The tendency on reduction of the role of state and gradual restriction of the investment zone of it activities is of long term character for post-Soviet countries. In case with Azerbaijan the governments investment policy gained the second wind. On behalf of the Azerbaijan Investment Company (AIC) established at the Presidential decree On additional measures on encouraging investment activities, dated 30 March, the government will hence define the priorities of the investment policy. It is very logic that the situation when a lion share of foreign investments is directed at the oil sector, the government will enhance the investing in the non-oil sector.
The first choice
The AIC is going to carry out its first project in 2006 and the government to have the safe variant. According to Minister for Economic Development, the chairman of the Observation Board of the AIC, Heydar Babayev, the AIC will participate in the project on expansion of the capacities of the Garadagh Cement plant.
While selecting he object of investing the government took in to consideration two important factors. Firstly, the bright future of the construction business, where cement plays an exclusive role and is of high demand, secondly, the EBRD has recently taken a resolution on acquisition of 20%-stock of Gadaragh Cement at $10m.
Garadag Cement is an only production of clinker and cement on its base in Azerbaijan. The company covers the major part of domestic demand with premium-quality product, which meets both the local and international standards. Having started its operation in 1999, Holcim Group achieved a great success at Garadagh Cement Plant and further in Azerbaijans market. At the moment Garadagh Cements production is widely used for many large-scale projects in the country. Up to 2010 the plant shall achieve compliance to European environmental standards that requires its reconstruction and related investments in amount $100 to 110mln.
The European Bank for Reconstruction and Development (EBRD) adopted a purchase of 20% of Garadagh-Cements assets for $10m in a meeting of the Board of Directors 25 July. The total cost of the project is $13, 3m. The major objective of the project is decreasing environmental risks. All actions and investments on environment protection are included into the total plan on environment protection, which is a condition for EBRD participation in the project. EBRD will buy a part of assets from the Swiss company, Holcim portfolio. Holcim privatized Garadah cement in 1999. The company owns 89, 4% of assets, the rest are owned by private stockholders. The EBRD plans to enter the fifth of shareholders for 5-7 years.
At present Garadagh Cement has other projects where the government plans to participate, investing here through the AIC. First of al it the expansion of the capacity of the Garadagh Cement. Earlier the reconstruction of the plant was estimated to $120m, of which $13.3m has been attracted from the EBRD.
For the time being the exact data on the cost of the project has not been submitted the government, whereas the participation share of the investment company in the project is still unknown. We have own limitations in the participation stake in the capital, there fore we will utilize it maximally and invest the sum needed depending on the project. If the 20%-stake costs $10-20,, we will participate in it, Heydar Babayev says. On the one hand it will be a guarantee for the foreign investor that the state is interested in the restoration of the cement plant. On the other act as an incentive for other production facilities.
AICs future plans
These are projects are of different directions ranging from the petro-chemistry to meat-packing plant, which are included in the State Investment Program. The governed also regards the investing in the petro-chemical industry as the safest variant. Polymers, synthetics are the materials of the future. Despite the combination with the oil sector, the petro-chemistry is one of the key economic sectors in the non-oil sector of Azerbaijan.
According to the Azerbaijani Ministry of Industry and Energy, the majority of the state enterprises actually are inactive, while the existing small enterprises work on outdated technologies. Such production actually makes no sense of thinking about rivalry and they will not exist in a few years. Specific peculiarities of the output of petro-chemistry are the existence of considerable foreign effects from the activities of the enterprises, high level of material capacity, considerable expenses for innovation.
The government thinks that if an enterprise which has a big crude base базе, but is lack of technologies, or personnel, or investments, the government could resolve the problem. The entrepreneurs themselves should establish enterprises, which is a benefit to rivalry in the country. If the project justifies the investments and well reimbursed, the AIC will allot funds for such an enterprise. This is the governmental assistance.
The same occurred to the idea on the construction of a big petro-chemical complex at the expense of the stake of the State Investment Company. AN idea is very good and the Ministry of Economic Development made a resolution on attraction of a consultant to the development of a feasibility study of the project. As it was noted earlier, representatives of the Ministry are going to visit Abu-Dhabi to get familiar with the application of the similar projects by these companies in that country. They possess big plants in different world countries and take interests in Azerbaijan.
The approximately $500-600m is needed for the establishment of a complex. An only term put by the U.S. companies, which are involved in the relevant talks, is a governmental guarantee for uninterrupted crude delivery. The initial list of buildings, included in the feasibility study is as follows: the contractor is eligible to define optimal place for placement of the facility, conditions for its functioning, scales of production and potential consumption market of ready products.
Is the Azerbaijani investment company ready?
As it seems, active state support in the form of issue of privileged credits for the leading companies and different fields of non-oil section of extreme need. The government takes definite steps to intensify the process. Thus, the charter of the AIC has undergone the state registration and all organization issues concerning the activities of the company have been resolved. In the end of July, Anar Akhundov, former head of the Baku Stock Exchange, was appointed the Executive Director of the AIC. At present work over the development of draft rules on use of funds of the investment company is underway.
Immediately after the appointment, the State Oil Fund of Azerbaijan remitted the first tranche in the amount of 10m manats for financing the statutory capital of the AIC. In general, 90m manats (approx $100m) will be allocated by the State Fund for this respect. The finds will be allotted by installments: by the end of 2006, 50m manats will be remitted to the AIC, while the rest 40m manats will be transferred in 2007.
The AIC will set up its activities on urgent investing in the company through acquiring a share, mainly of the joint stock companies and other commercial organizations active in the non-oil sector. The investments will be of urgent character and allotted for the term from 5 to 7 years.