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THE GOV'T TO DEFINE PRIORITIES IN INVESTMENTS

Analysis Materials 11 July 2006 12:04 (UTC +04:00)

The international financial institution frequently state on increase of investment attractiveness of Azerbaijan. Annual rise of Azerbaijans incomes comprise $1bn, as the observation by an international organization UKTANT urge, indicating Azerbaijan as a country attractive for investing. The experience of the past 10 years shows, the foreign investments could not cover the countrys entire demand. Despite their importance and significance the foreign investments do not act as a decisive factor surviving the local industry, as their share in the non-oil factor is a bit more than 2%. Following the completion of the stage of intensive development of hydrocarbon projects the flow of foreign investments in the oil and gas sector will exhaust. Thus, within the framework of agreements, $3bn is expected from privileges and grants over the subsequent 4 years. In this situation the Azerbaijani government regards the domestic state capital investing as the major source of economic growth.

The government event has defined the structure, which is in charge of a responsible task on the implementation of state oil and gas strategy development of non-oil sector. There was opened the Azerbaijan Investing Company joint stock company, established at the presidential decree on additional measures on enhancing investment activities, dated 30 March. The mission of such resources targets investing in strategic and high profitable projects, such as transport corridors, pipelines, as well as encouragement of investments in the development of non-oil sectors of economy.

Financing the definite projects, envisaging support to entrepreneurship, the government intends to undertake part of risks (30-40%), while the rest to put on strategic investors. By this way, the risks will be defined on the one hand, while the local and foreign capital will be attracted on the other. In accordance with the forecasts by the Finance Ministry, as a result of its activities, the investment company will be able to increase the attraction of funds from the foreign investors by 4-5 times, or some $400-500m investments.

Therefore the Azerbaijani government is interested in the intensification of the activities of Azerbaijan State Investment Company. In the beginning of July the company underwent registration at the Azerbaijani Justice Ministry Азербайджана.

In connection with the personnel changes in the government, some changes are also expected in the Observation Board of the company. The vice chairman of the Board has been replaced by Shahmar Movsumov, the current executive director of the National Bank of Azerbaijan. Until the commencement of the company it is necessary to appoint its president and its staff. In this respect draft changes to the presidential decree have been designed.

According to he state adviser to the Azerbaijan President on economic issues, Vahid Akhundov, said that key problem was the examination of projects and estimation of priorities of investment policy. The selection of enterprises, where the investments will be put, will be carried out in accordance with all possible criteria, namely significance of the sector for the Azerbaijani economy and level of profitability. At the same time the projects implemented by local and foreign investors can also be financed. In this respect two directions have been defined projects the realization of which is of governments interests and projects proposed by the companys
investors. In this case a principle of commerce will be taken as a principle. Although investing in the sphere of trade is undesirable, as it is dealt with relatively long-term projects.

Much should be done in the sphere of infrastructure and it is necessary to outline the priorities to have high-quality projects, transparent selection, and normal implementation. The oil revenues should be used wisely, as we can face with unpleasant lesson of other oil countries, Akhundov underlined.

The statutory capital of the investment company has been formed at the expense of the State oil Fund of Azerbaijan in the amount of 90m manats. But it is not the limit. The company also has an opportunity to attract additional funds both in the local and foreign markets through issue of additional bonds, or attraction of credits. Respectively, there is a link between the development of the investment company and securities market, because the new facilities will be developed and become corporate, which would lead to the development of the stock market. There is still a probability that the company will exist independently and carry out co-financing.

In case of joint participation of the Minister of Economic Development and the Minister of Finances the first projects to be financed through the investment company were also presented. These are projects of different directions starting form petro-chemistry to meat packing plant, entering the State investment program. Thus, the Ministry of Economic Development continues talks with the U.S. companies on the construction of a huge petro-chemical complex in Azerbaijan. We want to visit to Au-Dhabi to get familiar with the application of similar projects by these companies in that country. They have big plants in different world countries and take inters in Azerbaijan, Heydar Babayev, the Azerbaijani Minister for Economic Development said. The establishment of petro-chemical complex will be occur at the expense of Azerbaijan State Investment Companys participation share. The approximate amount of investments in the establishment of the complex is around $500m-$600m. An only term set by the U.S. company is a guarantee by the Azerbaijani government on the uninterrupted crude supply.

It turned out that the total budget of the projects exceeds the statutory capital of the investment company, which is too normal, as the participation of the state company will vary from 20% to 25% in case of obtaining special authorization. In accordance with the principle, the investment company should not have an advantageous participation in the statuary capital of the commercial organization, where it invests. Maximal level of participation can be share not exceeding 50%. However, an agreement to be concluded between the company and commercial organizations on investing will include a term on the investment companys right for participation in the management of commercial organizations (general assembly, the Board of Directors /observation board / and protest (veto), as a result of which the resolutions taken by these organizations do not enact into law.

The investments will be of urgent character and allotted for the term from 5 to 7 years. The minimal limit for investments will be set by the Observation Council, while on different versions it will be a considerable sum, which will certainly strengthen private investors confidence in the state.

As one sees, the government has undertaken the means for conduct of countrys management policy. It actually poses suspicions in every economic subject whether it could mean returning to the administrative management of economy.

Well Feeling the in confidence of the private sector towards the countrys plans the Finance Minister Samir Sharifov hurried to calm. The key objective of the government is give impetus to the development of entrepreneurship, but does not target the returning of all private enterprises to state ownership, he underlined. Moreover, no changes will be injected in the privation policy, as the activities of the JSC will not contradict to current program on privatization.

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