of internationals are also involved in local insurance market either directly or through local companies.

It should be noted that since 1993 Azerbaijan is an associate member of international system of automobile owners’ liability insurance - ‘Green Card’ and cargo transporters’ liability insurance ‘TIR Carnet’. Currently work on fulfilment of normative requirements for completing Azerbaijan’s full membership is conducted.

There are 35 types of insurance products on the Azerbaijani insurance market. 9 of them are mandatory insurance and 26 are voluntary insurance products. Below is the list of products as per the segment of market they occupy: * Motor vehicle insurance (automobile) * Property insurance * Cargo insurance * Accident insurance * Third parties liability insurance * Health insurance * Life insurance * Financial risks insurance

102

sectors review | Doing business in Azerbaijan

During the last five years legal framework operation of the market has been re-established. In particular the Law “On Insurance”, “On mandatory Insurance of Motor Vehicle Owner’s Liability”, Law “On Mandatory Fire Insurance of Property”, Law “On Mandatory Ecological Insurance” and etc. were adopted.

Periodic increase to the minimum charter capital of insurance companies is aimed at consolidation of the market.

As of beginning of 2008 joint charter capital of Azerbaijani insurance companies increased to 63.68 mln AZN. Share of Azerbaijani capital in this figure is 88% the rest is foreign capital. Currently there are 28 insurers, 6 of them are joint ventures, 6 of them are with foreign investment.

Capital market The securities market in Azerbaijan is regulated by provisions of the Civil Code and a number of presidential decrees, resolutions of the Cabinet of Ministers, and acts of the State Committee for Securities. The State Committee for Securities, created at the end of 1998, is authorized to regulate activities on the securities market.

Under the Civil Code, securities may be issued as registered or bearer securities or order papers. In addition, depending on the methods of placement, securities are of two types: * Investment securities, which are placed through separate emissions and, regardless of the time of their acquisition, have equal rights there under within the respective emission, such as shares and bonds; * Non-emissive securities are placed otherwise and have different rights, such as options, warrants, privatization checks, futures, mortgage certificates, bills of lading, etc.

There are two forms of securities: * Documentary, in which the rights of securities holders to the securities are established by a paper document or, in the case of depositing securities, by entries in a deposit account. The specific requirements for the certificates are determined by the State Committee for Securities; and * Non-documentary, where the rights of the securities holders to the securities are evidenced by the entries made in the shareholder register or by the entries made in a deposit account.

Disclosure Requirements The Civil Code imposes different reporting and disclosure requirements depending on the nature of the placement, with more extensive requirements being imposed on an open JSC. Regardless of the type of securities placement, the issuer must present a report to the State Committee for Securities on the results of the issuance and placement of the emissive securities not later than 30 days after completing the placement. An issuer who has announced a public placement must publish the balance sheet and the report on the results of its business in the mass media annually.

The acquisition of a certain percentage of the shares of the issuer by affiliated persons may be regulated by anti-monopoly legislation.

Doing business in Azerbaijan | sectors review

103

Stock Exchanges A stock exchange may only be formed as a closed JSC, and must obtain a license from the State Committee for Securities to operate.

The Baku Stock Exchange was established by the State Committee for Securities at the end of December 1999. Shareholders of the exchange include banks and investment companies. Baku Stock Exchange (BSE) entered 2009 with new opportunities to develop domestic capital market together with shareholders and partners.

At present, Baku Stock Exchange is engaged in trade, depository, clearing, information and consulting activities. Stocks, corporate bonds, T-bills, notes and repo financial instruments are traded at Baku Stock Exchange. Trading floor of Baku Stock Exchange has 30 broker workstations equipped by computers and communication means. Trading session is executed in real time regime by the means of Electronic Trading System of Baku Stock Exchange. Baku Stock Exchange holds the license to execute depository activity.

Baku Stock Exchange does not charge fee for depository services provided for state securities. Baku Stock Exchange has the clearing account in National Bank and calculates liabilities of transaction participants during the trading session and by the result of trading session settles transactions. Baku Stock Exchange regularly and operatively refresh official web site www.bfb.az, which is available in 3 languages. Subscribers for analytical services of Baku Stock Exchange are provided with daily bulletins, regular analytical notes, monthly reviews and reports on different fields.

Baku Stock Exchange experts hold regular meetings with potential issuers and Investors in order to find best solution for capital accumulation and management.

Baku Stock Exchange is the member of the Federation of Euro Asian Stock Exchanges and other international organizations.

For further information please contact Baku Stock Exchange at: feedback@bse.az

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sectors review | Doing business in Azerbaijan

Survey of BSE for January-December 2009-2010 For Jan-Sept 2010 the turnover of the Baku Stock Exchange (BSE) exceeded $1.8 bn (exchange rate: AZN 0.8005 to the US dollar by 1st November) and totaled 47.9% of the 2009 turnover.

The BSE informs that the total volume of transactions for Jan-Oct of the year for all securities traded in the BSE was AZN 1,459,828,712.92 that is by 52.1% less versus the Jan-Oct 2009 index (AZN 3.045 bn).

This October’s turnover reached AZN 118.65 million versus AZN 164.3 million in September, AZN 194.916 million in August, AZN 126.958 in July, AZN 105.767 million in June, AZN 140.852 million in May, AZN 220.989 million in April and AZN 110.006 million in September 2009.

In 2009, turnover totaled AZN 3.323 bn and the largest volume of turnover in 2009 was registered in January (AZN 1.086 bn).

For Jan-Oct 2010, 76.9% of transactions fell on the share of government securities.

In 2008, the BSE overall turnover on all instruments reached AZN 9.519 bn ($11.88 bn) that exceeds the 2007 index by 173.39%.

For comparison: BSE turnover for 2007 totaled AZN 5.48 bn ($6.487 bn) that is by 394.94% more versus the 2006 figures.

Comparative table on the results of trades of Corporate Securities at BSE (January-October 2010)

Market segments* Corporate bonds – placement

Volume of transactions, AZN

2010 (31.10.10) Number of transactions

Volume of transactions, AZN

2009 (31.10.09) Number of transactions

Percentage ratio

72,899,260.59

88

43,736,844.08

52

166.68%

Corporate bonds – secondary market

138,262,949.12

90

45,610,410.90

38

303.14%

CBs Total

211,162,209.71

178

89,347,254.98

90

236.34%

120,266,868.96

1,796

139,862,847.40

1,272

85.99%

5,407,398.35

1,676

35,353,707.92

2,614

15.30%

Stocks – placement Stocks – secondary market Stocks Total

125,674,267.31

3,472

175,216,555.32

3,886

71.73%

CS Market Total

336,836,477.02

3,650

264,563,810.30

3,976

127.32%

Percentage ratio

Comparative table on the results of trades of Government Securities at BSE (January- October 2010) 2010 (31.10.10) Number of transactions

Volume of transactions, AZN

2009 (31.10.09) Number of transactions

210,292,967.70

92

420,964,084.83

226

49.96%

86,831,231.89

46

149,045,985.50

85

58.26%

GB Total

297,124,199.59

138

570,010,070.33

311

52.13%

Notes (AR CB) - placement

170,440,933.81

136

270,734,277.15

174

62.96%

Market segments* GB - (AR MF) - placement GB - (AR MF) - secondary market

Notes (AR CB) - secondary market Notes Total

Volume of transactions, AZN

5,564,936.87

2

67,504,812.02

39

8.24%

176,005,870.68

138

338,239,089.17

213

52.04%

Repo operations

649,862,165.63

644

1,874,808,344.66

654

34.66%

GS Market Total

1,122,992,235.90

920

2,783,057,504.16

1,178

40.35%

*Abbreviations: GB - government bonds GS – government securities CB– corporate bonds CS– corporate securities AR MF – Ministry of Finance of the Republic of Azerbaijan AR CB – Central Bank of the Republic of Azerbaijan

Doing business in Azerbaijan | sectors review

105

v o

v r e

g e

e h t f o w

s n o i g

ie v

Absheron The Absheron economic region is the largest contributor to country’s domestic production. It is situated very favourably on the territory of the strategic Absheron peninsula. Terrain consists of hills, sub-mountain plain and low mountains. The climate of Absheron is of temperate warm, characterized by semideserts and steppes with Absheron-specific winds. Arid subtropical climate is typical.

Another major factor is that Baku with population of 2064.9 thsd. is located here. The region is rich with brick, lime, cement raw material, quartz and mason's sand reserves. Absheron peninsula is also rich with balneal resources. It is supplied with water by artificial channels from Samur and Kura rivers.

Gas extraction and petroleum production, petrochemicals and chemicals, ferrous and non-ferrous metallurgy, energy, light and food industry, R&D are the dominant sectors in the economy of Absheron.

Construction, transport and services are well developed too.

Construction enterprises of the region produce glass, polymeric and other materials. Agriculture of Absheron is of suburban type and includes cattle breeding and poultry, vegetables, wine-making, flowers and arid subtropical fruits cultivation. Climate of the district allows for growing of olives, saffron, pistachio and other produce.

Infrastructure is well developed. All major railways and highways as well as sea and air connections pass through the region.

Northern shores of the peninsula are a major health resort area of Azerbaijan with a number of popular beaches.

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overview of the regions | Doing business in Azerbaijan

Aran Aran is centrally located in Azerbaijan. More than half of the territory of the region consists of a plain below sea level. Mainly arid subtropical climate is typical. The region is the traditional area of settlement of population.

The main resources are oil, natural gas, iodide-bromine ore, building materials. Abundant solar energy, water reserves of Kura and Araz rivers, large land resources are also among natural advantages of Aran.

Manufacturing mainly conglomerates in the south-west (Shirvan, Salyan, Neftchala) and north-west (Mingachevir and Yevlakh). Chemicals, machinery, light industry and food processing, construction materials form the major portion of the economy of Aran.

There is a number of chemicals production plants in Mingachevir, Salyan and Neftchala. Shirvan and Salyan are heavy industry centres.

Cotton weaving (Mingachevir), pre-processing of wool (Yevlakh), leather production (Shirvan), carpet weaving (Hajigabul) are the key sectors of the light manufacturing. Agriculture is mostly based on irrigated farming.

Aran is situated on the vital transport routes (railways and highways) of Azerbaijan. Major connections from Baku to Georgia, Iran and Turkey are passing through the territory of the region.

Yevlakh-Baku air connection is operating. Alat-Astara four-strip highway is under construction. It is expected to accelerate economic growth and stimulate trade and services.

There are great opportunities for organization of various production including organic honey, tobacco, fruits, green tea, silk and silk cocoon, juices, tinned goods, leather, asphalt covering, mineral waters, furniture, woodworks, ferro-concrete materials and constructions, furnishings etc.

Daglig Shirvan Dagliq Shirvan economic region is situated in the central part of Azerbaijan. Shirvan plain occupies territory of Agsu, Ismayilli, Qobustan and Shamakhi administrative districts.

The terrain of the economic region splits into the plain and mountains. The climate of the region is very diverse. Mountainous part has moderately cold climate with plain being hot and dry.

There are brick, bank stone, sand, loam, detritus and other construction materials deposits. The mountains are rich with mineral water springs, some of them are thermal.

Region’s beautiful natural attractions, diverse climate, hot medicinal springs, wealth of local traditions in cuisine create favourable conditions for development of recreation and tourism businesses. Mountainous tourism can also be developed. There are also numerous trades, services and public health enterprises in the region.

Dagliq Shirvan is specializing in viticulture, winemaking, animal breeding. Main emphasis in animal breeding is cattle breeding.

Traditional handcrafting (carpets) is also popular in the region.

There are great opportunities in cultivation and processing of a number of products such as grapes, grain, fruits and vegetables, meat, dairy products, organic honey, as well as various types of juice and other preserved food, construction materials, leather, asphalt, mineral waters, spinning and sewing consumer goods, confectionary, furnishings, woodworks etc. Opportunities within tourism industry should be emphasized.

Ganja-Gazakh Mild climate, beautiful natural attractions, mineral waters create favourable conditions for development of recreation and tourism business in this region. There are magnificent Goy-Gol and Hajikend resorts 1,500 m above sea level. Naftalan is world famous for natural medicinal oil.

Ganja-Gazakh is the second largest economic power in the country. Industry consists of processing and manufacturing. Metallurgy is largely located in Ganja and Dashkasan. Heavy manufacturing holds leading position. Other sectors are automotive, agricultural machinery services, telecom. Agricultural produce forms the supply base of the region’s light industry.

This region gives 18-19% of total agricultural production, 5560% of potato, 29% of grapes and 13-14% of animal breeding of Azerbaijan. In Ganja and Gazakh the major sectors in agriculture are potato, grapes, grain, vegetables and fruits.

Cotton is cultivated in Goranboy, Gazakh and Agstafa. Shamkir and Samukh are specializing in grapes. Gadabay, Shamkir and Tovuz are leaders in potato and Goranboy is specializing in grain.

Gardening, fruits and animal breeding are also the rapidly growing segments of the local economy.

Doing business in Azerbaijan | overview of the regions

109

5* Ramada Plaza hotel. Ganja, Azerbaijan.

Guba-Khachmaz The region is located in the north-east of the country and borders Russia in the north. It has long coastal line with the Caspian Sea. The main sectors of the region’s economy are agriculture and manufacturing. Tinned fruits and vegetables production (Khachmaz, Guba), fish processing (Khudat), carpet weaving (Guba, Gusar, Khachmaz) are the region’s specialties. Grain and dairy products constitute major products in Khachmaz and Devechi. Heavy industriey is represented by oil and gas production (Siyazan), electronics plant (Guba), swarf processing (Khachmaz).

Main resources of the region include oil, natural gas, shale oil, sand, gravel, clay. The region has dense river network and large water reserves. As the region is one of the significant sanatoriums and spa areas the recreation potential is substantial. Regionally famous Nabran recreation area is located here.

Communication lines connecting Azerbaijan with Russian Federation pass through this region.

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overview of the regions | Doing business in Azerbaijan

Lankaran Lankaran economic region is situated in south-east of Azerbaijan with territories of Yardimli and Lankaran administrative districts included. The economic region boarders Caspian Sea in the east and Iran in the west and south. Territory of the region consists of two major parts: Lankaran valley and Talish Mountains. The region stands out among other economic regions due to the fact that 7 climatic zones from overall 11 are present here.

The region is rich in brick, bank stone, sand, loam, detritus and other construction materials. It also has plentiful thermal medicinal springs. The main natural resources of the region are forests along the flank of hills and fertile land. 26% of the region's area is covered with forests. There are few unique and rare specimens of flora such as shumshad, damiragaj (iron tree), oak with chestnut leaves and others.

Processing of the agriculture products is one of the principal sectors of Lankaran’s economy. Humid subtropical climate, fertile lands, water and sufficient workforce amount for great opportunities to develop agriculture up to the most modern standards. Priority is with, tea, citruses, vegetables & fruits as well as winemaking.

Baku-Astara railway and Baku-Astara highway parallel to the former are the major transport routes. The North-South Transport initiative that is expected to boost regional trade along Iran-Azerbaijan-Russia-Northern Europe route will pass through the region. A modern airport is located in Lankaran town.

It is possible to develop ecotourism, restaurant business, fitness & entertainment centres in the region. Mountainous tourism can also be developed. Bearing in mind that neighbouring Iran with population of 72 million has no a sufficient number of modern tourist resorts it is appropriate to develop all sectors of tourism locally.

Nakhchivan Nakhchivan economic region consists of the territory of the Nakhchivan Autonomous Republic surrounded by Turkey, Iran and Armenia. The main trademark of Nakhchivan is its location on the historical trade routes connecting East and West. 32% of the territory is 600-1,000 meters above sea level, 48% is above 2,000 meters above sea level. Climate is continental and arid. The region has the autonomous status within Azerbaijan with a local government and parliament.

Nakhchivan is rich in molybdenum, complex ore, rock salt, dolomite, marble, construction materials. Also there are more than 200 valuable mineral water springs such as Badamli, Sirab, Vaykhir and others.

The key sector of the economy of the region is production and processing of farming produce. Famous sheep breed Balbas is the local specialty. Beekeeping is also developing.

The transport system of the economic region allows freight through the territory of Iran, road connection with Turkey and via international Nakhchivan Airport.

There are unique tourism attractions on the territory of the region such as Ilandag, Ashabulkef, Nahajir blister (volcanic) cones.

Sheki-Zagatala Shaki-Zagatala economic region is located on the South flank of the Great Caucasus, in the northwest part of Azerbaijan. This is one of the most beautiful parts of the country. The district borders with Russia in the north-east and Georgia in the north-west. Height varies from 100 m to 4,466 m (Bazarduzu peak) and the climate is diverse.

Copper mines, 90% of sulphur-pyrites, 97% of lead, 99% of zinc in Azerbaijan are in this economic region. Filizchay ore considered to be a unique field in the Caucasus. It may boost metallurgy and chemical industry locally. There are also raw construction materials such as sand, gravel, stone, loam, etc.

The key sector of the economy of the region is agriculture. Fertile land, abundance of water and workforce create great opportunities for development. Agriculture consists of tobacco, silkworm breeding, fruits, grain, and viticulture, sheep breeding and dairy production. Light and food industries are dominant. Business opportunities in tourism should be noted in particular. Shaki and Zagatala are also major tourist attractions due to their historical and natural attractions.

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Yukhari Garabag and Kelbajar-Lachin Territories of Lachin, Kalbajar, Zangilan, Gubadli, Khojavand, Khojali, Shusha, Jabrayil and Khankendi are completely, territories of Agdam and Fuzuli are partially under Armenian occupation.

In both regions the key sector of economy is agriculture. Major sectors in agriculture are viticulture, grain growing, fruits and tobacco raising as well as pastoral cattle breeding.

Mineral resources include large deposits of precious metals (gold) and thermal springs, mercury, marble, building stone, copal, perlite.

For further information, please refer to the Department on Regional Development and State Programs at: www.economy.gov.az

Economic regions of the Republic of Azerbaijan Absheron

Admin units

Sumgait city, Absheron,Khizi districts

Aran Agdash, Aghjabadi, Barda, Beylagan, Bilasuvar, Geoychay, Hajigabul, Imishli, Kurdamir, Neftchala, Saatli, Sabirabad, Salyan, Ujar, Zardab districts; Mingachevir, Yevlakh and Shirvan towns

3.29

21.43

Total area, thousand sq km Share in country’s total area

3.9%

24.7%

Population (01.01.2009), thsnd

517.7

1812.1

Share in total population

5.8%

20.5%

Workforce, thousands

203.6

899.1

157

85

Population density, per sq km Key sectors of economy

manufacturing and a/c production

manufacturing & agriculture

olives, meat

cotton, grain, wine, arid subtropical fruits

Ganja-Gazakh Ganja, Agstafa,Dashkasan, Gadabay, Goranboy, Naftalan, Goygol, Gazakh, Samukh, Shamkir, Tovuz districts

Guba-Khachmaz Davachi, Khachmaz, Guba, Gusar and Siyazan districts

Total area, thousand sq km

12.48

6.96

Share in country’s total area

14.4%

8.8%

Population (01.01.2009), thsnd

1179.6

491.7

Share in total population

13.3%

5.5%

Workforce, thousands

588.2

210.3

95

71

processing and manufacturing

a/c production & tourism

grapes, grain, fruits, tobacco

vegetables, fruits, grain

Major products

Admin units

Population density, per sq km Key sectors of economy Major products

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Daglig Shirvan Agsu, Ismailli, Gobustan and Shamakhi

Sheki-Zagatala Shaki, Zagatala, Gabala, Oguz, Gakh, Balakan districts

Total area, thousand sq km

6.06

8.96

6.07

Share in country’s total area

6.9%

10.3%

7%

Population (01.01.2009), thsnd

283.6

569.9

832.2

Share in total population

3.2%

6.4%

9.4%

Workforce, thousands

130.4

288

398.8

47

64

137

Key sectors of economy

agriculture, food processing, industry

Major products

grapes, wine, vegetables, fruits, meat

agriculture, tourism tobacco, silkworm, fruits, grain, grapes, meat and dairy production

a/c production fruits & vegetables, tea,citruses, grapes, dairy produce

Admin units

Population density, per sq km

Lankaran Astara, Jalilabad, Lerik, Masalli, Yardimli, Lankaran districts

Nakhchivan Nakhchivan city, Julfa, Sharur, Ordubad, Babek, Shahbuz, Sadarak and Kangarli districts

Yuxari Garabagh & Kelbajar, Lachin Agdam, Tartar, Khojavand, Khojali, Shusha, Jabrayil, Fizuli districts, Khankendi town and Kalbajar, Lachin, Zangilan, Gubadli districts

5.5

13.65

Share in country’s total area

6.3%

17.6%

Population (01.01.2009), thsnd

402.4

843.3

Admin units Total area, thousand sq km

Share in total population

4.5%

9.5%

Workforce, thousands

202.9

400.7

Population density, per sq km Key sectors of economy Major products

72

62

agriculture, food processing

agriculture, animal breeding, beekeeping

tobacco, fruits grain, grapes, silkworm

grapes, grain, fruits, tobacco

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Ilan Dag mountain. Nakhchivan region. Azerbaijan.

GENER

L A

m r o f In

GENER

n o i t a

General Information Living and working in Azerbaijan I am currently the Chairman of the British Business Group. This is my third year “in charge” however I have spent 11 years of my near 13 years in Azerbaijan as a Committee Member and as such have seen many changes to Azerbaijan in that time. For more information about the British Business Group in Azerbaijan, please visit www.britishbusinessgroupazerbaijan.com I arrived in Azerbaijan in April 1998. The collapse of a whole way of life (the Soviet Union) coupled with the effects of the Nagorno Karabakh conflict had left Azerbaijan in a state of neglect (an understatement). On top of this the oil price went to $8 a barrel and the Russian Rouble collapsed (Russia was Azerbaijan’s largest trade partner).

There was little in the way of a state budget and as such power cuts, lack of water supply etc was common. The repair of the “Northern Route” pipeline to Russia and the construction of the Western Route pipeline to Georgia helped to stem the financial problems however and the Azerbaijan International Oil Company (by then a BP operated company) started to put 120000 barrels through the Western Route and slowly things began to change.

In 2000/2001 construction began on the Baku Tblisi Ceyhan Pipeline as well as the full field development of the Azeri Chirag Guneshli Oil field. Coupled with the development of the Shah Deniz gas field, foreign investment in the Oil sector boomed. This led to major growth in the non oil construction sector as can now be seen via the numerous high rise residential apartment blocks that have appeared all around the city.

With this expansion came a return to normal infrastructural deliveries and the Baku City authorities began to improve and clean the city.

I would say that so much has changed in the last ten years or so that I cannot fully comprehend what may well happen in the next ten years. One major change has seen the construction of

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major office and residential projects that are being constructed under the management of two of our member companies. It is very interesting to note that not only have the projects been designed

by Western Architects but they are also having the construction managed by Western based companies also. With the Oil price 1000% higher than when I first arrived, money is definitely no longer an object and modern state of the art designs are now being planned, authorised and built.

Away from the construction sector I can also see a push from the likes of AZPROMO to develop the Agriculture sector.

I have seen British Agricultural Experts arrive to work on projects for Azerbaijani Companies. Azerbaijani companies produce wine of a vastly improved quality. They produce fruit juices, nicely tetrapacked in modern designed cartons. In other words there are companies here that want to do better, produce more, develop their food processing capabilities and as such there are opportunities for companies to operate here in partnership with these Azerbaijani companies.

Training is another area that has major potential in Azerbaijan, in fact the potential in Azerbaijan is immense in every sector and with more infrastructure improvements occurring all the time then there is an ability to deliver that potential. Clearly there are obstacles along the way to achieving that potential, however the main ingredients are certainly here.

I would like to wish everyone a wonderful 2011.

John Patterson Chairman, British Business Group Member of Advisory Board to the European Azerbaijan Society

Visas & Work Permits Labour market One of the major comparative advantages for selecting Azerbaijan as a place to do business with is its competitive labour market.

The total workforce in Azerbaijan accounts for approximately 5.724 million people. Below are some statistics figures on local labour in dynamic between 2003 and 2009.

The literacy level of circa 99.6% and number of people with higher and professional education (exceeding 1.2 million) undoubtedly add up to the point of Azerbaijan being an extremely competitive employment market.

Azerbaijani labour is multilingual. Apart from Azerbaijani one can expect a local employee to speak Russian and Turkish. Azerbaijan is also one of the most successful examples of how English is spreading in the working environment. English is slowly but surely becoming the “office” language at least in Baku.

There are 41.1 thousand officially registered unemployed with apparently more unemployment being unregistered by statistic authorities.

Year

Employed, ths

Average wage in AZN

Registered unemployed

2003

3,747

77.4

54,365

2004

3,817

99.4

55,945

2005

3,850

123.6

56,343

2006

3,973

149.0

53,862

2007

4,014

215.8

50,651

2008

4,056

274.4

44,481

2009

4,072

298

41,100

How to apply to obtain a visa According to requirements of current legislations, foreigners and stateless persons can arrive to and exit from the Azerbaijan on the basis of their valid personal passports and the official permission – visa, except the nationals of the states defined a mutual agreement on visa-free motion. CIS country nationals (apart from Turkmenistan) do not require a visa. In order to enter Azerbaijan they need to present at the border a valid passport. All the other nationals will need a visa. Visas are obtainable at the Azerbaijani Embassies and Consulates abroad with application-form clearly indicating the purpose and duration of their travel. (see the list of Azerbaijani Embassies abroad further in this publication).

Foreigners and stateless persons can apply for and obtain a visa at the appropriate visa divisions of the Ministry of the Foreign Affairs of the Republic of Azerbaijan operated in the international airports only in the cases defined by Decree of the President of Republic Of Azerbaijan (dated 13 September 2010, No: 326.) “On certain issues dealing with the granting visas to the foreigners and stateless persons traveling to the Republic of Azerbaijan”. * visa divisions of the Consular Department of the Ministry of Foreign Affairs operated in Heydar Aliyev International Airport * visa divisions of the Consular Department of the Ministry of Foreign Affairs operated in Ganja International Airport; * visa division of the Department of the Ministry of Foreign Affairs of the Republic of Azerbaijan in the Nakhchivan Autonomous Republic operated in Nakhchivan International Airport.

The Ministry of the Foreign Affairs of the Republic of Azerbaijan and the diplomatic representations and consulates of the Republic of Azerbaijan examines the foreigners’ and stateless persons’ applications no later 1 month after their applications accepted.

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In case of his/her urgent medical treatment or death of his/her closest relatives living in Azerbaijan foreigners and stateless persons can obtain a visa by presenting documents approving these facts.

In this case their application is examined no later than 48 hours.

Documents required for granting visa You have to present the following documents to obtain a visa by the diplomatic representations and consulates of the Republic of Azerbaijan abroad, as well as by means of the Consular Department of the Ministry of Foreign Affairs of the Republic of Azerbaijan: * 1 application-form * Double colored photos (3x4cm, in white background) * Foreigner’s passport and stateless person’s identification card * Invitation letter from receiving part (in 2 copies) Receipt of state fee: * Abroad - for granting visa * In the Republic of Azerbaijan – for sending appropriate instructions by the Ministry of Foreign Affairs of the Republic of Azerbaijan to the diplomatic representations and consulates of the Republic of Azerbaijan connected with granting visa on the basis of invitation letter.

You have to present the following documents to obtain a visa by the visa divisions of the Consular Department of the Ministry of Foreign Affairs operated in Heydar Aliyev International Airport and Ganja International Airport, as well as by the visa division of the Department of the Ministry of Foreign Affairs of the Republic of Azerbaijan in the Nakhchivan Autonomous Republic operated in Nakhchivan International Airport: (In the cases defined by Decree of the President of Republic Of Azerbaijan (dated 13 September 2010, No: 326.) “On certain issues dealing with the granting visas to the foreigners and stateless persons traveling to the Republic of Azerbaijan”).

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* 1 application-form * Double coloured photos (3x4cm, in white background) * Foreigner’s passport and stateless person’s identification card * Invitation letter from receiving part (in 2 copies) * Receipt of state fee for granting visa (fee is paid in cash) Attention! If there is less than 3 months for expiry of foreigner’s passport and stateless person’s identification document visa is not granted.

Single entry visas are normally valid for three days to three months period. Multiple entry visas are normally up to one year with unlimited number of entries. If the visa has not been used within the period of validity stated it becomes invalid.

An exit visa is provided to foreign national who has an official permission to live on the territory of the Republic of Azerbaijan and obtains this type of visa upon leaving the country.

A return visa might be given to foreigners who have a personal passport if they apply for it when leaving the Republic of Azerbaijan to return for a period of up to one month. This visa becomes invalid if not used within six months from the date of exit from the Republic of Azerbaijan.

A single or multiple transit visa is granted to foreigners going to other countries but passing through the territory of the Republic of Azerbaijan. If the transit visa has no notes or seals about nonstop passage, the bearer has the right to stay in the Republic of Azerbaijan for no longer than five days.

Foreigners wishing to prolong their visas in order to stay longer in the Republic of Azerbaijan should extend their temporary duration.

Please see Annex 9 for consular fees payable for Azerbaijani visas.

Business etiquette Who needs work permits and how to obtain it.

A foreign national who comes to Azerbaijan with intention to work here, have to obtain a work permit. The permits are issued by the Ministry of Labour and Social Protection. Work permits are issued for one year period. The term of validity can be extended for another year, but no more than 4 times in a row. The following categories of foreign nationals do not require work permits: * Permanent residents, entrepreneurs, management of companies established through international agreements, staff of diplomatic missions, staff of international organizations, businessmen (no more than for 3 month period), persons employed by relevant executive authorities, persons engaged in religious activities provided by religious organizations registered by the Government, accredited staff of mass media, sailors, sportsmen and artists, researchers and professors at the universities.

The following documents must be submitted to obtain a work permit from the Ministry of Labour and Social Protection of Population (MLSPP): * Application (can be received from the MLSPP); * Copy of the license issued to the Employer; * Copy of the document verifying that foreign employee is able to undertake activities envisaged in the work contract.

Appointment and Meetings Arrange appointments in advance. Try to do so via telephone and confirm it with a letter or an e-mail. It is a very good idea to call on the day or the day before to check that it is still convenient. Local business people only take very seriously those appointments that are reconfirmed. The dynamics of business life means that people at senior level tend to change their schedule at short notice.

Although Azerbaijanis do not practice time keeping and punctuality perfectly, they will expect you to do so. If you do arrive on time it is not uncommon for you to be left waiting while a previous meeting is wrapped up or a telephone conversation is taking place. You may have to wait but you will almost certainly have the meeting. So try to leave plenty of time between meetings to allow for slippage.

A shock to many visitors is how long it takes to move around the city. Baku is quite compact and the centre in particular is well suited to walking although the sidewalks, steps and pedestrian areas are not very well paved and one needs to look where you are walking. But in a car, travelling in and around Baku is an increasingly time consuming and frustrating activity. The number of SUVs, cars and buses on the city’s streets is rising at an alarming rate. The city’s streets are narrow, not well surfaced generally, and there is no provision made for off-street parking. Finding a place to park can be a real challenge. In addition, Baku is in the process of being rebuilt and construction activity is at every turn. Business visitors are advised to leave plenty of time to travel from one place to another. Baku drivers are also slightly erratic if compared with most western driving standards.

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Glass work in Khan's Palace in Sheki, Azerbaijan.

Business hours are 9:00 a.m. to 1:00 p.m. and 2:00 p.m. to 6:00 p.m. Monday to Friday. Government departments and agencies usually work Saturdays too, at least until lunch time. Shops and restaurants are generally open seven days a week.

The business community tends to work quite long and rather variable hours. Lunch can be taken as early as 12:00 pm (mainly by the oil sector) and as late as 3:00 p.m. Many managers work later than 6:00 p.m. Most Azerbaijanis eat early in the evening rather than late.

Factors and events affecting the working routine Azerbaijan is a secular state but approximately 80% of Azerbaijanis follow Islam. Muslim prayer times impinge relatively little on the typical working day. However, during the Holy month of Ramazan (which changes every year) many Azerbaijanis fast from dawn to sunset and then break their fast immediately after sunset by having a meal [Iftar]. Managers need to be aware of this as it can affect the normal working routine and heighten staff eagerness to leave the office in time to have their first food (and drink) since before dawn. Fasting is growing in popularity each year, especially amongst young adults.

A time to avoid travelling to Azerbaijan on business, or at least to check first, is during July and August since many Azerbaijani businesspeople take extended vacations to spend time with family in their holiday homes or, increasingly, abroad.

Azerbaijan has many secular and Islamic holidays and one day of mourning. The 2011 calendar is: * January 1-2 – New Year * January 20 – Martyr’s day (Day of Mourning) * March 8 – Women’s day * March 20-24 Novruz Bayram * May 9—Victory day * May 28 – Republic day * June 15—Salvation day

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* June 26 – Army day * August 30-31 – Ramazan Bayram (to be confirmed by Cabinet of Ministers) * October 18 – Independence Day * November 9 – State Flag Day * November 12 – Constitution Day * November 17 – The Day of Revival * November 5-6 – Gurban Bayram (to be confirmed by Cabinet of Ministers) * December 31 – The Solidarity Day Major holidays are December 31 to January 2 (incl.) to celebrate Solidarity of all Azerbaijanis and the international New Year, and Novruz Bayram over March 20-24 (Muslim New Year) in 2010.

In addition to these Azerbaijan has one day of mourning on January 20 in remembrance of hundreds of Azerbaijanis massacred

by Soviet troops in 1990. All businesses, shops and even TV and radio will be closed down or with sombre programming for at least the first half of the day. (Warning: try not to offend anyone by referring to this day as a holiday). The Islamic holiday of Kurban Bayram (November 16-17 in 2010) falls on different dates each year due to the lunar cycle. This Islamic festival is a 'sacrifice festival.'

Marking the end of the pilgrimage in Mecca, Saudi Arabia, it is based upon the Quranic story of Abraham's willingness to sacrifice his son for God. A day or so the festival you may see a sheep or a cow bought by families and tied up outside apartment blocks or living on balconies until the day arrives. The animal is then slaughtered and the meat distributed among the family, neighbors and the poor.

The festival is more widely celebrated in the regions than in Baku, and in the outskirts of the city rather than the city centre.

Ramazan ends with the festival known as Ramazan Bayram. Families would visit each other and children would receive presents, sweets or money.

Business communication Azerbaijan’s official language is Azerbaijani (Azeri) and all state documentation is in the Azeri language. Russian is widely known and spoken but most official meetings will be conducted in Azeri.

Many Azerbaijani businesspeople have a good command of English and the vast majority of young people speak English to some level, especially those who work in foreign companies.

In general, the knowledge of the English language is proficient.

Other international languages spoken include French, Italian and German, but more usually by those in businesses that are specifically oriented to a particular country. If you are unsure as to your counterpart's linguistic capability, it is may be worth investing in an interpreter so as not to appear to take it for granted that the person you are visiting will be able to communicate in your language or provide an interpreter. Remember to slow your speech down and to speak clearly. Always confirm meanings, conclusions and agreements.

Rather than 'get straight down to business', engage in some small talk and always wait for the other to initiate the change in topic.

At most meetings the person you are visiting will offer you tea or sometimes coffee. Often tea (Chai) will be served automatically by an assistant and delivered to the meeting table. It will usually be served in tulip shaped glasses with lemon slices and wrapped sweets or chocolates are often provided.

Many Azerbaijanis serve tea but sometimes chose not to drink theirs but are pleased if you drink yours. It is done as a courteous act of hospitality.

Sugar may not be offered as many Azerbaijanis prefer to sip their Chai and eat something sweet to accompany the drink. If sugar cubes are offered you may find your host places one in his mouth and drinks his Chai through the sugar cube. He will not expect you to do the same unless you wish to.

Business Dress Code Business dress is always conservative but varies slightly with the seasons. Men generally wear suits or jackets and ties. Similarly, women should wear smart professional outfits. In the hotter weather (and temperatures can regularly reach over 27 degrees in summer months), men usually switch to short-sleeved shirts with or without ties. Light coloured summer suits are also acceptable. The oil sector, especially foreign companies, adopts rather more informal standards.

Shorts are not advisable either at work or socially.

Outside Baku, and especially in the regions, while men’s dress code remains the same, women should wear more conservative clothing. Women are advised to refrain from high fashion and many women might find that they feel more comfortable in longer skirts or trousers. No shorts.

At the beach, normal beach wear is worn by Azerbaijanis and foreigners alike. Topless bathing is not allowed.

When visiting a mosque, bear in mind that it is a place of worship. Never enter a mosque with shoes. There is always a rack where shoes can be kept. Make sure your feet are clean and will not bring in dust or mud. Men should not wear shorts and must wear a shirt or t-shirt. Women should be covered fully, especially their hair. If you do not have a shawl or head-dress, ask an attendant, as some are usually put aside for foreign visitors.

If you are invited to someone’s home, you may find that you are offered the opportunity to take your shoes off and wear slippers.

Most Azerbaijani families always remove their outdoor shoes when entering the home.

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5* + Excelsior Hotel. Baku, Azerbaijan.

Welcome Topics of Conversation At initial meetings, it is a good idea to get to know your Azerbaijani counterpart on a personal level.

Ask about his/her family without prying. Questions about children will be welcomed. Find out about their work, role and company.

The Azerbaijanis are proud of their country and will enjoy answering questions on their culture, climatic zones (of which they have nine), picturesque countryside and their ancient history--although be sure to avoid more modern political history.

Azerbaijanis follow international current affairs and will usually be opinionated.

Topics to Avoid Avoid giving opinions over sensitive issues involving Armenia, especially the war over Nagorny Karabakh and the protracted efforts by the OSCE Minsk Group to find a solution to the conflict (which remains is a state of cease fire). Azerbaijan has had a turbulent political history which may be best left in the past. Try and avoid this subject as a whole.

Unless you know the subject well and have a good understanding of local sensitivities, you are advised to avoid discussing religion.

Islamic values of Azerbaijanis vary from person to person and one needs to know your counterparts views before discussing this topic. In general, it is wise to be careful as to how you approach any topic about Islam.

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First Name or Title?

When addressing an Azerbaijani, especially middle aged or older men, the most common method is to call a man by his first name followed by 'muallim' [pronounced mallim]. So, Emil Hasanov would be Emil Muallim. Similarly a woman's first name would be followed by 'Khanum' [pronounced ha-num]. Muallim and Khanum are Azerbaijani for ‘Teacher/Mr’. and ‘Madame/Miss/Mrs’ respectively.

In official letters men should be addressed as Janab and women as Khanum. For example, Hormetli Canab Emil Hasanov, or Hormetli Khanum Aygun Hasanova. Hormetli means ‘respected’.

Gift Giving Gift giving has no real place in business relationships or etiquette.

Relationship building and the like will usually take the form of dining or sight seeing trips rather than lavish gifts.

However, if a gift is given it will be accepted graciously. It is always a good idea to bring gifts from your own country. Small craft items are always well received.

Be aware that Azerbaijan is a Muslim country. Before giving alcohol to anyone, be 100% sure that they drink.

The only time you would need to give any great thought to gifts would be if you were invited to an Azerbaijani’s home for dinner.

Decorative items for the home such as ornaments, vases or small pictures are always acceptable. Flowers are not usually taken to a host, but can be if felt appropriate. It is best to ask a florist for advice on what is best to take. If the host has children, take some expensive sweets or biscuits. Note: Flowers must always be given in odd numbers. Azerbaijanis associate an even number of stems with death. They would buy ten lilies to lie on a grave, for example.

So, a dozen red roses given in admiration in Europe or US would need to be 9 or 11 in Azerbaijan.

Making a Deal Always come to Azerbaijan with two things clearly in mind. Firstly, your success will in most part depend on your ability to build effective personal relationships, and secondly, you will need to have well defined goal backed up with means to perform.

Business remains personal in Azerbaijan, although a more corporate culture is developing led by the foreign oil companies. But even in those companies it’s often a matter of whom, rather than more that what you know. Many smaller Azerbaijani businesses and several groups of companies are family owned and run. It is not unusual to find several relatives in one business or group of companies.

Azerbaijanis will want to do business with those they like, trust, feel comfortable with and with those who can initiate a long term relationship. If they feel you are hiding something or there is an element of suspicion about your motives, you may not get very far.

Building a relationship with your Azerbaijani counterpart[s] is therefore critical. The first meeting is often a matter of getting to know each other and introducing the subject. Once a relationship has been established you can safely move on to more detailed business matters. It may take several meetings to achieve real progress.

As well as looking to the person, Azerbaijanis are also astute businesspeople. Ensure your proposal clearly demonstrates the mutual benefit and profitability of any agreement or partnership.

It is also very important not to underestimate the business acumen and position of your counterpart. Whilst he or she may not have had (and often cannot have had) the years of experience you may possess, they will not welcome visitors suggesting how they should run their business. Remember, you may need them a lot more than they need you.

Azerbaijanis are primarily oral and visual communicators, so in addition to written statistics, projections and the like, try to present information vocally or with maps, graphs and charts.

Decision making can be slow. It is often the case that you will be directed to meet and negotiate with less senior members of staff from the outset or after an initial introduction. If this happens don’t read anything negative into it. Once it is reported to the very senior management that you are seen as trustworthy, reliable and that your proposal is financially viable, you will then move on to meet more senior members. Almost all decisions in business in Azerbaijan are made at the very highest levels of the company (or government structure).

Azerbaijan has a long history of trade dating back to the ancient times. They are canny negotiators. They will usually start off very demanding gage your response. Prior to negotiations know your target figure and work slowly towards it through meaningful concessions. When conceding, it may help to ensure that you present this as much as a favour and out of respect and a liking for your counterpart[s]. Try to concede only once you have gained agreement on a reciprocal concession on a separate or related issue.

Do not use deadlines or pressure tactics. They won’t get you very far. Indeed, you are much more likely to be the victim of such tactics. Remain calm and be patient.

It may not always be necessary to focus only on financial benefits when negotiating. It is just as useful to point to areas such as power, influence, honour, respect and other non-monetary incentives. However, profit usually overrides all at the end of the day.

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Entertaining Most business entertaining will take place in restaurants. Azerbaijanis enjoy food and the meal is a time for relaxing and engaging in some good conversation.

The protocol of Azerbaijani hospitality dictates that the host always pays for the meal. The concept of sharing a bill is completely alien to the culture. You may try and offer to pay, which may be seen as polite, but you would never be allowed to do so. The best policy is graciously to thank the host and then a few days later to invite the host to dinner at a restaurant of your choice. It may be a good idea to inform the restaurant manager that under no circumstances are they to accept payment from your guests.

Your choice of restaurant is important. Senior Azerbaijani businessmen and officials do not welcome the idea of eating somewhere that is too public. Top hotels and restaurants are usually considered fine, and many have separate dining rooms for private meetings.

Meeting purely for a drink in the evening happens only rarely.

Evening meals may be accompanied by some alcohol, depending on your dining companions’ attitude to alcohol. If they have an alcoholic drink with their meal then it will usually be wine or vodka or both. Beer is less usual. If vodka is served there may be toasts.

You will not be expected to make a toast but can do so later in the meal if you wish. Toasts are usually made for the business, family or friendship. You will not be considered anti-social if you do not down your glass of vodka in one. Taking a sensible mouthful at each toast will be acceptable. Vodka glasses are constantly refilled.

Azerbaijanis often drink fruit juice in accompaniment to the vodka.

A traditional Azerbaijani meal will comprise several courses. Salads and cheese usually start the meal, followed by various chicken, fish and lamb kebabs brought in echelons. Soup is less often served but Caspian sturgeon is popular and traditionally eaten with a sauce made from pomegranate (which has a strong flavour). Copious amounts of bread will also be served.

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Azerbaijanis smoke during meals and will often take breaks between courses to have a cigarette and a few drinks before moving onto the next. Tea or coffee is often served at the end of a meal, usually with something sweet.

Conducting yourself in public When greeting someone, shake hands firmly, but note that Azerbaijanis will resist shaking hands while standing over the threshold of a door. This can lead to some confusion on arrival unless you are aware of the tradition. When departing, it is generally customary to again shake hands.

Friends and relations will greet each other with either one or two kisses on the cheek, even men. It is better to avoid kisses as part of any greeting or farewell until you are familiar with the custom.

Woman can be quite offended if you attempt to kiss them on the cheek in situations where in other cultures it might be acceptable.

When entering a room, if you are not automatically met by someone, greet the most elderly or most senior first. At social occasions, greet the person closest to you, then work your way around the room or table anti-clockwise. If you want to adopt local custom, greet people with the Islamic greeting of 'Assalamu alaykum' [peace be upon you].

Many Azerbaijanis smoke. There are no legal controls on where people can smoke but it is generally accepted that one does not smoke in confined places such as lifts and buses. Many taxi drivers smoke but will sometimes ask if passengers mind. There are smoking sections in all restaurants or the restaurant will probably be open for smoking at any table. Azerbaijanis do not usually wait for others to finish eating before they start to smoke.

When seated opposite someone, try not to sit with your legs apart. Keep them together or cross your legs. Also try not to allow your feet to touch someone else’s. If the feet of two Azerbaijanis touch you will see the person whose feet touched the other briefly touch the hand of the other person. This is a customary way of a

Useful hints reassuring demonstration that you wish no ill-intent to the other person who you just ‘kicked’.

Holding hands with someone of the opposite sex is acceptable in Baku and beaches but less so in rural areas. Kissing (other than as a greeting) in public should be avoided.

To wave down a taxi or bus, stretch out your right arm and move your wrist inwards repeatedly. To avoid frustration you should note that taxis usually have their taxi signs illuminated whether they are carrying passengers or not.

Queuing in Azerbaijan is not practiced widely. Banks and some service sector businesses try to control clients but it is far from what most business people from Europe or US are used to. It is not uncommon for people to jump queues or even go straight to the front. It is best to be patient. If frustration gets the better of you, politely point out you were in the line before them although most of the time this will make little difference.

Language Policy All state bodies, local authorities, state agencies, political parties, non-governmental organizations (funds and public associations), trade unions, and legal entities (including their representative or branch offices) are required to use Azerbaijani in their official interactions and transactions. Any notarization, legalization, registration or other forms of documentation in a foreign language require translation into Azerbaijani with subsequent notarization of the translation.

Seals and stamps of entities operating in the Republic of Azerbaijan must be in Azerbaijani. Letterheads, signage, announcements, advertisements, price lists, price tags, labels, and certifications and instructions applying to goods produced in Azerbaijan (and all other visual information) must be in Azerbaijani and, additionally, may be in other languages where necessary or desirable. For services rendered to foreigners, a foreign language may be used together with Azerbaijani.

Weights & measures Azerbaijan uses metric system Time Greenwich + 4 hour Language The state language is Azerbaijani (Azeri), besides; the overwhelming majority of the population speak fluent Russian, many of them understand and speak English, Turkish, Persian, Georgian and other languages. In the hotels, bars and company offices, English is prevalent.

Visas The duration of a visa can be either short-term (from 3 days to 3 month) or long-term (up to one year) and are categorized as either business or tourist visas. They are registered through the Ministry of Foreign Affairs.

Currency The national currency is Azerbaijani manat (AZN). 1US$ = approximately 0,80 AZN in 2009. Exchange of any currency is carried out in banks or numerous bureau de change.

Banks usually work from 10.00 to 17.00-18.00.

Credit Cards In hotels, big trade centres and supermarkets, international credit cards are accepted. In small stores and restaurants cash is paid (as a rule in local currency).

Communication The telephone communication system is effective and mobile coverage is extensive. Hotels have direct international dialing codes in addition to related business facilities; fax, computers, internet etc. Internet services are also rendered in numerous internet cafes in Baku and main cities. Public phones are rare.

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Mass Media Along with Azerbaijani newspapers and magazines local newspapers in English and Russian are available. Foreign English press is available in large hotels and by subscription.

Electricity The power standard is 220/240 V, 50 Hz. Water Tap water is safe for drinking, but in the hotels and restaurants spring water is mainly used in plastic bottles or boiled water.

Medical Service The first medical aid is usually free. There are also private medical clinics and services, doctors that can speak foreign languages.

A wide range of medicines are available in pharmacies, some of which are open 24 hours a day.

Transport Public transport in Baku is provided by the Baku underground system and buses. One can use taxis round the clock. It is better to negotiate a price in advance.

Customs Rules The import quota allows bringing three litres of spirits and three boxes of cigarettes. Technical passport is necessary for the owner of imported transport mean. Export of black caviar must not exceed 300 gr. Goods and objects of art with cultural and historical value should be accompanied by a permit from according authority Work Hours The weekend is usually considered to be Saturday and Sunday (mainly for civil servants), though many stores and supermarkets work every day. The beginning of the workday is at 8h00-9h00 and trade closes between 21h00-23h00. Restaurants and bars close considerably late.

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Trade deals It is allowed to bargain about prices in the markets; it is a usual phenomenon. The salesperson may compromise in certain cases.

Living cost Azerbaijan has become a highly popular destination, and thousands of foreigners have settled happily, enjoying the country’s combination of high living standards and low living costs.

Although in most respects life in Azerbaijan is approaching Western standards of living, the cost of living remains substantially lower than in Western Europe.

Shopping Retail in Baku has undergone a revolution in the past decade with many big shopping centres now located in the different parts of the city. Concepts of shopping and customer service are now comparable to those of Western countries.

Sport In keeping with its reputation as a successful sporting nation, Republic of Azerbaijan provides a wealth of sporting opportunities.

The most popular sports are football (soccer), wrestling, boxing, martial arts, volleyball etc.

Recently a significant number of Olympic sport centres, swimming pools and sport schools for children have been established and a number of Olympic sport centres are under construction.

Azerbaijani sportsmen won 1 gold, 2 silver and 4 bronze medals at the Beijing 2008 Olympic Games.

Azerbaijan's famous pomegranate gardens.

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Ministries, State Committees and Agencies Office of the President of the Republic of Azerbaijan

Cabinet of Ministers of the Republic of Azerbaijan Parliament of the Republic of Azerbaijan (Milli Majlis) Ministry of Economic Development

Ministry of Culture and Tourism Ministry of Internal Affairs Ministry of Foreign Affairs, Consular Department

19, Istiglaliyyat Street, Baku, AZ1066

68, Lermontov Street, Baku, AZ1066 1, Parlament Avenue, Baku, AZ1152 40, Uzeir Hajibeyov, Baku, AZ1066

“The Government House”, 3 floor, 40, U.Hajibayov Street,Baku AZ1000 7, Azerbaijan Avenue, Baku, AZ1005 4, Sh.Gurbanov Street, Baku, AZ1009

Ministry of Taxes

16, Landau Street, Baku, AZ1073

Ministry of Youth and Sport

4, Olimpiya Street, Baku, AZ1072

Ministry of Health

Ministry of Finance

Ministry of National Security Ministry of Transport

Ministry of Agriculture Ministry of Defence Ministry of Defence Industry

4, Kichik Daniz Street, Baku, AZ1014

83, Samed Vurgun Street Baku, AZ1022

2, Parlament Avenue, Baku, AZ1006 Block 1054, Tbilisi Avenue, Baku, AZ1000

“The Government House”, 40, U.Hajibayov Street, Baku, AZ1016 3, Parlament Avenue, Baku, AZ1073 40, Matbuat avenue, Baku

Tel.: (+99412) 4921300; 4924053; Fax: (+99412) 4926859; 4920625 E-mail: office@apparat.gov.az; Web-site: www.president.gov.az Tel.: (+99412) 4926623; 4927554; Fax: (+99412) 4989786; E-mail: nk@cabmin.baku.az; Web-site: www.cabmin.gov.az Tel.: (+99412) 4926675; 4989748; Fax: (+99412) 49897722 E-mail: azmm@meclis.gov.az; Web-site: www.meclis.gov.az Tel.: (+99412) 498-68-47; 493-88-67; Fax: (+99412) 492-58-95 E-mail: office@economy.gov.az; Web-site: www.economy.gov.az Tel.: (+99412) 4934398; 4920592; Fax: (+99412) 4935605 E-mail: mugam@culture.gov.az; Web-site: www.mct.gov.az Tel.: (+99412) 4909222; Fax: (+99412) 4924590 E-mail: info@mia.gov.az; Web-site: www.mia.gov.az Tel.: (+99412) 4929692; 4923401; Fax: (+99412) 4988480;4927251 E-mail: secretariat@mfa.gov.az; Web-site: www.mfa.gov.az Tel.: (+99412) 4929692 (ext. 2037; 2041); (+99412) 4038970 Fax: (+99412) 4038971 Email: info@taxes.gov.az; Web-site: www.taxes.gov.az Tel.: (+99412) 4656438; 4656442; Fax : (+99412) 4656438 E-mail: myst@myst.gov.az; Web-site: www.mys.gov.az Tel.: (+99412) 4985094; Fax : (+99412) 4930695 E-mail: health@health.gov.az; Web-site: www.health.gov.az www.sehiyye.gov.az Tel: (+99412) 4938103; Fax : (+99412) 4930562 E-mail: info@maliyye.gov.az; Web-site: www.maliyye.gov.az www.finance.gov.az Tel: (+99412) 4937622; Fax : (+99412) 4937622 E-mail: cpr@mns.gov.az ; Web-site: www.mns.gov.az Tel.: (+99412) 4309941; Fax : (+99412) 4309942 E-mail: office@mintrans.az common.dept@mintrans.az; Web-site: www.mintrans.az Tel.: (+99412) 4939331; Fax : (+99412) 4933745 E-mail: aqry@azerin.com; Web-site: www.agro.gov.az Tel.: (+99412) 4394189; 4393108; Fax : (+99412) 4394189 E-mail: dmicpfp@asumo.baku.az Tel.: (+99412) 5106347; 4392453 E-mail: info@mdi.gov.az; Web-site: www.mdi.gov.az continued on the next page

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Ministries, State Committees and Agencies, continued from the previous page.

Ministry of Emergency Situations

Ministry of Ecology and Natural Resources Ministry of Communications and Information Technologies Ministry of Industry and Energy

57,Tbilisi Avenue, Baku, AZ1122

100A, Bahram Agayev Street, Baku, AZ1073 33, Zarifa Aliyeva Street, Baku, AZ1000

“The Government House�, 40, U.Hajibayov str., Baku, AZ1000

Ministry of Justice, Department on State Registration of Legal Entities Ministry of Education

1, Inshaatchylar Avenue, Baku, AZ1073

Ministry of Labour and Social Protection of Population State Customs Committee

85, Salatin Asgerova Street, Baku AZ1009

State Statistical Committee

49, Khatai Avenue, Baku, AZ1008

2, Inshaatchilar Avenue, Baku, AZ1073

Inshaatchilar Avenue, Baku, AZ1136

The State Committee on Property Issues

20, Y. Safarov Street, Baku AZ1025

State Committee for Securities of the Republic of Azerbaijan State Committee for work with Diaspora

19, Bul-Bul Avenue, Baku, AZ1000

State Committee for Town Planning and Architecture National Olympic Committee State Committee of Land and Cartography Supreme Certifying Committee under the President of the Republic of Azerbaijan

24, Samed Vurgun Street, Baku, AZ1000 67, Fizuli Street Baku, AZ1014

Olimpiya Street, 5, Baku, AZ1072 93A, Shafayat Mekhtiyev Street, Baku, AZ1141 9, Fikret Amirov Street, Baku, AZ1009

Tel.: (+99412) 5120061; 5120066; 5120026; Fax : (+99412) 5120046 Web-site: www.fhn.gov.az Tel.: (+99412) 4925907; Fax : (+99412) 4380481 E-mail: mineco@box.az; Web-site: www.eco.gov.az Tel.: (+99412) 4985838; Fax : (+99412) 4987912 E-mail: mincom@mincom.gov.az; Web-site: www.mincom.gov.az Tel.: (+9941) 4987856; 5981675; 5980384; Fax : (+99412) 5981678 E-mail: pressa@mie.gov.az; Web-site: www.mie.gov.az Tel.: (+99412) 4300977; 4300116; Fax : (+99412) 4300981 E-mail: contact@justice.gov.az; Web-site: www.justice.gov.az Tel.: (+99412) 4301156; Fax : (+99412) 4976367 Tel.: (+99412) 4963515; 4963311; Fax : (+99412) 4963483 E-mail: office@min.edu.az ; Web-site: www.min.edu.az Tel.: (+99412) 5965034;5964407; Fax : (+99412) 5965034 E-mail: mlspp@gov.az; Web-site: www.mlspp.gov.az Tel.: (+99412) 4388080; 4385109; Fax : (+99412) 4981836 E-mail: Externall@az-customs.net; Web-site: www.az-customs.net Tel.: (+99412) 4386498; 4389376; Fax : (+99412) 4382442 E-mail: sc@azstat.org; Web-site: www.azstat.org Tel.: (+99412) 4902408; Fax : (+99412) 4903359 E-mail: office@stateproperty.gov.az; Web-site: www.stateproperty.gov.az Tel.: (+99412) 4935058; Fax : (+99412) 4985058 E-mail: info@scs.gov.az; Web-site: www.scs.gov.az Tel.: (+99412) 4931054; 4932869; Fax : (+99412) 4986187 E-mail: info@diaspora.gov.az; Web-site: www.diaspora.az Tel.: (+99412) 4933467; Fax : (+99412) 4981414 E-mail: arxkom@mail.ru; arxkominfo@mail.az; Web-site: www.arxkom.gov.az Tel.: (+99412) 4901323; Fax : (+99412) 4904225 E-mail: noc-aze@noc-aze.org; Web-site: www.noc-aze.org Tel.: (+99412) 4328959; Fax : (+99412) 4328959 E-mail: press@dtxk.gov.az; Web-site: www.dtxk.gov.az Tel.: (+99412) 4988572; 4988422; Fax : (+99412) 4989637 E-mail: info@ak.ab.az continued on the next page

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Ministries, State Committees and Agencies, continued from the previous page.

State Committee for Refugee and Displaced Persons Problems

57, Tbilisi Avenue, Baku, AZ1122

State Committee for the Work with Religious Associations Central Election Commission State Committee on Family, Women and Children Affairs State Agency on Standardization, Metrology and Patents of the Republic of Azerbaijan Chamber of Accounts of the Republic of Azerbaijan State Oil Fund of the Republic of Azerbaijan

12, Akhmad Javad Street, Baku, AZ1001 3, Rasul Rza Street, Baku AZ1000 40, U.Hajibayov str., Baku, AZ1000 124, Mardanov Gardashlari Street, Baku, AZ1147

“The Government House”, 6th floor, 40, U.Hajibayov Street, Baku AZ1000 20, Bul-Bul Avenue, Baku, AZ1014

State Oil Company of the Republic of Azerbaijan(SOCAR) Azerbaijan Investment Company National Fund for Entrepreneurship Support State service for antimonopoly policy and protection of consumers’ rights

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73, Neftchilar Avenue, Baku, AZ1000 11, Hasan Abdullayev str., Baku, Azerbaijan 172, Sharifzade str., Baku, Azerbaijan 88A, H. Zardabi avenue, Baku, Azerbaijan

Tel/fax: (99412) 430 09 21, 430 09 25 E-mail: info@refugee.gov.az; Web-site: www.refugees-idps-committee.gov.az Tel.: (+99412) 4926747; Fax : (+99412) 4929333 E-mail: addk@azdata.net; Web-site: www.addk.net Tel/Fax: (+99412) 4936008 E-mail: office@cec.gov.az; Web-site: www.cec.gov.az Tel.: (+99412) 4980092; Fax : (+99412) 4935872 E-mail: office@scfwca.gov.az www.scfwca.gov.az Tel.: (+99412) 4499959; 4498499; 4498491; Fax : (+99412) 4405224 E-mail: azs@azstand.gov.az; Web-site: www.azstand.gov.az Tel.: (+99412) 4936920; Fax : (+99412) 4932025 E-mail: office@ach.gov.az; Web-site: www.ach.gov.az Tel.: (+99412) 4987753 (ext. 132); Fax : (+99412) 4987653 (ext. 135) E-mail: office@oilfund.az; Web-site: www.oilfund.az Tel.: (+99412) 492 17 89; Fax : (+99412) 497 11 67 E-mail: info@socar.az; Web-site: www.socar.az Tel.: (+99412) 437 29 03/09 E-mail: aisayev@aic.az; www.aic.az Tel: (+994 12) 434-96-22; Fax: (+994 12) 434-74-29 E-mail: info@anfes.gov.az www.anfes.gov.az Tel: (+994 12) 498-15-01; (+994 12) 498-15-04; Fax : (+994 12) 497-24-08 E-mail: office@consumer.gov.az www.consumer.gov.az

Embassies of the Republic of Azerbaijan abroad Embassy of the Republic of Azerbaijan in Austria (also accredited in the Republic of Slovakia, Slovenia, OSCE, UNOV, UNIDO, IAEA, CTBTO) Embassy of the Republic of Azerbaijan in Belarus

Embassy of the Republic of Azerbaijan in the Kingdom of Belgium (also accredited in Luxemburg and EUOB) Mission to NATO (also accredited in OPCW)

Embassy of the Republic of Azerbaijan in Republic of Bulgaria

Embassy of the Republic of Azerbaijan in Canada (also accredited in International Civil Aviation Organization) Embassy of the Republic of Azerbaijan in the People’s Republic of China (also accredited in Vietnam, Mongolia and Democratic People’s Republic of Korea) Embassy of the Republic of Azerbaijan in Czech Republic

Embassy of the Republic of Azerbaijan in Cuba

Hugelgasse 2, A-1130 Vienna

Minsk-220029, Vostochnaya str. 133/167

Bruxelles, 464, Av. Moliere, 1050 BXL

Brussels, NATO HQ, Bd. Leopold 3

Sofiya 1000, Vasil Levski 79

275 Slater Street, suite 904, Ottawa, Ontario, K1P 5H9

Beijing, 100600, Qijiayuan Diplomatic Compound, Villa B-3

Na Míánce 32, Praha 6 - Hanspaulka 160 00

Havana, 5 avenida 9608

Embassy of the Republic of Azerbaijan in Arab Republic of Egypt (also accredited in Socialist People’s Libyan Arab Jamahiriya, Permanent Observer to the League of Arab States) Embassy of the Republic of Azerbaijan in France

Cairo, Maadi Sarayat, street 10, Villa 16/24

Mission to UNESCO

1, rue Miollis, 75732 Paris Cedex 15, France

Permanent Mission to the Council of Europe

Paris,78, Avenue d ‘Iena, 75016

Strasbourg, 2, Rue Westercamp, 67000

Tel.: (431) 403 13 22; Fax: (431) 403 13 23 E-mail: office@azembvienna.at; vienna@mission.mfa.gov.az Web-site: www.azembvienna.at Tel: (375 17) 293 32 99 / 33 99/ /34 99 293 37 65 (consular section); Fax: (375 17) 293 34 99 E-mail: minsk@mission.mfa.gov.az Tel.: (322) 345 26 60; 735 98 80 (consular section) Fax: (322) 345 91 58; 735 92 70 (consular section) E-mail: office@azembassy.be; Web-site: www.azembassy.be Tel.: +32 (2) 707 27 97/99; Fax: +32 (2) 707 27 98 E-mail: nato@mission.mfa.gov.az; azerbaijan@hq.nato.int Web-site: www.nato.int/pfp/azerbaijan/homepage.htm Tel: +359 (2) 933 90 70; 817 00 74 (consular section) Fax: +359 (2) 933 90 77; 817 00 77 (consular section) E-mail: sefirlik@azerembsof.com; consular@azerembsof.com Web-site: www.azerembsof.com Tel: +1 (613) 288 04 97; Fax: +1 (613) 230 80 89 E-mail: azerbaijan@azembassy.ca Web-site: www.azembassy.ca Tel.: (8610) 65 32 46 14/98; Fax: (8610) 65 32 46 15 E-mail: mailbox@azerbembassy.org.cn Web-site: www.azerbembassy.org.cn Tel: + 420 246032422; Fax: + 420 246032423 Consular section: Tel: + 420 24603242; Fax: + 420 246032425 E-mail: prague@mission.mfa.gov.az Web-site: www.azembassyprague.az Tel: (537) 207 92 80 E-mail: ilhamaga2004@yahoo.co.uk Tel.: (202) 358 37 90/83/61 Fax: (202) 358 37 25 E-mail: azsefqahira@link.net Web-site: www.azembassy.org.eg Tel.: (331) 44 18 60 20; 44 18 01 75 (consular section) Fax: (331) 44 18 60 25 E-mail: paris@mission.mfa.gov.az Web-site: www.amb-azerbaidjan.fr Tel: +33 (1) 45 68 28 77/78/34 00; Fax: +33 (1) 43 06 05 47 E-mail: dl.azerbaidjan@unesco.org Tel.: +33 (390) 22 20 90; Fax: +33 (390) 22 20 99 E-mail: azrepcoe@wanadoo.fr Web-site: www.azmissioncoe.org continued on the next page

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Embassies of the Republic of Azerbaijan abroad, continued from the previous page.

Embassy of the Republic of Azerbaijan in Georgia

Tbilisi, Kipshidze str. Bloc 2/1

Embassy of the Republic of Azerbaijan in Germany Consular section Embassy of the Republic of Azerbaijan in Greece

Berlin, 14193, Hubertusallee 43 Kommandanten Street 80, Berlin 10, Skoufa Street, 10673 Kolonaki, Athens

Consular section Embassy of the Republic of Azerbaijan in Hungary

Embassy of the Republic of Azerbaijan in India (also accredited in Nepal Kingdom, Bangladesh, Sri Lanka and Maldives) Embassy of the Republic of Azerbaijan in Republic of Indonesia (also accredited in Philippines) Embassy of the Republic of Azerbaijan in Islamic Republic of Iran (also accredited in ECO) Consulate General in Tabriz

23, Vasilissis Sofias Ave., 10674, Athens Budapest, H-1067, Eotvos utca 28

New Delhi, Vasant Marg, Vasant Vihar E-70

Jl. Mas Putih Blok D Persil 29, Grogol Utara, Kebayoran Lama, Jakarta Selatan 12210 Tehran, Shahid Levasani, Shahid Salehi S. Vatanpur street 30 Tabriz, Kamarbandi khiyabani, Shahid Ayatullahi Str.

Embassy of the Republic of Azerbaijan in Italy (also accredited in San Marino, Malta, as well as to UN FAO, IFAD and WFP) Embassy of the Republic of Azerbaijan in Japan

Viale Regina Margherita 1, Roma 00198

Tokio, Meguro-ku, Higashigaoka 1-19-15

Embassy of the Republic of Azerbaijan in Jordan

Abdoun, Muhammad Ali Bdair str.

Embassy of the Republic of Azerbaijan in Kazakhstan

Diplomatic city, Residence C-14, Astana

Consulate General in Aktau Embassy of the Republic of Azerbaijan in Kyrgyzstan Embassy of the Republic of Azerbaijan in Korea

Aktau 4th microdistric flat 12 Bishkek, Shukurov str. 41 3rd Floor, Annex Building, Hannam Tower, 730 Hannam-dong, Yongsan-gu, Seoul 140-893

Tel.: (99532) 25 26 39; 25 35 26/27; 25 00 14 (consular section) Fax: (99532) 25 00 13 E-mail: azembassy@internet.ge; Web-site: www.azembassy.ge Tel.: 49( 30) 219 16 13; 206 48 063 (consular section) Fax: 49(30) 219 16Â 152; 219 16Â 151 (consular section) E-mail: office@azembassy.de; Web-site: www.azembassy.de Tel: (30210) 363 27 21; 724 82 36 (consular section) Fax: (30210) 363 90 87; 724 82 37 (consular section) E-mail: embassy@azembassy.gr; www.azembassy.gr Tel.: +36 (1) 374 60 70/ 71; Fax: +36 (1) 302 35 35 E-mail: bakybudapest@azerembassy.hu Web-site: www.azerembassy.hu Tel.: +91 (11) 26 15 22 28 Fax: +91 (11) 26 15 22 27 E-mail: newdelhi@mission.mfa.gov.az Tel: +62 (21) 549 19 39; Fax: +62 (21) 549 17 45 E-mail: azerbembjkt@lu.net.id Web-site: www.azembassy.or.id Tel.: +98 (21) 221 25 54; 221 51 91; Fax: +98 (21) 221 75 04 E-mail: azaremb@neda.net; Web-site: www.azembassy.ir Tel: +98 (411) 335 99 01/ 02/ 03; Fax: +98 (411) 335 99 04 E-mail: office@azconsulatetebriz.ir Tel.: +39 (06) 85 30 55 57; Fax: +39 (06) 85 83 14 48 E-mail: rome@mission.mfa.gov.az Web-site: www.azembassy.it Tel: +81 (3) 54 86 47 44; Fax: +81 (3) 54 86 73 74 E-mail: info@azerbembassy.jp Tel: +9626 593 55 25/21 23; Fax: +9626 593 28 26 E-mail: amman@mission.mfa.gov.az Web-site: www.azembassyjo.org Tel.: (73172) 24 15 81/10 97; Fax: (73172) 24 15 32 E-mail: astana@mission.mfa.gov.az Web-site: www.azembassy.kz Tel +7 7292 33 67 07; Fax +7 7292 33 67 06 E-mail aktau@mission.mfa.gov.az; azconsul.aktau@gmail.com Tel: (996312) 51 07 70; Fax:(996312) 51 31 72 E-mail:bishkek@mission.mfa.az Tel: + 822 797 1765, 797 1766; Fax: + 822 792 1767 E-mail: seoul@mission.mfa.gov.az Web-site: www.azembassy.co.kr continued on the next page

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Embassies of the Republic of Azerbaijan abroad, continued from the previous page.

Embassy of the Republic of Azerbaijan in Kuwait

Embassy of the Republic of Azerbaijan in Republic of Latvia (also accredited in Estonia) Embassy of the Republic of Azerbaijan in Libya Honourable Consulate of the Republic of Azerbaijan in the Republic of Lebanon Embassy of the Republic of Azerbaijan in Lithuania Embassy of the Republic of Azerbaijan in Malaysia Embassy of the Republic of Azerbaijan in Mexico Embassy of the Republic of Azerbaijan in Moldova Embassy of the Republic of Azerbaijan in Morocco (also accredited in Tunis, Mauritania and Senegal) Embassy of the Republic of Azerbaijan in Netherlands (also accredited in Organization for the Prohibition of Chemical Weapons) Embassy of the Republic of Azerbaijan in Islamic Republic of Pakistan (also accredited in Afghanistan) Embassy of the Republic of Azerbaijan in Poland

Embassy of the Republic of Azerbaijan in Qatar Embassy of the Republic of Azerbaijan in Romania

Embassy of the Republic of Azerbaijan in Russian Federation

Al-Kuwait, Al-Yarmuk Str. 1, House 15

3 Raina Bulvaris, Riga, LV-1050 Tripoli, Sugul Juma, Tarig Akada,Qarib Min Mujamaa Sihhi Arada Beirut, Jdeidel el Mein, Bourj Hammoud, Ghossoub Center, Area 7, Str. 2, Bld. 120 Olimpieciu 5-7, Vilnius 50450, Wisma Chinese Chamber, Jalal Ampang 258

Mexico, D.F., Bosques de dos Sauces 76 Kishineu, MD-2004,Stefan çel Mare str. 127

Rabat, Aqdal region, Abu Hanifa Str. 3

Laan Copes van Cattenburch 127, 2585 EZ, The Hague

Islamabad, Ataturk Avenue, G-6/3, Str. 87, H 14

Zwyciencow 12, 03-941 Warszawa

Doha West Bay-Dafna, str. 66, Saba 41 P.O. Box 23900 Bucharest, Grigore Gafencu 10, Sector 1

125009, Leontiyevskiy pereulok 16, Moscow

Tel.: +965 535 52 47; Fax: +965 535 52 46 E-mail: kuwait@mission.mfa.gov.az Web-site: www.azerembassy-kuwait.org Tel.: (371) 714 28 89/90/91/92/93/94; Fax: (371) 714 28 96 E-mail: riga@azembassy.lv; Web-site: www.azembassy.lv Tel: (21821) 350 34 91; Fax: (21821) 350 34 91 E-mail: azer_ly@hotmail.com Tel.: +961 (1) 48 20 00; 49 29 90 Fax: +961 (1) 49 86 30 E-mail: freka@dm.net.lb Tel: (370) 5219 00 42; Fax: (370) 5219 56 01/02 E-mail: info@azembassy.lt Tel: (603) 4252 68 00/48 00; Fax: (603) 4257 18 00 E-mail: azembkl@streamyx.com Web-site: www.azembassy.com.my Tel: (5255) 5596 99 00; Fax: (5255) 5596 26 13 E-mail: imukhtarov@yahoo.com; Web:www.azembassy.org.mx Tel.: (37322) 23 22 77; Fax: (37322) 22 75 58 E-mail: chisinau@mission.mfa.gov.az Web-site: www.azembassy.md Tel: (212 37) 67 19 15; (212 37) 67 19 22 Fax: (212 37) 67 19 18; 67 20 73; E-mail: azembma@menara.ma Tel: +3170 3538205 Fax: +3170 3538207 E-mail: azembassy.netherlands@yahoo.com Tel.: (9251) 282 93 45; 282 34 55 Fax: (9251) 282 08 98; 282 91 65 (consular section) E-mail: islamabad@mission.mfa.gov.az Web-site: www.azembassy.com.pk Tel.: +48 (22) 616 21 88; 617 67 28 Fax: +48 (22) 616 19 49 E-mail: info@azer-embassy.pl; Web-site: www.azer-embassy.pl Tel: (0974) 493 24 50ñ Fax: (0974) 493 17 55 E-mail: azembassy@qatar.com.qa Tel.: +40 (21) 233 24 66/ 84; (788) 43 25 45/ 46; Fax: +40 (21) 233 24 65 E-mail: azsefroman@azembassy.ro Web-site: www.azembassy.ro Tel.: (7495) 202 46 15 ; 629 45 83 (consular section) 629 27 91 (press service); Fax: (7495) 202 50 72 E-mail: azerirus@cnt.ru; Web-site: www.azembassy.msk.ru continued on the next page

Doing business in Azerbaijan | useful contacts

143

Embassies of the Republic of Azerbaijan abroad, continued from the previous page.

Consulate General in St. Petersburg

St. Petersburg, Ulitsa Marata 73

Embassy of the Republic of Azerbaijan in the Kingdom of Saudi Arabia (also accredited in Bahrain, Oman and Organization of Islamic Conference) Office of the Embassy in Jeddah Embassy of the Republic of Azerbaijan in Kingdom of Spain (also accredited in Andorra and World Tourism Organization) Embassy of the Republic of Azerbaijan in Sweden Embassy of the Republic of Azerbaijan in Switzerland (also accredited in Holy See and Liechtenstein) Permanent Mission to the UN Office in Geneva and other International Organizations at Geneva

Al Worood Quarter, Amir Feysal Ibn Saad bin Abdurahman 59, 94005, Er-Riad Al-Horma D-1 Iskanderiya str.2474,apt.10

Calle Ronada de Avutarda 38, 28043 Madrid

Stockholm Karlavagen 60 Dalmaziquai 27, CH 3005 Bern

67, Rue de Lausanne, CH-1202, Geneva, Suisse

Embassy of the Republic of Azerbaijan in Tajikistan

Parkharskaya str. 1, Dushanbe

Embassy of the Republic of Azerbaijan in Turkey (also accredited in Macedonia)

Ankara, Diplomatic Site, Baku Sokak. 1, Oran

Consulate General in Istanbul (also accredited to BSEC) Consulate General in Gars Embassy of the Republic of Azerbaijan in Turkmenistan

Istanbul, Sumbul Sokak 17, Levent 1

Sukapi mahallesi, Eski Erzrum caddesi, Dostluq sitesi N 123 Ashgabat, 2062, Prosvesheniye str. 44

Embassy of the Republic of Azerbaijan in Ukraine

Glubochiska 24, Kiev 04050

Embassy of The Republic of Azerbaijan in United Arab Emirates

Abu Dhabi, Al-Bateen Area, Villa Sector W/16, Plot N-297, P.O. Box 45766

Consulate in Dubai

P.O Box 186160 Hor-Al Anz Alkhali bldg

Tel: +7 (812) 571 29 44, 571 28 45; Fax: +7 (812) 571 29 45 E-mail: azconsul@mail.wplus.net Tel.: +966 (1) 419 23 82 Fax: +966 (1) 419 22 60 E-mail: azembassy@awalnet.net.sa Web-site: www.azembriyadh.org.

Tel/Fax: (96026) 644 41 93 Tel.: (3491) 759 60 10; Fax: (3491) 759 70 56 E-mail: info@azembajada.es Web-site: www.azembajada.es Tel:(468) 411 24 55; Fax:(468) 411 24 58 E-mail:azerembassy@gmail.com Tel.: +41 (22) 350 50 40; Fax: +41 (22) 350 50 41 E-mail: bern@mission.mfa.gov.az Web-site: www.azembassy.ch Tel.: +41 (22) 901 18 15/21; Fax: +41 (22) 901 18 44 E-mail: geneva@mission.mfa.gov.az Web-site: www.azmission.ch Tel: (992 37) 227 11 90/91; 227 11 92 (consular section) Fax: (992 37) 227 66 51 E-mail: dushanbe@mission.mfa.gov.az Tel.: +90 (312) 491 16 81/ 82/ 83; Fax: +90 (312) 492 04 30 E-mail: ankara@mission.mfa.gov.az Web-site: www.azembassy.org.tr Tel.: +90 (212) 325 80 42/ 45; Fax: +90 (212) 284 95 79 E-mail: azkonsul@kablonet.com.tr Web-site: www.azconsulateistanbul.org.tr Tel.: +90 (474) 223 64 75; 223 13 61; Fax: +90 (474) 223 87 41 E-mail: azconsulatekars@ttnet.net.tr Tel: +993 (12) 36 46 08/09; Fax: +993 (12) 36 46 10 E-mail: azsefir_ashg@online.tm Web-site: www.azembassyashg.com Tel.: (38044) 484 69 39/40/47; Fax: (38044) 484 69 46 E-mail: embass@faust.kiev.ua Web-site: www.azembassy.org.ua Tel.: +971 (2) 666 28 48; Fax: +971 (2) 666 31 50 666 79 83 (consular section) E-mail: azembasy@emirates.net.ae Web-site: www.azembassyuae.org Tel+9714 261 45 96; Fax+9714 266 78 30 E-mail azconsul@eim.ae continued on the next page

144

useful contacts | Doing business in Azerbaijan

Embassies of the Republic of Azerbaijan abroad, continued from the previous page.

Embassy of the Republic of Azerbaijan in UK (also accredited in Ireland), Embassy of the Republic of Azerbaijan in USA (also accredited in Mexico and Organization of American States) Consulate General in Los Angeles

4 Kensington Court, London W8 5DL

2741 34th Str., N.W.., Washington, D.C, 20008, USA

11766 Wilshire Blvd., uite#1410, Los Angeles, CA 90025

Permanent Mission at the UN, New York (also accredited in Cuba)

866 UN Plaza, Suite 560, New-York, 10017

Embassy of the Republic of Azerbaijan in Uzbekistan

Tashkent, Shark Tongi 25

Tel.: (44207) 938 34 12; Fax: (44207) 937 17 83 E-mail: london@mission.mfa.gov.az Web-site: www.azembassy.org.uk Tel.: +1 (202) 337 35 00; 337 59 12 (consular section) Fax: +1 (202) 337 59 11; 337 59 13 (consular section) E-mail: azerbaijan@azembassy.us Web-site: www.azembassy.us Tel: 1 310 444 9101; Fax: 1 310 477 4860 E-mail: info@azconsulatela.org office@azconsulatela.org consul@azconsulatela.org Web-site: www.azconsulatela.org Tel.: +1 (212) 371 25 59; 371 28 32, 371 27 21 Fax: +1 (212) 371 27 84; 371 26 72 E-mail: newyork@mission.mfa.gov.az Web-site: www.un.int/azerbaijan Tel.: +998 (71) 173 61 67; Fax: +998 (71) 173 26 58 E-mail: sefir@tsk.sarkor.uz; www.azembassy.uz

Doing business in Azerbaijan | useful contacts

145

Hire and rental of cars AVIS Rent a Car Set-Auto Ltd. “Ayla� Rent a Car

528A, H.Javid Avenue, Baku, AZ1073 3, F.Bayramov Street, Khatai district, Baku AZ1000

STI Azerbaijan

A.Aliyev Street, 7/6 Baku AZ1005

HRG Azerbaijan

34, Khagani Street, Baku, AZ1000

Tel.: (99412) 4975455; 4975222 Fax: (99412) 4975553 office@avis.az; info@avis.az; www.avis.az Tel./Fax: (99412) 4968462; 4901497 4901793 info@ayla.az; www.ayla.az Tel.: (+99412) 4372685 Fax: (+99412) 4373513 sti@sti.az; www.sti.az Tel.: (99412) 4934300; 4986500 Fax: (99412) 4937253 aittravel@aittravel.com; www.aittravel.com

Hotels Park Hyatt Baku

1033, Izmir Street, Baku, AZ1065,

Grand Hotel Europe Baku

1025/30, Tbilisi Avenue, Baku, AZ1078

Radisson SAS

ISR Plaza, 340, Nizami Street, Baku, AZ1000

Park Inn Azerbaijan

1, Azadlig Avenue, Baku AZ1000

Excelsior Hotel Baku

The Crown Hotel

2, Heydar Aliyev Avenue, Baku, AZ1154 7, Neftchi Gurban Abbasov str., Baku, Azerbaijan AZ 1003

The Boutique Palace Hotel

9 Aziz Aliyev Street, AZ1000 Baku, Azerbaijan

Meridian Hotel

Old City, 39, A.Zeynally Street, Baku, AZ1000

Delfin Hotel

9-th km of Sumgayit highway, Baku, AZ1024

Tel.: (99412) 4901234; Fax: (99412) 4961235; E-mail: reservations.hhbaku@hyattintl.com ; Web-site: www.baku.hyatt.com Tel.: (99412) 4907090; Fax: (99412) 4907096;4907084; E-mail: sm@grand-europe.com; Web-site: www.grand-europe.com Tel.: (99412) 4982402; Fax: (99412) 4972451; E-mail: reservations@isrplaza.com; Web-site: www.radisson.com/bakuar Tel: (99412) 4906000; Fax: (99412) 4968900; Email: reservations.baku@rezidorparkinn.com; Web-site: www.baku.rezidorparkinn.com Tel: (99412) 4968000; Fax: (99412) 4968008; E-mail: adminoffice@excelsiorhotelbaku.az; Web-site: www.excelsiorhotelbaku.az Tel: (+994 12) 4910227, 4910228 ; Fax: (+994 12) 4910229; E-mail: sales@crownhotelbaku.com; Web. site: www.crownhotelbaku.com Tel.: +994-12 492 22 88 (PBX), Fax: +994-12 497 75 10; E-mail: info@boutique-palace.com Tel.: (99412) 4970809; Fax: (99412) 4970702; E-mail: info@meridianhotel.az; Web-site: www.meridianhotel.az Phone: (+994 12) 499 61 01; Fax: (+994 12) 499 61 02; Mobile: (+994 50) 225 09 99; Email: info@delfinhotel.az; Web-site: www.delfinhotel.az continued on the next page

146

useful contacts | Doing business in Azerbaijan

Hotels, continued from the previous page.

City Mansion Irshad Hotel CASPIAN Guest House

153, Azadlig Avenue, Baku, AZ1106 11, Vagif Avenue, Baku, AZ1007 8, Zorge Street, Baku, AZ1000

AZCOT Guest House

Husi Hajiyev Str.7, Lane 1, Baku, AZ1001

Diplomat Hotel Baku

185, Suleyman Rahimov Street, Baku, AZ1000

The Crescent Beach Hotel & Leisure Resort Ambassador Hotel Austin Hotel Ramada Baku Hotel

Shikhov settlement, Salyan highway, Baku, AZ1003 934, Samad Vurgun street, Baku, AZ1078 58 Nizami st, Baku, Azerbaijan AZ1023, Baku Salyan Highway 32

Tel.: (99412) 4361041;4361078; Fax: (99412) 4361089; E-mail: office@felsbaku.com; Web-site: www.felsbaku.com Tel.: (99412) 4410132; 4410133; Fax: (99412) 4410134; E-mail: hotel@irshad.az; Web-site: www.irshad.az Tel.: (99412) 4987809; 4989855; Fax: (99412) 5985287; E-mail: rcaspian@intrans.az Tel.: (99412) 4925477; 4972507; Fax: (99412) 4925477; E-mail: request@azcothotel.com ; Web-ste www.azcothotel.com Tel.: (99412) 5961127; Fax: (99412) 5961128; E-mail: sales@diplomathotelbaku.com; Web-site: www.diplomathotelbaku.com Tel.: (99412) 4974777; Fax: (99412) 4974780; E-mail: cbh@azeronline.com; Web-site: www.crescentbeachhotel.com Tel: +994 (12 ) 449 4930-38; Fax: +994 (12) 449 4956; E- mail: sm1@hotelambassador.az Tel.: +99412 598 08 12; Fax: +99412 598 08 17; E-mail: office@austinhotel.az Tel. (99412) 491-73-03; Fax. (99412) 491-73-13; Web-site. www.ramadabaku.com

Notary offices Notary’s Office #1

17, U.Hajibayov Street,Baku, AZ1000

Tel.: (99412) 4934514

Emergency phone numbers Fire Station Police

101; 4910734 102; 4934265; 4958817

Ambulance

103

Gas Emergency

104

Speaking clock

106

International telephone services

107

Info Service

109

Doing business in Azerbaijan | useful contacts

147

Face Pattern of the Momine Khatun Mausoleum in Nakhchivan, Azerbaijan.

n n A

e n

s e x MA &

S P

5* Riverside hotel. Gabala, Azerbaijan.

Annex 1: Bilateral Investment Treaties Country

Signed

Ratification Date

Austria

4 July 2000

24 October 2000

Belarus

3 June 2010

30 September 2010

18 May 2004

26 October 2004

7 October 2004

1 March 2005

Belgium-Luxemburg Economic Union Bulgaria China Croatia

02 October 2007

1 February 2008

Egypt

24 October 2002

13 May 2003

Estonia

7 April 2010

8 June 2010

Finland

26 February 2003

13 May 2003

France

1 September 1998

27 November 1998

8 March 1996

19 April 1996

22 December 1995

25 June 1996

Greece

21 June 2004

26 October 2004

Hungary

18 May 2007

01 October 2007

Iran

28 October 1996

1 December 1998

Israel

20 February 2007

01 October 2007

28 September 1997

17 February 1998

05 May 2008

02 October 2008

16 September 1996

15 November 1996

23 April 2007

01 October 2007

10 February 2009

28 April 2009

23 April 1997

26 June 1997

3 October 2005

1 March 2006

8 June 2006

10 April 2007

Georgia Germany

Italy Jordan Kazakhstan Korea Kuwait Kyrgyzstan Latvia Lithuania

154

8 March 1994

annexes | Doing business in Azerbaijan

Lebanon

11 February 1998

4 December 1998

Moldova

27 November 1997

8 December 1998

Norway

25 September 1996

Pakistan

9 October 1995

12 March 1996

Poland

26 August 1997

13 February 1998

Qatar

28 August 2007

19 October 2007

29 October 2002

5 December 2003

9 March 2005

10 May 2005

8 July 2009

30 September 2009

23 February 2006

10 April 2007

15 March 2007

5 June 2007

9 February 1994

14 June 1994

20 November 2006

10 April 2007

Ukraine

24 March 1997

6 June 1997

United Kingdom

4 January 1996

15 March 1996

1 August 1997

14 April 1998

Romania Saudi Arabia Syria Switzerland Tajikistan Turkey UAE

USA USAID Uzbekistan

7 February 2007 27 May 1996

16 July 1996

Doing business in Azerbaijan | annexes

155

Annex 2: Brief comparative analysis of LLC and JSC as per Azerbaijani law JSC Minimum number of Founders

Liability of Founders Capital Requirements

Securities

Transferability of Shares/ participatory interest

Management structure

Accountability Liquidation & Reorganisation

Tax

156

LLC

At least 1 founder. Closed JSC-maximum number of shareholders At least 1 founder. However, there is not a statutory limit for may not exceed fifty. If such limit is exceeded, such close JSC must the number of participants. either be reorganized into an open JSC, or be judicially liquidated The participants/shareholders are not personally liable for the obligations/liabilities of JSC/LLC. Liability of founders is limited to the amount of their equity (capital) contribution.

Open JSC – 4,000 AZN circa 4,760 USD; Closed JSC – 2,000 There is no specified minimum capital requirement. However, AZN, circa 2,380 USD. Charter capital must be paid in full prior the Civil Code 2000 states that the minimum capital is to be to state registration. Capital contributions in kind must be valued set by the relevant executive authorities. Charter capital must by an independent auditor. Value of in-kind contributions of a be paid in full prior to state registration. Capital contributions newly founded company and existing company is determined in kind must be valued by an independent auditor. by a foundation meeting and general meeting of shareholders respectively.

Shares must be registered at the State Securities Committee.

Paid in capital of participants is not considered to be a Placement of securities can be public (offer to public at large) security. Therefore, there are no registration requirements or close (offer to a limited group of investors). Open joint-stock with the State Securities Committee. companies can place securities only through public offering (except for establishment and reorganization of a company and conversion of shares) and close joint stock companies can place securities only through close offerings.

Open – no restriction on transferability of one’s shares to another.

Unless provided otherwise in the Charter, a participant may Closed – shareholders have the right of first refusal. alienate (sell/transfer) his participating interest to third parties. However, the other participants have the right of first refusal, if the Charter does not provide otherwise.

The General Meeting of Shareholders (GMS) is the supreme Same as JSC, except there is no requirement for a Supervisory governing body, which has exclusive competence in fundamental Board, which can be established if so desired by the matters (such as amendments to Charter and to the Capital Fund, participants. any decision on liquidation, reorganization, etc.). The law does not allow delegation of such powers to other inferior governing bodies. A JSC which has more than 50 shareholders must create a Supervisory Board. The management body can be either in the form of a board or individual director.

A JSC must make public its annual report and balance sheet.

A voluntary liquidation or reorganization is upon a decision of a A voluntary liquidation or reorganization is upon the general shareholders’ meeting. A JSC may be reorganized into a decision of a general meeting of participants. A LLC may be LLC. reorganized into a JSC. Identical tax treatment (except in case of distribution of net profits).

annexes | Doing business in Azerbaijan

Annex 3: The list of types of activities requiring special permissions (licenses) and amount of state duty to be paid for issue of special permissions (licenses) for such activities.

Name of type of activity Private security activity

Authority to issue a license Ministry of National Security of the Republic of Azerbaijan (to ensure the safety of legal entities, formed on the territory of the Republic of Azerbaijan by foreign legal entities or foreigners or stateless persons, including legal entities, established with direct or indirect participation of the foreign capital); Ministry of Internal Affairs of the Republic of Azerbaijan in other cases

Cartographic activities

State Committee of the Republic of Azerbaijan on Land and Cartography Storage and disposal of radioactive and ionized waste Ministry of Ecology and Natural Resources of the Republic of Azerbaijan Utilization and neutralization of toxic waste Ministry of Ecology and Natural Resources of the Republic of Azerbaijan Purchase, processing and sale of non-ferrous metals and industrial waste including precious metals and stones Sale of oil products

Amount of state duty (AZN)

3000 1100 1100 1100

Ministry of Economic Development of the Republic of Azerbaijan

2200

Ministry of Fuel and Energy of the Republic of Azerbaijan

5500

Sale of gas products

Ministry of Fuel and Energy of the Republic of Azerbaijan

5500

Medical activities

Ministry of Health of the Republic of Azerbaijan

5500

Pharmaceutical activities

Ministry of Health of the Republic of Azerbaijan

5500

Ministry of Agriculture of the Republic of Azerbaijan

5500

Ethyl (potable) alcohol and strong drinks: (wine, cognac, vodka and other strong drinks, list of which is established by the Cabinet of Ministers of the Republic of Azerbaijan): production import sale

11000 City and region executive organs (with the exception of city districts)

220

Tobacco goods: production

Ministry of Agriculture of the Republic of Azerbaijan

5500

import

11000

sale The development, production, sale, purchase, import and export of technical facilities for illegal reception of information by legal and natural persons non-authorized for the fulfillment of investigation activities

City and region executive authority (with the exception of city districts)

220

Ministry of National Security of the Republic of Azerbaijan

2200

Carriage of passengers and cargo by sea

Ministry of Transport of the Republic of Azerbaijan

5500

Carriage of passengers and cargo by air

Civil Aviation Public Administration of the Republic of Azerbaijan

5500 continued on the next page

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157

Annex 3: The list of types of activities requiring special permissions (licenses) and amount of state duty to be paid for issue of special permissions (licenses) for such activities, continued from the previous page.

Communication service: telephone (wire)

5000

cellular (mobile)

11000

radio trunk and wireless arrangement of internal telecommunication channels arrangement of international telecommunication channels

5000 Ministry of Communications and Information Technologies of the Republic of Azerbaijan

5000 11000

IP-telephony

8000

data communications

6000

express postal service mobile communication service of 3rd generation (3G) Activities in the field of projection and production of data protection facilities

2500 11000 Ministry of National Security of the Republic of Azerbaijan

2200

Activities of educational institutions: infant schools general education schools (including lyceums and gymnasiums), vocational schools and professional lyceums, colleges)

2500 Ministry of Education of the Republic of Azerbaijan

4000

higher education institutions

5500

secondary-special religious education institutions

4000

higher religious education institutions The activities on assistance to the Republic of Azerbaijan citizens to get the job in foreign countries

5500 Ministry of Labor and Social Protection of People of the Republic of Azerbaijan

2200

Banking activities: banks

22000

non-bank credit institutions

National Bank of the Republic of Azerbaijan

Activities of non-governmental social funds

Ministry of Finance of the Republic of Azerbaijan

1100 11000

Activities in insurance sector: insurance activities reinsurance activities

22000 Ministry of Finance of the Republic of Azerbaijan

22000

insurance broker activities insurance brokers - legal entities insurance brokers - natural persons

22000 1000 continued on the next page

158

annexes | Doing business in Azerbaijan

Annex 3: The list of types of activities requiring special permissions (licenses) and amount of state duty to be paid for issue of special permissions (licenses) for such activities, continued from the previous page. insurance agents activities:

Ministry of Finance of the Republic of Azerbaijan

insurance agents - legal entities

1000

insurance agents - natural persons Auditing activities

200 Chamber of Auditors of the Republic of Azerbaijan

2200

Activities of commodity exchange

Ministry of Economic Development of the Republic of Azerbaijan

11000

Activities of stock exchange

State Committee for Securities of the Republic of Azerbaijan

11000

Activities of investment fund Activities of professional participants of equity market (brokers, dealers, securities management, determination of mutual obligations (clearing), deposit, register of holders of securities, organization of trade in equity market) Activities on production and sale of all types of securities

State Committee for Securities of the Republic of Azerbaijan

11000

State Committee for Securities of the Republic of Azerbaijan

5500

State Committee for Securities of the Republic of Azerbaijan

5500

Manufacturing of strict accounting blanks

Ministry of Finance of the Republic of Azerbaijan

2200

Production of various seals and stamps

Ministry of Internal Affairs of the Republic of Azerbaijan

2200

Tourist activities

Ministry of Culture and Tourism of the Republic of Azerbaijan

Customs broker activity Establishment of bonded warehouses, short term storehouses, free warehouses Broadcasting (broadcasting activity, auxiliary information broadcasting, cable network broadcasting, satellite broadcasting, activity, ensuring satellite broadcasting of foreign radio and television channels by means of coding devices)

Azerbaijan State Customs Committee

11000

Azerbaijan State Customs Committee

11000

National Council of Television and Radio Broadcasting Ministry of Ecology and Natural Resources of the Republic of Azerbaijan

11000

Production, export-import, transit traffic of precursors Ministry of Public Health of the Republic of Azerbaijan Passengers and cargo transportation by motor transport:

550

intercity (intra-district) passengers transportation long-distance (interregional) passengers transportation international passengers transportation passengers transportation by motor cars - taxis:

150

Gathering of raw material of wild medicinal plants

5500

550

150 Ministry of Transport of the Republic of Azerbaijan

150 150 continued on the next page

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159

Annex 3: The list of types of activities requiring special permissions (licenses) and amount of state duty to be paid for issue of special permissions (licenses) for such activities, continued from the previous page. local cargo transportation

150

international cargo transportation

200

Activity of hotels and hotel type objects Transportation of hazardous cargo by transport facilities Installation and exploitation of the liquid and natural gas plants

Ministry of Culture and Tourism of the Republic of Azerbaijan

550 2200

Field operations, mining and drilling works

2200

Installation and repair of elevators Installation and repair of attractions Installation, set-up and repair of power plants, equipment and facilities Production, installation and repair of hoisting facilities, metallurgical plants, boilers, vessels, operating under pressure Diagnostics and other maintenance inspection of the equipment and technical plants, using at the potentially hazardous facilities Fire protection on the basis of agreement of the companies and settlements Production and purchase of the fire fighting equipment and conducting of tests Installation of fire protection systems and facilities, their repair and maintenance Repair and servicing of fire protection equipment, primary fire fighting appliances, restoration of fire fighting appliances performance Construction, reconstruction and repair of fire protection buildings, constructions and premises Engineering-prospecting works as per Buildings and structures with I and II level of responsibility according to the state standards Civil and erection works as per buildings and structures with I and II level of responsibility according to the state standards (except for private houses and summer cottages with height up to 12 meters): height up to 40 meters

1500

550 Ministry of Extraordinary Situations of the Republic of Azerbaijan

2500 2500

2500

2500 3600 3600 3600

3600 3600

1100

Ministry of Extraordinary Situations of the Republic of Azerbaijan

1100 continued on the next page

160

annexes | Doing business in Azerbaijan

Annex 3: The list of types of activities requiring special permissions (licenses) and amount of state duty to be paid for issue of special permissions (licenses) for such activities, continued from the previous page. height up to 65 meters

2200

height up to 65 meters and higher Creation of biometric technologies and maintenance of such technologies Building and structures design with I and II level of responsibility according to the state standards

3300

Precious metals and stones production (extraction of precious metals from ore, concentrates) processing and use (production and repair of jewelry and other items from precious metals and stones) turnover (retail and wholesale, purchase of precious metals and stones, jewelry and other items produced from them from the population)

Ministry of Communication and Information Technologies of the Republic of Azerbaijan State Committee for City Planning and Architecture of the Republic of Azerbaijan

production sale

1100 5000 5000

Ministry of Finance of the Republic of Azerbaijan

5000

5000

Activities for the private veterinary medicine Veterinary medicines:

2200

150 Ministry of Agriculture of the Republic of Azerbaijan

3000 220

Doing business in Azerbaijan | annexes

161

The list of the types of activities to be granted special permissions (licenses) by the executive bodies of the Nakhchivan Autonomous Republic.

Cartography Sale of oil products Sale of gas products Medical work Pharmaceutical work The following activities related to ethyl (drinkable) spirits and alcoholic drinks (wine, cognac, vodka and other alcoholic drinks in the list determined by the Cabinet of Ministers of the Republic of Azerbaijan): Production Import Activities related to tobacco products: Production Import Activities related to communication services: phone (cable) cell (mobile) Radio trunk and wireless phone IP-telephone (internet-telephone) Data sending Express mail services 3G mobile communication services Activities related to educational institutions: Institutions before schools Secondary schools (including lyceums and gymnasiums), vocational schools and lyceums, colleges Higher educational institutions Religious colleges Religious higher educational institutions Liaison services to help the citizens of Azerbaijan to find jobs abroad Auditor activities Preparation of legal report forms Preparation of different stamps and seals Tourism activities Customs brokering Establishment of customs warehouses, temporary warehouses, independent warehouses.

Tele and radio broadcasting (television and radio broadcasting, broadcasting of additional information, cable and satellite broadcasting, activities to provide broadcasting of foreign TV channels via satellite or coded equipment) Collection of wild herbs as medical raw material

162

annexes | Doing business in Azerbaijan

Transportation of passengers and goods by car: Passenger transportation within the city (within the region) Passenger transportation between the cities (regions) Passenger transportation by taxi cars Goods transportation within the country Import, export, transit and production of precursors Work of hotels and hotel type places Transportation of dangerous goods Installation and use of liquid and natural gas equipments Mining and drilling Installation and repair of elevators Installation and use of amusement parks Installation and repair of energy fields, equipments and mechanisms Production, installation and repair of lifting equipment, metallurgy equipment, pressure pans.

Diagnostics of equipment and technical devices used in potentially dangerous places and conducting other technical controls Production, consumption and testing of fire equipments and products Installation, technical support and repair of fire safety systems and devices Repair and service of fire equipment, first aid fire devices, quality assurance of fire equipment Building, reconstructing and repair of fire prevention buildings, devices, rooms.

Circulation of valuable metals and stones (sale or consumption from population of valuable metals and stones, goods produced from them, including jewelry and other products) Engineering services for buildings and places that belong to I and II responsibility levels according to State standards Projection of buildings and places that belong to I and II responsibility levels according to State standards Construction works in buildings and places that belong to I and II responsibility levels according to State standards (except private residential and holiday houses up to 12 meters): Up to 40 meters height Up to 65 meters height Up to 65 meters height and higher Private veterinary activities Following related to veterinary medicines: Production Sale Establishment of biometric technologies and services to those technologies

Annex 4: Double Taxation Treaties.

Country

Signature date

Effective Date

Austria

04.07.2000

23.02.2001

Country Japan

Signature date

Effective Date

30.05.2005

11.04.2008

Belarus

08.08.2001

29.04.2002

Kazakhstan

16.09.1996

07.05.1997

Belgium

18.05.2004

12.08.2006

Kingdom of the Netherlands

22.09.2008

18.12.2009

Bulgaria

12.11.2007

25.11.2008

Latvia

03.10.2005

19.04.2006

Canada

07.09.2004

23.01.2006

Lithuania

02.04.2004

13.11.2004

China

17.03.2005

17.08.2005

Moldova

27.11.1997

28.01.1999

Czech Republic

24.11.2005

16.06.2006

Norway

24.04.1996

19.09.1996

Estonia

30.10.2007

27.11.2008

Poland

26.08.1997

20.01.2005

Finland

29.09.2005

29.11.2006

Qatar

28.08.2007

11.03.2008

France

20.12.2001

01.10.2005

Republic of Korea

19.05.2008

25.11.2008

Georgia

18.02.1997

01.12.1997

Romania

29.10.2002

29.01.2004

Germany

25.08.2004

28.12.2005

Russia

03.07.1997

03.07.1998

Grand Duchy of Luxembourg

16.06.2006

02.07.2009

State of Kuwait

10.02.2009

Great Britain and Northern Ireland

23.02.1994

29.09.1995

Switzerland

23.02.2006

13.07.2007

Hashemite Kingdom of Jordan

05.05.2008

Tajikistan

13.08.2007

11.02.2008

Hellenic Republic (Greece)

16.02.2009

11.03.2010

Turkey

09.02.1994

01.09.1997

Hungary

18.02.2008

15.12.2008

Ukraine

30.07.1999

03.07.2000

Islamic Republic of Iran

10.03.2009

United Arab Emirates

20.11.2006

25.07.2007

Uzbekistan

27.05.1996

02.11.1996

Islamic Republic of Pakistan

10.04.1996

Italy

21.07.2004

28.04.2010

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Free Trade Agreements Countries Contract on Free Trade between the Republic of Azerbaijan and Russian Federation

Dated

Location

30 September 1992

Baku

Contract on Free Trade between the Republic of Azerbaijan and Moldova

26 May 1995

Minsk

Contract on Free Trade between the Republic of Azerbaijan and Ukraine

28 July 1995

Baku

Contract on Free Trade between the Republic of Azerbaijan and Georgia

8 March 1996

Tbilisi

18 March 1996

Baku

27 May 1996

Baku

Contract on Free Trade between the Republic of Azerbaijan and Kazakhstan

10 June 1997

Alma-Ata

Contract on Free Trade between the Republic of Azerbaijan and Kyrgyzstan

12 January 2004

Moscow

Contract on Free Trade between the Republic of Azerbaijan and Belarus

31 March 2004

Minsk

Contract on Free Trade between the Republic of Azerbaijan and Tajikistan

13 August 2007

Baku

Contract on Free Trade between the Republic of Azerbaijan and Turkmenistan Contract on Free Trade between the Republic of Azerbaijan and Uzbekistan

Annex 5: Summary of some of characteristics relating to Azerbaijani taxes.

Rate

Payers

Taxable Base

Profit Tax generally - 22%, since 01.01.2010 - 20%

All enterprises (resident and non-resident).

Resident enterprises are subject to tax on its total profit. Non-resident enterprises operating in Azerbaijan through permanent establishments (‘PE’) are subject to tax on profit from such operations.

Difference between income and deductible expenses. In case of a PE gross income generated from Azerbaijani sources through a PE less the amount of expenses incurred with respect to such income.

Income tax of employees.

Sliding scale (14% - 35%)

Enterprises or entrepreneurs making payments to employees. Payments made by Any salaries, payments or benefits the PE of non-residents are treated the same received by an employee in respect of as the payments of resident enterprises. employment.

Exemptions * profit of charity organizations (except from entrepreneurial activity); * grants, membership fees and donations received by noncommercial organizations; * income of international, interstate and intergovernmental organizations (except from entrepreneurial activity) etc. * Income of diplomats or consular employees who are not citizen of Azerbaijan; * employment income of a person who is not a citizen of Azerbaijan, whose stay in Azerbaijan during the tax year (the same as the calendar year) is less than 182 days - if this income is paid by an employer or in the name of an employer who is not a resident of Azerbaijan and is not paid by or on behalf of a PE of a non-resident; * gifts, material aid and inheritance up to certain limits; * compensation for damage caused etc. continued on the next page

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Annex 5: Summary of some of characteristics relating to Azerbaijani taxes, continued from the previous page.

Withholding Taxes from income of non-residents 4%, 6%, 10% and 14% depending on type of income

Value Added Tax (VAT) 0 and 18%

Enterprises or entrepreneurs making payments to non-residents.

Payments made by the PE of non-residents are treated the same as the payments of resident enterprises.

The gross income of a non-resident from an Azerbaijani source not attributable to a PE of the non-resident on the territory of Azerbaijan is subject to taxation at the source of payment, without deduction of expenses.

Any person registered or required to register as a VAT payer. There is a requirement to register for VAT purposes if turnover of a taxpayer exceeds a certain threshold.

Persons importing goods to which VAT applies are considered payers of VAT on Value of goods, works, and services goods so imported. provided and value of taxable import.

* The cost of property purchased from state enterprises in the course of privatization; * the provision of financial services (including a financial lease); * contributions to a Charter Fund etc. * The following are subject to ‘0’ (zero) rate: * The purchase of goods or services, or importation thereof, with the proceeds of foreign grants; * Exports, etc. * Transit transportation of goods through the territory of Azerbaijan; * temporary imports of goods into Azerbaijan except for goods intended for re-export; * gods that are intended for re-export and secured under a pledge etc.

Release of excise goods produced in Azerbaijan and import of excise goods into Azerbaijan.

All persons engaged in the production of Excise goods are spirits, beer and all Excise Tax, various rates (per unit, excisable goods in Azerbaijan or importation kinds of alcohol, tobacco products, and volume etc) of such goods into Azerbaijan. petroleum products.

For the physical individuals buildings owned by resident and non-resident Assets Tax. Different rates depend individuals in the Republic of on type of assets.

Azerbaijan, plus watercraft and aircraft 0.1% of the property with the owned by resident individuals, for the * facilities that are used for environvalues exceeding AZN 5,000—for legal entities carrying out business mental preservation, fire protection individuals. 1% of the value of fixed activities in Azerbaijan through its or civil defence purposes; assets - for legal entities; Other All persons and legal entities having assets permanent establishment – annual * pipelines carrying products, rail and morates are applicable for possession (buildings or their part, fixed assets etc.) in average value of only those fixed assets torways, communication, power transmisof watercrafts and air crafts. ownership. which are related to the PE sion lines, irrigation system facilities etc. * Land plots of residential area of common use; Land Tax. Different rates depend All persons owning or using land in Land plots granted for use or * national border zones and land on location and type of land plots. Azerbaijan. ownership. designated for defence purposes etc All persons engaged in extraction of Commercial minerals extracted from commercial minerals from subsoil strata subsoil strata in the territory of (including Azerbaijan sector of the Azerbaijan (including Azerbaijan sector Mining Tax (Royalty) 3% - 26% Caspian Sea) of the Caspian Sea). continued on the next page

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Annex 5: Summary of some of characteristics relating to Azerbaijani taxes, continued from the previous page.

Non-resident enterprises and non-resident individuals that own motor vehicles that Road Tax. Different rates enter the territory of Azerbaijan and use this depending on type and capacity territory for passenger and cargo transport; of the vehicle, number of seats, also persons owning or using motorcars, distance travelled etc. buses or other motor vehicles in Azerbaijan Simplified System Tax 4% for Enterprises and individuals with a quarterly taxpayers operating in Baku and turnover not exceeding certain limit 2% for taxpayers operating in other (currently 22,500 manats – around 28,125 regions USD)

Vehicles that belong to foreign states, or owned or used by persons in the territory of the Republic of Azerbaijan and enter the territory of the Republic of Azerbaijan Total proceeds realized by a taxpayer from sale of goods or services and from activities non-related to sales.

* Exempt from payments of VAT, assets and profit taxes.

Annex 6: Consular fees for Azerbaijani visas Activity An ordinary entry-exit visa upon the address of a private entity engaged in economic activity or/and of a public entity (from 3 days up to 3 months): Double entry-exit visa Multiple entry-exit visa (up to 1 year) registration upon the address of a public body or private entity Visa to privately studying students Tourist visa

Duty 40 USD 80 USD 250 USD 20 USD

Ordinary transit visa

20 USD

Double transit visa

40 USD

Visa extension:

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24 hours

10 USD

48 hours

20 USD

72 hours

30 USD

from 3 days up to 1 month

40 USD

from 1 months to 3 months

80 USD

overdue visas, for each months

50 USD

annexes | Doing business in Azerbaijan

Azerbaijan and its Caspian coastline are home to nearly 400 mud volcanoes, more than half the total throughout the continents.