AZERBAIJAN’S SECOND STAGE OF PRIVATIZATION MAKES SLOW PROGRESS…

Despite official declarations to the contrary, Azerbaijan’s long-awaited second stage of privatization, which ground to a halt in 1999, has recorded only limited success in 2000. Under this program Baku is to sell many off half of the country’s strategic, “blue chip” enterprises, including the state airline (Azal), the state sea shipping company (Caspian Shipping), the electric power company (Azerenergy) and the telecommunications system (Aztelecom) (Bloomberg, August 11). Although the program was expected to generate significant foreign interest, delays in its implementation have undermined foreign investor confidence in the country’s commitment to reform. Factors contributing to delays include President Aliev’s poor health last year, squabbling between ministries, the restructuring of the privatization committee and its upgrade to ministry status.

Nevertheless, President Aliev did sign a law in August (which was passed by parliament in May) which should remove many of the remaining obstacles to the second stage’s implementation. While the law appears to suggest that the equity sales will take place on a cash basis, the life of vouchers, which had been distributed to Azerbaijani citizens between March and August of 1997, was also extended until January 2002 (Agence France Presse, August 14). The vouchers, many of which have been repurchased by foreign investors, were originally set to expire on August 15. The program is structured to allow President Aliev to decide the exact amount of company shares to be sold off, the proportion of cash sales, and the timetable for each sell-off.

Despite this progress, a number of uncertainties about the second stage remain. For one thing, a timetable for these sales has yet to be announced. Also, it is not clear which assets are to be sold for cash and which will be made available for vouchers. Although the cabinet is to resolve these questions within a two-month period, the history of Azerbaijan’s privatization program suggests that delays can be expected. Officials also disagree over whether deadlines for future sales will be imposed.

The government has pledged to sell three companies this year: Azeralyuminium, Azerbaijan’s aluminum producing company; Bakelektroset, Baku’s electricity grid; and Vtorchermet, a company involved in scrap metal processing. These sales have not yet occurred, however, and there is reason to doubt that they will take place before the end of the year. An additional list of companies to be sold will await Aliev’s signature. As of now the government plans to reorganize the state oil company SOCAR by the end of the year with plans to separate the oil and gas production assets from the non-commercial segments of the company. Stakes of 15 and 20 percent in SOCAR marketing subsidiaries and 10 percent stakes in the country’s two refineries are also to be sold as soon as the asset sale program begins.

…AS OTHER MARKET REFORM DEVELOPMENTS ARE MIXED.