Statement of Heydar Aliyev, President of the Republic of Azerbaijan at the Meeting with representatives of U.S. Business Circles at the Department of Commerce of the United States of America - July 31, 1997

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Distinguished Mr. Yan Kalitski!

Esteemed Ambassador!

Esteemed Ladies and Gentlemen!

I sincerely greet you here and welcome this business meeting today.

I have been in the United States for a few days now. As you know, I have arrived in the U.S. at the official invitation of President Bill Clinton. I have held a number of meetings and signed several documents. I consider all these meetings and talks very productive and important. Since we have arrived in New York City, we have encountered kindness, friendliness and hospitality at every step. I can feel the great interest and attention of the United States toward Azerbaijan everywhere. All these factors encourage the U.S. to further our relations and cooperation.

The economic cooperation bears special importance in our bilateral relations. For the past few years, the United States and Azerbaijan have made serious moves in this direction. At the same time, I would like to stress that we would prefer to see more of the involvement on the part of diverse U.S. business entities - large, medium and small companies - in the Azerbaijani economy.

If we compare the current situation to the conditions that existed three or four years ago, the progress is, undoubtedly, immense. The U.S. government has never before been represented in Azerbaijan in such a way. However, if we take into consideration the vast resources of the United States, the U.S.-Azerbaijani relations and the fact that the Azeris greatly desire a larger and stronger U.S. presence in our country, the work done so far is not sufficient.

First of all, the participation of the American energy firms in the exploration and production of the Azeri oil and gas deposits, including those in the Caspian Sea, is significant. I can say with a great sense of satisfaction that the share of the U.S. firms in the first large oil contract signed in 1994 dubbed "The Contract of Century" was substantial. The American companies of AMOCO, Pennzoil, UNOCAL and McDermott form the core of this consortium. Later, Exxon joined the consortium. The American firms have come to constitute the majority in the consortium. Even after that agreement, new contracts were concluded with the U.S. firms. We signed the second contract with Pennzoil. Then came the fourth contract with AMOCO on "Dan Ulduzu" and "Ashrafi". That is the fourth according to our count and third in the American count. Finally, a few more contracts have been prepared, and hopefully they will be signed tomorrow. These are the contracts with Chevron, Exxon and Mobil, and intent for a joint work with AMOCO.

I am confident that these agreements will be signed. They will call for $8 billion of U.S. investments in Azerbaijan. In total, all the contracts with Azerbaijan will add up to $30 billion in investments.

I am satisfied that these agreements are already implemented rapidly, and we will witness the fruits of the first contract in September of this year when the first oil is expected to flow. The construction of two pipelines has begun to expedite the exports of this oil. One of them - going from Baku via Russia to the Black Sea port of Novorossiysk - has already been built. Russia had certain problems on the pipeline section traversing Chechnya. As a result of my visit to Moscow in early July and numerous talks with the Chechen and Russian representatives in Baku, we managed to solve those issues. I expect this pipeline to be fully operable within a month so that we can export the first oil.

The second pipeline is being built in the western direction through Georgia to the Black Sea port of Supsa. This pipeline is expected to function by September or October of the next year.

Nevertheless, these efforts are not adequate. We need a much larger pipeline to export the bulk of the oil to the West. This issue was reflected in the contract, and we already have proposals on this matter. I think we will shortly hold tender on the main pipeline after a series of consultations, and the construction of the pipeline may be underway. This main pipeline should go from Azerbaijan to Turkey, then reach the Mediterranean port of Ceyhan.

We are also working to arrange the delivery of the Central Asian oil and gas to the West via Azerbaijan. When I was on an official visit to Kazakhstan last June, I signed an agreement with the Kazakh President Nazarbayev on the transportation of the Kazakh oil produced jointly with the U.S. Chevron from Tengiz deposit to Turkey via Azerbaijan. According to this agreement, the Tengiz-Chevron oil will arrive in Baku via the underwater pipeline built across the Caspian Sea. Then we will transport the oil to Turkey's Mediterranean port through our main pipeline.

However, until the pipeline is constructed, we have considered Chevron's request and agreed to transport the Tengiz oil to Baku on tankers, ship it to the Georgian seaport of Batumi on trains, then export the oil to the West. For the last three months, 300 thousand tons of oil has been exported via this route. We plan to export 3 or 4 million tons of the Chevron oil from Tengiz, Kazakhstan, via this route next year. For this purpose, it is recommended that a short pipeline of 45 to 50 km long be built on our territory. We have done all this work and still are working hard. All these examples indicate the vast potential of the Caspian Sea and the efforts we have exerted in exporting the Caspian oil to the world markets.

I should also emphasize that Azerbaijan has a diverse economy, and the potential in other industries is large. That's why the American firms and businessmen should get involved not only in the oil and gas sector but also in other fields of our economy. We know that, along with the U.S. oil firms, other American companies participate in implementation of these contracts. This is wonderful. The number of the American firms operating in Azerbaijan has increased several fold in the last several years. I would also like to inform you that the ratio of the U.S. companies to the number of all foreign firms in Azerbaijan is only 45%. I believe that it is not expedient for such a great power as the United States to have only 45% representation in the Azerbaijani economy.

I want to give you extensive information about the opportunities in Azerbaijan at this meeting. Such opportunities are abundant in our industries. For instance, one can start a venture in chemical, equipment manufacturing, agricultural processing, textile, metallurgy, and many other industries. The U.S. companies can participate in all these industries. You should know we have passed a number of effective laws to facilitate the inflow of foreign investments, their efficient use and return on investment. Due to the executive acts and decrees I have issued, the Azerbaijani economy is experiencing serious and considerable changes. You may know that we have chosen the market-oriented economy in our country. The privatization program is being carried out very intensively. We are also implementing land reform.

We are planning to privatize all the properties. The foreign citizens have the equal rights as the Azerbaijani citizens and enterprises to participate in the privatization program. This is a great opportunity. We have substantially liberalized the foreign trade and customs system. As a result of these drastic economic reforms, the decrease of our economic output has come to halt for the first time. For the last years, our GDP was diminishing at an average rate of 18 to 20% annually. The production of industrial goods was decreasing 25% per annum. The situation in the agricultural industry was similar.

We managed to alter this situation in 1996. Not only did we succeed in stopping the downward trend in our economy, but also made some progress. In the first six months of this year our GDP increased 5.2% including the industrial output. The production of agricultural goods grew 3%, and the foreign trade increased 40%. While last year imports exceeded exports by $150 million, this year we had a trade surplus of $30 million.

Yes, it was the first time we achieved a trade surplus. We have also instituted major reforms in our customs office. We have set the lowest customs taxes of only 15%. We have also adopted a law on protecting the foreign investments in Azerbaijan in order to ensure more investments. I have issued numerous executive acts in this regard. The crux of these legislative acts was to guarantee the protection of foreign investments and providing immunity to the investments. This law means that regardless of any legislative changes in Azerbaijan, the foreign investors are not subject to any new laws for ten years. In other words, they can operate their business under the original conditions when they began their firms and continue to do so for ten years. The law on the protection of foreign investments also includes special articles on repatriating the profits. That's foreign investors can transfer their income to home countries without any barrier.

We have some other important laws as well. We have opened all our doors in order to encourage more investments in the country. Foreign investors can participate in privatization, and some are already in the program with positive results. For example, we have transferred the management of an aluminum-producing plant to the foreign firm. Or take the example of the tobacco factory that became a joint U.S.-Azerbaijani venture under the U.S. management. There are many ways to establish a business in Azerbaijan. Currently, there are fully owned foreign companies, joint ventures and enterprises owned jointly by Azeris and foreigners with an equal share. They are functioning successfully and making progress. These successes are the results of the step that we have taken in order to promote the integration of the Azeri economy in the world economy.

I repeat: the doors of our economy are open to foreign investors. We have opened these gates for the U.S. investors as our first priority. That's why I invite you all to Azerbaijan. The people who arrived in Azerbaijan a year ago are already witnessing the major changes. Those who came to Azerbaijan two years ago see the complete transformation of the situation in Azerbaijan, especially in Baku. The social and political situation in Azerbaijan is totally stable, and people live and work safely and comfortably. Azerbaijan enjoys a great number of foreign citizens. There are so many foreign citizens who work for these consortiums and companies in Azerbaijan, and these people are content with their living conditions in Azerbaijan. We want their numbers to grow and are doing all we can in order to create favorable conditions for such a growth.

The climate in Azerbaijan is marvelous too. The people are hospitable and show incredible respect to guests. Baku is a beautiful city that has developed as a large world-class metropolis. All these factors create an agreeable and productive atmosphere for both working and living. That's why I invite all of you to Azerbaijan.

I do not want to take much of your time and look forward to your questions.

Yan Kalitski: Mr. President, thank you for your valuable and informative speech. Your ideas about the trade and investment opportunities in Azerbaijan are extremely interesting to us. We will continue our meeting with your permission and begin the questions session. Our first question is about privatization. How is the privatization program proceeding in Azerbaijan, and what conditions were created in Azerbaijan for U.S. firms to participate in the process?

Answer: As I have already mentioned any legal or physical entity can take part in the privatization program in Azerbaijan. Anyone can come to Azerbaijan and benefit from privatization if he or she so desires. Do I need to elaborate in more detail, or is this clear? I think there is nothing else to add in this respect. Azerbaijan already has all the necessary laws, and our law on privatization has incorporated all the appropriate bills and conditions.

Question: Mr. President, you are known to be a strong backer the idea of developing the communications and telecommunications industries. What can you say about the privatization prospects of such Azerbaijani State enterprises as Aztelecom and Azerbaijani State Television and Radio?

Answer: A few joint ventures are already operating in this industry. Thus, we cooperate with U.S. Motorola. We have also set up several joint ventures with Turkish companies, Eriksson and Russian LukOil . I would also like to note that state-owned enterprises will be privatized. I cannot specify the time we will carry out this plan, however, this will be done shortly, not in the distant future. We will start this privatization this year.

Question: Mr. President, what specific plans do you intend to implement in order to develop the infrastructure in Azerbaijan? For instance, do you have any plans to switch the Azerbaijani national television to the digital system or establish an Internet network in the country?

Answer: We do have such plans, but they require extensive capital investment. We can not accomplish these plans in a short period by tapping into the state budget. That's why if any firm approaches us with an offer to cooperate in this area, we will be glad to work together.

Question: Mr. President, the next several questions pertain to the issues of the protection of the foreign investments and implementation of contracts in Azerbaijan. We would like to know the state of affairs in this area. In general, has Azerbaijan decided to join the convention on international arbitrage of business disputes that was signed in New York?

Answer: I have accentuated that the Azerbaijani law on foreign investments fully guarantees the rights of foreign capital in the country. I have pointed out that a plethora of rights are guaranteed by the Azerbaijani legislation including the immunity of foreign capital. I would like to reiterate that, regardless of the possible changes in the Azerbaijani legislation for the next 10 years, if those laws are detrimental to the investors' interests, then new laws will not apply to these investors. For ten years, such investors will operate only on the basis of the laws that were in existence at the time of initial entry to the market. I think that these conditions are very beneficial.

You have touched on the possibility of establishing an international arbitrage court to facilitate the flow of capital to Azerbaijan. Frankly, this is something new to me. I have never heard of it before. Therefore, before I answer this question, I need to find out what this concept is about. I am being prompted here that when Azerbaijan became a member of the World Bank and IMF, we pledged to conduct business according to international laws, and the international laws fully apply to our country.

Yan Kalitski: Mr. President, I am receiving a large number of questions. Regrettably, you do not have enough time to respond to all of them. However, I believe you can find time to answer two questions.

A few questions concern the development of the energy sector, the Azerbaijani natural gas industry in particular. Mr. President, I would like to ask you to share your thoughts on the production, transportation, storing and exports of natural gas in Azerbaijan?

Heydar Aliyev: There are myriad a gas fields in Azerbaijan including the Azeri sector of the Caspian Sea. We have signed a contract to develop the "Shahdeniz" field. No U.S. firm participates in this contract that we signed with BP, Statoil, Elf Aquitain and others. The experts estimate the production of 450 billion cubic meters of natural gas. But I believe the field contains more gas than this estimate.

Exxon is conducting successful exploration work in the Azeri gas fields. Exxon executives told me during our meeting that the deep-water gas reserves in the Caspian are vast. They promised to submit their offer shortly. I have accepted this offer and now am waiting for the completion of the project by Exxon. I assume these estimates coincide with the calculations of our scientists and geologists. Under such circumstances, we could start a major project in developing natural gas fields. It goes without saying that all these efforts will create conditions for producing large quantities of natural gas in Azerbaijan.

Azerbaijan has to meet its internal demand. Our country's demand for gas is approximately 11 to 12 billion cubic meters per year. Any excess gas production over this quantity should be exported. I think we will be able to produce more gas than this and sell it abroad. Since our path is directed toward the West, then we will export the gas to the western countries.

If we can start this venture with Exxon, then together we will determine the conditions of the contract.

Question: Mr. President, the last question concerns the peace process in the Caucasus. Do you expect positive results from the peace negotiations with Armenia? Generally speaking, how could the trade and investments affect the establishment of peace in the region?

Answer: First, I would like to inform you that the conflict between Armenia and Azerbaijan has been stopped for three years. We signed a cease-fire accord in May 1994, and have been maintaining cease-fire since then. We will continue it into the future as well. After the cease-fire agreement and the stabilization of the political situation in Azerbaijan, we signed the first contract on cooperation on the Azerbaijani oil fields in the Caspian in September 1994. For the three years that followed the first contract, Azerbaijan experienced a solid influx of foreign investments.

I want to point out that the military conflict does not prevent foreign capital from flowing into Azerbaijan. On the other hand, I think that if we manage to settle the conflict, establish peace between Armenia and Azerbaijan, then the ensuing peace in the region will create a more secure and reliable environment for the long-term foreign investments in Azerbaijan.

We are working in this direction. As you know the Minsk Group of the OSCE is charged with the peace negotiations in this conflict. The Lisbon Summit of the OSCE held last December laid out the principles for the peaceful settlement of the Armenian-Azerbaijani conflict. These three principles are: first, the recognition of the territorial integrity of the Armenian and Azerbaijani Republics; second, granting broad autonomy to Nagorno-Karabakh within Azerbaijan; third, the guarantee of the security of the entire population of Nagorno-Karabakh, both Armenian and Azerbaijani communities.

We have accepted these principles and are conducting talks on this basis. I am pleased to note that, early this year, the co-chairs of the Minsk Group were replaced. Now three countries, Russia, the United States and France, co-chair the Group. Three great powers took on this responsibility, and the presidents of three major powers accepted this duty. That's why this development led us to hope that the military conflict would be settled in 1997.

As you are aware, the presidents of three countries, Bill Clinton, Boris Yeltsin, and Jacques Chirac, made a joint statement on a peaceful settlement of the Armenian-Azerbaijani, Nagorno-Karabakh conflict on June 20th, in the American city of Denver. I have recently met with the presidents of America, Russia and France. When I was in Madrid I met with President Clinton and President Chirac. Before that I met with Russian President Yeltsin during my official visit to Moscow. They all expressed the same opinion. All three presidents stated that they discussed the issue in Denver and shared the same view that they should coordinate their efforts and solve the problem.

During my current visit to the United States, I have also held talks with members of the Congress, state figures, and high-ranking administration officials in this regard. Tomorrow, the peaceful settlement of the Armenian-Azerbaijani conflict will be the top issue in my talks with President Clinton at the White House. I hope that the United States, especially its Congress, and most importantly President Clinton, will exert every effort to settle the conflict as soon as possible.

We want long-lasting peace in the Caucasus. We are against resuming the hostilities and will not allow that. We stand for the establishment of stable and lasting peace between Armenia and Azerbaijan. We hope that the United States and President Clinton will assist us in resolving this matter.

The document was taken from the edition of "Together towards the New Century"