Weekly actual topics in Azerbaijan (Oct. 10-14)

Industrial opportunities of Azerbaijan's Absheron economic region

Absheron economic region of Azerbaijan with a territory of 5,900 square kilometers, including the Absheron and Khizi administrative districts, Baku and Sumgayit makes up seven percent of the total area of the country. This economic region is the main fuel and energy base of the country, which accounts for a significant part of the country's oil, gas and electricity production.

According to the State Statistics Committee, there were 1,500 industrial enterprises in Absheron economic region in 2010. Industrial production (including industrial services) in the economic region as of the end of 2010 totaled 25.5 billion manat, which makes up 91.3 percent of total industrial production in Azerbaijan (27.9 billion manat).

Development of the petrochemical and chemical, heavy industries, ferrous and nonferrous metallurgy, construction industry in the Absheron economic region is associated with many natural resources, including oil and gas, stone, cube, limestone, cement raw materials, quartz and construction sand.

In 2010, Absheron produced 84,600 tons of limestone, 128,2 tons of bentonite, 661 tons of plaster, 3,802 tons of paper and paperboard, 15,063 tons of cardboard packaging. The major share in industrial production of Absheron is taken by the food industry, which as of the end of 2010 was produced at 646.7 tons of iodized salt, 426.8 tons of frozen sea fish, 265 tons of sausages, 513.9 tons of grain, 2,179 tons of sugar, 3.431 million decalitres of beer, 1,494 tons of chocolate products.

In 2010 the industrial enterprises in Khizi produced 15,500 tons of sand and 47 pieces of plastic windows and doors.

In 2010, the industrial enterprises in Sumgayit produced 175,300 tons of chemical products, 36,100 tons of iron, steel and cast iron pipe, 378 tons of aluminum alloys, 1,781 units of plastic windows and doors, 2,225 pieces of wooden windows and doors, 30,200 square meters of leather and 173.2 tons of soap. Food industry of Sumgayit produced 17.5 tons of flour products.

In 2010, in Baku there were produced 50 million tons of oil, 26.2 billion cubic meters of gas, 4.5 million tons of oil products, 4.3 billion kilowatt hours of electricity, 255,600 tons of food products, 20.3 million decalitres of alcoholic and soft drinks, 2.172 billion pieces of cigarettes, etc.

Absheron economic region contains such large enterprises as JSC "Azbentonit", "Avropa gapilari", "Matanet-A", "Caspian Fish Co", "TAM", "Aysu", "Prague", "Absheron Zeytun Baltika Ltd brewing company. Gidasanaye LTD, JSC" Baku-gushchulug", JSC "Baku-broiler", Mehdiabad flour mill, Azer-pak LLC.

Can Azerbaijan compete on world commodity market?

The contribution of the light industry to Azerbaijan's GDP is too small - 0.15 percent. And the national market for products of this industry 90 percent depends on import.

There is a demand for high quality domestic products of light industry, but the supply is inadequate. According to most of experts, the light industry may be one of the first victims during Azerbaijan's accession to the World Trade Organization.

According to data provided by the State Statistics Committee, in January to August 2011, the enterprises of Azerbaijani light industry manufactured goods worth 45.5 million manat. In particular, in this period the industry produced 1,100 tons of cotton fibre, 6,500 tons of cotton thread, 918 square meters of carpet and carpet wares, 2.5 million pairs of socks, 53,600 women's and men's suits, 60,700 men's coats, jackets and rain-coats, 33,900 men's trousers.

As compared to the light industry of Azerbaijan during the Soviet period when Azerbaijan possessed developed light industry, of which share in GDP totaled eight percent, the modern light industry of the Republic differs scarcity of production. In market terms, it became clear that the export of raw materials for light industry (cotton, wool and silk) is more profitable than their use for domestic industry.

Major problems of the field:

- Use of morally and physically outdated technological equipment

Thus, one of key problems of outputting import replacing goods is technical rearmament of the field. This is not only support to this process, but creating facilities for transition to highly technological industry.

The field's fleet is comprised of outdated equipment by 80 percent. The last technical reequipment dated to 1985-1990. Annual renewal of the fleet of vehicles and devices at enterprises of the light industry does not exceed 1-2 percent, whereas the figure is 14-16 percent in economically developed countries. Over the past 10 years China and Turkey have fully reequipped by both export supplies and state aid. In China, for instance, light industry producers enjoy privileged taxation terms. As result of such protectionism on the state level these countries became leaders in the world export of light industry.

- Big share of shadow and illegally imported product on consumer market
Illegal import of infringing, falsified and poor quality merchandise remains one of painful points in local light industry. Unfortunately, official statistics does not provide figures on volume of sales and import of shadow industry products. Sometimes, goods are not so safe for human health. According to official statistics, import of light industry goods to Azerbaijan constituted 70.8 million manat in 2010.

- The enterprises' lacking of own funds to develop production

According to ASPI Consulting Engineers estimations, sector needs 200 million manat to upgrade, to apply production planning system, to design development strategy, to enter the regional markets, to attract investments, to use international accountancy and quality management.

- lack of staff and low level of salary.

Light industry is not so attractive for youth and specialists. According to official statistics, in the first half of 2011, average wages in light industry of Azerbaijan amounted to 271 manat.

The development of local light industry is included in the state program on development of Azerbaijani regions in 2009-2013. First steps have been taken in this direction, and positive changes are even well seen. Old enterprises are reconstructed and the new one enterprises of light industry are built, mainly in regions. There are 36 privatized clothing and spinning enterprises in Azerbaijan.

In what Azerbaijan's Sheki-Zagatala economic region specialized?

Azerbaijan's Sheki-Zagatala economic region includes the administrative areas Balaken, Gakh, Gabala, Oguz, Zagatala and Sheki. This economic region is the third largest in the country on its industrial importance. Over two percent of the nationwide industrial products accounts for it.

Based on the Azerbaijani State Statistics Committee's data, 115 industrial enterprises operated in the Sheki-Zagatala economic region and industrial products in the amount of 60.2 million manat manufactured here in 2010. The private sector share in the production process reached 66.3 percent here.

The industrial structure of the economic region consists of light and food industries that operate on the basis of local agricultural raw materials and natural resources.

Some 13 industrial enterprises, which made products worth 6.5 million manat, operated in Balaken in 2010. The main distinguishing feature of Balaken's industrial production was the production of building bricks. The region produced building bricks in the amount of 15,700 cubic meters.

The number of industrial enterprises in Gakh in 2010 was 29 enterprises with manufactured products worth 3.7 million manat and Oguz -10 enterprises with manufactured products worth 1.2 million manat. Presence of mineral water sources in Gakh and Oguz determined these regions' specialization in the production of mineral and carbonated waters. Some 159,900 decalitres of mineral and carbonated water was produced in Gakh and 0.200 decalitres in Oguz in 2010.

Some 11 industrial enterprises, which made products worth 20.5 million manat, operated in Gabala in 2010. Gabala has well-known factories engaged in the production of fruit and canned vegetables, which produced 1.032 million decalitres of natural fruit juices in 2010.

The basis of the Sheki light industry is sericulture. In 2010, Shaki manufactures raw silk in the amount of 51.8 tons, including commodity - 12.2 tons. Silk cloth was produced in the amount of 735,800 square meters, including commodity - 164,500 square meters. The cotton fabric production hit 6,900 square meters and carpets - 127 square meters. Some 24 industrial enterprise with manufactured products worth 13.9 million manats were recorded here in 2010.

A tobacco fermentation plant operates in Zagatala in connection with the development of tobacco growing here. The plant produced 2,027 tons of fermented tobacco in 2010. The food industry products is various in Zagatala. The region produced 2.5 tons of tea, 4000 decalitres of beer, 0.600 decalitres of soft drinks, 0.100 decalitres of mineral and carbonated water on the basis of local raw materials in 2010. The number of industrial enterprises in Zagatala in 2010 was 28 enterprises with manufactured products worth 14.3 million manat.

It's early to bury Nabucco

Recent events around the "Southern Gas Corridor" project gave some grounds for media comments such as Nabucco, being one of three projects for the future gas corridor, cab be buried as an option.

In fact, Chief Executive of Nabucco shareholder OMV Gerhard Roiss said first gas supplies would flow through Nabucco in 2018 and that this "was the latest information which we have." Following this, on Oct.13 EU Commissioner Gunther Oettinger stated about the increased cost of the project - from 10 to 14 billion euros instead of the previously estimated 7.9 billion.

One can agree that such messages are not encouraging at a time when Azerbaijan studies and analyzes proposals on projects, including Nabucco, to transport its gas to Europe.

Earlier, on Oct. 3, Iraq, being one of the expected key suppliers to Nabucco, expressed its attitude to the project.

"It is too early to speak about Iraqi gas supplies to Nabucco, as the country's gas production has not reached the desired level to export it abroad," Official representative of the Iraqi Oil Ministry Asim Jihad said.

Speaking at the meeting of the Security Council on Oct.14, Russian President Dmitry Medvedev once again outlined Russia's position over the construction of the Trans-Caspian gas pipeline, which is part of the Nabucco project. He said "it is quite a complex issue which, of course, is directly dependent on the Caspian Sea status and requires the coordination of positions of all member states of the Caspian summit."

Thus, the negative psychological background was created for the choice in favor of the Nabucco project.

However, Nabucco Gas Pipeline International GmbH stated that it does not plan to make any changes in the terms of the project realization.

"There are no changes planned. We together with our shareholders have always stated that we are aligning our efforts with the gas sources and now we are waiting for the decision of the Shah Deniz Consortium," Nabucco project official representative Christian Dolezal said on Oct.12.

Dolezal said the pipeline is to be ready for the period when the gas will be available for export.

"We want to start construction in late 2013 and we want to be finalize our works in late 2017, so that everything is in place when the gas is ready for export," he said.

Nabucco gas pipeline project's cost is currently under review, Dolezal added. "The CAPEX figure of the project is 7.9 billion euro and the figure is currently under review," he said. Dolezal nioted that the investment costs of 7.9 billion euro are based on the feasibility study. The exact cost of the project will be set after the completion of the detailed engineering.

Early this year Managing Director of Nabucco Gas Pipeline International Reinhard Mitschek said that the estimated costs of the pipeline are likely to be revised upwards to reflect the increased length. Another factor which would lead to change in the project's cost can be commodity price dynamics.

Another positive message came from Munich. Germany 's Bayerngas GmbH has started negotiations with the Nabucco consortium on joining the project.

"We have just started the negotiations to be the seventh shareholder in the Nabucco project," Spokesman for the Munich-based Bayerngas Dirk Barz told Trend on Oct.10. "We hope that they will be successful." Reinhard Mitschek said the intention of the German company is a great step forward for Nabucco.

Austrian President Heinz Fischer's official visit to Baku and Ashgabat was another event in support of the Nabucco project.

During a press conference in Baku, President Fischer has stated "... in this project [ Nabucco ], we see the expression of important interests and positions, as the European Union and Austria .... While talking to you, we again convinced of that Azerbaijan attaches great importance to these relations. We consider your thoughts about this as very important and we want to rightly interpret them. "

Answering journalists' questions, he said 'the Austrians and Europeans, I believe, hold a special, good position towards the Nabucco project. "We show a special interest in this project. It is especially good for Austria, as the project leads directly to Austria. We have the opportunity to go to other consumers. We are surrounded by 100 million Europeans and they have the opportunity to use this gas. This is Germany, Slovenia, Czech Republic, Croatia, Slovakia - our neighbors. This will be provided not only for our neighbors, but also for the whole Europe. I think that this project is important for Azerbaijan. It is important for us to ensure confidence in the planning," he noted.

"This should be such a decision that we did not lose time, and that Azerbaijan could maximum export its gas resources. We are in talks to combine these two components. I repeat that we must take this decision together," President Ilham Aliyev stated.

"We are interested in maximizing the sales of our gas potential. Today, the Shah Deniz project is in foreground as our major gas project. But at the same time, the recently opened Umid field of SOCAR also gives very high expectations. The Absheron field recently opened by Total and Gaz de France also has large gas reserves. I can say that Azerbaijan's proven gas reserves increased by about 600 billion cubic meters over the past year," Aliyev added.

This, apparently, will become a crucial factor for Azerbaijan in the selection of the project. Only Nabucco can allow Azerbaijan to maximum export its gas reserves. As for timing, the chances are the same for all projects: any of the selected pipelines could be commissioned only in 2017, when the first gas from the Shah-Deniz-2 project will be produced.

The South Corridor is a priority EU energy project diversifying energy supply routes and sources and increasing EU energy security. The Southern Corridor includes the Nabucco gas pipeline, Trans Adriatic Pipeline (TAP), White Stream, and ITGI (Turkey-Greece-Italy pipeline).

The contract to develop the offshore Shah Deniz field was signed June 4, 1996. Participants in the agreement are: BP (operator) - 25.5 percent, Statoil Hydro - 25.5 percent, NICO - 10 percent, Total - 10 percent, LukAgip - 10 percent, TPAO - 9 percent, SOCAR-10 percent.

Nabucco gas pipeline project is designed to supply gas from the Caspian region and Middle East to the EU. Participants of the project are Austrian OMV, Hungarian MOL, Bulgarian Bulgargaz, Romanian Transgaz, Turkish Botas and German RWE companies. Each of participants has equal share to the amount of 16.67 percent. Construction of gas pipeline is planned to be launched in 2013, the first supplies - in 2017. Maximal capacity of the pipeline will hit 31 billion cubic meters per year.

Azerbaijan's Lankaran economic region: not only tea and fish

Azerbaijan's Lankaran economic region includes the administrative areas Astara, Jalilabad, Lerik, Masalli, Yardimli and Lankaran. The economic region's industry is based on agricultural raw materials, mainly fish and vegetable products. Building materials and furniture are being manufactured here.

Based on the Azerbaijani State Statistics Committee's data, 92 industrial enterprises operated in the Lankaran economic region and industrial products in the amount of 49.5 million manat manufactured here in 2010. The private sector share in the production process reached 56.2 percent here.

Some 8 industrial enterprises, which made products worth 10.6 million manat, operated in Astara in 2010. The Astara power plant, which is the first of the five stations that constructed under the respective order of Azerbaijani President Ilham Aliyev, produced 204.4 million kilowatt-hours of electricity in 2010. Tea in the amount of 6.2 tons produced in Astara.

The number of industrial enterprises in Jalilabad in 2010 was 11 enterprises with manufactured products worth 3.65 million manat. Jalilabad specialized in light industry, which made women's suits in the amount of 1,874 pieces.

Some 4 industrial enterprises, which made products worth 875,000 manat, operated in Lerik in 2010. The backbone of this region is the production of building materials in the form of river stone, crushed stone and carved stone weighing 114 tons.

The number of industrial enterprises in Lankaran in 2010 was 40 enterprises with manufactured products worth 12.2 million manat. The key products of Lankaran's food industry were the fish and fish products, in particular. The region produced frozen sea fish in the amount of 3.7 tons, fishmeal - 55.9 tons and fish oil - 4.1 tons. Famous Lankaran tea was produced in the amount of 107.6 tons. In 2010, the region has produced 14.700 tons of sand and 5,905 cubic meters of building bricks.

Some 24 industrial enterprises, which made products worth 21.6 million manat, operated in Masalli in 2010. Presence of vast forests in Masalli defined the region's specialization in the furniture production. Thus, in 2010 the region produced 24,400 units of office furniture and 661 wooden kitchen furniture set. Bricks were made here in the amount of 17,800 cubic meters.

Some 5 industrial enterprises, which made products worth 561,000 million manat, operated in Yardimli in 2010. Unfortunately, data on the kind of produced industrial products are not available.

A beautiful natural landscape, cold and hot mineral water, the favorable humid climate and extensive transportation network resulted in the development of resorts and tourist centers in the Lankaran economic region.

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