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Happy 15 th Anniversary Amcham Azerbaijan Interview with Matthew Bryza, American Ambassador to Azerbaijan AmCham: A Never Ending Story The Rise and High-Rise of Post-Independence Baku Unique opportunities in the era of changes

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Page 1: Happy 15 Anniversary Amcham Azerbaijanamcham.az/wp-content/uploads/2016/11/impact12.pdf · AmCham Azerbaijan Dear Readers, Happy 15th Anniversary AmCham Azerbaijan! In this issue

Happy 15th Anniversary Amcham Azerbaijan

Interview with Matthew Bryza, American Ambassador to AzerbaijanAmCham: A Never Ending StoryThe Rise and High-Rise of Post-Independence Baku Unique opportunities in the era of changes

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American Chamber of Commerce in Azerbaijan (AmCham), established in 1996, is celebrating its 15th Anniversary this September. To celebrate this important occasion, we publish this anniversary edition of our IMPACT Magazine.The development of the Chamber has paralleled the vibrant growth of Azerbaijan, especially after regaining its independence in early 1990th (collapse of Soviet Union). Founded in mid 1990th with 89 members at the first five years, today AmCham has an impressive list of more than 230 members and associates, active in every sector of the Azerbaijani economy.

Last seven years I spent as the Executive Director of AmCham have been the most challenging and the most exciting years in my life. This work requires great effort and dedication, strong belief and endless passion. But the payback is immense - our work is the source of personal pride and constant learning and growing for me and all of the team.

On our anniversary these feelings are stronger than ever. 15 years is a considerable period. In this issue we tried to show you how much has happened in Azerbaijan in this period and how much has happened in AmCham.

To continue with our endeavors to raise our Chamber’s standing to the best standards, we need crucial support from all our members, counterparts and partners. We invite all of you to celebrate this achievement together and look forward to joint future!

Warmest regards,

Nargiz Nasrullayeva-MudurogluExecutive DirectorAmCham Azerbaijan

Dear Readers,

Happy 15th Anniversary AmCham Azerbaijan! In this issue we'll celebrate with Nargiz, AmCham's Executive Director, as she recounts the accomplishments of the American Chamber of Commerce from its humble beginnings to its prominent place in the business community promoting growth and investment in today's economy. Also, enjoy our exlusive interview introducing the new American Ambassador, Mr. Matthew Bryza, as he discusses his hopes for a successful tenure in Azerbaijan. Then, to wrap it up, we'll highlight the path of progress over the past 15 years

of a few select business sectors in Baku and the changes and challenges they've experienced along the way. I'd like to express my gratitude to Jeyhun Atayev and the entire AmCham staff for coming to my rescue to help complete this very special issue of Impact AZ. My broken foot is nearly back to normal and I wish you the best of luck moving forward. As always, a warm felt appreciation to our advertisers. Your loyalty makes this publication possible. Thank you for your support and happy reading! Best regards,Donna Denton

A Word from the ExecutiveDirector of AmCham

Editor’s Comment

CreditsAmCham Executive Director:Nargiz Nasrullayeva-Muduroglu

Editor:Donna Denton

Design & layout:Quadro M Media Agency

Photographer:Huseyn Azimzade

Articles contributed by:Nargiz Nasrullayeva-MudurogluWayne WalzAlum BatiRifat Roy Kocal and Gular AlmazovaCuneyt TurktanFaig HuseynovNigar JafarovaSamir Hadjiyev and Yekaterina KimFariz AhmadovKamal Mamedzade Advertisers:BakcellITECAMozaik LLCPasha ConstructionPort Baku TowersPasha InsurancePriceWaterhouseCoopersSAZZ AzqtelGDF SuezThe Landmark Hotel

Cover artwork:Quadro M

Printing:Nurlar

Publisher:American Chamber of Commerce in AzerbaijanTel: (+994 12) 497 13 33Fax: (+994 12) 497 10 91www.amchamaz.org

Advertising opportunities:Please contact the EditorJeyhun [email protected]: (+994 12) 497 13 33

The articles in IMPACT AZERBAIJAN express the opinions of the authors and do not necessarily reflect the position of the American Chamber of Commerce in Azerbaijan.

Summer / Issue 12

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contents

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5 Then and Now - a Flashback of the Past 15 Years of Business in Baku

Unique opportunities in the era of changes

The Rise and High-Rise of Post-Independence Baku

The Development of Aviation in Azerbaijan

General overview of ICT Sector in Azerbaijan

Happy 15th Anniversary AmCham!

Having opened its doors in 1996, the American Chamber of Commerce is still growing strong with over 220 member companies. What keeps us connected to this business market and how do we give back to this community? Director Nargiz Muduroglu describes our humble beginning and what is to be her focus moving forward.

What was it like to do business in Baku back then? Several business sectors highlight their growth over the past 15 years and how they sustained the Azerbaijan market

8 Azerbaijan Welcomes new American Ambassador, Mr. Matthew Bryza

Meet Mr. Matthew Bryza in our exclusive interview as he discusses his arrival to Baku, how to face the tough issues of this developing nation and what would make his time here a success

IN FOCUS / THEN & NOW

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Some people will consider the concept of Islamic Taxation only as springing from the concept of Islamic Finance which is in turn covered by the Islamic Law. However, we would

like to broaden our comprehension of the Islamic Taxation as an institute of Law.

contents

30 A Step Forward: Building an Investment FundNeed an advice on creating an investment fund? Let’s talk about how experts can help you

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39

Introduction to the concept of Islamic Taxation

Islamic banking

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About us

Business Events

36 Global CompactNowadays we know that it is not possible to achieve peace and prosperity without the partnership among states, international organizations, business and civil society. Today we are closely interconnected.

Various forms of Islamic financing are used today in more than 40 countries. A positive effect of the Islamic banking is clearly evident in crisis times

MEMBERS

AMCHAM AZERBAIJAN27 Development of Banking Industry in Azerbaijan

47 Government Relations

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60 Corporate Social Responsibility

AmCham & Junior Achivement Azerbaijan hosted an event

AmCham & Junior Achievement Azerbaijan Hosted 2011 Student Business Day

AmCham and Save the Children joint party - Closer to children

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New Members

M2M Discount Program

54 AmCham 16th Annual Independence Day Picnic

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Members’ News & Events

2011 January - JulyCalendar of Activities

AMCHAM AZERBAIJANAMCHAM AZERBAIJAN

53 Social Events

LawsCourt DecisionsPresident Decrees / OrdersCabinet of Ministers Resolutions

49 AmCham Legal Update

contents

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Happy 15th Anniversary AmCham: A Never Ending StoryIn 1996, thirteen companies came together to found the American Chamber of Commerce in Azerbaijan. I was 17 then. Much has changed - I have, Azerbaijan has and the AmCham, too, has evolved. From a small group of like minded companies mobilizing to promote American business in Azerbaijan, the Chamber grew into the largest foreign business association in the country, representing the diversity of companies that embody more than 80% of Azerbaijan’s foreign and a significant part of the countries national investment, now coming forward to promote the interests of business in Azerbaijan. Our members represent every sector of this country's economy becoming a collective positive force in making Azerbaijan a better place to invest and conduct business.

One of the brightest indications of association’s success is positive growth in membership. We have been constantly growing: from 13 companies when we started, to 89 on our fifth, 168 on our tenth and 224 on our fifteenth anniversary. This logically leads to steady financial performance which has allowed us to improve and expand our services over the years for members to enjoy. And I am a little older than 17 now.

As many, I want to think, would agree, foremost has always been the best networking opportunities in the country, and there are tricks for accomplishing this. Major changes that we undertook on our website in 2007 now lend members

access to exclusive “members only” content, including an instantly updated membership directory, where members find contacts that are not available in other directories, filter companies by sector and use a search engine. In a few clicks they also make instant changes to their own info. More than 150 Monthly Members’ Luncheons since 1996 have transformed in quality and size becoming the ultimate business networking event in town. In addition to Special Guest Speakers, the agenda offers short presentations by new members, news and announcements of existing members, as well as the update on the chamber activities and events.

Our six industry-specific committees provide networking on a different level. Any employee of any member company is welcomed to the committees’ workshop where friends at HR network with their peers in the Labor committee, colleagues in finance and legal counselors in the Tax and Customs Committee and so forth. Through committees meetings members can discuss common issues, share best practices, establish and develop relationship with relevant Government agencies and run various trainings and projects.

Our ability to provide tailored and targeted networking for members has evolved over the years –as one of the membership benefits, we are organizing personalized meetings for our member companies with various levels of Government officials,

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companies within and outside the membership in the US and worldwide. These are my personal favorites.

Our Events have advanced to a whole new level. In 2010 alone, in addition to Monthly Members Luncheons, we held 30 committee meetings with 560 attendees, 3 business events with 210 attendees and 5 social events with over 1100 members attending - all of them all planned to help our members’ businesses develop. They are designed for members to network, learn, promote, showcase their companies and simply have a good time with colleagues and friends.

We developed as the Effective Business Advocate. I now get the luxury of enjoying extensive meetings with civil servants, I am sure many would share the joy. Issues of systemic nature are raised by the Chamber on behalf of the aggregate group of companies facing them, get analyzed, brought to Committees and advocated with the Government. Dozens of success stories prove the effectiveness of these efforts.

More services adding value to the membership are continuously offered. The Annual National Employee Salary Survey has been provided since 1998, Quarterly Consumer Price Index since 2006, Impact Azerbaijan, a quarterly business magazine since 2007, Real Estate Survey since 2010 and bi-weekly Legal Updates since 2011 are notable examples.

Policy work and dialogue with the Government has always been of the pillar of AmCham’s work. Our White Paper, a summary of observations and recommendations of the private sector for the Government of Azerbaijan, crowns this work and sets our overall policy directions under a unified document. This document encompasses major challenges for business in the areas of Taxation, Banking-Finance and Insurance, Customs, Communications, Information Technologies, Labor and Tourism and provides concrete and specific recommendations on how to overcome these. First edition of the White Paper was delivered to late President Haydar Aliyev in his meeting with AmCham in 2001, and was highly appreciated by him resulting in amendments to legislation and changes to practices undertaken by the Government. I am also proud to write that the second and third editions were presented to President Ilham Aliyev in 2005 and 2008 and found their reflections on the policies set by the Government since then. I am hopeful that the latest edition of our White Paper finalized last month will be presented for President Aliyev’s considerate attention by the time this article reaches your attention.

Another policy and advocacy milestone is our working relationship established with the Parliament of Azerbaijan. Being a true believer in the principle of legal certainty and clarity, and highly valuing the rule of law, Amcham for years has been developing a mechanism where draft laws and legal norms that affect business and will have an impact on the private sector are shared with AmCham at the stage of revision in Parliament to be analyzed and commented upon by the member companies. This is a work in progress though our position papers on the Tax Code, Competition and Customs Codes, Law on Social

Insurance and many more are discussed and referred to by lawmakers.

Sometimes our policy work is more of a firefight. Emergency response to the amendments on the Law on Entrepreneurship adopted in the summer of 2009, when AmCham took a full initiative to clarify the new provisions, their implementation mechanisms and impact, and contacted the Economic Commission of Milli Majlis, Legal and Legislative Department of the Presidential Apparatus and Office of the Economic Advisor to the President. Within the first weeks of the adoption of the law, we invited the representatives of leading international and financial institutions including International Monetary Fund (IMF) , International Finance Corporation (IFC), World Bank, OCSE, USAID, Embassies of the United States, France, Italy, Norway, Delegation of the European Commission as well as the BBG and DAWF to join efforts to revoke these changes. Finally, we addressed President Aliyev with an assertive position putting forward logical arguments in the best interests of Azerbaijan, with the confident result of the President rejecting the amendment.

AmCham’s work with the State Migration Service, started immediately upon its inception, is another example of Government relations we enjoy. Since 2009, we have regularly held meetings with the Chairman of the State Migration Service, General Arzu Rahimov. In addition to the numerous meetings with AmCham Board Members, General Rahimov addressed the entire membership by speaking at one of our Monthly Members' Luncheons, held a separate meeting with members of AmCham’s HR Committee and a number of wider group member meetings. We have also hosted a working level Q&A session for members to ask questions directly to migration officials of various departments. This again is a work in progress with highs and lows, but it does bring tangible results eventually.

I do, however, believe that we as a business community need to change and transition with shifting trends. Issues including corruption, unethical behavior and anti-competitive practices are like a two way street with both public and private sectors that need to work on preventing such actions. We’ve therefore introduced the AmCham Code of Conduct, a set of principles that we as a Chamber are committed to follow, supporting fairness and honesty in business activities. All members of AmCham agree to abide by these principles, developing and promoting them further.

We have been and remain a very active member of the global network of AmChams. Being a member of the U.S. Chamber of Commerce since our formation in 1996, the European Council of American Chambers of Commerce (ECACC) since 2006 and a Member at Large of ECACC’s, now “AmChams in Europe” Executive Committee since 2010, we are participating in the transatlantic and regional dialogue to a great extent.My most recent ambition is to expand into the area of the socio-economic development of Azerbaijan. Our members have increasingly approached the Chamber, and me personally, to support their socially responsible business and caring staff’s goodwill in helping vulnerable populations in the country in a

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manner that prevents fragmentation and duplication and disallows corruption ensuring that the donated money, non-financial assets and time reaches the recipients in the most meaningful way.

Among these, I am proud to share that the 15th Annual Independence Day Picnic on July 3rd, 2010, with more than 700 guests attending, raised a seemingly modest amount of 3,800 AZN. But being donated to our new member, Save the Children, the funds published a handbook for the parents of children with disability, providing guidance for them to support their children. The book, the only resource of its kind in the Azerbaijani language, contains comprehensive definitions of medical terms, symptoms and treatments, legislative advice, and firsthand stories from family members of children with disabilities. By touching issues such as education rights, training and employment opportunities for people with disabilities, the book is a do-it-yourself resource to encourage parents to fight for the best lives for their children with disabilities. It has been distributed to polyclinics, boarding schools, rehabilitation clinics, and Children and Family Support Centers free of charge, impacting the lives of thousands of children living with disabilities and their parents.

Upon our members’ request, we organized a joint visit on December 29, 2010 to Boarding School #11 in Shuvalan, a place that shelters children, predominantly diagnosed with light mental disabilities. Facilitated for children’s positive interactions with adults, and designed for AmCham Members to invest their time for vulnerable children, the visitors and the children spent the day engaging in joint activities and communicating via decorating the New Year tree, playing interactive games, drawing, painting and sharing presents.

AmCham’s Members interaction with the children had immediate and lasting impact on both children and the guests.

With these, we have now been engaging in de facto corporate and personnel social responsibility more frequently than ever before, but by far not often enough, to secure a significant social change. We call on all our members to address their preparedness to invest in their society to better future business and employment environments. As our formal engagement to support our members to achieve meaningful and efficient social investment, AmCham will seek avenues with members such as Save the Children for more formal ways of engaging the members in social work, such as workshops, co-sponsored projects, establishment of the CSR committee and so forth.

I believe it was Theodore Roosevelt who said, “What you are to be you are now becoming.” If that is true then AmCham with all its great achievement in the business environment is becoming a bridge between the private sector and social development with more yet to learn, give and achieve. Together with AmCham, I too have now grown into a socially conscious individual – owing this all to our caring members.

Nargiz Nasrullayeva-Muduroglu graduated from Western University, faculty of Legal Regulation of Economy. Nargiz has over 14 years experience with multinational organizations. She started her professional career in Baku branch of HSBC Bank Middle East, then joined Regus Business Centre Trading Ltd. as Business Centre Manager. Since July 2004 Nargiz Nasrullayeva is the Executive Director of AmCham Azerbaijan.

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With much anticipation, you have finally arrived as the new American Ambassador in Azerbaijan. How are you settling into your role?I’ve settled in very well, thanks. My family and I have been overwhelmed by the warmth of the reception we’ve received from just about everyone we’ve met in Azerbaijan. We really wanted to come here and had known the place and the people for a long time. But, even with that background, we were surprised at how wonderfully warm the reception has been. We are very grateful for that.

Now that you’ve had a chance to look at the big picture as a whole and assess the circumstances from a higher level, is there any one glaring objective that begs your attention that might define your first year here in AZ? There’s an overall objective, and then there are a few sub-objectives. Once the overall objective is achieved, we can focus forward on subsequent issues to broaden our work here in Azerbaijan.

Mr. Matthew Bryza, American Ambassador to Azerbaijan

The overall quest is to improve the tone of our relationship with the Government of Azerbaijan so that we can rejuvenate the positive momentum that has been a part of the U.S. Azerbaijan relationship since I first started working in this region 34 years ago. I feel that starting to happen again based on the warm reception and collaborative mood of the official meetings I’ve attended, not to mention concrete bits of progress we’ve seen on key issues.

Then in terms of subsequent objectives, there are a few things we’d like to achieve as a result of that improved tone that I’d like to highlight. First, as I’ve said a couple of times in my public statements, I am doing everything I can to support the work of the OSCE Minsk Group and the Co Chairs to help the parties reach a negotiated peaceful settlement for the Nagorno Karabakh conflict. Nothing is more important than peace. If we can’t secure a lasting peace, it’s impossible to secure anything else we’re working on.

in focus

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The second objective is to help Azerbaijan emerge as the example that proves that in the wake of all of the upheaval in the Middle East and North Africa, the choices in this extended region of the world is not between religious extremism and political authoritarianism, but instead to demonstrate that there is a middle way. This middle way is based upon political and economical liberalization, democratic reform moving forward, step by step, day by day – not as a revolution, but as a part of a constant effort by civil society, government and common people to liberalize.

The same goes for the economic side where, as we’ve heard from President Aliyev, there is a need to fight corruption. There has been positive progress in that direction. Also, to break up monopolistic power throughout various parts of the economy which, as an example, recently impacted food prices.

To sum it up, we want to improve the tone of the relationship to generate the positive spirit that has always dominated the U.S. Azerbaijan relationship. With that, we’d like to help the parties advance toward a peaceful settlement in the Nagorno Karabakh conflict by supporting the OSCE Minsk Group Co Chairs, and help Azerbaijan prove that there is a proverbial third way between religious extremism and political authoritarianism.

How does your past experience give a general understanding of this region and its inherent challenges?I hope it gives me an intuitive feel for the dynamics within the Azerbaijan society in a way that maybe someone who’s brand new wouldn’t yet understand. Generally, in life I think the best decisions are based not only on rational analytical calculations, but on intuition. I’m not saying I have some deep, profound understanding of this very complex society, but what I am saying is that since I have spent this much time getting to know this society and many of the people, hopefully I have a bit of an advantage over someone with less insight.

I also have had a chance to work on issues that are most important to Azerbaijanis in a way that pulled me in on a more human level. Again, going back to the Nagorno Karabakh peace settlement; I don’t think a diplomat can do any work more satisfying then helping two countries reach peace. As a diplomat, we all dream of doing that someday. So that’s something I’ve had the honor to work on for 3 4 years, even longer if you count the time I spent at the White House. I think that has helped me gain a deeper understanding about how Azerbaijanis feel about the conflict as well as how Armenians feel. So I hope I have more to offer besides support of the Co Chairs.

I’ve also worked in a personal and professional way on the oil and gas pipelines. It’s thanks to the Baku Tbilisi Ceyhan pipeline that I have my family. I met my wife while working on that project originally and we got married on an island in the Bosphorus. Because of this, I feel more connected to Azerbaijan and to the entire region for that matter, through my work and my private life. My whole professional existence is committed to helping the parties reach peace, advance

prosperity and strengthen their ties to the Euro Atlantic community.

As our guest speaker at AmCham’s monthly luncheon in February, you seem to tackle sensitive subjects like bribery concerns and corruption in the education system head on, pausing only to encourage an open dialogue. How will you persuade participants to speak frankly without apprehension so that real progress can be made in these areas?That’s a key question that I think the Government of Azerbaijan at the highest levels is dealing with. As we know, an anti corruption campaign has been initiated by the government of Azerbaijan. It’s not a result of U.S. policy, although we strongly support it and wish to do everything possible to insure its success.

Of course, it’s more than just a campaign. It’s a broad effort that aims to foster systemic change. I think the way to get people to talk about these difficult issues is to support the people themselves as they begin to open up about the need to advance the fight against corruption.

I do sense that there have been some significant changes in people’s everyday lives as a result of this effort. We hear about traffic police behaving more politely these days and acting within the rule of the law. Seems people are doing more driving and less stopping to pay “fines”.

We hear from some companies that custom procedures have improved and that it’s easier to do business. We even hear from people dealing with notarial services that they are getting receipts for services rendered for the first time ever. International business standards are crucial for Azerbaijan to attract investors moving forward that will make this place even more prosperous.

What are the top 5 areas of concern where you feel a great deal of attention should be given to improve or maintain the U.S. / Azerbaijan relationship?I would say there are 3 broad concerns that are the ones which our policies towards Azerbaijan and the Caucusus are based, and then I would add 2 more specific ones, in no particular order.

Security – We support of the OSCE Minsk Group Co Chairs working to find a peaceful solution to the Nagorno Karabakh conflict, and also cooperate on counter terrorism, counter proliferation and access of non lethal supplies to the international community’s efforts to assist the people of Afghanistan. I’d like to note for a moment on counter terrorism that we are very grateful for years of successful cooperation between our two governments that have lead to the apprehension of some of the world’s most serious terrorist suspects. As a host country, Azerbaijan has kept us safe in the U.S. Embassy community over the last several years, most recently just a couple of months ago when heightened levels of security were deemed necessary.

Energy – the topic which brought me to this region in the first place and has helped establish Azerbaijan on the strategic

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map of this region. This is a big year between the companies and the countries developing the southern corridor which will move Azerbaijan’s natural gas, and hopefully gas from central Asia, to Europe to help diversify Europe’s gas supply. The project will undoubtedly anchor Azerbaijan to Europe and other global markets on a higher level.

Internal Reform – as I said earlier, our goal is to help this country to liberalize one step at a time, persistently laying the foundation of democracy, strengthen democratic institutions and to help open up this economy by de monopolizing based on the free flow of goods, services and labor. This will bring stability.

We know from public opinion polling that many Azerbaijanis believe their country is moving in the right direction on democratic change, and we’d like to celebrate that. However, we believe there’s much more work to be done now. Our goal is not revolutionary change, and not to see unrest on the

streets. Our goal is to see meaningful, constructive dialogue between the government and its citizens to constructively keep this reform moving forward every day. I sometimes think of the reform process as a shark – conventional wisdom says that a shark may drown if it stops swimming. It’s the same with the reform process – it can’t stop. Azerbaijan has a vision at the political level about where this country needs to evolve – it’s got time and the necessary monetary resources. Now it needs to have the energy to drive these changes forward.

As a subsequent objective, the fourth has to be to further improve the business and investment climate. Thanks to the American Chamber of Commerce Azerbaijan (AmCham), our minds are full of practical ideas that can help us achieve this goal. The white paper soon to be released by AmCham, will provide the guidelines for our discussion with the Government of Azerbaijan in an effort to find a mutually agreed upon way to implement the necessary steps towards a more opportunistic market.

Finally, the fifth area would be to reshape the relationship between those who rule Azerbaijan and those who are ruled so that there is a positive connection – one where the people feel their government exists to help them. I believe the top areas of concern are in education reform, healthcare reform and supporting the rights of women and girls especially where women and girls are concerned. Obviously, when half of your society doesn’t have the same rights as the other half culturally, and are in a sense held back from achieving everything men are achieving, then it’s impossible to talk about democracy.

In January there was an increase in terrorist threat levels and a travel warning issued for Azerbaijan. What can you tell us about short and long term goals to insure a secure environment in Azerbaijan for expat and local communities alike?First of all, I’d like to state that those warden messages that were issued recently were serious. We don’t want to frighten people or jump to conclusions, but when we have information that will result in U.S. officials possibly changing their behavior; we have to share that information with our fellow American citizens. That’s by law. So that’s what happened when we received information that was becoming increasingly specific and worrisome that led us to take steps to strengthen our own security. We want American citizens to have that same opportunity to be as safe as possible.

Having said that, we’d like to suggest that AmCham and all of its members along with all Americans in this country are in close contact with us at all times. American citizens should be registered with the Embassy’s Consular section in the event, God forbid, there’s a problem and we need to find people to make sure they’re ok, we can. We also welcome you to consult with us to understand the security procedures from our prospective.

What I realize, unlike any other job in government, is how dependent we are on our host government to keep us safe.

Photo by Heydar Aslanov

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At the end of the day, we have our security procedures; we have our technology and equipment, our walls and our internal security services. But the key to keeping us safe is the partnership we have with the Azerbaijan government. On behalf of everyone in our Embassy community, I’d like to once again express our gratitude to the Ministry of National Security and the Ministry of Internal Affairs for the superb cooperation we’ve enjoyed from them in making sure we stay safe.

In your opinion, what will make your tenure in Azerbaijan a success?Well, a good part of that depends on how long I get to be here. I know for sure that I’ll be here thru the end of this year. If that’s the length of my time here, and if we’ve changed the tone of the U.S. Azerbaijan relationship and rebuilt a sense of trust across society so that everyone –government and non government alike – understands that we are committed to an ongoing partnership with Azerbaijan, then my time here is well spent.

I need people to understand that our press for progress and

democracy, human rights and economic liberalization is again noted in friendship. It’s our desire for us to work together to have the strongest possible partnership with the most stable partner that we can have in the country of Azerbaijan. I think that would define a successful tenure.

Matthew J. Bryza was appointed by President Barack Obama as U.S. Ambassador to Azerbaijan, and arrived in Baku on February 6, 2011. Mr. Bryza served most recently as Deputy Assistant Secretary of State for European and Eurasian Affairs, responsible for policy oversight and management of relations with countries in the South Caucasus and Southern Europe, as well as serving concurrently as U.S. Co-Chair of the OSCE Minsk Group. Mr. Bryza graduated from Stanford University with a bachelor’s degree in international relations. He received his master’s degree in the same field from the Fletcher School of Law and Diplomacy. He is fluent in Russian and Polish, and also speaks German and Spanish, as well as conversational Azerbaijani. He is married to Zeyno Baran Bryza, with whom he has a one-year old daughter, Maya.

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Summer / Issue 1214

Unique opportunities in the era of changes

Wayne Walz President Caspian Region Oilfield Services

Azerbaijan has been linked with oil for centuries, even for millennia. By the 19th century Azerbaijan was by far the front-runner in the world's oil and gas industry. Azerbaijan drilled its first oil well in 1820, by the beginning of the 20th century the republic was producing more than half of the world's supply of oil. After the oil crisis in the second part of the 20th century, the world started looking for other sources to reduce their dependence on OPEC countries. One of the regions that proved to be quite rich is the Caspian Sea region. Today proven oil resources of the Caspian region are 10 billion tons, 3 billion of which belong to Azerbaijani sector of Caspian Sea. Wayne Walz, takes a look at the past 15 years of oil and gas sector development and describes its most interesting stages…

We are all aware of the tremendous interest in the petroleum production potential of the Caspian Basin. Reserve numbers are being stated ranging from 100 to 200 billion barrels. These are optimistic estimates, and much exploration and delineation to determine actual hydrocarbon reserves must be accomplished before definitive numbers are available.

Considerably more is known concerning the potential recoverable oil reserves within the Azerbaijani offshore sector. Numerous potential hydrocarbon areas have been identified and a few have been exploited since as early as the 1940's. Currently, international specialists are comfortable to assume that the Caspian Sea offshore sectors contain more reserves than within the North Sea. In fact, the Contract Area of Azerbaijan International Operating Company (AIOC) is known to contain recoverable reserves conservatively estimated to equal 7 Billion barrels of oil.

Therefore, when coupled with the fact that the Azerbaijani Government has a proven track record of negotiating and honoring fair agreements for the exploration and exploitation of the potential onshore and offshore structures, then it is easy to understand the intense interest in coming to Azerbaijan to do business.

In the meantime, the intense interest in the hydrocarbon

producing potential of Azerbaijan is reinforcing yet another significant opportunity for commercial participation there. The reality of Azerbaijan is that it is a developed country with an extensive manufacturing and offshore petroleum services infrastructure. During the days of the former USSR, Azerbaijan provided the state monopolies with 70% of all the petroleum sectors equipment and was the center of offshore services within the Caspian. It was the center of excellence within the USSR for numerous petroleum sector technological areas, such as, electric logging, seismic techniques, offshore technology, drilling equipment, etc. The country boasts an extensive and distinguished system of scientific research institutes and a 97 % literacy level. There are currently tens of thousands of under-employed engineers and skilled workers available to be employed within the existing petroleum sector manufacturing and services industries, upon their refurbishment and revitalization.

Therefore, nothing would be more natural or logical for Azerbaijan then to strive towards re-establishing itself as a major exporter of petroleum sector goods to the international market place and provider of offshore services to the Caspian Region. The country is uniquely positioned to achieve both objectives if the right mix of government stewardship; western technology, management techniques, commercial savvy and financing is brought together to create and facilitate alliances between selected world class international firms and selected,

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capable Azerbaijani organizations. This last statement represents the current challenge to the Government, consortia and oil companies working within Azerbaijan, due to the need to match infrastructure development to both the requirements of Hydrocarbon Resource development and meet the expectations of the Azerbaijani petroleum-sector industrial complex.

What can be learned from the AIOC Experience?The first consortium of international companies to accomplish the development of an offshore E&P development program in the Caspian Sea is the Azerbaijan International Operating Company, better known as “AIOC”. AIOC has been operating the Azeri-Chiraq-Guneshli License Area since September 1994. AIOC’s initial work program, the combination of AIOC's “Minimum Obligatory Work Program (MOWP) and the Early Oil Implementation Program (EOP) was fondly known as "The Billion Dollar Experiment" within some of the consortium's members. In actuality, the cost of achieving the two programs totaled approximately 1.5 billion USD. Basically, the workscopes were seen as a preliminary effort to determine if international companies could operate effectively in Azerbaijan, to determine if the resultant oil production could be exported and sold on the international market and to develop typical project benchmarks on work productivity, quality and cost; to serve as a basis for making future cost estimates and

future technical and commercial decisions.

The MOWP program was successfully implemented with the completion of a 3-D seismic survey, Environmental Impact Assessment of the Contract area, refurbishment of a semi-submersible drilling rig (The Dede Gorgud), the drilling of three additional appraisal wells and submission of a report identifying potential Main Crude Export Pipeline routes.

The challenge of implementing EOP began in earnest on February 19, 1996, with the execution of the Intergovernmental Agreement, Transneft Agreement and budget sanctioning of the required funds. The work program comprised five major programs: (1) refurbishment of required major infrastructure assets; (2) refurbishment of the the Chirag 1 topsides and jacket (slide); (3) installation of 176 km of 24 inch subsea oil line and 48 km of 16 inch subsea gas line; (4) construction of the Phase 1 onshore terminal at Sangachal; and (5) construction and refurbishment of the Northern Export Route. The Project was successfully implemented to mechanical completion within 19 months.

The achievement of such a successful project implementation program, involving such a complex project, upon the initial efforts by a consortium of international companies within Azerbaijan, requires careful analysis to be properly understood. Obviously, the consortium provided an experienced, competent project management team, western technology and financing, however, the Azerbaijani Government and SOCAR obviously provided the required basic infrastructure, skilled workforce

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Summer / Issue 1216

and facilitation/support that was necessary to accomplish such a successful project.

Therefore, during the execution of the work programs, several "lessons learned" relate to the issue of forming successful alliances with competent Azerbaijani entities and are pertinent to any potential International partner's deliberations on the issue. The main "Lessons Learned" were as follows:

• Fabrication and offshore service infrastructure necessary to support a significant level of the anticipated consortia work programs currently exists in Azerbaijan, however it requires varying levels of refurbishment/enhancement;

• Extensive petroleum sector manufacturing facilities exist in Azerbaijan, however, as in the case of the service sector, the facilities require varying levels of refurbishment /enhancement;

• Azerbaijan workers respond quickly to training and incentives to deliver world class productivity and quality of work;

• A comprehensive evaluation of metocean and seismic characteristics of the Azerbaijani sector of the Caspian Sea proved that the API Technical Standards are directly applicable and appropriate; and

• The Government of Azerbaijan and SOCAR delivered their obligations in full, and AIOC was continuously supported as required at all levels within the Government.

Full Field Development of AIOC’s ACG field implementation is complete, but it is not the end of the story, it is the beginning of a tremendous opportunity, and not just for Azerbaijan, but for the international community as well. An opportunity to not only participate in the exploitation of Azerbaijan's hydrocarbon resources, but an opportunity for international contractors and manufacturers to position themselves to participate within a major developing market serving the Caspian Region, the former Soviet Union and the world market. Currently, where else in the world can an international contractor or manufacturer negotiate a fair deal, assume operations of existing facilities, tap a large pool of technical and skilled workers with proven world class performance potential and position themselves so strategically from a market standpoint.

The current realities of Azerbaijan elaborated earlier, plus the lessons learned during the AIOC’s various project phases, leads us to the ongoing Initiatives to facilitate alliances between Azerbaijani and international contractors and manufacturers.

Initiatives to Foster Azerbaijani / International AlliancesWhen all of the forementioned factors are brought together; the large perspective reserve potential within the Basin, the willingness of SOCAR and the Government to negotiate and abide by a fair deal, the infrastructure available to be

refurbished, the exceptional productivity and work quality demonstrated by Azerbaijan's large technical and skilled work forces and the current competitive labor cost; then it is easy to conclude that great potential exists for the formation of commercially viable Azerbaijani/International Company Alliances in both manufacturing and services for the petroleum sector.

If structured properly and provided with an investment environment conducive to profitable operations, these ventures should successfully compete both within the Caspian Region and beyond, in the international market. This is exemplified by the current operationally successful alliances active within Azerbaijan, such as Caspian Geophysical, Azfen (SOCAR/Tecfen), Gabeg/Azpromstroi, Azlab (SOCAR/Schlumberger), Azeri-FUGR SOCAR/FEL/LUKOIL, Caspian Drilling Company (SOCAR/Santa-Fe), ATA Group (AMEC, AZFEN,TECFEN), etc.

This level of participation by such alliances performing such significant scopes of work during project implementation demonstrates both the commitment of AIOC to utilizing qualified Azerbaijani alliances and companies and their respective capabilities to deliver the project work to international standards.

As stated earlier, it is the goal of the Azerbaijan Government to once again become an exporter of petroleum sector equipment and services to the Caspian Region and beyond. Realization of this goal is key to the re-vitalization of the Petroleum Sector Industrial Complex, new job openings and the employment of the tens of thousands of currently underemployed sector workers. If the formation of commercially successful alliances can be facilitated within the petroleum sector, the investment and employment generated by the refurbishment and staffing of these alliances will bridge the current cyclic nature of the

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offshore development projects. The successful implementation of such a program would be of great benefit to all parties and would place Azerbaijan firmly on the road to a more balanced economic development, not solely dependent on petro-dollars.

Another significant initiative, which Azerbaijan joined within the last decade, was an Extractive Industry Transparency Initiative (EITI). The EITI was launched by Tony Blair at the World Summit on Sustainable Development in Johannesburg, September 2002 with the goal to encourage governments, publicly traded, private state-owned extractive companies, international organizations, NGOs and others with an interest in the sector to work together voluntarily to develop a framework to promote transparency of payments and revenues.

Azerbaijan was one of the pioneers of the EITI process. The Government of Azerbaijan had supported the EITI since it was launched and indicated its readiness to participate in EITI at the country level in June 2003. EITI implementation is overseen by the National Committee on EITI, chaired by the State Oil Fund of the Republic of Azerbaijan (SOFAZ). An MOU of cooperation between the EITI Committee, the Coalition of NGOs for Improving Transparency in Extractive Industry, and oil and gas companies, was signed in November 2004. All extractive industry companies operating in Azerbaijan are engaged in the implementation of the EITI. Since joining the EITI, Azerbaijan has completed nine EITI reports, which are published twice a year.

In 2007, in recognition of the progress Azerbaijan has made in implementing the EITI, SOFAZ was awarded the Certificate for Improving Transparency, Accountability and Responsiveness in Public Service at the UN Public Service Awards. Azerbaijan also played a leading role in enabling the adoption by the UN General Assembly of the Resolution on the EITI in 2008.

Taking into account that Azerbaijan has instituted a regular process of disclosing, reconciling and publishing company payments and government receipts; Azerbaijan is the first ever country to complete validation, the EITI's quality assurance process which verifies compliance with EITI principles and criteria.

Yesterday... Today… Tomorrow…The AIOC contract signed with the oil companies of the West in Gulistan palace of Baku on September 20, 1994 opened a new page in the history of the country. Later, the said contract called the “Contract of the Century”, was perpetuated in the oil chronicle of independent Azerbaijan.

Since then, 21 oil contracts were signed with the foreign oil companies. To date nearly 34 international companies representing 15 countries engaged in operations in 30 fields of Azerbaijan. More than 40 bln. US Dollars were invested during last 15 years. To date the hydrocarbon reserves of Azerbaijan exceed 4 billion tons, thus including the country into the list the biggest oil regions of the world.

In addition, Azerbaijan has a unique geographical location between Europe and Asia, as a result, Azerbaijan has a significant role to play in the transportation of Caspian energy resources to the world market. The transportation of Azeri oil and gas to the world market is one of the major directives of the State Energy Strategy. Due to the comprehensive protection of the long-term interests of Azerbaijan, the development of broad international economic cooperation and the increase in the oil and gas production in the Region, the foresight and wisdom of the implementation of the Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines is now evident to all.

The fundamental elements are clearly in place for Azerbaijan to work towards its goal to re-establish itself as the Caspian Region provider of petroleum sector goods and services and a major conduit of Caspian Region oil and gas resources to the world market. In addition, the potential is strong for the establishment of a viable export trade of crude derivatives to the international market place. Such a successful program would contribute greatly to a more balanced development of the Azerbaijani economy and the realization of the aspirations of the Azerbaijani Government. The key ingredient continues to be the Azerbaijani Government's vision and commitment to provide the required stewardship.

Forty years of Domestic and international engineering and management experience in both onshore and offshore operations within the upstream petroleum sector, including 19 years of senior management experience in the FSU ( 17 years in Azerbaijan). Specifically:General Manager of NOBEL OIL LTD (Azerbaijan), Member of the Board of Directors of Azeri Drilling Company, AQS Drilling Company and Oil & Gas ProServ.Managing Director - Caspian Region Ventures Corporation and Trans Ventures International; Founded several upstream petroleum sector companies providing services and consultancy. Executive Director – The Coordinating Council ; Managed the permanent office of the Coordinating Council, a forum consisting of the Presidents of the ratified consortia and Chaired by the President of the State Oil Company.. AZERBAIJAN INTERNATIONAL OPERATING COMPANY, Vice President - Projects and Field Development; member of the Executive Committee that conceptualized, planned and implemented the establishment and implementation of AIOC and the fulfillment of its PSA work program within Azerbaijan. Directed, coordinated the evaluation of the Early Oil Project feasibility and its subsequent implementation.PENNZOIL CORPORATION, Houston, Texas; Project Director - West Mogutlorsk Field, Western Siberia Houston/Moscow based position coordinating the facility construction, drilling, well completion, operations and government relations activities of a Russian/American Joint Venture located in Western Siberia. In addition, member of the Board of Directors on the Azerbaijan chapter of the American Chamber of Commerce and former President of the BAKU ROTARY INTERNATINAL CLUB.

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18 Summer / Issue 12

The Rise and High-Rise of Post-Independence Baku

Post-independence Baku is a perfect subject for a study in development economics. Today, in 2011, tower blocks and hotels are sprouting all over the city and grandiose development plans are mushrooming almost as fast. But post-independence Baku was a very different place. There were few tall buildings and satellite towns such as Xirdalan did not exist. Vermin-free and electrically-safe accommodation, with running water (preferably not through the ceiling) was a rarity in downtown Baku.

Arriving in the late summer of1993, Baku had no quality hotels. There were basically five half-acceptable ones (i.e. with louse-free beds): the Respublika - not really an option as BP had block-booked most of its rooms; the Old Intourist (a not unattractive grey-coloured low-rise building), which was also not really an option as two other oil companies (Pennzoil and Unocal) together with the British Embassy had taken over chunks of it; the New Intourist, otherwise known as the Azerbaijan Hotel, (an ugly high-rise now being redeveloped and intending to re-open as the Hilton), the Apsheron (mirroring in many ways the Azerbaijan Hotel and currently also being redeveloped and expecting to reopen as the JW Marriott) and the Hotel Moskva (Moscow) another non-descript high rise on the hill near the Parliament building, then popular for weddings and even in late 1993 was undergoing renovation (and is now being completely redeveloped as part of the ‘Three Flames’ site, which will house the Fairmont).

Of the three ‘available’ hotels (the Azerbaijan, Apsheron and Moskva), the Moskva had the better reputation, though hard to see why but for its wide staircase and an absence of the then ubiquitous Russian ‘floor-ladies’ (unsmiling ogres, invariably ethnic Russians, who kept their beady eyes on all comings and goings). It also had a bar, bigger though less popular than the one at the Old Intourist. The hotels did have one factor in their favour – with the country still at war (the ceasefire with Armenia not taking hold till May 1994), their restaurants did at least have something to eat (even if the menu was limited to caviar – a treat the first few times but unappetising thereafter - sturgeon, chicken,

hard-boiled eggs, plov, tomatoes and cucumber). And they had bread and mineral water. There were always long bread queues in the city and a there were a couple of days when I recall mineral water was hard to come by (before a convoy of Iranian trucks arrived to save the day). The waiters wore black bow-ties, scruffy black jackets and crumpled white shirts, pretending at style.

But the Azerbaijan Hotel was still for me the preferable option over the Moskva, stuck out of the way up the hill. It was staying at the Moskva that I conducted my interviews to hire staff for Ernst & Young and where I consequently met some of the brightest people in the city. I was convinced one candidate, a senior employee of the Ministry of Foreign Affairs, was working for the intelligence services, his English being so good and his Soviet-era history as a diplomat (having resided in Vienna for several years). He, too, was suspicious of me and insisted on looking at the notes I was taking of our interview. We remain friends to this day.

But it was also in the Moskva where I had one of my scariest experiences. Taking the elevator to my floor it, for reasons unknown, failed to stop and kept on going to the top floor. Realising there must be a fault with the machinery. I hopped out and decided to walk down. That was a mistake. It was only when I got out that I realised the top floor was being renovated, with all the windows removed, bags of cement lining the walls, the sun setting and the natural light fading, the wind gathering force and billowing up dust. I walked down two storeys only to come to a wooden barrier constructed across the staircase. With no human in sight and it getting too dark to see clearly, I ascended the stairs to call the lift, my only option. I went to press the elevator button. But where was it? The control panel had been removed! I was stranded. I had visions of starving to death without anyone knowing. Fortunately, before panic took hold, the dodgy lift came as if sensing my distress, the doors opened and I leapt in.

Although the Moskva had its scary moments, the other hotels had there own problems. The ‘refurbished’ ‘suite’ rooms of the Azerbaijan Hotel were poorly heated and even less well-insulated (the winter of 1993-94 was an especially cold one for Baku, with unusually heavy and persistent snowfalls) and I shivered some nights fully dressed. When I moved out of hotels to an apartment on Nizami Street near the railway line, a spot also doubled as the Ernst & Young office, I recall one winter night the curtains flapping horizontally as the north wind howled outside and, despite being fully dressed lying under two duvets on the bed, I struggled to sleep because

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of the cold. I eventually nodded off only to be woken in the morning by the staff arriving for work. I looked at my alarm clock to find its battery had seized up with the cold and the electricity voltage had dropped so dangerously low that the plug on my electric heater had melted.

Baku that winter seemed dreary, depressing, desolate and dead. The creaky tram/trolley bus network (since dismantled) was barely functioning and the few rusty Soviet-era Ladas and Volgas on the streets were targets then, as now, for the rapacious traffic police. On one occasion, my driver – who came equipped with his own white unheated Lada – whispered urgently for me to get into the parked car as he made to hand his papers over to a policeman. As I closed the door, he sped off, leaving the bristling policeman whistling for his money.

Not only were there few acceptable hotels in 1993 but there were few restaurants and no supermarkets. The nearest thing to a supermarket was the Viyana Store, a shop in Xatai, which stocked whatever the truck happened to bring, including toilet paper and out-of-date cheese (and where I once bought 36 litres of UHT milk, not knowing when I might see that luxury again). It was not long before quite reasonable supermarkets (the first I recall being an Israeli-owned one on Rasulzadeh Street in the historic part of town on the fringes of the Old City) and restaurants started to open (three Turkish ones in particular, including the Cinema Club on the Boulevard and a very pleasant one in a garden setting in Xatai). Bars were also starting to proliferate.

For entertainment, other than the bars, there were the Opera & Ballet Theatre and the Philarmonia. The former was an interesting diversion to see some delightful Azeri operas, and some uninspiring western operas and ballets. Soldiers on R&R from the battlefront would use the matinee performances for a snooze in the back rows.

And the Azerbaijani soldiers were not the only soldiers taking a rest from the fighting. There were also the Afghan mujahideen, strolling along the waterfront or relaxing in the Azerbaijan Hotel. And strolling along the waterfront was then, as now, one of the few pleasures an impecunious Azerbaijani could indulge in when the weather was good. The Afghan mujahideen, along with the rest of Baku’s males, would no doubt ogle the pretty girls (even though almost all seemed to have one or more glinting gold teeth). But the women in those days were quite modestly dressed: the first mini-skirted girl I saw was in the summer of 1994 and I recall she was given a mouthful of abuse from an older woman. Back then, you would never see men in shorts (even today a rare sight) – jogging would have to wait until there was a fitness club equipped with a running machine.

But all of this was before the Hyatt Regency opened in 1995. That was when the city started to buzz. Not only did it provide that fitness club and the first public space where a western

businessman could feel relaxed and comfortable. It also had an important economic impact on the city. Before the hotel opened, British Airways had already started scheduled flights to Baku to meet the growing demand from the oil companies and oil service sector looking for opportunities in Azerbaijan. But the flights were dog-legged through Bucharest. Now, with an acceptable hotel to put up their crew, British Airways could fly direct. Once it could do that, more businessmen were willing to visit. And with a good quality hotel, more senior executives, unused to roughing it in Soviet-era hotels, were ready to explore new opportunities. Other airlines, such as KLM, also saw the opportunity to develop routes, and to use Baku as a stop between Tehran and Amsterdam.

The Hyatt Regency also formed the venue for the early meetings of the Baku Cricket Club (formed in 1995 but now defunct), two of whose early stars were a Dutch and American-Pakistani employees of Hyatt's management team.

The British Embassy and ambassador’s residence, too, moved to the Hyatt Regency (the former Naxchivan Hotel). Britain’s first ambassador to Azerbaijan, Tom Young, was a Turkish speaker with a nice sense of humour and he developed a real affection for the people of Azerbaijani.

The Hyatt Regency brought with it a casino (subsequently outlawed but popular whilst it lasted). Originally located on the lower-ground floor of the Hyatt Regency it was later moved to a newly-constructed adjacent building (now the Hyatt’s Conference Centre). It was not quite Las Vegas but it was a place where there was late-night entertainment (not just the gambling but a singer or pianist) and a cosy place for a relaxed meal. Other casinos opened, the biggest in the Europe Hotel, a stone’s throw from the Hyatt, and casino-tourism from Turkey and Israel came into vogue for a while.

It is hard to know what Baku would have looked like if the Hyatt had not opened. Of course, other developers would eventually have moved in. But the Hyatt Regency earns the distinction of having been the pioneer which spurred economic development in Azerbaijan.

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20 Summer / Issue 12

The Development of Aviation in Azerbaijan

As the Republic of Azerbaijan gained its independence in 1993, the newly recognized Government developed a vision for the future, and the foundation of a modern Azerbaijan was established. The political and economical policies and oil strategy developed by the National Leaders lead the development path of the country. Many business sectors that existed in those early years of development advanced at a fast pace. One of those fields is civil aviation.

It would be interesting to note that the history of civil aviation began at the beginning of the 20th century. Increasing interest prompted the first flight abroad on the 3rd of August, 1923 when the first passenger airplane “Junkers” made a flight from Baku to Tbilisi. As the national economy developed, the need for the first airport became apparent. In 1931, the groundwork began for the first airport in the capital city of Baku. It was completed and operational in just two years and Ivan Kucharev was appointed the first director of the Baku Airport. In 1934, the Trascaucasian Civil Aviation Administration was established. The civil aviation of Azerbaijan operated within that structure and in 1938, the first air group was created in Azerbaijan. Independent development of civil aviation in our country also started in that period.

This also stimulated expansion of the geographical coverage of flights. Flights to Kharkov, Rostov, Makhachkala, and Astrakhan were added to the existing ones to Moscow and Grozny. World War II slowed the development of civil aviation to some extent, however, the end of the war initiated several years of rehabilitation of aviation facilities and airports.

At this time the decision was made to build airports in other regions of the Republic and, in 1946, the construction of a new airport began in the town of Ganja. Two years later, the airport was completed and operational. In 1950, a new air base became operational in the settlement of Zabrat near Baku providing mainly for flights of helicopters Mi-4 and airplanes An-2. In 1955, we saw the first multi-seat passenger flights on airplanes in the skies of Azerbaijan. It was after 1959 that new high-speed airplanes Il-14 with

high-volume engines graced the ranks of civil aviation in our country.

The development of civil aviation in our country is associated with the name of President Heydar Aliyev. He first came into office in 1969, initiating the start of fundamental changes and high-standard developments in this field. It was in then that the construction of flight strips equipped with new, state-of-the-art information and radio-communication systems were constructed in 11 regions of our country, including the Nakhchivan Autonomous Republic, Balaken, and Zagatala. Civil aviation was soon enhanced with jet airplanes Tu-154, Tu-134, and YAK-40. The construction of additional airports began in important regions of the country.

Due to personal efforts and activities of then President Heydar Aliyev, the Civil Aviation Administration of Azerbaijan was awarded the Order of the October Revolution by the Presidium of the Supreme Soviet of the USSR. Along with the renewal of infrastructure, training of national staff in the civil aviation field during that period saw Nuru Aliyev, Chingiz Agazadeh, and Faig Mammadov amongst others emerge as honored pilots. Marketing was presented to increase the interest of the youth and to encourage the consideration of work in this field. As a result, the heroes of socialist labor Ali Novruzov, Ali Huseynov and Jabbar Gafarov were awarded the order of Lenin ranks shortly thereafter.

In 1993, President Heydar Aliyev returned to office and successfully continued his campaign for the development of national civil aviation. The reconstruction of the airport complex that had been delayed for 10 years was restarted. Soon a new airport meeting international standards was completed in the capital city of Baku. The throughput capacity of the new airport that became operational in 1999 is 1600 passengers per hour. Shortly thereafter, the basis of civil aviation was replenished by new Boeing passenger airplanes. Construction of a new airport complex began in the Nakhchivan AR.

In 1996, the Cabinet of Ministers of the Republic of Azerbaijan gave International Airport status to the Ganja Airport. In 1998, the ceremonial opening of the flight strip at the Baku International Airport was held. In 1999, the reconstruction of the flight management system was completed. The matter of renewing the aviation system infrastructure was also added to the list of upgrades. As a result, in 1999, a new aircraft fuelling station with the capacity of 6000 tons was constructed at the Baku International Airport and Azerbaijan purchased its first Boeing 757-200 airplane scheduling the first flight from

Rifat Roy KocalAzerbaijan Airlines, Baku

Gular AlmazovaAzerbaijan Airlines, Baku

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Baku to Paris. In 2004, the airbus A-320 was delivered, and the purchase of additional airplanes opened new pages in the history of civil aviation and modern development of Azerbaijan.

Reconstruction of roads from the capital city to the airport further advanced development and in 2002, improvement of the road from the Baku–Mardakan Airport crossing to the Baku International Airport began. Legislation was approved to support the continued development of civil aviation and the decision of the Cabinet of Ministers of the Republic of Azerbaijan “On the Disciplinary Regulation at the Air Transport and Its Special Service Enterprises” made in 2002 can be considered a clear example of that support.

This concept of development of the national civil aviation was persistently continued by President Ilham Aliyev. The year 2004 saw much progress as the construction of the Nakhchivan International Airport was completed, new lines for internal flights were added in Baku, the decree for the reconstruction of the Ganja Airport was signed, and Baku International Airport was renamed the Heydar Aliyev International Airport by the decree of President Ilham Aliyev. Nakhchivan Airport received International Airport status that same year.

A new page was opened in the history of national civil aviation in Azerbaijan in 2005 as the Baku Cargo Terminal opened its doors for business, the airbus A-319 was delivered to the Heydar Aliyev International Airport and the first flight of an airplane of this type was scheduled to Ankara meeting international status. In 2006, the Ganja International Airport was completed and airports in Zagatala and Lyankaran, which were upgraded to meet modern requirements, were now operational. These airports located in the regions of

Azerbaijan influenced much the development of the non-oil sector and tourism in our country. As a result, tourism to the regions of Azerbaijan increased as did the corresponding interest of foreign investors.

Due to State support, The Law on Aviation adopted in 2005 determined a new path in development of this field. The Civil Aviation Administration began its work in 2006, with the 2nd of June established as Professional Day of the Civil Aviation Workers, in accordance with the order signed by the President of Azerbaijan.

In 2007, AZALOIL started the construction of four additional fuel storages, each with the capacity of 5000 tons. This is considered an important step in the integration of Azerbaijan with international air services. International companies then became interested in development of bilateral relations with Azerbaijan.

In 2008, by the order of the President, establishment of the Closed Joint-Stock Company Azerbaijan Airlines (AZAL CJSC) was complete and, in accordance with the order, Jahangir Asgarov was appointed president. Various efforts were made to meet international standards, and in 2010, by Order of the President of the Republic of Azerbaijan on establishment of the honorary name, “Honored Pilot” was awarded to the president of AZAL CJSC.

As a result of the attention and care of this industry by President Ilham Aliyev, AZAL CJSC purchased new airplanes last years. In 2007, the ATR42-500 airplane was delivered followed by three ATR-500 airplanes in 2008. SW Airlines received delivery of a Boeing-747. In the past year, AZAL CJSC added two new

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Airbus-320 airplanes to their fleet named Lerik and Naftalan.

“May 2011 will see a new Boeing 767-300ER passenger airplane delivered to Azerbaijan Airlines (AZAL) followed by another one in May 2012. Two new Boeing 787 will be delivered in May and June 2014. SW will receive two new Boeing 767-300ER freighters in May and June of 2012. There are on going discussions about Boeing’s new model 747-8,” says Mr. Rifat Roy Kocal, Boeing Field Service (BFSBAK), Baku.

"What makes my job easier is the 24/7 support from Boeing to assist our customers. When you walk through that door, you have no idea what to expect but Boeing really supports our customers' requests. Customers always come back and tell us how appreciative they are with our attention to detail support and how we go that extra mile." Mr. Kocal went on to say, “I sometimes feel like a company "Ambassador". When you tell Azerbaijanis you work for Boeing, they're very interested and want to know more. A regular 'Hello' can turn into a half-hour conversation."

These days, the development of the national civil aviation is regulated by both State and private sectors. The national civil aviation system controlled by the State is comprised of the National Aviation Academy, the Heydar Aliyev Airport, Ganja and Nakhchivan International airports, and Zagatala and Lyankaran regional airports.

The civil aviation system of Azerbaijan enjoys a good business relationship at international levels emphasized by a working agreement signed between AZAL State Concern and the European Aviation Safety Agency (EASA). It is notable that in February of this year, AZAL CJSC was granted the European Services Standard by unanimous decision of the Board of Directors of the European Economic Chamber of Trade, Commerce and Industry (EEIG). This is indicative of the success achieved by this company and the entire aviation

sector of Azerbaijan.

Rifat Roy KocalEducation: Graduated from High School in Aviation in New York and continued at University in California in Aeronautics Engineering with two years in MS Management. Worked five years in Research & Development for defense products. Joined McDonnell Douglas in 1979 as a engineer design / Lab testing into Flight Testing & Certifications.

Years at Boeing: 31, including 1.5 in Azerbaijan and 12 in Turkey.

Job Responsibilities: Assist Boeing products in Azerbaijan and Georgia to solve aircraft problems in Flight Operations, Engineering and Technical issues.Customers: Azerbaijan Airlines, Silk Way Airlines, Silk Way Technic, Silk Way Business Aviation and Georgian Airways

Born in Istanbul, Rifat was raised and educated in the United States. He left the United States in 1997 to work in Turkey for McDonnell Douglas and after 12 years in Turkey, he was reassigned to Azerbaijan.

Almazova Gular MirzaagaEducation: Graduated with honors from Nakchivan University (1993-1997) with a degree in Education and continued in the Master Program 1997-2002, having several articles published in magazines and newspapers during this time.

In July 2003 she received an invitation to the USA. Afterwards publishing articles about the global reputation of Boeing airplanes and “Dream Liner”, Boeing’s 787.

Seeing her special interest and attention to aviation, Boeing Vice-President, Craig Johns, invited Almazova to the Air Show in Moscow, fueling more articles for publication. She attended another Boeing seminar in Istanbul. Her passion for aviation continues today.

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AmCham Azerbaijan is celebrating its 15th Anniversary and, by coincidence, I arrived in Baku in 1995 just one year earlier to apply for a GSM license. At that time I was the CEO of Turkcell trying to establish our first international investment. After negotiating the terms and conditions of our offer with the Ministry of Communications, we were given the opportunity under leadership of Cenab President Heydar Aliyev to invest in this market. We then launched the first Mobile GSM services under the name of Azercell. At that time Bakcell was in the market using a different technology.

In 2004, the Government of Azerbaijan abolished the Ministry of Communications and established the Ministry of Communications and Information Technologies to develop a vision, resources, and a plan of action to build a modern day information, communication and technology sector. As I have been in Azerbaijan for the last 16 years, I have had the opportunity to see the major changes and developments that have occurred over the past 1 1/2 decades:

In 2005, the World Economic Forum ranked Azerbaijan 29th, only 10 places behind the U.S., in terms of the level of state priorities in ICT. Some of its key state programs on ICT included:

• National ICT Strategy for development of the Republic of Azerbaijan (2003-2012)

• “State Program on Socio-Economic Development of the Republic of Azerbaijan” (2004-2008)

• “State Program on provision of secondary and primary schools with the information and communications technologies” (2005-2007)

• State Program on development of communication and information technologies of the Republic of Azerbaijan (2010 – 2012) (E-Azerbaijan)

Despite the global financial crisis, the Azerbaijani ICT sector entered 2010 with optimism due to stable dynamics in recent years. The main aspects that had a positive impact on market growth in 2010 were the realization of State support of large-scale projects, the growing need of players in the financial

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General overview of ICT Sector in Azerbaijan

Cuneyt TurktanChairman of the Board of Directors of Azerfon and Azertelecom Companies in Azerbaijan

sector, telecommunications and other major companies to introduce advanced technologies, and the growing market for retail and home users.

Electronic Azerbaijan - To date, Azerbaijan has implemented a number of projects to create "Electronic Government." This is an opportunity to receive information about the activities of a State institution without having to visit it, saving both time and money. These applications include e-payment systems for utilities, services, service providers and others, e-registration of business organizations by a "single window", submission of e-tax declaration and e-applications to the State Student Admission Commission.

The East-West Super Information Highway - A resolution submitted by Azerbaijan to create an information superhighway was adopted by the U.N. during its sixty-sixth plenary meeting. The resolution allows Azerbaijan to act as project coordinator, both regionally and globally, as well as to attract additional funding. The project cost is estimated at hundreds of millions

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of dollars. East-West is intended to connect a total of 20 countries. The project will eliminate the information gap existing between countries in Western Europe and the Pacific basin. Major regional operators like China Telecom, Turk Telecom, Rostelecom and Kazakhtelecom, as well as Azerbaijani operators, are interested in this project. A memorandum on the formation of a consortium to design the East-West super information highway is expected to be signed in 2011.

Space Industry - Today, Azerbaijan works on the creation of the space industry and launching the first national telecommunications satellite, Azerspace. OJSC Azerkosmos was established under the Azerbaijani Communications and IT Ministry to launch the satellite into orbit, manage and implement maintenance as needed. The company is completely owned by the State. The income from the satellite will reach roughly 495 million AZN. The revenue will be directed to the technological development of the country.

Electronization of the PSTN - Azerbaijan is the first country in post-Soviet existence that achieved installation of telephones throughout the Republic by 2008. In the near future, telephone networks throughout the territory of Azerbaijan will be converted to electronic form. The share of electronic ATS in Azerbaijan is currently at 93 percent. At present, the total number of phones used for every 100 people throughout the country is 16.2 units.

ICT Market Highlights• By early 2010 mobile penetration in Azerbaijan reached

90%, with mobile subscriber numbers having increased almost fourfold in just over four years

• The country saw overall growth in its mobile subscriber base, running at an annual rate of just below 20% as of 2009

• With two additional operators, Azerfon and Catel, joining Azercell and Bakcell in the mobile market in 2007, competition for market share was hot

• Fixed-line penetration in Azerbaijan had reached a healthy 15% by 2009, but subsequent growth was slow

• The country moved closer to 100% conversion of the fixed network from analog to digital with over 90% being digital by 2009, up from just 48% in 2003

• All the signs suggest strong growth in Azerbaijan’s internet usage with user penetration reported at more than 17% at the start of 2009. Internet usage jumped to 25% by year’s end

• Broadband Internet subscriptions were growing rapidly, increasing from 15,000 in 2007 to 100,000 in 2009; however, this still only represented a broadband penetration of slightly over 1%

• The country made good progress in the privatization of State-owned telecom enterprises; the critical privatization of Aztelekom is expected in the coming years

• A number of positive trends have been observed in the

market in recent years. This is significant subscriber growth, the introduction of new services, deployment of 3G mobile networks, etc.

Azerbaijan - Key Telecom Parameters 2009 – 2010Category 2009 2010 (e)Fixed-line services: Total number of subscribers 1.40 million 1.45 millionAnnual growth 7% 4%Fixed-line penetration (population) 15.8% 16.3%Internet: Total number of subscribers 521,500 750,000Annual growth 27% 44%Internet subscriber penetration (population) 6% 8%Mobile services: Total number of subscribers 7.7 million 8.8 millionAnnual growth 18% 14%

Mobile penetration (population) 88% 97%

Mobile operators - Wireless communication is currently the most active subsector of the telecom industry. It has received considerable foreign investment since 1994, when the first cellular network (Bakcell) was launched. A second operator, Azercell appeared in 1996 and a third, Azerfon was licensed to start operations in 2007. Consequently, the number of mobile telephone subscribers has grown rapidly, from zero in 1993 to 70 per 100 inhabitants in 2008, according to the SSC. A fourth, Caspian American Telecommunications (CATEL, a US-Azerbaijani joint venture), was the first to introduce a CDMA (Code Division Multiple Access)network.

The largest, Azercell, had an estimated 60% of market share with 4m subscribers in mid-2009. The second-largest company is Bakcell, which had 2.5m subscribers at that time. Bakcell made improvements to its network from 2009-2010 and now covers 82% of Azerbaijan's territory and 95% of the population. Azerfon is a newcomer to the market and a lead player with approximately 1.7m subscribers. Azerfon launched 3G services in early 2010. The other two GSM operators—Azercell and Bakcell—are presently in discussion with the Azerbaijani Government in reference to securing licences to offer 3G services.

Azercell's market share has fallen over the past two years from approximately 80% to 50% due to the competitive environment, Bakcell’s strong coverage roll out plans and the launch of GSM services by Azerfon in early 2007. This company, which is a joint venture between the communications ministry (10%) and foreign investors, was estimated to have a 20% share of the market by December 2010, up from just 3% two years

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earlier. Azerfon, which provides services under the NarMobile brand, signed a contract with Vodafone during 2009 and launched the Vodafone brand of 3G services for high-value brand customers.

Four providers offer CDMA services: CATEL, which offers both fixed wireless and mobile services, and whose coverage is expanding across the country from Baku to the surrounding region, Aztelekom, Baktelecom, which is controlled by the Communications Ministry and a local private company, AzTRANK.

Azerbaijan has many small system integrators and distributors, typically employing two to five people. In addition, all the large global technology providers are present in the country. These include IBM (US), Siemens (Germany), Motorola, Nokia (Finland), Microsoft (US), Hewlett-Packard (US), Panasonic (Japan) and Ericsson. Most of them distribute their products through local agents. Competition among national small and medium-sized enterprises (SMEs) is also growing.

Legislative base - The Law on Communications is the main legislative act that regulates this industry. The Communications Ministry acts both as a regulator of the telecom industry and as a joint-venture participant in telecom businesses. The Government's efforts to improve the investment climate in the telecom sector includes a Presidential decree approving the National Information Communication Technology Strategy for 2003-12. According to the decree, a national action plan aims to facilitate improvements in ICT, development IT-related fields, communications infrastructure, e-governance, e-economy and information security. The Communications Ministry has announced plans to introduce an independent telecom regulator by 2012. The creation of such an agency could help to encourage new investment and increased competition in the telecom sector.

Internet-market - The Azerbaijani internet market has shown a steady increase in the number of Internet users in recent years. The penetration rate of Internet users in Azerbaijan is more than 44 percent, of which 12 percent are users of broadband access. Approximately 40 Internet service providers operate in Azerbaijan. Almost all of them added integration services to their portfolio to increase profit. Providers began to develop methods of wireless broadband connection with the most common being Wi-Fi, iBurst and WiMAX. Azerbaijan has developed a strategy for development of broadband Internet from 2011-2013 which aims to extend its usage by becoming more accessible for the end users.

At the end of the 1st quarter of 2011, based on The State Statistics Committee of Azerbaijan, there are 7.2 million active mobile subscribers, an increase of 13.6 million from the previous quarter by 335 thousand subscribers. During the

same period the turnover of The Information & Communication Services of Azerbaijan has reached 287.4 million AZN - an increase of 23.5%.

Cuneyt Turktan1980 – Middle East Technical University and Bogazici University (undergraduate and graduate studies). After graduating, began working at Pricewaterhouse Company in New York.1985 - Returned to Istanbul with KPMG. 1988 - Corporate Finance Head, Interbank.1992 - Appointed as Area Finance Director in Turkey and Israel, Pepsi Cola International Company1994 - CEO of Turkcell, the number 1 operator with 12 million subscribers investing in the foundation of Azercell, Geocell, Kcell and Moldecell Companies assuming the role of President and CEO.2000 - During his tenure, Turkcell became the first Turkish Company quoted in the New York Stock Exchange .2002 - President and the CEO of Zapp Company, which played a large part in establishing the first 3G (CDMA) Network in Romania, gaining marketshare and increasing revenues by tenfolds. 2005 - Returned to Turkey and became the CEO of Avea. During his tenure, the Company took the name of rapid operator due to the increase of the number of subscribers, revenue and ebitda.At present, Mr. Cuneyt Turktan is Executive Vice President of Telecommunications at the Capital Resources Advisors Group and the Chairman of the Board of Directors of Azerfon and Azertelecom Companies in Azerbaijan. From 1994 Mr. Cuneyt Turktan has been a top manager in the Telecommunication field and has received many awards in Turkey and abroad.

Sources: www.mincom.gov.az; www.adb.org; http://unpan1.un.org; www.allbusiness.com; www.internetworldstats.com/asia/az.htm; https://www.budde.com.au; www.eiu.com; www.eiu.com; www.mincom.gov.az/en/telecom.html; www.allbusiness.com; http://www.mincom.gov.az/en/telecom.html

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Development of Banking Industry in Azerbaijan

Faig HuseynovChairman of the Management BoardUnibank OJSC

With regards to our activity, we have to hear that the banking sector of Azerbaijan is a very young and possesses reserve position for its development. Meanwhile, the level of bank sector development is considered one of the indicators, estimating the economic development of the national economy in general. To a large extent it is connected with the growth rate of banking in the country that leaves the major macroeconomic indicators behind. Finance-Banking System of Azerbaijan has reached signicant results less than for 20 years. Tenfold growth during 2003-2008 is especially impressive. However, nowadays, every banker knows that the development potential of banking services market is still behind the demands of citizens and economy.

The results of the recent years, passing against the background of tangible consequences of global crisis, proved that the majority of banks in the country reached “maturity” and were ready to these events. First of all, it became the outcome of preventing regulatory measures taken by the Central Bank of Azerbaijan (CBA) and institutional development inside the bank. Requirement for quality of assets and collateral security of loans were made tough promptly with the purpose of bank motivation for more reserved conduct in the market, as well as improvement of risk management and corporative management.

Banking industry was actively assisted by CBA monetary policy’s means of appeasement and by reduction of discount rate for several times, together with the reduction of range of reservation on involved internal sources, special allowance of loans, and fivefold increase of amount of deposits insured by government. Moreover, the government released part of income from taxation intended for increase of the capital and Central Bank took measures for straight maintenance of banks liquidity. All the above-mentioned steps have played a crucial role not only for stabilization in the market, but also emphasized the actuality of banking system optimization.

The years of institutional development of this field demonstrates that Azerbaijan needs both big and medium-sized banks entirely oriented on the distribution of financial flows on the domestic scene, and banks have substantial growth potential

for this.

Meanwhile, taking into consideration that the risks are growing currently, leading banks of the country behave as if they carry out repeated market appraisal, change the vector of business development. Having substantial funds for lending, banks wish to be confident that their funds refunded in time. It is considered very risk y if the allotment of distressed loans is more than 10%. According to the official data, the allotment of delinquent loans in the overall loan portfolio is two times less.

Retail banking is the development priority for the majority of banks in the country. Most of the banks began to develop retail in the regions where the capacity of citizens to pay has been raising. The appeal of retail service is stipulated with the reason that corporate clients in most cases demonstrate loyalty to their

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Bank assets in bln. AZN GDP in bln. AZN

Bank deposits in bln. AZN Bank loans in bln. AZN

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own bank. It is naturally that the competition within banking segment is high, as there is always 2-3 or even more banks with whom an average citizen is ready to cooperate.

A client can be interested to have deposits in one bank, to get the loan from other bank, to get the remittance service from third one and so on. To increase lending of economy, banks of Azerbaijan invest each 5 out of 10 manats in the consumption sector, service and household. On the other hand, the allotment of funds taken from the private individuals is increased in the deposit base. Undoubtedly, it is a one more argument for the increase of population confidence to banks.

Now the deposit base develops at low rates, which is connected with the decrease of maximal limit of percentage rate on investments, on which Deposit Insurance Fund of Azerbaijan provides insurance coverage (up to 12%). Investments involved by the banks which make more than this rate are not insured by the fund and the compensation payment is not provided. Thus, throughout the year the average percentage rate on investments in manats is decreased for more than 5,2% and makes 11,11%. Decrease of resource cost first of all will allow to stimulate sale on account of lowering of the rate on lending resources, but growth of borrowings in its turn will lead to increase of profitability of the field.

Banks of the country demonstrate stability, as they have financial liquidity for 60-70% while the existing norm is 30%. Process of banks capitalization continues for the purpose of absorption of possible losses. This indicator grows by 10% per year in average and reaches 3 billion USD under 45 banks in total. In other words, share of each bank constitutes 60-70 millions in average. The fact that balance assets of banking system

break the historical maximum each month, increasing on 10-15%, suggests the banks development potential. Unit weight of bank assets makes more than 40% in oil GDP of Azerbaijan. A considerable part in dynamics of assets growth usually falls to the share of loan portfolio. Regions where the number of bank points for sale reaches 400 play an important role in development of lending. Regional expansion will continue. It can be surely suggested that in relation to launch of postal-banking system, activity access to financial services in regions and the level of competition will expand even more. Postal offices will get an opportunity to take part in micro crediting, but only as agents of any big banks. Taking into consideration current development in the baking field and reforms, implemented by CBA, we can talk not only about further competition, but also about result of this competition - significant progress of banking services quality, as well as about complete realization of financial cooperation functions by banks. Meanwhile, the current condition of the Azerbaijani banking system has its peculiar features part of which can be named “children diseases”. One of them is insufficient development of financial markets and especially capital market. It leads to insufficient diversity of funding resources and in its turn predetermines the high level of active operations’ risks. Recently, the Central Bank of Azerbaijan adopted new policy on development of finance-banking sector, which bases on studies of global crisis, demand of national business and future tendencies.

Financial industry plays a crucial role in development of national economy within the framework of this policy. Competition, reforms, tendencies and regularities of banking services market allow to expect further considerable positive changes in the banking system of Azerbaijan in projected future.

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Summer / Issue 1230

A Step Forward: Building an Investment Fund

The new version of the Law of the Republic of Azerbaijan “On Investment Fund” was adopted on 22 October 2010. The Law provides establishment of new types of investment funds (e.g. unit investment fund) along with investment companies. The new two-tier licensing procedure for both investment companies and management companies (similar to licensing of banking and insurance activities) is the most significant novel of the law. At the same time, the Law stipulates additional supervision over activity of investment funds through relevant requirements to the fund’s capital, structure of the assets, management structure, as well as audit of the funds and management companies. The Law has received positive feedback of a number of international experts operating in Azerbaijan.

According to the PwC Azerbaijan 2011 survey conducted in the financial sector, many Azerbaijani financial institutes are interested to establish investment funds in offshore jurisdictions (e.g. Cayman, Luxemburg, Ireland, and Malta are the most popular destinations). For local banks, it is an opportunity to offer new service to their clientele that is interested in investing abroad, and adding one more source of profit, which comes from the investment fund management. As usual, for establishment of an investment fund banks use either own funds, funds of their clients, or both.

What’s an Investment Fund? Investment Fund is one of the most effective vehicles of collective investment into various projects via accumulation of investors’ funds. The main advantage of investment funds is the opportunity that it brings to investors to diversify their portfolios and mitigate loss risks by investing into different international projects.

Investment fund can be established as a variable capital investment company, unit trust, common contractual fund or investment limited partnership depending on investment strategy, target investor market, and distribution plans and tax consequences. Bellow, are the most commonly operated categories of the investment funds:

Nigar Jafarova Senior Associate, PwC Azerbaijan

The Undertakings for Collective Investment in Transferable Securities (“UCITS”) are permitted, subject to certain criteria, to invest in transferable securities, money market instruments, and other open ended and closed ended funds, cash deposits with credit institutions, structured financial instruments, and financial derivative instruments.

The Qualifying Investor Fund (“QIF”) being a non-UCITS fund, is particularly suitable for sale to sophisticated investors including high net-worth individuals and institutions, such as banks. QIFs allow more aggressive investment strategies, such as: hedge funds, real estate funds, infrastructure funds, private equity funds and venture capital funds.

The Money Market Fund (“MMF”) is a type of a mutual fund that provides investors with immediate availability of their money, while offering a return comparable with or better than some alternatives. Their purpose is to provide investors with a safe place to invest easily accessible cash-equivalent assets characterized as a low-risk, low-return investment.

What Are Specifics of Offshore Jurisdictions?There is a number of reasons why financial market participants, banks in particular, prefer to go offshore while establishing investment funds. The offshore jurisdictions provide the following operational advantages:

• favorable tax environment: no fund level tax imposed or no tax on income and capital gains, no withholding tax on distribution made to investors, no net assets tax, and no VAT;

• constructive and efficient regulatory framework, including fund registration timeframes: thus, registration of regulated investment funds will take maximum up to 3-6 weeks;

• reputation of a qualified financial centre;• comprehensive range of services (‘one-stop-shop’):

fund set-up/structuring, fund administration and transfer agency, trustee/custodian services, compliance and risk management, tax/audit services, legal services, consultancy and independent management services, independent resident directors, fund listing, technology and business solutions;

• moderate registration, compliance and administration costs.

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How PwC Can Help You? Using our global expertise and a pool of talented consultants, we can help you focus on the key drivers to create the optimal structure for the investment fund from a tax, legal and regulatory perspective. This includes consideration of the location of the investors, the fund’s investments and the managers of and service providers to the investment fund. We would help you consider all of these issues to arrive at the best structure of your investment fund.

In advising on the optimal fund structure, we will typically focus on flexibility and ongoing viability of the structure, both now and in the future, from tax, legal, regulatory and commercial perspectives:

• specifically from legal and regulatory perspective, ensuring the legal nature of the fund and its regulatory status is suitable for your target investors. Legal nature of structure and jurisdiction of domicile and regulation for the fund meets management objectives as to operation and overall commercial viability;

• from tax perspective, we would work with our colleagues from Tax and Legal services division of relevant offshore jurisdictions to ensure the structure operates as efficiently as possible to minimise tax exposure to both management and investors;

• from commercial perspective, combining our extensive market experience with our tax, legal and regulatory analyses to ensure the chosen structure is optimal for the management’s investment objectives.

PwC AzerbaijanOur “One Firm” approach to such instructions – provided this is what is required – ensures that we can deliver a comprehensive fund establishment and structuring service from inception to completion, and beyond. We are associated with the law firm of PwC in the UK, and a part of the PwC global network, that includes over 2,000 lawyers, covering all of Europe and more than 40 countries worldwide. PwC Global has extensive experience in establishing both onshore and offshore investment funds for clients.

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Summer / Issue 1232

Introduction to the concept of Islamic Taxation

Samir Hadjiyev & Yekaterina Kim LawyersMichael Wilson & Partners, Ltd.

Some people will consider the concept of Islamic Taxation only as springing from the concept of Islamic Finance which is in turn covered by the Islamic Law. However, we would like to broaden our comprehension of the Islamic Taxation as an institute of Law. Peering into the history of mankind and the diversity of its relations, it is fair to say that the concept of all the law in general, and the Islamic Law, in particular, is rooted in the Holy Scriptures. The basic aspects of Islamic law are evident in the earliest scriptures, including that of Musa1, namely Tawrat (Taurat), and Isa Masih, namely Ingil (Injil), which Muslims believe to be the two of the Islamic Holy Books given by Allah to prophet Musa and prophet Isa2.

The primary mentioning of taxes in its modern understanding in Tawrat refers us back to the times of Patriarchs: Ibrahim returning victoriously from a battle by the Dead Sea, was hailed by Melchizedek, king of Salem and the priest of the Most High God, who blessed Ibrahim and the latter gave him a tenth of everything paying a tribute to the Most High Allah for every single blessing possessed [Holy Scriptures, Tawrat, Genesis 14:18-20]3.

To help researchers grasping the concept of Islamic taxation and its basic economic categories, the overall Islamic doctrine highlights the four which appear to be major: ownership, concentration of wealth, justice, and appropriate consumption. Islamic property rights are not absolute. Allah is the ultimate owner of everything. He is the only real, actual, and final owner of everything in and underneath the heaven and the earth4. People are merely entrusted with wealth for their livelihood in this world. They are allowed to hold property and enjoy the benefits so long as they understand that they are holding the property in trust and they must follow the God’s Rule of Law, so to speak. It follows, then, that the distribution of wealth and the outcome of the economic activities and policies, including taxes, must be “just” and in accordance with the will of the

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“Ultimate Owner” as manifested in the principles laid down by Allah in Quran. Therefore, the Muslim society should oppose fraud, deception, greed, and any other activity or behaviour that will lead to concentration of wealth in few hands and hoarding of idle wealth5.

Regardless of confusing factors such as subjective interpretation by different authors, the writers’ ideological tendencies, large and frequently conflicting accounts of events, and outright mistakes in translation of sources, the outline, intent, and spirit of the original Islamic taxation, however, are rather clear. Both the nature of the property as well as the owner’s conditions play a vital role: various categories of wealth and real properties are treated and taxed differently and in some cases even items within the same class of property treated differently.

In addition to the financing of the state activities, the main objectives of Islamic taxation are targeted at alleviating poverty,

1 Quran 005:0442 Quran 005:0463 As the Quran assumes the reader is familiar with the traditions of the ancestors since the age of the Patriarchs, the modern book names

and type of numbering adapted to western culture is used for the purposes of easing the reading and comprehension of this article.4 Quran 020:006; 023:084-085 5 Quran 104:1-3

(1) “There is no other god beside Allah.” (Qur’an 47:19)(2) “My Lord, make this a peaceful land, and protect me and my children from worshiping idols.” (Qur’an 14:35) There is nothing whatsoever like unto Him (Qur’an 42:11)(3) “And do not misuse Allah’s (name) as an excuse … (Qur’an 2:224) (4) “O you who believe, when the Congregational Prayer … you shall hasten to the commemoration of GOD, and drop all business.” (Qur’an 62:9) (5) “....and your parents

shall be honoured. (Qur’an 17:23)(6) “....anyone who murders any person who had not committed murder or horrendous crimes, it shall be as if he murdered all the people.” (Qur’an 5:32)(7) “You shall not commit adultery; it is a gross sin, and an evil behaviour.” (Qur’an 17:32)(8) “They shall not steal.” (Qur'an 60:12) (9) “Do not withhold any testimony by concealing what you had witnessed. Anyone who withholds a testimony is sinful at heart.” (Qur’an 2:283)(10) “And do not covet what we bestowed upon any other people. Such are temporary ornaments of this life, whereby we put them to the test. What your Lord provides for you is far better, and everlasting.” (Qur’an 20:131)

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improving income distribution, and creation of a just society. The appropriate tax policy to move the society toward these goals will be a policy which provides stimulus for investment and discourages idle hoarding of cash and wealth. The general scheme is that the uninvested (uncirculated) accumulated or hoarded wealth plus certain categories of annul income minus an exemption level (further “Nisaab”), minus a “reasonable amount for one’s annual expenditure that is commensurate with the taxpayer’s status in life” will be subject to tax.

The Islamic concept of taxation is that it does not tax Income, it tax saving. Hence, whatever you left after your expenditure or whatever you left as saving after your expenses is taxable in Islam. This intends to be significant impact on economy when one’s expenditure is someone's income. Therefore, the more one expenses, the more income is generated for other society members with an accelerator affect for more job opportunities to be generated, more businesses to be established etc. All in all, it reflects the wisdom of Allah which is reflected in Zakaat - one of the main Islamic commandments6 and reverts back to the times of Patriarchs when Ibrahim’s grandson Yaqub made a commitment to give Allah back a tenth of his increase gained thanks to Allah7.

However, the Quran sometimes uses the term Sadaqah (alms), in place of Zakaat. As unanimously agreed among Muslim scholars and lawyers, though, whenever the payment is compulsory it is Zakaat while Sadaqah is refered to voluntary payments or charity. In addition to Zakaat, there are taxes prescribed by Islamic taxation regulations, among which the main general could be classified as follows:

(1) Zakaat of land or Ushr, which is a flat percentage tax on some agricultural products8. Sunnah stipulates Ushr as 5% of the agricultural produce on artificially irrigated lands and 10% on produce of the lands benefiting from rain or natural spring only. Some scholars allow Nisaab for some crops. Most of the Islamic taxation practitioners, however, consider gross produce to be subject to Ushr and disallow deduction of any expenses, even the seeds used in cultivation. Sale of the crop or death of the owner will not eliminate the tax. If taxes are not paid in time, any loss or destruction is liability of the taxpayer. Ushr may be paid in kind or in cash.

(2) Zakaat on livestock, which applies to cattle, camels, and sheep older than one year9. By analogy, this tax is extended to similar animals such as goats, water-buffalos, and the like. Horses and riding animals were originally exempt. In general, when animals are kept for business purposes such as trade, procreation and breeding, or dairy, they will be taxable. When the holdings of animals are for personal uses such as meat

consumption, riding, assisting in agricultural activities, or transportation, they are not taxed unless these activities are the owner’s trade. Each category of animals has its own Nisaab. The rate structure is expressed in quantity and type of animals. Taxes are calculated and are due in kind, but they may also be paid in equivalent monetary value.

(3) Khums, literally meaning one-fifth, in its original form was applied at the rate of 20% to spoils of war10. Later, the tradition extended this tax to treasure-troves, mines, and all materials extracted from sea or earth. Currently, the Sunni jurisprudence maintains that Khums is only applicable to the excavated articles from land, sea, mines, buried treasures, and spoils of war at the rate of 20%. In this sense, Khums is partly a “windfall tax” and partly a tax on selected natural resources. The Shiite school of thought, while agrees with this assessment, extends Khums to larger categories of uninvested wealth and income. Formally, based on Shiite interpretation, Khums is applicable to seven items. Namely, business profits, mines, treasure-troves, booty and spoils of war, jewels obtained from the sea through diving, and a wealth that is mixed with unlawful earnings.

6 Quran 002:110; 002:2777 Holy Scriptures, Tawrat, Genesis 28:228 Quran 002:267; Holy Scriptures, Tawrat, Exodus 23:19; 9 Quran 006:142-144; Holy Scriptures, Tawrat, Exodus 34:2610 Quran 008:41; Holy Scriptures, Tawrat, Numbers 31:28-29

11 Azerbaijan has stepped into the several DTTs with the Islamic Republic of Iran, the Hashemite Kingdom of Jordan, Kuwait, the Islamic Republic of Pakistan, Qatar, the UAE etc. 12 Quran 002:271-274; Holy Scriptures, Ingil, Matta 6:1-4

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For Khums purposes, earnings from wages, dividends, and other economic activities are treated as “business profit.” This category, in essence, is equivalent of the “other assets” category under general Zakaat.

Sunni Muslims treat the cash and paper money like gold and silver with the same Nisaab, while Shiites tax the excess cash under Khums. Ornamental gold and silver items follow the same rule as silver and gold. On other ornaments, precious stones, artefacts, and jewellery, there are different views: some exempt these items altogether. Other scholars consider them subject to Zakaat with a Nisaab equal to that of gold and silver, even if they are in use.

The money, then, is to be spent on certain categories specified in Shariah. Sunni schools consider this category under Zakaat and Shiites treat it under Khums, the arguments and issues are almost identical and the main difference is on the tax rate and where the proceeds may be spent. Therefore, while this category is discussed here under Zakaat, the statements are valid for Khums as well. Among the new categories profits of professionals, bank notes, shares, securities, rental real estates, options, bonds, and similar assets may be mentioned.

Generally speaking, Islamic taxation recognises individuals as a taxable source. As such, households, corporations, and other entities are not taxed. Instead, all income and taxable items pass through these institutions to individual owners and are taxed individually. The Islamic taxes are mainly levied against and calculated based on actual taxable items. Several items used to be switched back and forth between taxable and non-taxable categories or their rates were changed. In terms of implementation of the international Islamic taxation, the nature of the DTTs eases the various Islamic countries approach in unifying various categories of taxation and payment11.

Although Islamic state has the right to impose taxes on the poor, it tries minimising their tax burden in general. The bulk of tax revenue should come from the rich of society because they are economically more capable to contribute towards revenue collection than the poor. This is way suggestion has been made that the Islamic state should minimise indirect taxes which are normally borne by the poor, and concentrate on the direct taxes which are usually collected from the rich. Islamic taxation also strongly prescribes charitable contributions such as Sadaghaat, Ihsaan, and Infaagh to signify truthfulness, benevolence, and good deed. They please Allah and will be rewarded by Him12.

Samir M. Hadjiyev is a Lawyer /Country Representative in Michael Wilson & Partners, Ltd. (MWP) Baku Office. He is a

To obtain a proper legal advice and our recommendations and more information, we encourage you to contact our offices in Azerbaijan ([email protected]) or Kazakhstan ([email protected]), see our websites www.mwp.az or www.mwp.az or find unabridged law firm profile and references in the global editions of professional legal directories.

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Native Azerbaijani speaker. Fluent in English and Russian. Prior to joining MWP, Samir had a broad range of prior experience, including in corporate, commercial, insurance, licensing, disputes and in dealing with State officials and bodies, and national companies. Some of the recent projects in Azerbaijan, in which Samir has been involved include: advising Сredit Suisse as to Cross-Border Banking and Financial Services, a leading international oil & gas company as to their employee share schemes, with Shearman & Sterling, MarketAxess Europe Ltd, with Linklaters, as to the provision of their Multilateral Trading Facility Platform, various investors on establishing their businesses in Azerbaijan and in importing and exporting, as well as to a wide variety Intellectual Property matters. Baku office of MWP advises the World Bank Group (Financial and Private Sector, Washington DC) in relation to Doing Business in Azerbaijan, annual series of reports, since 2006.Samir holds LLM (with Honours), International Law, Baku State University, Azerbaijan, 2004; Insurance Foundation Certificate, The Chartered Insurance Institute, London, UK, 2003; LLB ESC Scientific Educational Centre Tefekkur University, Baku, Azerbaijan, 2000

Yekaterina Kim is a Lawyer at Michael Wilson & Partners, Ltd. (MWP). She is a native Russian Speaker. Fluent in English. Over the last decade, Yekaterina has gained much legal experience including international private, corporate, tax, finance (including investment banking), labour, contract and other issues. She also has successful litigation practice. Yekaterina was teaching related branches of law in English at the Kazakh American University. Yekaterina advises the World Bank Group (Financial and Private Sector, Washington DC) in relation to Doing Business annual series of reports since 2006. Yekaterina holds an LLB from the Kazakh State Law Academy, Almaty, Kazakhstan, 2000, and is admitted to Amsterdam Law School and Maastricht Law School, the Netherlands.

© 2011 Michael Wilson & Partners, Ltd. All rights reserved. The statements and comments in this article are of a very general nature and do not constitute legal advice or opinion and should not be regarded or otherwise used as a substitute for detailed legal advice in individual cases. Any unauthorized copying and /or publication and /or other use of all or any part of this article is permitted only upon the written consent of MWP constituting misuse or misdeed otherwise.

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Importance of Global Compact for Azerbaijani private sector

Dr. Fariz AhmadovGlobal Compact Network in Azerbaijan collaborator, Co-Founder of Junior Chamber International (JCI) Azerbaijan

Opinions about social responsibility have been discussed since the early times of history and these opinions have been changed for the periods passed. This period started with civilization and religions and continued up to the B.C. 1100, and is called “pre-business period”. Although, during the period civilizations such as Mesopotamia, China, Ancient Greece and Rome there hadn’t been any important practical changes, social responsibility was on persons’ individual thoughts, religious beliefs, and ethic opinions. Responsibility is the milestone of philosophy of ethics and it’s considered as an ethic problem as well. Social responsibility is a mechanism of causing some positive and negative effects in community by enterprises along with their business activities.

Development and welfare of a country is possible through the mechanism of social responsibility. Every person has some duties individually or in diverse groups and also has some responsibilities regarding these duties. Today there are lots of positive or negative opinions and approaches about the social responsibility of business entities. Classic approach supporters restrict the responsibility of business groups to economic responsibilities, while the proponents of modern approach believe that business owners should have social responsibilities in addition to their economic responsibilities.

According to Caroll there are four kinds of responsibilities for the proper and complete fulfillment of legal entities’ obligations. First one of them is economic responsibility that provides incomes to company owners and shareholders by means of producing goods of high quality and selling them for proper prices. Within this field of responsibility companies provide clients with goods or services of real value open new work places and promote innovations. Second kind of responsibility is legal responsibility that obliges companies to comply with laws in their activities. It means that companies have to organize their works, reach their goals and realize their missions in accordance with the requirements of law. In brief, legal responsibility obliges to follow the law. The third kind of responsibility is moral responsibility whish means that companies should also follow unwritten rules, norms and values of society. In this sense moral responsibility fills the gaps

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derived from legal restrictions. The last kind of responsibility is voluntary responsibility which is apart from economic and legal responsibility. It means that companies may also act aide from their economic and legal responsibilities and contribute their societies voluntarily in the fields of culture, education, sport and environment.

In a globalizing world private business companies are not only economic and technical structures, but are also public and social entities. Since companies are part of economic, public and cultural structure of the open social system, they need to build reciprocal and essential relations with the society in which they work. In order to build these relations successfully companies need to know current state of social affairs, to recognize social needs and to contribute for their realization. In a global world one of the main goals of a company is to improve its competitiveness and provide its sustainable activity. And a way leading towards this goal is not only making money, but mostly goes through fulfilling companies’ social responsibility. In order to build its image a company has to earn pleasure and trust of its clients, partners, employees, consumers and general public. An important and necessary precondition for a company on this way is to understand its social responsibility and come up with a proper mechanism of its realization, which will further enable a company to provide its sustainable business activities. Using its business resources and spending some of its incomes, within the framework of realization of its social responsibility, a company has to demonstrate not only its favorable and philanthropic attitude towards the society, but also behave just and fair. The following list of points is necessary to consider in terms of understanding the reasons of importance of social responsibility of business companies:

• Development of professional management;• Changing the private companies into multi-partnership

structures;• Fighting against environmental pollution;• Importance of making good impression of companies in the

society;• Involving professionals to management;• Development of trade unions;• Effective use of limited natural resources;• Motivation of workers for raising the productivity;• Producing goods in accordance with the preferences and

expectations of the society;• Branding. Value of shares grows with the growth of the

value of brands and consequently the financial costs of debts decrease.

• Fast democratization process in the world;• Individual values.

“Before UN was interested only in states. Nowadays we know that it is not possible to achieve peace and prosperity without the partnership among states, international organizations,business and civil society. Today we are closely interconnected.”Kofi Annan

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Definition of the scope of social responsibility has been extending and companies pay more attention to it since as a new definition it was accepted to scientific literature with the book titled “Social Responsibility of the Businessman” in 1953. Competitive environment strengthened by globalization, changing world economy and deliberate and conscious masses of people causes the corporate social responsibility to earn more importance. Especially, some international documents as Human Rights Covenants in 1966, National Environmental Policy Convention in 1956, and Convention on the Reliability of Consumer Goods in 1972 are also among the reasons of this development. Moreover, there have been initiatives made by inter-governmental organizations to adopt rules of behavior referring to social responsibility of companies and to promote and improve kind of issues worldwide. One of these important initiatives and a leading approach to social responsibility and an instrument of supporting efforts on this way is Global Compact agreement that is effective since July 26, 2000. There are following ten basic rules of this framework or initiative:

Human rights1. Business world should support and respect the declared human rights;2. Business world shouldn’t be a partner in violations of human rights.

Working standards3. Business world should support workers in terms of unionization and collective bargaining rights;4. All forced and compulsory labor should be prohibited;5. All child labor should be prohibited;6. Discrimination on employment and in working process should be prohibited.

Environment7. Business world should support precautionary approaches to environmental problems;8. Business world should support all forms of environmental activities;9. Development and application of environmentally friendly technologies should be encouraged.

Transparency10. Business world should fight against all forms of corruption including bribery.

Global Compact Project of the UNDP is a mechanism for companies to voluntarily demonstrate their corporate social responsibility obligations. Within the framework of Global Compact there is a forum supporting responsible behavior of private sector. In this framework companies may share their positive experience and discuss the issues of common interest and importance. The role of UN is only to bring parties together and to found and support the sustainability of Global Compact in various countries. Making sustainable opportunities private sector plays a huge and increasing role in reducing poverty in

Azerbaijan. That is why one of the important elements of the activity of UNDP in Azerbaijan is to promote private sector with social responsibility and in this way Global Agreement provides necessary opportunities to UNDP to build a partnership with business community.

Although in Azerbaijan social responsibility has a deep historical culture, today domestic business entities mostly care about their own businesses. And this affects development and understanding of corporate social responsibility. For this reason Corporate Social Responsibility (CSR) has been a new concept in Azerbaijan like in many other countries. In Azerbaijan various business structures have experience in CSR. But this experience couldn’t have been institutionalized and formulated as that of multinational businesses. CSR can be seen as the basic level of charity in Azerbaijan. Moreover, while academic theoretical works have been improving in Azerbaijan, empiric works are still insufficient. As a result of this, business entities and managers are not able to become aware of importance of social responsibility unlike in other developed countries.

Membership to Global Compact and their activities related with corporate social responsibility provides lots of privileges to companies doing business in Azerbaijan.

• Companies and also the society will benefit from a better social environment. Company will be admitted by the society and as the result of this they will get access to more work force resources and will more easily find consumers to goods and services produced by them.

• Voluntary involvement of company in social activities will pave a way to the strict regulation and intervention of government in this field and so the company will have more flexibility and independence in its business activities.

• Companies are systems dependent on modern society and

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interdependence between the society and companies has a significant impact on business of companies. Business of company is more secure as the needs of interest groups around a company are satisfied. Social participation of a company plays an important role regarding the formation of public approaches.

• Once it is possible to apply innovative position of a company to its social responsibility, the company can make profit from a number of activities that can traditionally seem as cost consuming. Moreover, preemptive activity is better than rehabilitation, and any delay in resolving social problems today may cause the problems grow big in future. Therefore, if companies act preemptively before the problems reveal their activities and resolution of problems will cost less with more efficiency.

• Company supporting social efforts attains a popular image. Company with such an image will easily attract consumers, employees and investors. Better social environment is important in terms of future welfare and accomplishments of a company.

• Company showing efforts of resolving social problems on its own account will earn prestigious image in a society.

• Companies fulfilling their social responsibilities establish their ethic obligations and meet the changing needs of the society and resolve the social problems caused by the company.

Social responsibility of companies could gain a meaning with collective efforts of improving working standards. Therefore, having an excessive need of production and employment

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Azerbaijan should review its developing strategies. It would therefore be important to increase competitive power by means of technological improvement, increasing the quality of labor force with a focus on employment, sectoral and regional planned industrialization, rather than decreasing labor costs. Otherwise, concept of social responsibility would remain just as a vehicle of advertisement and problems of employees would continue increasing.

In Azerbaijan corporate social responsibility (CSR) practices are limited, because of lack of knowledge about CSR and its benefits. There are neither positive, nor negative norms about corporate social responsibility in the tax legislation of Azerbaijan. Hence, government should enact new laws in order to promote corporate social responsibility and achieve its understanding and application in the country. In Azerbaijan there is a lack of real legal grounds regulating corporate social responsibility and absence of sufficient education and institutes in the area of corporate social responsibility. There is no proper culture of CSR, insufficient number of qualified experts in CSR, no interest from domestic enterprises and there is no confidence towards domestic non-governmental organizations and between government and private sector in Azerbaijan. In order to strengthen private sector and improve the understanding, promote and extend the application of corporate social responsibility it is important to overcome the impediments and resolve the aforementioned problems.Existence of companies with consciousness and a sound understanding of corporate social responsibility is a way to welfare and happiness of a society.

AHMADOV, F. (2010), `Analysis Of The Application Of Social Responsibility By Domestic Businesses in Azerbaijan and Its Influence on The Competitiveness of The Country`, X. International Conference on Corporate Social Responsibility 16-22 May Loyola University New Orleans, USA, ISBN 9780955157745, UK PublicationHAWKINS, D. E. (2006), Corporate Social Responsibility: Balancing Tomorrows Sustainability and Today’s Profitability. China, Palgrave-Mcmillan.LITZ R, A. (1996), A Resource Based View of the Social Responsible Firm: Stakeholder Interdepence, Ethical Awaraness and Issue Responsivenes as Strategic Assets, Journal of Business Ethics, vol:15.

LOGSDON J.M., YUTHAS K. (1997), Corporate Social Performance, Stakeholder Orientation, and Organizational Moral Development, Journal of Business Ethics, Vol-16.KOTLER,P. Lee. (2005), Kurumsal Sosyal Sorumluluk, MediaCat Kitaplari, Istanbul,Cevri: Sibel Kacamak. PORTER, M.E., KRAMER, M.R. (2006), Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review, DecemberWINDSOR D. (2006), Corporate Social Responsibility: Three Key Approaches, Journal of Management Studies, 43:1, January

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Islamic Banking: Problems and Perspectives in Azerbaijan

Kamal Mamedzade Salans, Baku

Islamic Banking gains popularity throughout the world: as of today there exist over 300 Islamic banks and other similar financial institutions. Today, various forms of Islamic financing are used in more than 40 countries and the total assets of the global Islamic financial market are estimated at USD 650 billion.

A positive effect of the Islamic banking is clearly evident in crisis times. Fixed rates of interest used by traditional banks, during a crisis period generally associated with low rates of profitability, make the real sectors of economy “unviable” and provide little ground for the “healthy recovery”. As a margin applied by traditional banks is fixed and is not dependant upon the real income of the financed operation, banks are not ordinarily well interested in the recovery of such enterprises. This often leads to a situation where a bank prefers to pursue the option to liquidate the enterprise in an effort to recover as much funds as possible. In contrast, Islamic banks, which cannot provide financing with an interest, hold a real interest in the improvement of the financing standing of the borrower, which has direct impact upon the income of the bank itself.

Gharar and RibaGeneral principles of contract in Quran can be outlined as follows:

• Free mutual consent (without coercion, fraud, misrepresentation, mistake or in a state of intoxication);

• Prohibition of Gharar;• Prohibition of Riba;• Prohibition of Qimar (gambling) and Maysir (games of chance);• Prohibition of Khilabah and Ghishsh (fraud and

deception);• Conformity of Contract with the objectives of Shari’ah (which

aims to protect a man’s life, religion, progeny, intellect and wealth);

• Principle of liability for loss (risk) and entitlement to profit;• Permissibility as a general rule (everything is permitted

except those explicitly prohibited in Shariah).

Gharar

“Gharar is present in a commercial contract when at least one party is subject to extreme uncertainty or ambiguity with respect to the core components of the contract (e.g., a subject matter, price)”:

• Gharar, along with Riba, forms the foundation of Islamic finance and is a key differentiating factor from conventional finance;

• Modern banking and finance are riddled with Gharar; examples include products based on sale of debt, discounting, derivatives, short selling, insurance contracts, financial lease, etc;

• Absence of Gharar results in more transparency in trade transactions and lower probability of disputes between contracting parties;

• Gharar is carefully avoided in structuring Islamic financial products.

Gharar is one such principle which is of extreme importance while dealing in trade transactions; not observing the Shari’ah ruling on Gharar would make transactions invalid and the income earned Haram (prohibited) Riba

• Definition in Hadith: Any conditional excess in a loan over and above the principal

• Definition in Encyclopedia Britannica: The price paid for the use of credit or money

• Definition in Wikipedia: Interest is the fee paid on borrowed money. The lender receives a compensation for foregoing other uses of their funds, including (for example) deferring their own consumption

• Working definition: Any predetermined/conditional additional amount in a loan over and above the principal Bank interest is prohibited in Islam as explicitly mentioned in the Quran & Hadith.

Islamic banking productsMurabaha

Murabaha is an agreement whereby a bank will buy the property at an agreed price and then sell it immediately to the customer for a higher price (agreed price plus markup). The transactional side of the agreement involves the acquisition of specific goods by the bank on request of the customer followed by the resale of those goods to the customer.

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Typically, payment of the purchase price by the customer is made on a deferred basis through installments during a pre-determined period of time.

Azerbaijan banks are not allowed to carry out trading transactions which implies that under the existing framework a local bank may be unable to use Murabaha agreement in its traditional form.

Although Murabaha could be provided by a bank indirectly through the establishment of a non-banking subsidiary, the law prohibits the purchase by Azerbaijan banks of shares and participation interests in legal entities, except for the cases stipulated in the law. The analysis of such latter cases indicates that none of these cases may be applicable such as to permit the bank’s subsidiary to carry out trading transactions under Murabaha.

It should be noted, however, that banks are allowed to acquire shares and participation interests in the charter capital of leasing organizations. The legislation does not set restrictions on the leasing company’s activities and allows it to conduct a wide range of transactions permitted under the general legislation. This might be interpreted as a right of leasing companies to be involved in trading transactions. The restrictions imposed by the banking legislation do not cover the case of 100% participation of the bank in the charter capital of a leasing company, provided that the requirement in respect of aggregate value of participation interests/shares in the legal entities is met. Accordingly, under one reading of the law a local bank may establish a subsidiary in the form of a leasing company and authorize it, in its charter, to conduct trading transactions (including Murabaha).

Although there is no formal prohibition, it should be noted that both second tier banks and their subsidiaries may come under the supervision of the Central Bank of Azerbaijan. It is well possible that the above-mentioned “extended” capacity of the leasing company can be challenged by the CBA, which may limit participation of Azerbaijan banks in the charter capital of leasing companies to those companies carrying out exclusively leasing operations.

Mudaraba

Mudaraba is a contract whereby investors (rabb al maal) provide their funds to a manager (mudareb) based upon a feasibility report and a projected (although not guaranteed) rate of return. The manager uses its skills and expertise to invest the funds and is entitled to a share in the profits. If any losses arise, these will be solely for the account of the investors.

In general, it appears that Mudaraba may be used for two varying options:

• while in the first option funds attracted under Mudaraba are invested by the manager direct into selected projects

(selected either by the manager or by the investor depending upon the type of Mudaraba),

• in the second option a manager (a bank) may attract funds into a bank account (current, rather than deposit), build its relationships with the customer in accordance with Mudaraba principles and then invest such funds according to its discretion.

As the main features of this instrument there can be noted the following:

• the bank does not bear any loss, but remains responsible for negligence;

Under Article 944 of the Civil Code, further to the bank deposit agreement a bank undertakes to accept from the depositor (or a person acting for the depositor) a sum of money and to return such sum of money to the depositor, as well as to pay an interest upon such sum. Further provisions of the Civil Code also presuppose that the legislation requires full return of funds from the deposit account to the customer (e.g. Article 947, Article 950).

Furthermore, in the banking legislation deposit is defined as “funds deposited or transferred into current, saving (deposit) or other accounts maintained in the balances of the bank and providing for the repayment or transfer of such funds to a different account with or without payment of interest or commission fees in accordance with the terms of the agreement”.

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Section LII of the Civil Code dedicated to the general bank accounts does not contain any express reference to the obligation of the bank to return the funds in account to a customer. On the other hand, however, this may be implied from the reading of the definition of the term “deposit” as provided by the banking legislation.

In light of the above, it remains to be seen how the requirement “the bank does not bear any loss, but remains responsible for negligence” will be incorporated into a Mudaraba agreement with the customer as potentially regulator may raise an issue if a contract contains any provision exempting the bank from liability for loss and thus, among other things, providing the bank with the right to return to the customer only part of the funds originally placed in the relevant account.

• profit from Mudaraba activity is shared between the bank and account holder in a pre-agreed ratio.

With respect to deposit (savings) accounts the Civil Code in Article 948 states that the bank must pay to the customer an interest stipulated in the deposit agreement. The same Article goes further to state that where the agreement does not contain provision on interest, interest is to be calculated in accordance with the procedure referred to in Article 449.1 of the Civil Code.

On general bank accounts, the Civil Code states that unless the bank account agreement specifies otherwise, bank should pay to the customer interest and such interest should be transferred to the customer’s account.

In the context of Mudaraba, apparently where the regime of general bank accounts is chosen, it should be possible for the parties to write into their agreement specific terms as to distribution of profit as well as fees of Mudarib.

Ijarah

Ijarah is a term which literally means “To give something on rent”:

The following issues may be distinguished as key for Ijara:

(i) Risk and rewards of ownership lies with the owner, i.e. any loss to the asset beyond the control of the lessee should be borne by the lessor;

(ii) Late payment penalty cannot be charged to the income of the lessor;

(iii) Rentals start after delivery of asset in workable / usable condition;

(iv) Lease and sale agreement should be separate and not contingent.

From the perspective of the laws of Azerbaijan the following may be stated with respect to the above issues:

(i) Under Article 748-2.1 of the Civil Code, leased property transferred into temporary possession or use of the lessee shall remain the property of the lessor, while the lessee would acquire the right of possession and use of such leased property (Article 748-2.2);

(ii) The existing legislation does not mandate charging of any late payment penalty upon the income of the lessor. Furthermore, Article 748-1.9 of the Civil Code states that the lessee has the right to charge an interest in case of failure of the lessee to return the leased property, thus making such action not an obligation, but a right of the lessor, which can be waived by a contractual provision;

(iii) This should be in line with the provisions of legislation of Azerbaijan. For example, under Article 748-10.4 of the Civil Code the obligation of the lessee to make lease payment starts only upon the time when the lessee starts using the leased property (provided that the agreement does not indicate otherwise);

(iv) It can be pointed out that under Article 747-5.2 of the Civil Code a sale and purchase agreement underlying the lease transaction should, inter alia, contain the following provisions: (a) that the leased property is being acquired specifically for the purpose of subsequent transfer into lease, (b) that, unless the lease agreement requires otherwise, a lessee should be entitled to the rights of the purchaser arising out of the sale and purchase agreement made between the seller and the lessor. Where interpreted broadly, provisions referred to in (a) above may be deemed as making the two contracts contingent.

In conclusion, it appears that practical implementation of the majority of Islamic Finance Products in Azerbaijan may require:

• significant amendments to the Azerbaijan’s banking laws regarding conceptual issues of implementation;

• “technical” amendments to make Islamic banking feasible practically (issues of taxation, accounting, regulatory, etc).

In legal practice since 1997, Mr. Mamedzade joined Salans as an associate in 1999 and he was promoted to Of Counsel in 2008. He focuses on banking & finance projects, derivatives and securities law in Azerbaijan and Kazakhstan. He is experienced in corporate and M&A transactions, restructurings, foreign investment, energy and natural resources and project financing in Azerbaijan, Kazakhstan and other CIS countries. Chambers Global lists Kamal in ‘Leaders in their Field’ for 2011 and he was ranked as a leading lawyer in Azerbaijan by IFLR 1000 for 2011.

Kamal Mamedzade attended George Mason University in Virginia, USA (1996-1997) and graduated from Khazar University, Faculty of Law and Social Sciences (B.Sc., 1996; J.D., 1999) and from Manchester University (LL.M. with merit, 2001). He is fluent in Azerbaijani, Russian, and English.

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Established in 1996, AmCham is com-posed of over 220 members and asso-ciates active in every sector of the Azer-baijani economy. We represent 80% of all foreign investment, as well as a significant portion of local investment which allows us to promote American, Azerbaijani and multinational corpora-tions. This includes leading companies in Energy, Banking, ICT, Legislative/ Financial Consulting, Professional Ser-vices, Education, Real Estate Develop-ment, Health, Transportation, Travel and Production fields.

An active and positive influence in Azerbaijan, we conduct our mission with integrity and respect for the country, observing all local laws and insisting on the highest ethical standards in all relationships and transactions.

Why join?Key member benefit – best networking opportunities in Azerbaijan!

As a member of AmCham, your company has access to a vast network of business information and contacts in Azerbaijan and in the US government, as well as valuable information on US businesses across Europe through ECACC (European Council of American Chambers of Commerce) and US Chamber of Commerce.

Additional Member Benefits include:

Annual Employee Salary SurveyQuarterly Inflation SurveyAmCham Membership DirectoryAmCham Resource Library

For more detailed information please visit our website www.amchamaz.org

To applyTo apply for affiliation with AmCham, a candidate must submit a written application in the form adopted by the Board of Directors. Membership applications are available at the AmCham office or on our website at www.amchamaz.org. The application form should be completed and sent to our office with the company registration certificate issued by the Ministry of Justice of Azerbaijan.

A candidate meeting the objective and subjective requirements for affiliation with AmCham is accepted as either a Member or Associate upon receiving an affirmative majority vote of the Board of Directors and paying the first year’s fee for the candidate’s category of affiliation.

To maintain affiliation with AmCham, Members and Associates must continue to meet our eligibility requirements, be in good standing in the community, and be current with all financial obligations to AmCham.

About usThe American Chamber of Commerce in Azerbaijan is a private, non-profit business association supporting and promoting the interests of business in Azerbaijan.

MembershipThere are two types of affiliation with AmCham: Member and Associate.

Member status includes voting privileges and eligibility for Board and committee chairmanships in addition to the privileges granted to Associates. For affiliation as a Member, a candidate must be a legal entity, registered and doing business in Azerbaijan and be in good standing in the community, as determined by the Board of Directors.

A legal entity, branch or representative office of a legal entity is eligible to be affiliated with AmCham as an Associate, subject to the Board of Directors’ determination of good standing in the community.

Associates are eligible to participate in various activities; receive our regular publications, including the Membership Directory, Annual National Employee Salary Survey and Quarterly Inflation Survey. Associates, however, are not entitled to vote or serve on our Board of Directors.

AmCham Azerbaijan

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Business EventsOn our first Monthly Members' Luncheon for the year we presented Mr Jo Owen, the new Country Manager of World Bank for Azerbaijan as our Special Guest Speaker. Based on his quarter of a century experience in the Bank, Mr Owen shared his vision on the World Bank's Evolving Partnership Strategy in Azerbaijan: - its successes, challenges and opportunities.

Mr. Joseph Owen, an Indian national, joined the World Bank in 1985 as a Young Professional. He helped to open the Bank's first office in Romania in 1992 and later established the Bank's office in Tbilisi, Georgia in 1996 where he served as the Country Manager. In 2000, he moved to the Latin America and Caribbean region and was the Country Manager in Honduras till 2005, the Country Manager in Nicaragua till 2010 and is presently the Country Manager for Azerbaijan .

Mr. Owen was born in Kenya, completed his schooling in Zambia and then obtained a Bachelor of Technology in Chemical Engineering from the Indian Institute of Technology, Madras in 1978. Between 1980 and 1982, Mr. Owen worked as an oilfield engineer with Schlumberger Wireline Services in Algeria. Subsequently, Mr. Owen went to the United States and obtained his Masters in Business Administration from the Wharton School of Finance, University of Pennsylvania, in 1985.

Being the largest business association representing the key foreign investors in Azerbaijan, we as AmCham were pleased to provide informational support to Azerbaijan Investment Summit 2011 as the main partner organization.

Azerbaijan continues to undergo rapid development, gaining a further role on the world stage. The government's priorities include continuing its growth as an energy provider and transport country, strengthening infrastructure, creating new jobs, developing the non-oil economy, and creating an anchor of stability and prosperity in the region.

While much of the economy has benefited from the oil and gas industry, myriad business opportunities exist in non-oil sectors: construction, building material, engineering services, infrastructure, transportation and aviation, telecommunications equipment and services, agriculture and food processing, and last but not least alternative energy.

Monthly Member Luncheon

Euroconvention Conferences - Azerbaijan Investment Summit 2011

January 2011

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We were delighted and proud to present our Special Guest Speaker - new US Ambassador to Azerbaijan Matthew J. Bryza. As an Honorary President of AmCham Ambassador Bryza addressed our group within his first 30 days in office! Matthew J. Bryza was appointed by President Barack Obama to serve as U.S. Ambassador to Azerbaijan. He arrived in Baku on February 6, 2011. Mr. Bryza served most recently as Deputy Assistant Secretary of State for European and Eurasian Affairs, responsible for policy oversight and management of relations with countries in the South Caucasus and Southern Europe. He served concurrently as the U.S. Co-Chair of the OSCE Minsk Group, leading U.S. efforts to advance a peaceful settlement of the Nagorno-Karabakh conflict. Additionally, Mr. Bryza coordinated U.S. energy policy in the regions surrounding the Black and Caspian Seas. In April 2001, Mr. Bryza joined the National Security Council as Director for Europe and Eurasia, with responsibility for coordinating U.S. policy on Turkey, Greece, Cyprus, the South Caucasus, Central Asia, and Caspian energy. Mr. Bryza served as the deputy to the Special Advisor to the President and Secretary of State on Caspian Basin Energy Diplomacy from July 1998 to March 2001. During 1997-1998, Mr. Bryza was special advisor to the Coordinator of U.S. Government assistance programs on economic reform in the Caucasus and Central Asia.

Mr. Bryza has also held positions in the State Department's Office of Russian Affairs (1991-1995) and has served at the U.S. Embassies in Moscow (1995-1997) and Warsaw (1989-1991). He joined the United States Foreign Service in August, 1988.

Mr. Bryza graduated from Stanford University with a bachelor's degree in international relations. He received his master's degree in the same field from the Fletcher School of Law and Diplomacy. He is fluent in Russian and Polish, and also speaks German and Spanish, as well as conversational Azerbaijani.

AmCham held its Annual General Meeting at the February Member's Luncheon. Six out of ten members of AmCham Board of Directors were elected by members, with voting that took place during the luncheon and election results announced immediately afterwards. We were delighted to congratulate the following board members and wish them good luck in their outstanding mission for the upcoming two years: Allen Gordon, AIMROC; Bakhtiyar Mammadov, Halliburton Bob Dastmalchi, Chevron; Ilgar Veliyev, Ernst & Young Seymour Khalilov, BP; Wayne Walz, Caspian Region Oilfield Services.

Featuring new US Ambassador to Azerbaijan Matthew J.Bryza

Amcham General Assembly

February 2011

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The seminar was led by Mr Clemens Kammer of Omnisec, one of world's leading communication security specialists visited Azerbaijan from Geneva, Switzerland. Based on his over 40 years professional experience in the Information & Communication Technology business, Mr. Kammer shared with members risks, challenges and protection technology for valuable information and communication. Mr. Clemens Kammer, Swiss national, joined Omnisec AG, an independent Swiss communication security company, in 2009 as the CEO and President.

Our Special Guest Speaker in March was Mr Francis Delaey, the Head of Baku office of European Bank for Reconstruction and Development (EBRD), one of the major international institutions aiming to support the diversification of Azerbaijan's economy through investments in private enterprise, financial institutions and infrastructure. In his presentation, Francis Delaey gave us a brief overview of EBRD’s activities in Azerbaijan, discuss Azerbaijan’s macro-economic performance, highlight some of the main challenges it needs to address and conclude with a general outlook for the country. "Azerbaijan has everything to succeed but it has to act now", mentioned Mr Delay in his address to the business community.

Seminar was organized in cooperation with EU Twinning Project – “Support to the Milli Mejlis (Parliament) of the Republic of Azerbaijan” and International Finance Cooperation (IFC).EU Resident Twinning Adviser Mr. Jonas Cekuolis was presenting on Novelties and Lacks of the new Law on Normative Acts. Experts of the IFC informed participants on President’s Decree on Regulation of the Form of the Unified Registry of Inspections of Entrepreneurs and Rules on Inspections”.

IT Seminar on “Communication Threads and Security Measures”

Monthly Member Luncheon

Seminar on “Novelties of the new Law on Normative Acts and President’s Decree on Inspections”

March 2011

In April we focused on the impact of a number of recent events including Gulf of Mexico oil spill out, political events in the Middle East and North Africa and the devastating earthquake and tsunami in Japan on the global energy industry. This presentation was given to us by Bob Dastmalchi, Country Manager of Chevron’s Azerbaijan responsible for representing Chevron’s interests in AIOC and BTC joint ventures, as well as supporting transportation of Chevron’s Caspian crude through Azerbaijan.

April 2011

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Business EventsOn 28 April 2011 AmCham organized a Tax Conference titled “Taxation in Azerbaijan: Finding the Right Path”. Conference was supported by Backer&McKenzie, Ernst and Young, Deloitte and PriceWaterHauseCoopers. The Conference found huge interest among member companies, international organizations and embassies. Participants of the event included also representatives from the Parliament of Azerbaijan. Speakers of the event included Chief of the Tax Policy and Strategic Research Department of the Ministry of Taxes Mr. Akif Musayev who provided participants with the position of the Ministry on future perspectives of the tax system. Chief of the Large Tax Payers Department of the Ministry of Taxes Mr. Zaur Fatizadeh answered to the question of participants on issues of concern. It was decided to publish a book compiling presentations of the speakers of the Tax Conference. Conference found serious media coverage. Proposals made by AmCham and conference speakers were published by leading news agencies and newspapers.

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AmCham held its Monthly Member Luncheon on 25 May. The luncheon featured Ms Danica Starks - Senior Policy Advisor for Caucasus and Central Asia, US Department of Commerc as well as a number of member presentations and announcements. We welcomed our new members - British School in Baku, Language Services and Triton who introduced their companies with three minutes presentations.

Our Special Guest Speaker this month was Mr Olly Norojono, the Resident Representative of Asian Development Bank (ADB) for Azerbaijan. The presentation gave our guests an overview of ADB's strategic directions and operations; it also highlighted ADB's business plan for Azerbaijan for 2011-2013. It also discussed project cycle in ADB operations and business opportunities, and challenges in project implementation.

May 2011

June 2011

Tax Conference

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Government RelationsAmCham Azerbaijan is regularly involved in promoting a healthy dialogue between its member companies and Azerbaijani officials at different levels. The chamber regularly meets directly with representatives of both the US and Azerbaijani governments, often addressing sector-specific issues and those affecting a broad range of members. These issues often include the drafting and revising of laws and regulations that address business climate in the country including, tax and customs policies, banking, finance and insurance, human resources, telecommunication, information technologies (IT), tourism, anticorruption measures and transparency.

To improve the business climate AmCham organized several events and issued policy documents addressing legislative initiatives considered by the government of Azerbaijan.

On 15th of December 2010, in cooperation with USAID, AmCham organized a Seminar devoted to Draft Competition Code of Azerbaijan currently considered at Parliament. Representatives of the Parliament, international organizations and member companies came together to discuss redrafting process of the Competition Code, initiated by the government of Azerbaijan Republic. As a result of the discussions it was decided to establish a working group to prepare document to express position of private sector on the draft competition code. Representatives of the Parliament agreed to provide copies of the draft competition code considered. After discussions in working group AmCham Position Paper on Draft Competition Code addressing concerns of the private sector was issued and submitted to the Parliament of Azerbaijan on 15 March 2011.

AmCham also established a working group to analyse draft Customs Code currently under consideration at the Parliament. Working Group met on 11th February 2011. As the result of the meeting it was decided to prepare position paper addressing concerns of the private sector with regard to issues raised during the meeting. As the result of analysis and discussions Position Paper on Draft Customs Code was issued and sent to the Parliament on 3 May 2011.

AmCham was closely involved in dialogue with Ministry of Finance and Ministry of Taxes to submit its proposals to the Government in the process of the Amendments to the Tax Code and reform of the social protection system. In frames of this dialogue AmCham Tax and Customs Committee hosted Mr. Jamil Alizade Head of the Tax Policy and Revenue Department of the Ministry of Finance during its meeting on 18 March 2011. On Mr. Alizade’s suggestion it was decided to organize another meeting dedicated to tax code amendments. The meeting was held on 4 April 2011 at the Ministry of Finance and proposals on tax code and social legislation prepared by AmCham was submitted to the Mr. Alizade. AmCham issued

two separate position papers respectively on tax code and social legislation and submitted them to Tax and Finance Ministers and to the Parliament.

In cooperation with EU Twinning Project for Support to the Milli Mejlis of Azerbaijan and International Finance Corporation (IFC) on 28 February 2011 AmCham organized a Seminar to inform its members about newly adopted Constitutional Law on Normative legal Acts and President’s Decree on Registry of Inspections. Resident Twinning Advisor of the EU twinning Project Mr. Jonas Cekuolis and Experts of the IFC informed participants on new development in the laws.

To address concerns of the member companies over migration issues AmCham addressed Head of the Department for Work with Law Enforcement Institutions at the President Adminstration Mr. Fuad Alasgarov raising number of exact points: (a) Inability to use consulting firms to represent the company at the State Migration Service which contradicts well established practice corresponding to Azerbaijani legislation; (b) necessity to re-submit the originals of certain documents while prolonging temporary residence permits which creates additional burden for the subjects of international business (exp: apostles of university diplomas, marriage certificates); (c) State Migration Service’s usual reference to “internal rules” when asking for the legal basis for the prohibitions that is not corresponding to principles of transparency recognized in the Republic of Azerbaijan. In a meeting organized to discuss these issues Head of the State Migration Service Mr. Arzu Rahimov last two points (‘b’ and ‘c’) were agreed upon. Thus, Mr Rahimov confirmed that (a) in case of prolonging of residency/work permits, a photocopy of legalized diplomas/certificates will suffice (provided the original was submitted at the initial application); (b) copies of internal decrees of SMS will be released to AmCham. With suggestion from Mr. Rahimov on 21 April 2011 AmCham organized a meeting with the senior management of the member companies, where issues of direct concern were tackled.

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AMCHAM organized a meeting of member companies with State Customs Committee officials Fikret Alasgarli (Chief of the investigations at the main department for prevention of infringement of customs norms) and Orkhan Shixli (Chief of the main department for organization of customs control). The subject of discussion was counterfeit products and ways to prevent their access to the Azerbaijani market. As the result of meeting, parties agreed to conduct a seminar for employees of State Customs Committee and to meet regularly to discuss issues of concern rising in the working process. On June 12 AMCHAM released 4th Edition of its White Paper on Observations and Recommendations for Improving Azerbaijan’s Business Climate delivered to the President of country personally.

White Paper found wide recognition by government of Azerbaijan. AMCHAM got feedbacks from Ministry of Finance, Ministry of Tourism and Culture, Social Protection Fund, President’s Office and Cabinet of Ministers.

On 3 August AMCHAM Executive Director and Policy and Legal Coordinator met Mr. Eldar Hadjiyev Vice-President of AZAL State Enterprise to discuss relevant parts of the White Paper. Mr. Hadjiyev accepted kind invitation of AMCHAM to cooperate more intensively to address issues of mutual concern in frames of the Tourism Committee of AMCHAM

On 10 August AMCHAM Board met the First Deputy Minister of Taxes Mr. Natiq Amirov to discuss in details Taxation and Banking, Finance and Insurance Parts of the White Paper. Mr. Amirov generally acknowledged that the issues mentioned in the taxation part of the White Paper exist and Ministry will undertake necessary steps to address them. Thus, Ministry plans to reform the personal income tax and reduce it. However, the reform will not be radical, but gradual. Ministry will also start internal discussions on unification of the tax base for calculation of the both personal income tax and social security contribution. So far, this item has not been on the agenda of the Ministry of Taxes and they agreed to include it to their agenda. Ministry’s position on recommendation of AMCHAM to account VAT payment and recovery on a cash basis instead of mix of the cash and accrual basis as it is currently practiced was less receptive. Mr. Amirov acknowledged that it results in problems for some companies, but emphasized that this is not a general problem. Therefore, he suggested having this item as a last point of the reform that Ministry of Taxes will address. On the tax issues mentioned in Banking, Finance and Insurance parts of the White Paper Mr. Amirov suggested to meet separately during coming weeks. Nevertheless, on “Taxation of Share Premiums” Deputy Minister asked AMCHAM to prepare a paper on practices of other countries. Deputy Minister also suggested meeting quarterly to discuss all issues that private sector rises. He nominated Head of the International Relations Department, who together with AMCHAM will work out the schedule of the meetings, their subject and will be

contact person for all issues relevant to organization of these meetings.

As part of its work with the Government and Parliament of Azerbaijan AMCHAM released 5 Position Papers on following subjects:

(a) Draft Customs Code;(b) Draft Competition Code; (c) Tax Legislation(d) Improvement of the Social Protection Legislation(e) Establishment of the President’s Business Council.

All Position Papers were sent to relevant state bodies.

On 17 of August AMCHAM hosted a dinner for US congressional staffers. The message that AMCHAM delivered during the dinner was importance of having an US Ambassador in Azerbaijan, which facilitates business of US companies and impact the general attitude to the American Chamber of Commerce.

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AmCham Legal UpdateAmCham started issuing biweekly Legal Updates covering all legal acts enacted by legislative and executive branches and relevant court decisions. In this edition of the Impact we provide some of the most relevant notes of interest to your attention:

LawsConstitutional Law on normative legal acts Under the new law Parliament of Azerbaijan and President of Azerbaijan should prepare mutually agreed annual plan of the draft laws (Art 42.1). While preparing drafts of laws proposals of subjects of the norm-creating activity, other interested organs, scientific organizations as well as natural and legal persons can be taken into account (Art 42.3). While suggesting adoption of the normative legal act it must be justified with accompanying documents such as letter of justification, expert opinions, list of persons drafting the act as well as forecast of possible consequences of the adoption of the act (Art 48). Moreover, normative legal acts and their draft should run through the process of the mandatory legal, linguistic exanimation as well as examination on potential abuses (Arts 61-69). New is also state registry of normative acts to be organized and maintained by Ministry of Justice (Arts 78-81). Interestingly, while registering normative legal act/s the opinion of the relevant legal expertise should be attached (Art 78.5). Nonetheless, this does not necessarily imply publication of legal expertise attached to the legal act/s.

Law on making amendments to the law on entry to, departure from the country and about passportsParliament adopted amendments enabling use of electronic visa applications and implementing upper time limit for issuing tourist visas at the embassies of Azerbaijan abroad. Thus, tourist visas should be issued no later than 15 days after submission of the application. Tourist visas will be issued for 30 days. In countries having no Azerbaijani embassies foreign citizens (tourists) will be able to apply for visas through travel agencies without leaving the country.

Laws on making amendments to the tax codeSecond paragraph of the Art 90.3 of the Tax Code on collection of taxes using taxpayer’s property was amended. The word ‘auctions’ was removed from the second paragraph of the article. Instead with addition Art 90.3-1 executing officials are entitled to sell the listed property of the taxpayer in trade networks of their determination.Tax Code is also amended to include new tax exemptions under Art 106 of the Tax Code on Exemptions and Privileges from Profit Taxes of legal persons. Thus, legal persons are exempt from profit taxes: (a) in cases defined by Cabinet of Ministers, for the value of the assets transferred free of charge, by decision of the legal person, from its own balance or balance of the one of its resident

subsidiaries to another subsidiary; (b) for the value of the transfer of the fixed assets from balance of one legal person to the balance of another legal person by the decision of relevant executive body (Cabinet of Ministers has to approve rules on determining the cases of exemption); (c) for the operations on providing the assets, fixed assets, movable property and other assets under the exploration, development and production share agreements for oil-gas resources (PSA), host government agreements (HSA) and other agreements of similar nature to the representative of the Azerbaijan Republic. These items are also exempt from VAT (Art 164.1.14). With another amendment, sharing profits under PSAs, HASs and other agreements of similar nature as well as, in cases defined by relevant executive body, transfers made to the parent company by its wholly owned subsidiary from the pure profit, in order to collect the profit in the centralized funds, and the profit itself are exempt from the withholding tax on dividends (Art 122.3).An addition was made to Art 183.3 to stipulate that if the manufacturer and client are the mutually related residents, client will be the payer of the excise tax. In all other cases it is the manufacturer who is responsible for the payment of the excise tax. Operations on providing the assets, fixed assets, movable property and other assets under the exploration, development and production share agreements for oil-gas resources (PSA), host government agreements (HSA) and other agreements of similar nature to the representative of the Azerbaijan Republic are exempt from the VAT (Art 164.1.11). Previously only operations to State Oil Fund were exempt from tax.

Law on making amendments and additions to the Law on Auditor Services and to the Code of Administrative OffencesLaw on Auditor Services is amended to state that audits are compulsory for the subjects of economy obliged to publish financial reports according to the law as well as in cases directly stipulated in law, in all other cases audits are voluntary (Art. 2). The phrase ‘in accordance with the decision (order) of the relevant state organs’ is removed from the Law. Additions are made to the Code of Administrative Offences to introduce a fine of 300 to 600 AZN for officials and fine of 1500 to 2500 AZN for legal persons for deviation from the compulsory audit (Art. 247-3). Under the Civil Code of Azerbaijan Limited Liability Companies (Art. 91.4) are required to have external audit of their annual financial reports. Joint Stock Companies must also have an external audit of their financial reports while publishing annual reports and balance sheets (Art. 107.6). Monetary evaluation of contributions of a participant in a Business Partnership and Company Association is also subject to audits by agreement among the founders (Art. 64.9).

Law on making amendments to the Labour Code Article 10-1 is added to the Code to introduce age limit of

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65 for the employees working at enterprises financed from state budget. Period of employment at the enterprise can be prolonged by the head of the state organ five times with the period of a year each time. Period of employment can be prolonged only with the consent of employee. Article 70 is also enlarged to include reaching age limit by civil servants as a ground for employer to terminate their labour contract.

Law on making amendments to the Criminal CodeThe Criminal Code is amended to broaden the definition of corrupt activities encompassed by the law. Under the amendments, the Code covers not only corruption of Azerbaijani officials and high ranking persons within the country, but also corruption of such persons overseas by (a) a national of Azerbaijan (Art 12.1-1) and (b) by foreign citizens or persons without citizenship (Art 12.2-1). In both cases, persons involved should not be convicted abroad for that crime.

Other amendments: not only the taking of bribes as such, but also accepting the offer or promise of a bribe is now made a crime (Art 312-1.1). Furthermore, the offering or promising of a bribe is also now made a crime (Art 312-1.2). Relevant articles have also been amended to cover bribes paid through third persons or mediators.

Art 189-1.3 and Art 189-1.4 on ‘Stealing natural gas, electricity or heat’ have been amended extending responsibility to senior officials (as well as more junior ones). With the new amendments all responsible representatives of the relevant enterprise providing the service may be charged with negligence in performing (or failing to perform) their duties (Art 189-1.3, 189-1.4) where natural gas etc. is stolen.

Law on making amendments to the law on the Central Bank of AzerbaijanUnder the previous version of Art 9.2 the Central Bank had the right to conclude clearing and settlement agreements and other agreements with foreign public and private clearing (processing) agencies on its own behalf and on behalf of the state if empowered to do so. With the amendment made to Art 9.2, the Central Bank is rendered competent to conclude such agreements on its own behalf. While applying this right the Central Bank should take into account the Cabinet of Ministers’ power to ensure realization of economic programs. This subordinates the Central Bank to the Cabinet of Ministers in concluding such agreements.

Court decisionsDecision of the Constitutional Court of Azerbaijan on interpretation of articles 78.3, 85.4, 90.3 and 93.1 (12/02/2011)Interpreting Art 78.3 the Court stated that financial sanctions

and interest cannot be imposed on persons convicted of a crime for the same offence. They are responsible only for damage caused by the crime. Since the object of the civil claim part of a judgment in a tax crime case and the object of cases on financial sanctions and interests is different, the latter cases should be solved either according to Art. 65 (the procedure on collecting tax debts) or by court proceedings. The Court also recommended that Parliament define the legal status and rights of the tax authorities in bankruptcy proceedings.

If the period for collecting taxes, interests and applied financial sanctions as defined in Art 85.4 (5 years) has expired, this must be deemed as the end of the period for the realization of the tax obligation as defined in Art 93.1.1. In other words, such taxes will be written off as bad daebts.

Constitutional Court Decision on the Interpretation of Art 239 of the Labor Code, 15.07.2011Article 239 of the Labor Code deals with material responsibility for the death of an employee or damage caused to an employee’s health as a result of a breach of labor protection standards. It holds an employer who is wholly or partly liable to pay in full both compensation for loss or impaired health of the employee, and his medical bills and also to pay the costs and other additional expenses, stipulated by the Civil Code. An employee (or family members and other dependents in the event the employee has died) who has suffered health problems as a result of work-related accidents or illness due to the fault of the employer, shall be paid a lump sum plus monthly payments, and other extra charges.

The Baku Court of Appeal requested the Constitutional Court to interpret the meaning of the terms ‘an employer who is wholly or partly liable’ and ‘due to the fault of the employer’ (terms which are repeated in the implementing Cabinet of Ministers resolution*), as the State Labor Service was arguing that this was a case of strict liability and thus there was a presumption of guilt.

The Constitutional Court found that there is a interrelationship between Art 239 and Arts 191-194. Consequently, the Constitutional Court established that ‘fault’/ ‘guilt’ is universally recognized and a normal condition for legal responsibility and any exception from this should be stipulated in law directly and unambiguously. Thus, only an employer whose fault is established can be made liable for breach of law. Therefore, until the fault of employer is proven, the presumption of innocence is applicable. However, the Constitutional Court also found that an employer has full material responsibility for damage to the employee once fault is proved regardless of the degree of fault. The Plenum of the Constitutional Court determined:Under Art 239 of Labour Code material responsibility for the damage to the health of an employee or for the death of

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employee, occurs (a) as the result of a breach of the norms of the labour protection, and (b) if the fault of the employer is proven in compliance with the conditions established in Art 191 of Labour Code. Art 191 requires there to be intent or negligence and where there is a reasonable connection between the defendant’s illegal action and the result of this action.

Note: *Cabinet of Ministers Resolution No 3 from 09/01/2003 on “Rules, conditions and amounts of payments to employees, or to family members or persons under guardianship of employees who died, whose health has been impaired as a result of an industrial accident or occupational disease”

Baku Appeals Court Decision on the case J. Mehdiyev vs. Tax Audit Department (02/02/2011)The Appeals Court has upheld the decision of the Baku Local Economic Court No2. The lower court had ruled that the Tax Audit Department had breached the property rights of the citizen by establishing the rent of property. Thus, the court noted that the rent for property in private ownership of legal or natural persons is not regulated by law, as opposed to the state property. In this context, the tax authorities were not entitled to define the rent of private property and to tax it. Moreover, the Court referred to Art 3.11 of the Tax Code stating that any contradictory or ambiguous provisions in the tax laws must be resolved in favour of the taxpayer.

Case No. 2-1(103)-318/11, Company Z vs. State Social Protection Fund Department of Work with Legal PersonsFollowing an inspection by the Social Protection Fund Department of Work with Legal Persons (SPF), the SPF had imposed a fine on Company Z (the Employer) for employing three individuals without labour contracts. The court of first instance held against SPF and declared the inspection report invalid, finding that the report included neither sufficient information to identify the three persons working without labour contracts nor information about their positions. The SPF appealed the ruling but the Court of Appeal denied the appeal. Referring to the Instructions of the SPF on ‘The Collection of the Mandatory Social Contributions’, it held that the SPF had not complied with the rules established by Instructions and had not explained the violations in sufficient detail.

Case No. 2(103)-684/2011, Mr. Q.A.C. vs. Azerbaijan Television and Radio Broadcasting Company (AzTV)A former employee of AzTV, who had been hired on a short-term contract, sued the employer for wrongful dismissal. He argued that the job he was employed in (working as a producer) was of ‘a permanent nature’ and consequently his contract should have been extended as it was case with other employees.

In accordance with Article 45.4 of the Labour Code, “Where the nature of the work or services is by its terms specified as

permanent according to the job description, the employment contract must be concluded without a specified term, except for cases stipulated by Article 47 of [the Labour Code].” The employee’s situation did not appear to fall into one of the Article 47 categories.

However, the Court of Appeal, in denying the claim of the employee, referred to Article 73 of the Code (Procedure for Terminating a Fixed-Term Employment Contract), which states that, “A fixed-term employment contract shall be terminated upon its expiration.

President Decrees / OrdersPresident’s Decree on Certain Measures for the Organization of E-services at State InstitutionsThe President has ordered the Cabinet of Ministers to prepare within 2 months rules for providing e-services and details of the fields in which they will be provided. Central Executive Authorities (Authorities), which include Ministries, State Committees and State Agencies, are ordered to prepare an e-service section on their web pages. Authorities are also required to provide real time online payment of state duties for services through their web pages. The Ministry of Communications and Information Technologies (Ministry) is required to organize the allocation of electronic signatures to natural and legal persons who request them. To provide implementation of the “one-stop-shop principle”, the Ministry is also required to establish an “E-government” Web Portal.

President approved Charter on the Preparation and Approval of the Normative Legal Acts of Executive Authorities; The Charter regulates internal procedures for drafting and adopting normative acts of the executive branch. A major requirement of the Charter is the placing of drafts of normative legal acts prepared by central executive bodies and the Cabinet of Ministers on the e-government portal once they have been sent for concordance with existing legislation to relevant bodies applying government policies in the subject matter of the normative legal act. Proposals regarding the draft normative legal act, which are made on the portal will be taken into account if deemed reasonable; if not the person making the proposals will be provided with a well-grounded response (Art 2.4).

Cabinet of Ministers ResolutionsOn making amendments to the Cabinet of Ministers’ Resolution on “the Charter for paying and accounting for payments for the mandatory state social insurance and relief to employees for the temporary loss of working ability” No. 189 from 15/09/1998;

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A wide range of amendments was made to the Resolution. Under the amendments during first 14 days of the temporary loss of the working ability allowances will be paid by the insurer, the balance will be paid by deduction from payments of the mandatory social insurance contributions by the employer (Par 1.1). Previously, it was the insurers’ responsibility to pay the allowance for the full period. Certain provisions of the Resolution were removed. Thus, paragraph 10 regulating conditions for granting allowance for temporary loss of the working ability on the way to the workplace was removed. Paragraph 11 regulating payment of allowances for the temporary loss of the working ability resulted from domestic injury was also removed. Allowances for sanatorium and spa treatments were also abolished. Employees won’t be provided with allowances for quarantine periods resulting from dismissal by sanitary-epidemiological service for reason of contracting contagious diseases. The cases where allowances are not paid has been enlarged to include cases where the temporary loss of the working ability of an individual arose when no mandatory social insurance was being paid with respect to that individual as well as in cases when injury was caused during the commission of a crime. Imprisonment and judicial medical expertise no longer are reasons for excluding payment of allowances. Part 62 of the Resolution is amended to raise the thresholds for identification of persons eligible for relief for temporary loss of working ability equaling to 100%, 80% and 60% of the income. Thus, relief equaling to 100% of the income will be paid to employees with ‘social insurance standing’ of 12 years instead of 8 years. Relief equaling to 80 % of income will be paid to employees with ‘social insurance standing’ from 8 to 12 years instead of 5 to 8 years. Relief equaling to 60 % of the income is paid to the employees with the ‘social insurance standing’ up to 8 years. The ways of calculation of the reliefs for employees of different industries was also amended. In this context a lot of provisions were removed and Part 28 of the Resolution was configured as a central provision defining the ways of relief calculation. In all parts of the resolution the words ‘overall labor standing/seniority’ were amended to ‘social insurance standing/seniority’. The words ‘overall period’ were either replaced with the words ‘working days’ or the words ‘working days’ added to ‘overall period’ to complete sentences.

Cabinet of Ministers adopted a Resolution ”On Approving Rules for Negotiating and Concluding Agreements on the State Registration of Branches and Representative Offices of NGOs from Foreign States in Azerbaijan”

With the Cabinet of Ministers Resolution, Foreign NGOs will need an additional Agreement with the Ministry of Justice prior to registering their branch or representative office in Azerbaijan.

Thus, a foreign NGO wishing to establish branch or representative office should first submit an application with information about the organization and its purpose in wishing to start work in Azerbaijan. Together with the application, the NGO should submit to the Ministry of Justice its constituent documents (extract from state trade registry, certificate of registration, etc) and power of attorney issued to responsible person/s in a translated and verified version (par 2). The Ministry of Justice will send these documents to relevant bodies and request their opinion on whether it should enter into an Agreement for Registration of the foreign NGO (par 2.5). If opinions are positive the Ministry of Justice starts negotiations.

The activity of foreign NGOs in Azerbaijan are subject to the conditions that: there must be no involvement in political or religious propaganda, respect for Azerbaijani national and spiritual values is shown, there is compliance with the Azerbaijani Constitution, its laws and normative and legal acts as well as not engaging in activities in the occupied Azerbaijani territories (par 3.2).

If the conditions are accepted Ministry of Justice and the foreign NGO will conclude an Agreement and only after this can registration of the NGO within periods mentioned in the legislation may start. No periods for the negotiations are mentioned in Rules.

Cabinet of Minister adopted a Resolution “On Approval of Rules of Adopting and Changing Names, Surnames and Patronymics”The process of adopting and changing surnames, names and patronymic is regulated by the Ministry of Justice of Azerbaijan and Nakhchivan Autonomous Republic , their district (city) departments and consulates (in respect to Azerbaijanis residing abroad permanently).

The new rules will also be applied to persons belonging to national minorities and ethnic groups who are citizens Azerbaijan, as well as with respect to appeals of individuals born in Azerbaijan but not eligible for permanent residence.

Surnames of persons who reach 18 years of age may be changed upon application (Art 5.1). Changes in respect to persons under the age of 18 will be made upon applications by their parents or legal representatives (Art 5.1). If both parents change their surname, then the surname of children will be changed automatically. Endings of the surname of a child over 10 years of age may be changed only after the child’s consent (Art 5.2).

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AmCham Azerbaijan

Social Events

AmCham Azerbaijan hosted "Meet the Candidate" cocktail reception to feature our candidates for General Assembly in February, 2011. To give our members a fresh feel, we held this traditional event in Baku Mugham Center on the Boulevard. AmCham welcomed all the candidates and gave them a floor for introduction to their electorate.

With incredible success and over 100 guests turnout the first ever joint function of the American Chamber of Commerce and the European-Azerbaijan Chamber of Commerce (TEAS) past on Wednesday, 2 March 2010.

The American Chamber of Commerce in Azerbaijan hosted cocktail reception dedicated to the Republic Day in an unique venue, a historic "Ismailiyye" building currently seating the Headquarters of Azerbaijan Academy of Sciences, where, early XX century, the first ideas of independence from Russia started to be expressed in the meetings of Azerbaijani intellectuals and philanthropists.

We were proud to introduce a very special guest speaker - the Minister of Finance Mr Samir Sharifov who addressed AmCham community, embassies and international organizations. Mr Sharifov expressed greetings of the President Ilham Aliyev to the participants and highlighted the importance of AmCham activities in supporting local and international businesses and maintaining constant dialogues by leasing between the private sector and the Government of Azerbaijan. The Minister also briefed guests on the history of the first Democratic Republic established in orient as well as the current economic situation of the country and relations between Azerbaijan and the United States.

Among 100 guests attended we were pleased to welcome the Chairman of Economic Policy Committee of the Parliament Mr Ziyad Samadzade, the Executive Director of State Oil Fund Shahmar Movsumov and a number of other government officials and diplomats from a number of embassies who found time to attend this unique event.

“Meet the Candidate” Cocktail Reception

AmCham - TEAS Joint Cocktail Reception

Cocktail Reception dedicated to the Republic Day

February 2011

March 2011

May 2011

Members of both AmCham Azerbaijan and TEAS, representatives from Parliament as well as some other guests enjoyed a gorgeous evening, delicious food and drinks while networking and socializing in an informal environment on the roof top of the highest building in the city centre - 20th Floor of Landmark Plaza!

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Summer / Issue 1254

AmCham Azerbaijan

AmCham held its 16th Annual Independence day Picnic! This great day has been possible only because of our valuable members, friends, their partners, clients and families! A record number of guests - more than 900 people joined us this year! The guests enjoyed the food, drinks and exclusive entertainment program designed specifically for our members, friends, their families and partners!

Celebrating the Independence Day of the United States of America in a friendly environment gave everyone an opportunity to leave behind the fatigue of last months and welcome summer vacations - we had 2 lucky participants who won the tickets to London kindly offered by BMI! Once again many thanks go to our generous sponsors for their continued contribution and support!

16th Annual Independence Day Picnic became a history - a new record was achieved in raffle draw - all the 3000 raffle tickets were sold! We are proud to announce that around 9000 USD gathered from the raffle sale and auction goes to our CSR partner - Save the Children and will be spent on production of a manual book for children, youth and their parents.

Social EventsAmCham 16th Annual Independence Day Picnic

July 2011

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Mr. Shearer comes to Bakcell with strong expertise in leading the operations of major telecommunications companies in some of the world's most competitive markets. His experience has mainly focused on provision of telecommunications services in the wireless segment. Previously, Mr. Shearer served as the CEO of DiGi Telecom in Malaysia, Empower Interactive

Group Ltd and BTC Mobile EOOD (Vivatel) in Bulgaria. He also acted as the Commercial Director of T-Mobile in UK and was a Management Board Member of Telkomunikacja Polska SA, Central and Eastern Europe's largest telco.Commenting on his new appointment, Mr. Richard Shearer said: "It's a great honor to join Bakcell, which has such a

strong position in the Azerbaijan telecoms market. My task will be to build on the company's success to date and continue our customer expansion. Bakcell will continue to delight its customers with even better service and even better prices. Bakcell's high quality network provides a fantastic base upon which to roll-out more innovative products and services to meet the demands of today's mobile customers in Azerbaijan. I look forward to working with the company and our business partners."Bakcell was established in 1994 and became the first company to provide mobile communications services in Azerbaijan. With significant investments in network development, Bakcell now covers more than 95% of the population and 82% of the land area of the country. The number of Bakcell subscribers has reached 2.5 million.

The international law firm Salans has announced the promotion of Kamal Mamedzade to the position of Partner, effective 1 January 2011.In legal practice since 1997, Mr. Mamedzade joined Salans as an associate in 1999 and he was promoted to Of Counsel in 2008. He focuses on banking & finance projects, derivatives and securities law in Azerbaijan and Kazakhstan. He is experienced in corporate and M&A transactions, restructurings,

foreign investment, energy and natural resources and project financing in Azerbaijan, Kazakhstan and other CIS countries. Chambers Global lists Kamal in ‘Leaders in their Field’ for 2011 and he was ranked as a leading lawyer in Azerbaijan by IFLR 1000 for 2011. Kamal Mamedzade attended George Mason University in Virginia, USA (1996-1997) and graduated from Khazar University, Faculty of Law and Social Sciences (B.Sc., 1996; J.D., 1999) and from Manchester University (LL.M. with merit, 2001). He is fluent in Azerbaijani, Russian, and English.

Mr. Norio Yamazaki began his 27-year career in ITOCHU Corporation in Japan, Tokyo in 1984. He has held several head positions in company’s corporate offices in CIS, Moscow, and Israel, Tel Aviv, arriving in Azerbaijan, Baku in April, 2011. He is currently the General Manager of ITOCHU Corporation Baku office and Director of “CIECO Azerbaijan” Representative office of ITOCHU Oil Exploration

(Azerbaijan) Inc. company. Mr. Yamazaki always wanted to come to Azerbaijan because of love to “The Land of Fire”. At present, Azerbaijan is among the countries of the world's fastest growing oil & gas sector with achieved successes. ITOCHU Oil Exploration (Azerbaijan) Inc. is a Partner of ACG and BTC projects. ITOCHU was founded in 1858 and ITOCHU is one of the large companies in Japan.

Members’ News and EventsBakcell announces new CEO, Mr. Richard Shearer

Kamal Mamedzade is promoted to the Salans Partnership

New Director of “CIECO Azerbaijan” Representative office of ITOCHU Oil Exploration (Azerbaijan) Inc. Co

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AmCham Azerbaijan

The European Broadcasting Union (EBU) announced Azercell, Azerbaijan's largest mobile operator and member of the TeliaSonera Group, as the Presenting Partner of the Eurovision Song Contest 2012 in Azerbaijan. The three shows, Semi-Finals on 22nd and 24th of May and the Final on 26th of May, will be televised live, hosted by the Azeri public broadcaster Ictimai TV.Azercell is Azerbaijan's largest mobile operator with over 55 percent market share and known as a trend setter in mobile communications in Azerbaijan, applying new technologies and offering a wide range of products and services. Azercell is part of TeliaSonera, Europe's fifth largest telecommunication company with presence in the Nordic and Baltic countries, Spain and the emerging markets of Eurasia, including Russia and Turkey. TeliaSonera was also the Presenting Partner of the 2007 Eurovision Song Contest in Helsinki.As the Eurovision Song Contest's Presenting Partner for 2012, Azercell has been granted extensive pan-European media, association, event and new media rights for the upcoming events in Azerbaijan."We are excited to have Azercell as the Presenting Partner of the contest already at this stage, manifesting the huge interest for Europe's favourite TV-show," Jorgen Franck, Director ad interim of Eurovision TV said.

"We are proud to become a Presenting Partner of the Eurovision Song Contest 2012 in Baku. Azercell always places a special importance to promotion of Azerbaijan in the world and this contest is a remarkable opportunity for all of us. We are proud to be part of ESC in Baku and share this joy with our country in 2012.”, said Ali Agan, President of Azercell Telecom LLC.The agreement, which is part of an international commercial and marketing platform developed by the EBU for the Eurovision Song Contest, was negotiated by T.E.A.M. (Television Event and Media Marketing AG) based in Lucerne, Switzerland. T.E.A.M. is the worldwide exclusive marketing agency for the commercial rights of the Eurovision Song Contest since 2004.The Eurovision Song Contest has a rich tradition and heritage, dating back to 1956. It is one of the few truly pan-European television programmes transmitted live via the Eurovision satellite network, in prime time on free-to-air television, as well as online. The three shows attract a total of over 100 million viewers throughout Europe and beyond.

New chairman of the Executive board has been appointed in Azerbaijan’s key financial & industrial group AtaHolding. Farid Fuad oglu Asadov has been carrying out the position of chairman of the executive board in AtaHolding since 4 April, 2011.Gafar Mahir oglu Gurbanov who held this position from 7 November 2006 to 4 April 2011 has been elected a member of the AtaHolding

Supervisory Board.Farid Asadov was born in Ganja on 7 July, 1974. He entered the Baku Institute of Political Science & Social Management in 1991 and graduated the institute with an honoured diploma in 1996. In 2007, Farid Asadov continued his education at the Business Administration Faculty of the National Economy Academy under the Russian Federation government and in 2009 received the

highest degree MBA in the speciality of “Business Management Company”.From March 2000 to June 2001 Farid Asadov worked as deputy general director for conclusion of insurance contracts in an English-Azerbaijani insurance company. From August 2002 to March 2004 he held office of the head of Marketing & Business Relations Department, and from April 2004 the office of the sales & marketing director in the International Insurance Company. On 15 October 2005 Farid Asadov was appointed the deputy chairman of the Executive board in AtaSigorta OJSC, and on April, 2 2007 by decision of the AtaSigorta Supervisory Board was appointed chairman of the Executive Board of AtaSigorta.On June 1, 2009 AtaSigorta realized corporate governance in compliance with insurance legislation. AtaSigorta Board of Directors was established according to taken decisions and Farid Asadov was elected the chairman of the Director’s board in the Company from 1 June 2009 to the present day.

Members’ News and Events

Azercell becomes Eurovision 2012 Presenting Partner

New chairman of the Executive Board has been appointed to AtaHolding OJSC

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Summer / Issue 1258

AmCham Azerbaijan

������������������������������AmCham Calendar of ActivitiesJanuary - July 2011

7 January 14 January 10 February 27 January

28 February 24 February

1 April 8 April 21 April11 April

1 June 6 June

7 July2 July

29 April 25 April

16 June 22 June

18 March 31 March

18 February 24 February 16 February 17 February

16 June10 June

27 June 30 June

Tax & Customs Committee

Meeting

Tax & Customs Committee

Meeting

The presentation of Political & Economic

data from CRRC’s 2010 Caucasus

Barometr survey

16th Annual Independence Day

Picnic

AmCham Monthly

Members’ Luncheon

Banking, Finance & Insurance committee

Meeting

AmCham Monthly

Members’ Luncheon

Health, Safety & Environment

Committee Meeting

Tax & Customs Committee

Meeting

Travel, Hospitality & Tourism Committee

Meeting

Banking, Finance & Insurance Committee

Meeting

Human Resource

Committee Meeting

AmCham Monthly

Members’ Luncheon

AmCham Monthly

Members’ Luncheon

Presentation on BP Statistical

Review of World Energy

IT Seminar on ‘Communication

Threats & Security Measures

Health, Safety &Environment

Committee Meeting

Workshop on Business

Inspections Survey

Human Resource

Committee Meeting

Seminar on ’Novelties of the New

Law on Normative Acts and President’s

Decree on Inspections’

AmCham Monthly Members’ Luncheon

AmCham Monthly Members’ Luncheon

AmCham Monthly

Members’ Luncheon

Meeting with the Chairman of State Migration

Service, Genral Arzu Rahimov

HR Committee Meeting

‘Meet the candidate’ Cocktail/

Reception

AmCham HRCommittee /

JAA-Finals of 2011 National Management

and Economics Competition

Business after Hours: ‘Closer to

Children’ Summer Cocktail Party

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AmCham Azerbaijan

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Summer / Issue 1260

AmCham Azerbaijan

75 participants of the JA Student Companies project, the youth entrepreneurship initiative, gathered together in Baku for the annual Student Business Day on 24 May. The event was co-hosted by American Chamber of Commerce in Azerbaijan and Junior Achievement Azerbaijan. During the event the student teams presented their businesses and products to the panel of judges, who determined the program winners according to five nominations.

JA Student Companies project started in November 2010 and engaged 75 students from 15 schools of Baku, Sumgayit, Ismayilli, Ganja, Mingechevir, Umid, and Sahil. The project taught the high school students entrepreneurship and business plan development with the assistance of teachers and volunteers from the business community.

The project is conducted within the School Economics Education Program (SEE), funded by Statoil Absheron, Chevron Khazar, Bakcell Ltd. and Garadagh Cement OJSC as main supporters, and Pasha Bank, Saipem Azerbaijan, American Chamber of Commerce, Nobel Oil, Baker & McKenzie, PwC, and Deloitte as associate supporters. The program is implemented in strategic partnership with the Ministry of Education, the Ministry of Youth and Sports, the Central Bank and the United States Agency for International Development. 2011 Student Business Day was conducted in partnership with HP Azerbaijan and C’est Bon.

The event ended with an awards ceremony, during which the winning teams and the business volunteers received appreciation certificates and awards.

The American Chamber of Commerce and Junior Achievement Azerbaijan hosted the finals of 2011 National Management and Economics Competition on April 1 at Landmark Rotunda Hall. Twenty four students representing eight student-teams from Baku, Mingechevir high schools and universities competed for the title of National Champion using the business simulation software. During the contest, the participants were given CEO roles of student companies and simulated "business quarters," while making decisions on price, production, marketing, capital investment, and research and development, and considering market conditions. The impact of the decisions is supposed to lead to the success or failure of each student company. The event was concluded with an awards ceremony and a friendly match between the students and the invited representatives of business community. In 2011, Junior Achievement Azerbaijan engaged in total 142 high school and undergraduate students from Baku, Sumgayit, Mingechevir, Ismayilli, Agdash, and Kurdamir regions in the elimination rounds.

Corporate Social Responsibility

2011 Student Business Day

2011 National Management & Economics Competition

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AmCham and Save the Children organized a joint party - "Closer to Children" in Landmark Roof on 10 June. With an amazing turnover of people that reached 130+ the party lasted till 2 am!

The American Chamber of Commerce in Azerbaijan and Save the Children teamed up to host this cocktail party for a cause. The aim was to develop opportunities for socially responsible businesses and caring individuals to contribute to sound and sustainable development for children, through private sector links. Representatives from businesses throughout Baku were to mingle on and socialize. The "Closer to Children" party featured live music by talented performers and the guests to enjoy delicious drinks and snacks.

AmCham and Save the Children joint party - Closer to children

The event was organized with financial support from Bakcell, PricewaterHouse Coopers and The Park Hyatt Baku Hotel. The Jan Bala music band, DJ.China and other young talented musicians were among the guest performers who kindly agreed to support the organizers pro-bono.

Representatives from Save the Children partners and AmCham members are on hand to discuss potential avenues for successful collaboration to help children in Azerbaijan. The organizers aimed to promote a culture of charity among the guests by giving information about current Save the Children programs and successful partnerships. More than 130 guests welcomed summer in a friendly environment.

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Summer / Issue 1262

AmCham Azerbaijan

New Members

AIMROC

Demirbank

Azqtel LLC

Golfland

NAT Co

Baku Metal Service

Grant Thornton

Bank Nikoil

Iris Consulting

Baku Plaza

Mace International Limited Azerbaijan

Vallourec Mannesmann Oil & Gas France Baku

Branch

Pfizer HCP Corporation Rep. Office in Azerbaijan

Novartis Pharma Services AG

BHM Baku Law Centre LLC

British School in Baku

Euro Audit

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How to join the Program: Members willing to join the Program and offer their products/services at special discount to AmCham Regular Members have to inform the AmCham office in writing. A discount provider has to indicate the product(s) or service(s) and discount rate(s).How to obtain discounts:All Regular Members, no matter whether they provide discounts as part of the Program or not, can obtain discounts. Members can find information about the discounts in the M2M Section of our website www.amchamaz.orgHow is M2M advertised? The program will only be advertised internally through the AmCham communications channels: AmCham Website and AmCham Quarterly Magazine – “IMPACT Azerbaijan”. Note: The cards are for personal use only. A card holder is committed to return the card to AmCham in case he/she leaves a Member establishment.

(M2M) Discount Program

TRAVEL, HOSPITALITY AND LEISURE

HYATT-15% on all restaurants and bar- 15% on laundry and dry cleaning

EXCELSIOR-10% on all catering contracted with rentals and on F&B inBelvedere restaurant-15% on rentals of conference rooms and Duke and Heritage rooms-20% on Aura Spa

PARK INN-10% on all F&B outlets

RADISSON-10% on all published Retail Room rates

AIRPORT HOTEL-10% on all F&B outlets

CRESCENT BEACH HOTEL-10% on accommodation-10% on F&B

CROWN HOTEL-10% on all Conference Rooms-15% on Fitness & Leisure Center-10% on all F&B restaurants

LUFTHANSA-up to 7% on tickets

lounge in H. Aliyev Airport is included

PHILOSOPHY TRAVEL-5% on any travel arrangements

FORMAG BAKU (PATRICK HELLMANN)-20% discount on Patrick Hellmann collection

CITIMART-5 discount on all groceries and entire purchase

PROFESSIONAL SERVICES

WICKLOW CORPORATE SERVICES-5% discount on hourly fee rates

PURPLE CREATIVE AGENCY-20% on all creative services

MOZAIK-10% on all products

BAKER & PARTNERS-up to 25% on various services

SEABAK-up to 10% on onsite helpdesk-up to 15% on remote administration

LANGUAGE SERVICES DIRECT-5 % on all services

BANKING, FINANCE AND INSURANCE

AG BANK-50% on AG Club Premium Package-20% on AG Club Gold Package

ATA HOLDING-15% on all types of insurance

A GROUP INSURANCE-15% on all types of insurance

INDIAN CLINIC-15% on medical of services

PRODUCTS AND SERVICES

AZEL-up to 10%

3M- 10% on following 3M products:Visuals; Construction;Stationary

OFFICE SYSTEMS-20% on hard furniture-15% on all office chairs

CONSTRUCTION

ALTES GROUP-5% on all apartments

INTERNATIONAL

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