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10 years of privatization

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The Republic of Azerbaijan

The State Committee for Management of State Property

10 years

of Privatization in Azerbaijan

Progress and Prospect

Baku – 2006

“The potential created in both industry and agriculture, construction – in all the spheres of the national economy – should be maintained and undoubtedly privatized in advantageous ways for benefit of the state, the nation.”

Heydar Aliyev,

The Nation-wide Leader

of the Azerbaijan people

Introduction

After recovery of independence of the Republic of Azerbaijan in 90’s of twentieth century, the retention of this independence irreversibility used to be the most important aim of the state. Regardless of the fact that the guaranteeing of  increasing the economic potential and economic independence in strengthening of our state  system was of great importance, and it was too difficult to cope with these tasks at the conjuncture of the military aggression aimed to our state, political and economic crisis.

After return of Heydar Aliyev, our Nation-wide Leader, to the leadership of the state, as a result of the necessary measures, the securing of social and political stability has established a favorable basis to carry out the economic reforms in our country. One of the key tasks within the framework of those reforms was to create auspicious conditions for development of private sector by renouncing the state monopoly in the national economy. In this regard, the privatization of state property was of great importance.

The privatization process started with adoption of “The State Program of State Property in the Republic of Azerbaijan in 1995 – 1998” by Heydar Aliyev, the President of the Republic of Azerbaijan, in 1995. Toward this end, the appropriate work was done, the world experience was studied, the state monopoly in the national economy started to be renounced for the purpose of creating the primary legal base of privatization and along the lines of the respective institutional ensuring.

In order to inveigle the vast masses of the population into the privatization process, the privatization books were put into circulation, the appropriate legal base was created so that the labor collectives might take part in privatization in privileged ways.

The alienation process beginning with the privatization of commercial and service objects in an early stage was gradually covering such wide and leading spheres of the national economy as transportation and telecommunications, construction, chemistry and heavy engineering industry, metallurgy, etc.

At the same time, the Economic Stabilization Program, oil strategy, structural reforms in the light of transfer to market economy successfully implemented in Azerbaijan yielded positive results, high development temps were secured, the state proceeded to its higher development stage.

The new economic environment originated new tasks in the sphere of management and privatization of state property. In order to implement these tasks in more effective way, according to the Decree dated September 16, 2005, of the President of Azerbaijan, the State Committee for Management of State Property was established, and its Statute was adopted by the Presidential Edict dated November 16, 2005.

The goal of this book is fully bringing to the notice of the community the work done, the progress obtained up to now as well as the development prospect in the sphere of privatization.

The work done, the success achieved and further prospect in the sphere of privatization of state property in the Republic of Azerbaijan

The political and socio-economic situation in the first years of independence of the Republic of Azerbaijan

Century XX has become remarkable for the Azerbaijan people from the point of view of renewal of the state system with historicity. Having begun a struggle for its independence in the last decade of the twentieth century, our people succeeded in recommencing the state system lost as a result of a foreign invasion.

After gaining its independence, in a short period of time our country has built relations with foreign states, reputable international and financial organizations, successfully joined the integration programs in Europe and Euro-Atlantic space. We made progress in transfer to the market economy from the planned state economy through the radical reforms implemented in the economic sphere. Now the independence of the Republic of Azerbaijan has become an irreversible process, our republic has taken its worthy place as a sovereign, democratic, temporal and progressive state among the world community states.

However, it is to be noted that our state’s independence, the progress made along the lines of economic development was not gained easily. Thus, the political and economic problems which Azerbaijan faced with in the first years of its independence as well as the military aggression from Armenia posed many serious problems in its development as a state.

Because of the above-noted political factors and military aggression, the socio-economic situation in Azerbaijan was suffering retrogression. As a consequence of the aggression, the producing potential in 20% considerable agricultural production failed. On the other hand, it required in a short space of time to reconstruct the national economy which has been formed as a part of the former Soviet Union’s economy. Destroying the economic cooperation links existed with the traditional partners paralyzed the producing spheres of the country. Thus, the goods produced could not find their immediate customers, on the other hand, it got difficult, sometimes impossible to import raw materials and constituent components necessary for the production from abroad. All these criteria were at the bottom of many producing spheres to stop their activities. The recession of volume of output has been a reason for a number of enterprises and organizations to stop their activities and mass unemployment, worsening of the population’s living standard. Whereas there was state monopoly, break of state enterprises’ activities created an army of hundred thousands unemployed people.

As a result of the economic regression, the production of GDP in 1995 in comparison with that in 1990 is decreased for 60%, industrial production is decreased for 70%, agricultural production is decreased for 48%. The people’s profit derived with a lot of difficulties, went down in price day by day, the finance and banking crisis made the existing situation worse. On the other hand, whereas the demand is too much higher than the supply, there was hyperinflation, the people suffered from political and economic crises.

At that heavy time, return of Heydar Aliyev, the Nation-wide Leader of the Azerbaijan people, to the country had become a sudden change in political and economic development of the state. The political stability of the state was restored, in a brief space of time the political and economic reforms programs were prepared and started to be implemented, the political and economic development directions of the country were identified in accordance with the national interests. Thus, as a model of political development, the Republic of Azerbaijan chose the way of development upon democracy, multi-party system, high society, provision of triumphing of laws, freedom of speech and religion, protection of human rights. We began to take the necessary steps towards forming economic relations only regulated by the state and implementing the strategic development functions based on the market economy’s principles facilitating development of private property, healthy competition.

A number of steps were taken with the purpose of liquidation of hyperinflation by the end of 1995, and, thus, the period of economic reforms started. At that time, taking into account the recommendation of the International Monetary Fund and the World Bank, the tough monetary and credit policy was applied, and the currency market was liberalized.

The credits allotted by the IMF and the World Bank for implementation of structural change and support of the economic reforms of the government accelerated the reforms program which was in operation. Exploitation of oil and gas fields with participation of foreign companies had a positive influence on invigoration of economic environment in Azerbaijan.

Pic. Signing of the Contract of the Century

In particular, “the Oil Contract of the Century” signed in 1994 and other contract signed afterwards by the initiative of Heydar Aliyev, the Nation-wide Leader of our people, created a foundation for improving financial facilities of the state. Nevertheless, it would have been mistaken to develop the oil sector only and make the financial state of the country dependent on oil sector. In order not to allow such dependence, alongside with the oil sector there was a demand to develop other spheres of the national economy in a brief space of time. With the goal of provision of strong economic development, it was necessary to have serious structural reforms.

The objective necessity for development of private sector

Transfer into the free economic relations system based on private property, independent entrepreneurship and healthy competition directly made radical change of property relations, liberalization of economy necessary.

One of the major tasks in the economic sphere was to refuse administrative planned system and develop the market economy relations. Whereas the state was the sole monopolist in the national economy, it was naturally impossible, and so there were needs to create a base to develop private property and entrepreneurship. In this regard, we began to create a legal base facilitating the development of free market economy, the new provisions on private property were included in the Constitution of the republic.

It was out of the question to think of economic development not restoring the activity of the enterprises which were concentrated in public producing and service spheres. Whereas the state had no investment resources to resume operation of those enterprises, in fact, it was impossible to implement these tasks not involving new technologies and not applying progressive management methods. Besides, loss of the traditional sale markets, limitation of raw material and resources facilities demands not only resuming the activity of those enterprises but also changing their profiles in accordance with the market economy criteria. All of these created the necessity to alienate state enterprises ineffectively managed, with a low productivity, working with material losses or not working at all.

According to the key objects of the economic policy of the state, the privatization is aimed at reconstruction of the national economy, speedy development of private property relations and entrepreneurship, increasing the efficiency of the economy by attracting foreign investments, restoring working places, creating new workplaces and other similar measures. The main purpose of all these measures is improvement of the socio-economic state of citizens and creation of strong economic ground of our state. In this standpoint, the privatization carried out in our country is not an aim but a tool to reach the above-mentioned aims. Therefore, the entities implementing privatization have a mission of carrying out the privatization for the principles of economic efficiency and social justice.

The legal base of privatization of state property

Over a 10-year period of time, two State Programs and many laws and legal acts were adopted by scrutinizing the experience of other countries in the privatization sphere. In fact, we have the complete legal base for privatization in Azerbaijan.

The adoption of “The State Program of Privatization of State Program in the Republic of Azerbaijan for 1995 – 1998” by the initiative of Heydar Aliyev, the President of Azerbaijan, provided the basis to start the privatization. It has been successfully implemented in Azerbaijan for more than 10 years.

The State Program of Privatization of State Property

in the Republic of Azerbaijan for 1995 – 1998

As a constituent component of the implemented radical economic reforms, there was necessity to renew the activity of the existing enterprises, to attract new investments and new technologies, to resume the old producing and service spheres and to open new ones by private initiatives. The aims, directions and principles were first reflected in “The State Program of Privatization of State Program in the Republic of Azerbaijan for 1995 – 1998”.

The goals of the Program were to create the self-regulated market economy environment on the basis of private property and free competition principles for economic subjects, to reconstruct the structure of the national economy upon request of market economy, to attract unused resources of all kinds to economic process, to attract investments, including foreign investments to economy, to improve the living standard and social state of the population.

Not disregarding the current labor staff and the people worked for the state enterprises for a long time, the citizens of the country as a whole, from privatization of state property, on the contrary, attracting them to this process was paid attention to by Heydar Aliyev, the Nation-wide Leader, who had always cared for the social prosperity our people. This is why while preparing the Privatization Program, the experience of many foreign countries were scrutinized and considered. In the upshot, by applying the mixed model of privatization in Azerbaijan, it was decided to submit free of charge a part of the state property to a labor collective and the citizens of the state.

Toward this end, Heydar Aliyev, the President of the Republic of Azerbaijan, adopted “The Statute on State Privatization Books (Vouchers) in the Republic of Azerbaijan” on March 25, 1996 and signed the Edict “On Putting State Privatization Books (Vouchers) into Circulation in the Republic of Azerbaijan”. According to the Edict, 32 million privatization vouchers were put into circulation. Their cost is 65% of the state property to be privatized.

 Since January 1, 1997, every natural person registered as a citizen of the Republic of Azerbaijan has received one privatization book consisting of four vouchers. The citizens received a privatization book have the right to take part for the privileged way in sale of shares or parts of the state enterprises by using those vouchers. Besides, the privatization vouchers may freely be bought, sold and alienated for other ways in the security market.

At the same time, in accordance with the Presidential Edicts and Decrees, since 1996 some ministries, state committees, concerns and companies have been liquidated, the enterprises and objects situated at their disposal have been announced open for privatization.

The objects of the First Privatization Program were as follows:

ï‚·        liberalization of economy, development of private owners’ class and free entrepreneurship;

ï‚·        establishment of the rational structure of property as a key criterion of growing the producing efficiency and the national incomes;

ï‚·        restructuring the national economy, increasing the economic efficiency on the basis of anti-monopolization and forming competition environment;

ï‚·        attracting investments, including foreign investments to the enterprises;

ï‚·        improving the living standard and social well-being of the population.

The First Privatization Program used to identify the key goals, priorities, methods, stages and timing of privatization. The document stipulated for privatization to be implemented in two main directions: privatization of small enterprises; privatization of medium and large-scale enterprises. According to the Program, privatization of small enterprises envisaged their sales at cash auctions, privatization of medium and large-scale enterprises was implemented through their transformation into joint-stock companies.

The following privatization ways for sale of state enterprises’ shares are envisaged in the First State Program:

ï‚·        privileged sale to staff  and people equal to them;

ï‚·        sale through actions;

ï‚·        sale through commercial tenders;

ï‚·        sale through non-commercial investment tenders;

ï‚·        sale of property (assets) of the liquidated objects;

ï‚·        purchase of leased property;

ï‚·        sale of the property to the lessee.

At the implementing period of the First Privatization Program basically covering privatization of small state enterprises and objects, the privatization of medium and large-scale enterprises has been carried out as well. It is true that the first stage of privatization was not over in time due to some reasons.

     Nevertheless, at the first stage of privatization, in general, the objects of personal service, commerce and public catering, bakery shops and bakery production enterprises, filling stations, vehicles have been privatized.

      Summarizing the results of the first stage of privatization, we note that at this stage the people began to have faith in irrevocability of privatization process, the wide class of owners was created, the goods substitute for imported ones began to be produced, more than USD 100 million were attracted to the non-oil sector of the state, the activity of many enterprises was renewed, new workplaces were created.

The Second State Program of Privatization of State Property

in the Republic of Azerbaijan

The second stage of privatization started with adoption of the Law of the Republic of Azerbaijan “On Privatization of State Property” and “The Second State Program of Privatization of State Property in the Republic of Azerbaijan” in August 2000.

The results of the first stage of privatization show that the forecast for renewal of production, creation of new workplaces has not been realized in many cases because of not supporting the activity of the privatized enterprises in the proper way. Its reason has been the payable as well as tax debts collected before privatization and other factors concerning the privatized enterprises. Therefore, since 2000 the necessary decisions have been taken with the goal of supporting the activity of the privatized enterprises and development of entrepreneurship in accordance with the Edicts and Decrees of Heydar Aliyev, the President of Azerbaijan. In this connection, supporting the activity, restructuring and rehabilitation of privatized enterprises is paid especial attention to. The measure in this sphere is aimed at the favorable climate to renew the activity of the enterprises after privatization by rendering tax and other privileges to the privatized enterprises, providing them with privileged credits, power and natural gas, eliminating their debts to the state. According to the Nation-wide Leader Heydar Aliyev’s initiative, the adoption of the Law of the Republic of Azerbaijan “On Debts of Privatized State Enterprises, Economic Subjects Liquidated as a Result of Agrarian Reforms and Subjects of the Districts under Occupation” has been of great importance in acceleration of privatization process.

The main objects of the Second State Program are as follows:

ï‚·        implementing privatization of state property in accordance with the Law of the Republic of Azerbaijan “On Privatization of State Property”;

ï‚·        improving the structure of economy and increasing the efficiency of the national economy on the basis of forming the competitive environment;

ï‚·        enlarging the private owners’ class as an economic base of the market relations;

ï‚·        gaining the development of economy by attracting investments, including foreign investments;

ï‚·        attracting wider stratum of the population by selling the state property for state privatization vouchers;

ï‚·        completing privatization of the enterprises and objects announced open for privatization by the First State Program.

A few of principles have been passed as a criterion in preparing of the Second State Program. The most remarkable principle is as follows: privatization is not only a property transformation but also an important tool for economically reconstruction of enterprises. The analyses of the First Privatization Program show that it is necessary to have purposeful privatization of enterprises.

The Second State Program envisages the wider participation of labor collectives in the privatization process and their preferential rights. 15% shares of the joint stock companies formed on the basis of the big state enterprises are directed to the preferential sales for labor collectives. While privatization of small state enterprises as well as sales of leased state property, the labor collectives may use a number of privileges.

The Second State Program covers the solution of the issue that was not reflected in the previous legal acts. Thus, sales guidance of the land areas under the privatized enterprises and objects and the land areas of the enterprises and objects constructed by non-public legal and natural persons’ means as well as the appropriate authority implementing this process is identified.

Besides, because of the fact that the mechanism of privatization of small enterprises was not flexible in the First State Program, a number of small enterprises have not been privatized. One of its main reasons was the difference in price of the objects from the market condition. In the new Program the definite change has been made in the light of extending the flexibility of the implementation mechanism of auctions.

The following methods of privatization of state property are envisaged in the Second State Program:

ï‚·        Case-by-case privatization of state enterprises;

ï‚·        Privileged sale of property of the privatized state enterprises to the labor collective’s individuals and the persons equal to them;

ï‚·        Sale of state property at specialized voucher and cash auctions;

ï‚·        Sale of state property through auctions;

ï‚·        Sale of state property through investment tenders;

ï‚·        Sale of leased state property;

ï‚·        Sale of state enterprises through announcing them bankrupted

As distinct from the previous legal acts, “The Second State Program of Privatization of State Property” envisages more acceptable conditions for participation of foreign investors in privatization. Thus, at the second stage of privatization, while purchasing the state property, foreign investors use privatization options only when they have to use vouchers for privatization. According to the law, the option is a cashless, nominative security allowing foreign persons to participate in privatization with vouchers. In this connection, the foreign investors participate at specialized voucher auctions by submitting options. Besides, if the foreign investors repeatedly direct their net profit obtained in the Republic of Azerbaijan to the economy of our state as an investment, they do not need to submit options at all.

As a rehabilitation measure, the second State Program foresees the transfer of enterprises to management before privatization. Thus, in order to attract an investor with an abundant experience, able to invest, to attract know-how, an enterprise may be transferred to management. The privatization of this enterprise is implemented by this or other privatization method.

The role of privatization and achieved success

Facing both with the political and economic problems in the first years of its independence, our country succeeded in extending the economic potential of our state system, transforming it into a state with the dynamic development, stable economy due to the far-sighted policy and wisdom of our people’s Nation-wide Leader Heydar Aliyev.

In spite of the fact that a few years have passed since Azerbaijan gained its independence, our country has achieved success in the state system, building an independent economy based on the market economy of the free country. The state has stepped towards the new stage of its economic development.

The dynamic growth of the GDP production in Azerbaijan has been observed since 1996, and according to the results of 2005, the growth was 26.4%. The GDP production per head increased up to USD 1,518 from USD 226 in 1993. Thank to this index, Azerbaijan left the list of the low-income states. In a short space of time, the poverty level in Azerbaijan has been reduced from 60% down to 29.3%. In 2005, the volume of the foreign trade turnover was more than USD 8.5 billion. 

The execution of the different development programs adopted by the Azerbaijan government has stimulated the development of entrepreneurship, increasing the living standard of the people, development of the regions, reducing unemployment. The implemented economic reforms have established the climate to strengthen the market economy. Since October 2003, 346 new workplaces have been created in the country. 

We have made progress in development of private sector, and now, 76% of the produced GDP belongs to the private sector. Being a wide-ranging and revolutionary process, the privatization is connected with the activity of economy and influences on forming indices which identifies its status. Thus, taking into account that the privatization is connected with the productivity and end product, we have to note that liquidation of the state monopoly has an influence on the structural change implemented in the country.

For these ten years, more than 33 thousand small enterprises and objects have been privatized, more than 1,500 medium and large-scale enterprises have been transformed into joint-stock companies, with the purpose of sale of joint-stock companies’ shares 90 specialized voucher auctions and 351 cash auctions have been held. More than 300 thousand citizens have been provided with jobs, in general, more than 900 thousand citizens have turned to advantage from privatization. For that period of time, AZN 182 million obtained from privatization have been directed to cover the budgeted deficit, AZN 21.8 million from leasing of state real estate have been transferred to the state budget.

Privatization of small state enterprises and objects as well as ground areas, lease of state real estate

During the last 10 years in the framework of the privatization process implemented in the Republic of Azerbaijan country, many important measures have been taken in the sphere of privatization and lease of small state enterprises and objects.

As the first success of privatization, as a result of privatization of trade and service objects in a short space of time, the shortage of bakery and fuel products was abolished, the level of personal and other kinds of services rendered to the population was remarkably augmented.

In the period of implementing the first State Program mainly covering privatization of small state enterprises and objects, the privatization of medium and large-scale enterprises was also carried out. It is true that the first stage of privatization did not finish at the time defined by the Program. It has had several objective reasons. The problem was basically connected with the difficulties while valuation. As having higher prices than market ones, it was difficult to privatize filling stations, several state enterprises and objects. A low interest of the population in the standing filling stations, small state enterprises with old equipment, based on old technologies had a negative effect on their privatization. Anyway, nearly 34 thousand small state enterprises and objects have been privatized up to now.

 Implementation of privatization in the true is firmly connected with privatization of ground areas under the privatized enterprises and objects. This process is regulated with “The Statute on the Sale Guidance of Ground Areas under the Privatized State Enterprises and Objects”, “The Statute on Normative Price of Ground Areas of the Privatized State Enterprises and Objects” approved by Edict No. 659 dated Dec. 19, 1997 of the President of Azerbaijan as well as other respective legal acts.

“The ground areas of the privatized state enterprises and objects” mean the used ground which is reflected in a technical passport while privatization. Foreign natural and legal persons and the persons with no citizenship may only use or lease ground areas.

As known, lease of the state real estate is implemented by the State Committee for Management of State Property, according to the appropriate Decree of the President of Azerbaijan.

In accordance with the legislation, the complex measures are being carried out in the sphere of efficient usage of leased non-residential premises, obeying signed lease contracts.

Privatization of medium and large-scale enterprises

As a result of execution of the first State Program, a lot of consumer and service profiled state enterprises and objects were transferred into private sector, and their activity was renewed by their new owners, and the favorable conditions were created for development of entrepreneurship in the consumer and service market of the country as well as for reinvestment of the obtained profit to the production sector;

As a sequel of the privatization and liberalization policy, the coverage of “The Second State Program of Privatization of State Property in the Republic of Azerbaijan” adopted in August 2000 differed from the first Program. The main objects of the latter Program were renewed and included improvement of the structure of the developing economy, extending the efficiency of the national economy on the basis of forming competition environment, extending the class of private owners as an economic basis of market relations, reaching the development of economy through attracting investments including foreign investments, attracting a wider part of the population to the privatization process.

After beginning the privatization of medium and large-scale enterprises, the activity of several inactive enterprises was restored, some part of the members of labor collectives returned to their workplaces. In spite of the fact that they are not quite operating by their full capacity because of loss of the existing markets (mainly, the markets of the former Soviet Union), physical and moral depreciation of used equipment and technologies, shortage of investments, the market economy principles make them find new markets, influential partners and financial resources

Since the privatization of state property began, alongside with the enterprises in commercial and service spheres, the enterprises of food, processing, poultry, grain producing, transportation, construction, chemistry and other spheres have been announced open for privatization, and more than 1,500 joint-stock companies have been established on their bases. 351 cash and 90 voucher auctions have been held concerning the sales of shares of the joint-stock companies set up in the framework of the privatization process.

It is notable that alongside with domestic investors, foreign investors showed a high interest in the privatization process, and they participated in privatization of “Baku Beer”, “Garadagh Cement”, “Baku Steel Company”, “Baku Tobacco” (“European Tobacco Baku”), “JV SUN”, “Skin”, etc. 

Nevertheless, at the same time, the wide restructuring measures have been taken in the aluminum industry of the country and “Azerbaijan Aluminum” Joint Stock Company has been established on the basis of “Gandja Alumina”, “Sumgayit Nonferrous Metal” Production Associations as well as Alum Alunite Mines. 

As a result of improving sale mechanism of joint stock companies set up during privatization, the interests of the population and labor collectives have been met, the privileges towards them have been of more immediate nature. During privatization of either small or medium and large-scale enterprises, the preferable sale of property and wide-ranging use of privatization vouchers is envisaged. The circle of the labor collective and the persons equal to them is defined in the Law on Privatization. Besides, the Law first reflects the list of objects not allowed to be privatized. The seven privatization methods are defined in the Law, three of which had not been used in the framework of the first State Program. These are case-by-case privatization of enterprises, sale of state property through specialized cash auctions and sale of state property through announcing them bankrupted. Besides, directing a part of the means from privatization to the existing state enterprises and the privatized enterprises with the goal of renewing their activities has a purposeful character.

As against the previous ones, the Privatization Law and the Second State Program foresee new clauses for the purpose of improving the efficiency by liberalization of economy, development of entrepreneurship, forming competitive environment, attracting investors to economy. With these legal documents, a favorable condition has been created for participation of foreign investors.

Thus, the foreign investors use privatization options when they participate in the voucher privatization, at the same time, when a foreign investor repeatedly directs his net profit to the economy of Azerbaijan as a reinvestment, purchasing vouchers by that net profit (it should be proved by a tax body) and not submitting options, he may participate in privatization.

Besides, the new adopted legal acts envisage pre-privatization rehabilitation of the state enterprises and support of the privatized enterprises. It means that the pre-privatization reconstructing works must be implemented. It includes partition, division of the enterprises, i.e. carrying out the privatization of their separate parts. On the other hand, the current economic state of many enterprises is not satisfactory, major of them have plenty of debts. That is not attractive for foreign investors. This is why, in order to solve this problem, the definition as well as the restructure of the enterprises’ debts should be carried out. There are such kinds of debt which are not touchable. This is mainly connected with social payments and salaries.

Privatization of state property through investment tender

According the privatization legislation, one of the existing seven privatization methods is privatization through investment tender. While an investment tender, the fulfillment of an investment program is required. The superiority of this method is that the investment program submitted by the buyer of state property must cover the issues regarding continuity of the privatizing state enterprise’s activity, renewing the enterprise, solution of ecological problems, etc. And the investor commits himself to implement all the issues reflected by his investment program. The property rights are transferred to the investor on completion of fulfilling the investment program.

The legal base of investment tenders was previously reflected in “The Statute on Investment Tender” adopted by the Edict of the President of Azerbaijan dated September 28, 1998. Now it is “The Guidance of Implementation of Investment Tender” adopted with the Presidential Edict dated July 17, 2001.

In 1998 – 1999, in the framework of the first State Program four joint-stock companies were privatized through investment tenders: “Baku Steel Company”, “Baku Tobacco”, “Baku Non-liquid Transformers”, “Garadagh Cement” Joint Stock Companies.

Investment tender is also reflected in the second State Program as one of the privatization methods.

In the framework of the second State Program, 41 enterprises and objects have been privatized via investment tenders.

In general, as a result of 45 investment tenders implemented up to now, more than AZN 21 million have been transferred to the state budget, more than 2 million state privatization vouchers and more that 1 million options have been submitted for allowances.

Approximately USD 230 million were invested to the enterprises privatized by investment tenders, USD 300 million are planning to be invested in the following years. More than 13 thousand citizens expected to be provided with jobs, up to date 10 thousand people have been provided with jobs.

11 enterprises from 45 ones have been privatized through investment tenders by the companies with foreign stock, and the volume of their investment is 76% of all the investments.

Due to successful fulfillment of the obligation identified by the sale and purchase contracts for implemented investment tenders, the property rights of 29 enterprises have been transferred to the tender winners. Thus, the Commissions consisting of the representatives of the different authorities were formed, the execution of investment programs was analyzed on the spots, and according to the appropriate recommendations of the commissions, the decrees on property rights transfer were prepared and signed. The work with other investors regarding implementation of their contractual obligations is going on.

Besides, the appropriate work is being implemented concerning the privatization of the enterprises of “Azerbaijan Airlines” state Concern and several enterprises of the Ministry of Telecommunications announced open for privatization with Decrees No. 670 and 671 dated March 29, 2001 of the President of Azerbaijan. Thus, the state shares of “Bakcell-II” joint venture operating in telecom, “Ground  Handling Company”, “Azvirt”, “Airport Gate” and “Sky Catering”JV’s in air transportation have been privatized.

Alongside with the reforms carried out in the power sector, the appropriate measures have been taken in the sphere of restructure and alienation of water supply, sewerage, natural gas and heating sectors, and the different recommendations of the consulting groups have been considered.

In order to extend the transparency of the privatization process, in the framework of the cooperation with consulting companies, the respective measures have been taken in the direction of sales of the state shares of the small Hydroelectric Power Stations, transportation and telecom enterprises, “International Bank of the Republic of Azerbaijan” Joint-Commercial Bank and “Capital Bank” JSC.

With the purpose of extending and promotion of the investors’ activity in the privatization process, we are going on the appropriate work regarding improvement of the existing legal acts in the sphere of privatization of state property through investment tender, case-by-case privatization, attracting consultants to the privatization process and international cooperation by taking into account the experience of other states and features of the process itself.

In order to analyze the dynamics of material and technical state and activity as well as investment growth, the respective inspections are implemented in the enterprises. The investors meeting their engagements insufficiently, not submitting their reports in time, are given notices about that or in accordance with the legislation other measures are taken.

Organizational operation of the Register of state property

In the course of the main reforms implemented in the Republic of Azerbaijan, we made the definite progress in the sphere of forming a new system of management of state property.

With the purpose of creating the totality of precise information on quantity and quality of state property, the Register of state property in the Republic of Azerbaijan was established according to Edict No. 732 dated June 20, 1998 of the President of Azerbaijan. “The Statute on Register of State Property in the Republic of Azerbaijan” was adopted with Edict No. 226 dated December 12, 1999.

According to the Statute, the information on the state real estate (ground area or enterprises, constructions, equipments connected with the ground area) of state authority bodies, state companies, concerns, unions and the enterprises, administrations and organizations being at the disposal of them as well as the information on the transactions related to them is registered in the Register of state property, and on the basis of received inquiries, the extracts from the Register about the registered state are submitted.

The Register of state property also includes the information on privatization, lease of the property, on transformation of the state enterprises into joint stock companies.

The appropriate information is annually updated and précised. Besides, the information in the Register is changed when the state property is transferred from balance to balance, written off from the balance, any respective transaction is implemented.

In general, without registering the information in the Register of state property and submitting an extract proving this from the Register, neither state authority, nor state companies, concerns, unions may take a decision on the appropriate asset (transfer from balance to balance, concluding transactions, including leasing, putting in pledge, alienation, etc.).

Consisting of the Central and local Registers, the Register of state property is carried out in computers through data files (documents) and magnetic medium. The central Register of state property is carried out in the State Committee for Management of State Property, the local Register is carried out in its local bodies. The information on state property being at the disposal of the local executive power authorities, and their enterprises, administrations and organizations is registered in the local Register of state property. The extracts are submitted from the Central Register only.

When there is necessity to make arrangements on the state property, it is possible to receive on-the-fly the information on the address, area, number of storeys, the date of putting into operation, ground area of the property, balance bearer, concluded lease contracts.

Registering the real estate in the Register of state property is of public character, and if any inquiries, the information in the Register may be submitted to state authorities, the parties of the contracts on real estate and any legal and natural persons. In order to obtain the information of the state real estate, the above-mentioned subjects address in writing to the State Committee for Management of State Property, and the inquired information is submitted in a proper way.

With the purpose of providing the efficiency of administering the Register of state property at the State Committee for Management of State Property, the Information System of the Register of state property has been established. The Information System is operated on the basis of multicomputer system (network). This system is a constituent part of the Automated Information System of State Property and allows to type, keep, seek the information, and submit the extracts from the Register.

Now the role of the Register of state property in management of state property is steadily extended. The software of the Register information system is constantly improved, and new functions and potential is added. It is envisaged to concentrate all the necessary information while managing the state property in the united infobase, to enlarge the exchange of information with all the bodies of the Committee on the basis of the united infobase, to establish links via computer network with the regional and district (municipal) divisions of the Committee.

Cooperation with international financial institutions and organizations while implementing privatization measures

During privatization in Azerbaijan, we pay specific attention to the maximum use of the appropriate international experience and the cooperation with the international organizations. This cooperation has mainly been established in the light of implementation of the primary researches for alienation measures in different spheres of economy as well as in infrastructure, consulting services, rehabilitation of the enterprises to be privatized and post-privatization supporting measures.

The respective projects regarding restructuring and alienation of a few infrastructure spheres have been carried out with the support of the World Bank. We may cite such instances as “Transfer the Baku Water Supply and Sewerage Network to Management and Its Alienation”, “Transfer the Baku Natural Gas Distribution Network to Management and Its Alienation”, “Preparing the Privatization Strategy of the Large-Scale Industrial Enterprises of the Republic of Azerbaijan”.

Being a constituent component of the Project “Technical Assistance to Azerbaijan Power Sector” financed by USAID, the Project “Heating Strategy of the Republic of Azerbaijan” has been drafted, the respective management and privatization opportunities have been analyzed.

Now the efficient co-operational projects are being carried out together with the GTZ (Germany). In the framework of the cooperation, the GTZ has taken the measures in the sphere of teaching new professions to the staff of the privatized enterprises, increasing the level of the management, preparing the privatization project for several enterprises, reviewing the potential of the enterprises of textile and weaving industry, the pilot project in the line of development of wine-making, etc.

The links with the reputable consulting companies have been established in the sphere of providing transparency in analyzing and implementing the privatization measures, studying the current situation. Thus, Arthur & Andersen, Baker & McKenzie, KPMG, Ernst & Young, Deloitte & Touché, CA IB, Corporate Finance Berating and other internationally known consulting companies and groups have been attracted to the cooperation for different projects. Besides, the services of the consulting companies are widely used in attracting potential investors to privatization and transferring state property to management.

Contemporary requirements and further prospect

The Nation-wide Leader Heydar Aliyev, the author of the achieved success in the economic and social development of the Republic of Azerbaijan, said, “I believe that the vitally important issues, plans, works which I could not complete, will be end by Ilham Aliyev with your assistance and support. I do trust in him as I trusted in myself, and have faith in his future.”

At the current stage of development, the economic reforms implemented by the stalwart of Heydar Aliyev’s political course, the President of the Republic of Azerbaijan Ilham Aliyev, in the long run, have become the reason for increasing the macroeconomic indices of the country and budgetary receipts, power reduction, extending employment of the population, opening new workplaces, strengthening the class of entrepreneurs.  

The successful fulfillment of “The State Program of Socio-Economic Development of the Regions of the Republic of Azerbaijan” adopted by Ilham Aliyev, the President of Azerbaijan, is providing the enduring development of the national economy, opening new workplaces. The key factor in opening new work places is tens enterprises to start, renewing the activity of the enterprises not functioning for a long time, restructuring the enterprises and organizations, extending production spheres.

The President Ilham Aliyev’s visits to the local regions, personal examination of the work done, his advice and instructions have played a great role in the accelerating the socio-economic development of the regions, extending the populations’ faith in becoming owners of property by effective using their means.

The positive results of the policy defined in all the spheres including the privatization of state property by Heydar Aliyev, the Nation-wide Leader of the Azerbaijan people who is the author of the success achieved in the economic and social development of Azerbaijan, are being turned into reality.

While the country is stepping towards the higher stage of its development, in the sequel of that policy, Mr. Ilham Aliyev, the honorable President of the Republic of Azerbaijan, has obliged the respective authorities to improve the management and efficient usage of state property according to the contemporary demands, to rehabilitate the enterprises to be privatized and support after privatization, to provide transparency during privatization and to extend the publicity measures, to attract investments to this sphere, to establish the mechanism of inspection over investing by new owners of enterprises after privatization.

In order to achieve the above-mentioned tasks, according to the Decree dated September 16, 2005, of the President of the Republic of Azerbaijan, the State Committee for Management of State Property has been established, and the Statute of the Committee has been adopted by the Presidential Edict dated November 16, 2005.

The Committee proceeds with its purposeful activity in the sphere of improving the work regarding the efficient usage and privatization of state property, reviving the enterprises stopped their activities, attracting investments, creating new workplaces, in accordance with “The Second State Program of Privatization of State Property in the Republic of Azerbaijan”, other legal acts as well as the acts regulating the activity of the Committee.

The work regarding successful fulfilling the commitments of the Committee will henceforth be kept on.

The measures to be taken in this regard in the nearest future are as follows:

ï‚·        Work regarding improvement of the legal base in the sphere of management and privatization of state property taking into account the international experience. In this connection, it is important to draft and adopt the State Program with the goal of preparing the legislation defining the status of the state enterprises, improving the management of state property, pre-privatization rehabilitation of state enterprises and post-privatization support;

ï‚·        Measures connected with strengthening the responsibility for breach of the legislation on management of state property;

ï‚·        Providing measures for restructuring, preparing the strategic enterprises, infrastructure spheres to privatization and transferring them to management;

ï‚·        Extending the transparency and attracting wide mass of population to the process of privatization and management of state property;

ï‚·        Increasing the efficiency of management of the state shares of the joint ventures;

ï‚·        Taking the legal measures for usage of the state property situated outside the Republic of Azerbaijan;

ï‚·        Preparing and implementing the Guidance of inventory of state property over the state;

ï‚·        Improving the mechanism of the Register of state property;

ï‚·        Strengthening the supervision over fulfilling the contractual obligations for the enterprises and object privatized through investment tenders, and setting up the efficient monitoring mechanism;

ï‚·        Improving the explanatory work with investors and providing transparency and efficiency in the frame of required level, accelerating the appropriate work regarding privatization of the enterprises through investment tenders and case-by-case projects;

ï‚·        Preparing and spreading in mass media and Internet the wider and embracing information of the enterprises to be privatized through investment tenders and case-by-case projects;

ï‚·        Wide attracting the auditors, estimators, management, legal and financial consultants to the privatization process;

ï‚·        Forming in an efficient way the relations with domestic and foreign investors with the purpose of carrying out privatization and investment projects;

ï‚·        Accelerating the work regarding transformation of the medium and large-scale enterprises announced open for privatization to the joint stock companies and analyzing their recovery features;

ï‚·        Preparing the measures for implementing restructuring in social sphere as well as alienating the state enterprises and objects operating in that sphere;

ï‚·        Facilitating the application of a new management system in the enterprises open for privatization;

ï‚·        Collecting lease fees in time and in corpore, providing the lease of state property in an effective and efficient way;

ï‚·        Publishing the information on privatization of state property in mass media and including this in Internet;

ï‚·        Providing the efficient links with publicity, mass media concerning the activity of the Committee.

The efficient implementation of the measures in the above-mentioned directions will allow to carry out the privatization process in Azerbaijan successfully providing the effective usage of the state property. Above all, the privatization will not only provide the transformation of property but also facilitate reestablishment and development of the enterprises in the economic sense.