Covering the lost

Analysis Materials 31 January 2007 12:05

That is what the Trade Representation of Russia in Azerbaijan Tries to

Stanislav Belkovskiy, the Director of the Institute for National Strategy of Russian Federation, said during the today press-conference in Moscow that Azerbaijan completely fell out of the Russian influence in 2006.

He said that last October, the Azerbaijan President, Ilham Aliyev categorically repudiated to support the Russian blockade against Georgia, then, in December, 2006, Azerbaijan virtually refused to buy Russian gas, claiming that it intended to use mazut to cover the fuel deficit. Mr. Belkovskiy also said that Azerbaijan announced holding up the export of Azerbaijan oil via the Russian Black Sea Port of Novorossiysk starting from January 8, 2007, and moreover, the Azerbaijan Authorities made a decision to stop broadcast of Russian TV Channels on the territory of the country starting from July 1, 2007.

In 2006 Russia lost instruments of its influence on Azerbaijan and Georgia. That means a critical factor of the threat to Russia last conventional ally in the region - Armenia, as in addition to all, the gas blackmail was proved to be inefficient. In addition, according to the political analysts, the BTC Pipeline (Baku-Tbilisi-Ceyhan), which was put into commission in July, 2006, will significantly reduce the importance of the Russian route in carrying Central Asian oil in a short-term outlook. As a result of putting BTC into commission, Russia will face the increasing risk that Turkey would rapidly restrict the shipping in the Straits of Bosporus and Dardanelles.

Yuriy Shedrin, the Head of the Trade Representation of Russia in Azerbaijan attributed Azerbaijan as an all-sufficient country, which develops not day by day but by hours. Increase in assets of the State Oil Fund of Azerbaijan and the Stabilization Fund enables Azerbaijan to act as investor, he stressed.

He called on uniting the efforts for ensuring active participation of the business bodies of two countries in the trade and economic cooperation. It is necessary to systemize the goods turnover between the countries so that to prevent its dependence on the state of the market and particularly, the energy market.

At the same time the energy sector remains to be attractive for Russia. Rusneft of Russia to the development of the field Govsani-Zykh will reach $200 mln. This is significant funds, the most part of which will be intended for the implementation of the ecological programme

In addition to LUKoil, our companies may be involved in the sale of combustive-lubricating materials in Azerbaijan. These are GazProm, RAO EES, Rusneft

The issue on organization of carrying oil via the pipeline вЂ" Baku-Novorossiysk in reverse-regime work might be considered as well. After oil stock exchanges are organized in Russia, Azerbaijan may be one of the participants. German Gref, Russian Economic Development and Trade Minister, put forward such a proposal during his visit to Baku in autumn, 2006. This proposal was accepted positively. However, preparatory works on organizing trades are underway in Saint-Petersburg. As soon as al the works are completed, Azerbaijan oilmen may join, thinks the Russian diplomat.

Taking into consideration the strategic importance of the energy sector Russian wants to consolidate its positions in an effort to compensate its losses. The Russian energy company has presented to the Government of Azerbaijan a document on Presentation of the Unified Electricity System of Russia EES Russia, which offers services, including the management over energy networks of Azerbaijan.

No less interesting fact is that after Azerbaijan's refusal from the Russian gas Gazprom JSC made new co-operation proposals to the Government of Azerbaijan. He said that it does not need to politicize the absence of the agreement between Azerbaijan and Russia on gas delivery. As regards to unsuccessful negotiations, he does not see any reasons to close the representation of Gazpromeksport.

The proposals of Gazprom include using the Azerbaijan gas reserves for warehousing the Russian gas to export the fuel to the south regions of Russia.

Azerbaijan has great experience and potential in gas reserve. Despite that the active gas reserves are used for warehousing own gas, the goals of the proposals of Gazprom is to expand them and use additional layers. If today Azerbaijan needs Russian gas, taking into consideration the realization of Shah Deniz project, Azerbaijan may export gas to south regions of Russia over the next years.

At the same time there are plans to expand work in the direction of Russian investments in the Azerbaijani economy. If talks between the Government of Azerbaijan and Russian aluminum company RusAlom are a success the investment in the construction of an aluminum plant in Azerbaijan alone will exceed $1bln.

The negotiations with Russkiy Aluminiy (Russian Aluminum вЂ" RUSAL) JSC on the project on the construction of an aluminum plant in Azerbaijan are being held not impulsively.

At the end of 2006, the alarming tendency had formed to cut the negotiations down, as well as the withdrawal of the RUSAL Representative Office to Azerbaijan from Baku. Within the above-mentioned project, the Russian party has put forward some requirements on establishing privileges on energy resources, since the production of aluminum is a power-consuming process.

According to the calculations made by specialists, the expenses on electric power in the prime cost of the aluminum production reaches 75%, therefore, the production is not real without the installation of significant energy capacities. With this respect the Russian party had asked for the electric power lax tariffs to set up the energy capacities, however, no agreement on this issue had been reached, and therefore, these issues would be considered again. At the present time Azerbaijan displays interests towards the project.

Russian Trade Representation in Azerbaijan appealed to the Government of Azerbaijan asking it to intensify the consideration of proposals by Russian automobile factory Kamaz, Trend reports.

In August 2006 the management of Kamaz sent to Azerbaijan proposals on establishment of a plant for assembly of Kamaz automobiles in the country. The assembly will be carried out through establishment of a joint venture (JV) with an annual capacity of 1,500 automobiles.

Yuriy Shedrin, the Head of the Trade Representation of Russia, said on 25 January that there appeared to be a pause in talks between Azerbaijan and Russia.

We are still unaware whether the proposals are suitable for the Government of Azerbaijan. Otherwise, Kamaz is ready to meet at table of talks, he said.

In its proposals Kamaz appealed for 75%-stake in the enterprise income, while 25% is to be left for Azerbaijan. Kamaz asked for all possible privileged tariffs and taxes on all 8 positions.

These are very tense conditions, while Russia is ready to seek compromise resolution during the talks.

So, Russia demands different privileges from Azerbaijan for setting up entrepreneur activities, assistance in entrance of 400 small Russia companies to the Azerbaijani market. The analysis shows that almost all proposals by Russia on economic cooperation simply do not stand any critics, the proposals by Russia are not of actual character and it can do without a new aluminum plant, because it already has it. As to the machine building Azerbaijan intensively cooperates with different foreign companies. Moreover, Russia continues toughening the requirements on Azerbaijan. Gas policy, rise in energy prices, the pressure on Azerbaijanis working in bazaars cannot end this list. Since 1 January 2007 Russia has toughened the customs regime in respect to export of Azerbaijani goods to the Russian market. They also announce on increase of customs duties by $20 in 2007. It of course does not promote rise in cargo deliveries through the transport corridor North-South and all projects on transport corridor will be a failure.

Russia has a different type of collaboration in respect to another South Caucasus country вЂ" Armenia, where Russian expansion in the Armenian economy is observed. At present Russia purchases a third of the economic capacity of this country (energy, gas distribution networks, etc).

According to Vasiliy Istratov, the Extraordinary and Plenipotentiary Ambassador of Russia to Azerbaijan, at present Russian investments in Armenia comprise $800mln and there are plans to increase them to $1.5bln.

Armenia, which is alone in the transport blockade, agrees upon all demands by Russia and receives Russian energy at privileged prices.

At the same time, n accordance with the Russian forecasts, export from Russia to Azerbaijan, particularly, cars, machines, and transport conveyances will shortly increase by 15-20% a year, export of Russian chemical products will increase 40-60% by 2010. Moreover, importation of foodstuff from Russia will grow 10-15% in the near future, while delivery of Azerbaijani textile is expected to rise 40% by 2010.

As a result of 2006, the trade turnover between Azerbaijan and Russia amounted to $1.5 bln, or an increase of 50% from previous years. The goods turnover of Azerbaijan comprises 1.2% of the total goods turnover of Russia. The Russian market is the largest and prospect for Azerbaijan. Therefore, to cover the deficit in amount of $0.5bln mln in the trade turnover as a result of the termination of gas delivery from Russia, we need to expand on increasing the exportation of Azerbaijani commodities and fill up the deficit at the expense commodities and services from Azerbaijan. The key task set by the Presidents of Azerbaijan and Russia on increase the goods turnover to $2bln in 2007, Shedrin stressed. Think over it, dear gentlemen….