Azerbaijan decided to get rid of turkmen debt

The filling of reduction of weight is incomparable while getting rid of long term-debts. Soon Azerbaijan will live this feeling after getting rid of the 15 years Turkmen debts. After long unsettled battles regarding debts, Azerbaijan decided to pay off the whole amount of the debts totaling $44.8mln to Turkmenistan. Azerbaijan's Cabinet of Ministers stated that the debts will be paid off by the end of 2008 in cash.

The sides reached an agreement on this issue last week in Baku, when the Governments of Azerbaijan and Turkmenistan signed an Inter-Governmental agreement on regulation of the debt obligations and financial requirements. The signing ceremony took place within the official visit of the Turkmenistan's Vice Prime Minister, Khidir Saparliyev, to Azerbaijan.

The Azerbaijani debts to Turkmenistan resulted from Azerbaijan's purchase of Turkmen gas in 1991-1992. Since 1993 the amount of Azerbaijan's foreign debts has increased by 41.1 times and made up $2442mln in 2007.

Change dynamic of Azerbaijan's external debts in 1993-2007

Source: Cabinet of Ministers, Ministry of Finance, calculations by Trend

Azerbaijan and Turkmenistan faced misunderstanding in the amount of the debts. Surely, it is possible to speak of it in the past, but up to certain moment, the amount of the debt was stumbling block between the sides which have not reached an agreement on the sharing of the Caspian Sea and disputed oil fields. Event, during presidential term of Saparmurad Niyazov, Turkmenistan withdrew its ambassador from Azerbaijan.

Thus, up to the recent period, the Turkmen side considered that the unpaid amount of the debt totals $59.692mln. The debt appeared as a result of gas supplies and totaled $36.7mln with interest rates. In addition, Turkmenistan calculated the debts according to the inter-bank accounts of the Central Bank of Turkmenistan and National Bank of Azerbaijan in amount of $22.9mln (according to the Central Bank of Turkmenistan, the key debt totals $15mln, and other amount is the interest rates) resulted from the commercial and economic relations.

However, the Government of Azerbaijan recognized the debt in amount of $18.7mln for the gas supply. According to the version of the Azerbaijani side, partially the gas supplies were compensated with the commodities, the prices of which were reduced by the Turkmen side, saying that the commodities were defective. Earlier the Turkmen side did not take into consideration the commodities from Azerbaijan in exchange of the gas, arguing that they were lost in the way. However, Azerbaijan does not take responsibility for these losses although the law-enforcement bodies of the Country arrived in Ashgabat to make clear the situation.

With regards to the debts as a result of the trade and economic relations in 1992-1993 (the debts of players), the Inter-Governmental agreement dated 22 February 1995 envisaged regulating them by the end of March of the same year. However, the Turkmen side did not join the decision made by the Council of CIS State Heads in 1995. The decision envisaged legalizing the mutual debts of the CIS countries as State debts.

Both sides highlighted documentary approval of their positions. However, the Government of Turkmenistan took more decisive steps, involving the Russian bank to regulate the disputable moments. Even the Turkmen side highlighted its preparedness to defend its position at any level, including arbitrage court. However, as a result of the first meeting of the Azerbaijani-Turkmen Inter-Governmental Commission for Economic and Humanitarian Co-operation on 17 January 2008 in Ashgabat, the sides reached an agreement to determine an equal debt amount.

The Turkmen side considers significant these monies and plans to direct these funds towards purchasing computer and multimedia equipment within reforms in the education sphere.

Paying disputable $18.1mln (difference between the versions of the Azerbaijani and Turkmen sides) does not present large difficulties for Azerbaijan. The Country successfully carries out large-scale oil projects and the favorable foreign economic conjuncture of the oil prices brings to the increase of the currency reserves. However, it is not a reason for Azerbaijan to make compromise to Turkmenistan.

It needs to believe that Azerbaijan's concession in paying off huge amount of debts to Turkmenistan will remove tense relations between the two countries and give a boost to the solution of the problems with the oil fields in favor of Azerbaijan this time.

Situation with Azerbaijan's external debts as of 1 January, mln USD

Source: Ministry of Finance