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EXPULSION OF TURKISH ELECTRICITY COMPANY PROMISES GEOPOLITICAL LOSSES FOR AZERBAIJAN
By Fariz Ismailzade
Eurasia Daily Monitor, DC
July 7 2006
Friday, July 7, 2006
After months of mutual accusations, arrests, investigations,
and political statements, the Turkish electricity company Barmek
has broken its contract with the Azerbaijani government to manage
electricity supplies for Baku, the capital, and the northern regions
of the country. "I did not want to do it," said Barmek president Huseyn
Arabul at a press conference on July 3, "but the other side has forced
me to with their constant pressures and monitoring" (Day.az, July 4).
The contract between Barmek and the Azerbaijani government was signed
in 2002 for a period of 25 years. It was widely reported at the time
that former Turkish President Suleiman Demirel has personally lobbied
on behalf of Barmek, which defeated its German competitor Siemens in
the bidding process. Barmek's arrival in Azerbaijan was portrayed as
another important step for Turkish-Azerbaijani economic partnership
and integration.
Since then, Barmek's relations with its Azerbaijani counterpart,
Azerenergy, has passed through many ups-and-downs until finally in
2006 Azerenergy concretely accused Barmek of mismanagement and asked
the president of Azerbaijan, Ilham Aliyev, to break the contract.
This was followed by the arrest of several high-ranking Barmek
officials, and the launch of an investigation by the Ministry of Taxes
and the prosecutor general's office. Last month Barmek's bank assets
in Azerbaijan were frozen.
"It is impossible to work under these conditions. I broke the contract
unilaterally. And now I will demand compensation for all the investment
[$67.45 million] I have made in Azerbaijan," Arabul told journalists
at the press conference (Sharg, July 4). The Azerbaijani government,
on the other hand, accuses Barmek of evading taxes, violating the
terms of the contract regarding investment volumes, and falsifying
invoices. "We have studied the lawsuit that Barmek has filed in the
International Court on the Protection of Investments. He demands $300
million from us. It is nothing more than blackmail. The Court will
decide," said Minister of Economic Development Heydar Babayev after
freezing Barmek's assets and bank accounts.
In May ministry officials had stated that Barmek has invested only
$3 million toward improving Azerbaijan's electricity-distribution
network, which constitutes only 10% of the investment required by the
contract ($27.8 million). Furthermore, Barmek took out loans from
the International Bank of Azerbaijan to purchase transformers and
allegedly misappropriated those funds. Finally, the ministry argued
that invoices for work subcontracted to outside companies have been
inflated and falsified. These serious accusations have been backed by
evidence discovered as a result of the investigation by the prosecutor
general's office.
Yet despite these problems, Barmek's departure will still hurt
Azerbaijan in the long run. Foremost, Barmek brought Western-style
practices and consumer relations to Azerbaijan's electricity system,
which was notorious for its mismanagement during Soviet times. Income
from electricity payments has been always low in the former Soviet
republic, as many citizens and businesses either secretly steal
electric power or refuse to pay, citing poverty. Barmek has fought this
"free-lunch" mentality through a series of public-service announcements
and has markedly improved the rate of payment for electricity among
ordinary citizens. People have finally begun to understand their
responsibilities related to electricity usage, and Barmek made it easy
for them to pay the bills at banks and many customer service centers.
However, Barmek's expulsion brings opportunities for regional
utilities to compete for the right to manage Azerbaijan's
electricity-distribution network. Russia's electricity monopoly Unified
Energy Systems (UES) appears to be the front-runner, as its officials
have frequently visited Azerbaijan in the past and cooperation between
the two sides has increased over the past few years. Having already
taken control over Armenia and Georgia's electricity assets, UES is
eager to complete the deal with Azerbaijan for total control over
the South Caucasus. This, in turn, could have very negative political
and security implications for the Azerbaijani people and government.
Minister of Economic Development Heydar Babayev has denied that any
company has yet made any offers. Local experts, however, have no
doubt that some Russian company will soon be knocking on their door.
Some even believe that opening the market to Russia is Aliyev's way
of repaying Russian President Vladimir Putin for the political support
Moscow provided during last year's disputed parliamentary elections.
It is also possible that Azerbaijan will manage the distribution
network itself, as occurred when another private company, Bayva,
had its contract to manage the electricity-distribution network in
western regions cancelled last year. Rising oil revenues now allow
the Azerbaijani government to invest in infrastructure and thus reduce
the dependence on a foreign company. In any case, the end of Barmek's
era in Azerbaijan promises uncertainties for the country.
By Fariz Ismailzade
Eurasia Daily Monitor, DC
July 7 2006
Friday, July 7, 2006
After months of mutual accusations, arrests, investigations,
and political statements, the Turkish electricity company Barmek
has broken its contract with the Azerbaijani government to manage
electricity supplies for Baku, the capital, and the northern regions
of the country. "I did not want to do it," said Barmek president Huseyn
Arabul at a press conference on July 3, "but the other side has forced
me to with their constant pressures and monitoring" (Day.az, July 4).
The contract between Barmek and the Azerbaijani government was signed
in 2002 for a period of 25 years. It was widely reported at the time
that former Turkish President Suleiman Demirel has personally lobbied
on behalf of Barmek, which defeated its German competitor Siemens in
the bidding process. Barmek's arrival in Azerbaijan was portrayed as
another important step for Turkish-Azerbaijani economic partnership
and integration.
Since then, Barmek's relations with its Azerbaijani counterpart,
Azerenergy, has passed through many ups-and-downs until finally in
2006 Azerenergy concretely accused Barmek of mismanagement and asked
the president of Azerbaijan, Ilham Aliyev, to break the contract.
This was followed by the arrest of several high-ranking Barmek
officials, and the launch of an investigation by the Ministry of Taxes
and the prosecutor general's office. Last month Barmek's bank assets
in Azerbaijan were frozen.
"It is impossible to work under these conditions. I broke the contract
unilaterally. And now I will demand compensation for all the investment
[$67.45 million] I have made in Azerbaijan," Arabul told journalists
at the press conference (Sharg, July 4). The Azerbaijani government,
on the other hand, accuses Barmek of evading taxes, violating the
terms of the contract regarding investment volumes, and falsifying
invoices. "We have studied the lawsuit that Barmek has filed in the
International Court on the Protection of Investments. He demands $300
million from us. It is nothing more than blackmail. The Court will
decide," said Minister of Economic Development Heydar Babayev after
freezing Barmek's assets and bank accounts.
In May ministry officials had stated that Barmek has invested only
$3 million toward improving Azerbaijan's electricity-distribution
network, which constitutes only 10% of the investment required by the
contract ($27.8 million). Furthermore, Barmek took out loans from
the International Bank of Azerbaijan to purchase transformers and
allegedly misappropriated those funds. Finally, the ministry argued
that invoices for work subcontracted to outside companies have been
inflated and falsified. These serious accusations have been backed by
evidence discovered as a result of the investigation by the prosecutor
general's office.
Yet despite these problems, Barmek's departure will still hurt
Azerbaijan in the long run. Foremost, Barmek brought Western-style
practices and consumer relations to Azerbaijan's electricity system,
which was notorious for its mismanagement during Soviet times. Income
from electricity payments has been always low in the former Soviet
republic, as many citizens and businesses either secretly steal
electric power or refuse to pay, citing poverty. Barmek has fought this
"free-lunch" mentality through a series of public-service announcements
and has markedly improved the rate of payment for electricity among
ordinary citizens. People have finally begun to understand their
responsibilities related to electricity usage, and Barmek made it easy
for them to pay the bills at banks and many customer service centers.
However, Barmek's expulsion brings opportunities for regional
utilities to compete for the right to manage Azerbaijan's
electricity-distribution network. Russia's electricity monopoly Unified
Energy Systems (UES) appears to be the front-runner, as its officials
have frequently visited Azerbaijan in the past and cooperation between
the two sides has increased over the past few years. Having already
taken control over Armenia and Georgia's electricity assets, UES is
eager to complete the deal with Azerbaijan for total control over
the South Caucasus. This, in turn, could have very negative political
and security implications for the Azerbaijani people and government.
Minister of Economic Development Heydar Babayev has denied that any
company has yet made any offers. Local experts, however, have no
doubt that some Russian company will soon be knocking on their door.
Some even believe that opening the market to Russia is Aliyev's way
of repaying Russian President Vladimir Putin for the political support
Moscow provided during last year's disputed parliamentary elections.
It is also possible that Azerbaijan will manage the distribution
network itself, as occurred when another private company, Bayva,
had its contract to manage the electricity-distribution network in
western regions cancelled last year. Rising oil revenues now allow
the Azerbaijani government to invest in infrastructure and thus reduce
the dependence on a foreign company. In any case, the end of Barmek's
era in Azerbaijan promises uncertainties for the country.