ࡱ> ,#% !";<>?23# p r tnNrs}^xvq` 9bjbjqPqP K:: 3D7777PEPEPE4El)l)l)h)l@+| ETv566:878788T,PPPPPPP$PXhZ<PPE37 33P778788jT4%%%37 87PE88P%3P%%APE885 jnrl) 73T<TU~Z ZZPEK;L*%w"KKKPP^KKKT3333EEE9dEEE9EEE777777 BUSINESS PRACTICES NEW INVESTMENT OPPORTUNITIES LEGAL ENVIRONMENT Doing Business in Azerbaijan 2007 / 2008 1. COUNTRY INFORMATION 1.1 Azerbaijan: State, Geography and History in Brief . . . . . . . 1.2 Snapshot of the Azerbaijani Economy . . . .. . . . . . . . . . . . . . . . . 2. BUSINESS CLIMATE 2.1 Business conduct framework and FDI regime . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Company Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Acquisition & ownership of land and property. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Obtaining licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.5 Hiring & Firing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 Foreign trade regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.7 Currency regulation & repatriation of profits . . . . . . . . . . . . . . . . . . . . . . . . . . .2.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.10 Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.11 Dispute resolution & arbitration2.12 Privatisation 3. SECTORS REVIEW 3.1 Oil and Gas (with regulatory framework) . . . . . . . . . . . . . . . . . . . . 3.2 Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Food & beverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Telecom & IT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.7 Textile & cotton. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 Transport & logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 Tourism & hotel management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.10 Financial sector: banks, insurance & leasing . . . . . . . . . . . . . . . . . . . . . . . . . .3.11 Capital market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4. OVERVIEW OF THE REGIONS 4.1 Absheron. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Aran. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.3 Daglig Garabagh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.4 Ganja-Gazakh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.5 Guba-Khachmaz. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.6 Lankaran. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.7 Nakhchivan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.8 Sheki-Zaqatala. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.9 Yuxari Garabagh & Kelbajar-Lachin. . . . . . . . . . . . . . . . . 5. GENERAL INFORMATION 5.1 Living & working in Azerbaijan . 5.2 Labor market overview . 5.3 Visas & work permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.4 Business etiquette . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 Weights & measures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. USEFUL CONTACTS 6.1 AZPROMO Board of Trustees Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.2 Government contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Embassies of Azerbaijan abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.4 Other contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. MAPS AND ANNEXES In 2007 the Republic of Azerbaijan continues its rapid economic growth and is, asa result, turning into a leader for the Caucasus region. With 26% surplus in 2005 and 34% in 2006, Azerbaijan is the number one global economic grower. We expect a similar pattern of development in 2007. We continue to be one of the major recipients of FDI in this part of the world. UN Conference for Trade and Development named Azerbaijan No 1 global FDI Performer in 2005 (as per FDI performance index) and No 17 global recipient of FDI in absolute terms in the same year. The above has seriously altered the situation in the economy, in general, and for private entrepreneurs, in particular. New opportunities emerge and there are more interesting and promising opportunities for local and international businesses. For more than a decade, Azerbaijan holds one of the leading positions among Transition Countries in respect to such basic indicators as GDP growth and Foreign Direct Investments inflow. The cornerstone of this development was laid by the national leader Heydar Aliyev, who launched massive reforms that included inter alia promotion of political stability and social dialogue, adoption of new constitutional laws and the establishment of new institutions of public governance. The current government is continuing this policy. Azerbaijan today is gradually emerging as the most dynamic commercial hub in the Caspian region and Caucasus. Its economic system is founded on the principles of liberalism, denationalisation, support for private entrepreneurship, non-discrimination against foreign businesses and co-operation with international financial institutions. Todays development goals include the diversification of economic growth, the enhancement of legal frameworks, the improvement of the general business environment and people's welfare. I hope that this publication, "Doing Business in Azerbaijan 2007," will serve as a useful and practical guidebook to businesses that wish to start operations in Azerbaijan. It contains a wealth of information on the regulations, business opportunities and culture of our country. We are looking forward to greeting you in the Republic of Azerbaijan! Heydar Babayev Minister of Economic Development of the Republic of Azerbaijan Chairman of the Board of Trustees of AZPROMO It is my pleasure to present the new AZPROMO publication called Doing Business 2007/2008. Better organized information, more detailed description of Azerbaijani economy, new chapters are what differs it from previous issue of this booklet. Azerbaijan adheres to the principles of an "open door" policy for foreign businesses wishing to do business here. We are happy to see new arrivals in such areas as manufacturing, agriculture, infrastructure development and services as well as in other sectors of the economy. We are confident that, in cooperation with international partners, we will be in a position to fully utilise the potential of our economy. As part of this strategy, we are happy to provide newcomers to the Azerbaijani market with all kinds of support and information. We are looking forward to hearing from you about your decision to do business with our country and let me assure you that AZPROMO team will do its best to guide you through the immense business opportunities existing in Azerbaijan. Chingiz Asadullayev Member of Parliament Chairman of the Supervisory Board of AZPROMO COUNTRY INFORMATION 1.1 Azerbaijan: State, Geography and History in brief ۉ Establishment - 28 May 1918 ۉ Independence - 18 October 1991 (II republic) The country is well placed on the south eastern border of Europe on the shores of the hydrocarbon resources rich Caspian Sea. It has direct access to the extensive and speedily emerging markets of the Central Asian states, Caucasus as well as Middle East. Azerbaijan declared the policy of openness for international business. It has an excellent record of co-operation with private international businesses, in particular, with oil & gas corporations. The country by now is well integrated in the international cooperation system through participation in various international organisations such as Council of Europe, OSCE, Commonwealth of Independent States, GUAM (Georgia, Ukraine, Azerbaijan and Moldova alliance), Black Sea Economic Cooperation, Organisation of Islamic Conference as well as a system of multilateral and bilateral treaties on security and economic affairs. Azerbaijan has stakes and is actively engaged with the European Bank for Reconstruction and Development, Asian Development Bank, World Bank, International Monetary Fund, Islamic Development Bank, Black Sea Trade & Development Bank etc. all of which have running projects portfolios in the country. Political system. Azerbaijan has a republican form of government. The three branches of power include - Executive headed by the President (5 year term); - Legislative: unicameral National Assembly (Milli Majlis) with 125 deputies (5 year term); - Judiciary headed by the Supreme Court of the Republic. The system of "checks and balances" includes the Constitutional Court and the Constitution with a number of guaranteed rights and freedoms for the people of Azerbaijan. The country lives a very dynamic political life. A number of parties and politicians compete for Presidency, Parliament constituencies and municipalities. A well developed electronic and paper media community exists. The foreign policy of Azerbaijan is complementary and is directed at the establishment of peaceful and mutually beneficial cooperation with all international partners. One of the major foreign priorities of the republic is integration into common European space. Relations with the former USSR (now CIS) countries are also important, first of all due to the vitality of the economic cooperation with them and need for traditional trade relations. Administrative division Autonomous Republic Districts Towns Districts of cities Settlements Rural settlements Capital city1 (Nakhichevan AR) 65 70 13 129 4 Baku (est. 2.8 million) Demography and people. The population is evenly distributed between urban and rural areas, with 51.5% residing in towns and cities. Some 35% of the estimated three million workforce are engaged in agriculture and related activities, with 26% working in industry and construction. Population:20052006 Population, thsd. person 8,436 8,532 Urban Rural  51.5% 48.5% 51.5% 48.5% Population density, per km2  97 98 Azerbaijan is a positive model of peaceful co-existence of religious communities. Predominantly Muslim-populated, the country traditionally served as a safe haven for various ethnic groups, religions, and cultural traditions. Large communities of Christians and Jews traditionally live here. Secularism and non involvement of the State in religious affairs is a strong local tradition supported by law. The country is the largest and the fastest growing economy in the South Caucasus. Azerbaijan provides the best transport links, connecting South Eastern Europe with the vast regions of growing importance such as Central Asia and the Caspian Sea. An increasing number of professional shipping companies are engaged in the transportation of goods via these transport corridors during the past decade. Climate: Azerbaijan's climate varies from an arid subtropical and humid subtropical to a mountainous tundra climate. Average annual precipitation is between 200 and 300 mm (8 to 12 inches) in the lowlands and 300 to 900 mm (12 to 35.5 inches) in the highlands, although precipitation is distributed unevenly throughout the year. On the southern slopes of the Greater Caucasus average annual precipitation ranges between 1,000 and 1,300 mm (39 to 51 inches). Average temperature ranges in the lowlands between 25 and 27 degrees C (77 and 80 F) in July and 0 to 3 degrees C (32 to 37 degrees F) in January and between minus 3 to minus 6 degrees C (27 to 21 degrees F) in January in the highlands. There are extensive opportunities for tourism development due to the unique terrain and geography. Azerbaijan has a number of major natural attractions such as warm sea, mountainous resorts, mineral springs and medicinal mud recreation centers. The historical background of the country on the crossroads where civilisations met for many centuries makes it even more attractive as a place to visit and do business. History One of the countries of the South Caucasus, Azerbaijan was re-introduced on the political map of the world after the collapse of the Soviet block. Independence was regained only in 1991 at the price of thousands of lives of Azerbaijanis lost in the Nagorno-Karabakh conflict and the Soviet attack against Azerbaijani national movement in Baku in January 1990. Yet despite a short period of independence in the new era, Azerbaijan has an enduring and rich history of statehood and culture. Today's Republic of Azerbaijan is the successor of the Azerbaijan Democratic Republic (ADR) declared on 28th May 1918 by the first Azerbaijani parliament - National Assembly (Milli Majlis). Though short lived (was occupied by Bolshevik Russia in 1920), ADR was the very first democratic government in the whole Islamic world. Such measures as electoral rights for women, representation of ethnic minorities in Parliament, and other progressive initiatives were put in place. These initiatives were ahead of their time, not only in the Middle East and Eurasia, but in the old democracies of Europe aswell.. Azerbaijan is one of the worlds oldest cradles of civilisation. Human cultural activities in Azerbaijan were discovered in Gobustan (a location not far from the capital city Baku) providing indisputable proof that the Azerbaijani culture goes back to approximately the 12th millennium B.C. The location of Azerbaijan as the most convenient route for migration from Asia to Europe, and from Eurasia to Middle East, from ancient times until recently forms the country's ethnic mix of today. It is a mix of Turkic, Caucasian, European and other cultural influences. According to conventional historical tradition, the word "Azerbaijan" descends from the personal name or official title of the local ruler Atropat, IV century B.C., a contemporary of Alexander the Great. Other historians refer to Turkic and Sanskrit languages to trace down the origins of the name of the country. Anyhow, the country bore the name "Atropatan" and later "Aderbagan" for many centuries to come. The name was used to describe territories that include the present Republic of Azerbaijan and the province of the same name within the Islamic Republic of Iran. The first recorded states on the territory that is now known as Azerbaijan date back to 9th Century B.C. A few states such as Manna, Maday and Albania with their own unique traditions succeeded one another in the period to follow. In the 4th century A.C. Christianity spread to the northern part of the country while the South remained largely Zoroastrian. In the 8th Century the Arabic conquest of Azerbaijan commenced. The Khalifat had long competed with the Turkic Khazar Kaganat (Judaism was the official religious tradition there) for domination over the north. Eventually Arabs prevailed and Azerbaijan remained under Islamic rule for circa three hundred years with the short period of twenty years when a large scale Hurammi freedom movement led by popular leader Babek overthrew the Arabs in Azerbaijan and parts of Iran. From the period of Arabian conquest onwards, Azerbaijan became an integral part of the Islamic cultural tradition. Nizami, Nasimi, Tusi and other Azerbaijani poets and scholars now regarded the patriarchs of this civilisation, contributed extensively to the Islamic Renaissance of the 9th to the 13th century. The Middle Ages was a period of several large regional empires, predominantly Turkic. Some of the mightiest dynasties were of Azerbaijani origin, including the Karakoyunlu, Agkoyunlu and Safavids. Despite the dominance of large states on the regional political arena, northern Azerbaijan (Shirvan) managed to sustain independent or at least semi-independent status throughout the whole period, including the hectic times of the Mongolian invasion and the Teymurids. By the XVIII century, the country consisted of a few independent Khanliqs (principalities). The new regional power, the Russian Empire, eventually conquered Northern Azerbaijan and after the 1828 Turkmanchay Peace Treaty with Persia the country was divided and southern Azerbaijan was left under Persian sovereignty. The Turkmanchay division is the current state of affairs between Azerbaijan and Iran. The late XIX -early XX centuries denotes the period of cultural and economic regeneration of Azerbaijan. In the 1860s the industrial exploitation of the Azerbaijani oil fields commenced, which witnessed the emergence of international businesses including Nobel brothers, Rothschild, Siemens and others. Quite a few of them made their start in Baku from a small engineering company to a giant transnational corporation of today. The economic rise led to a cultural revival. The traditional Islamic & oriental cultural stratum was enriched by the ever growing European and Russian influence. The XIX and XX centuries are the period of major advancement in Azerbaijani social life. The first opera in the Muslim world, newspapers and national drama theatre, discussion on the adoption of a "modern" Latin alphabet, the first university, a school for Muslim girls and such like. were the cornerstones of this cultural and social development. After the short lived Azerbaijani Democratic Republic (mentioned above) the 11th Soviet Red Army occupied Azerbaijan in late April 1920. The occupation did not occur without resistance. The remnants of the ADR National Army units, together with the local militia, retreated to the second largest city of Azerbaijan, Ganja, where a major clash with joint Bolshevik / Armenian Dashnak forces took place. A period of mass repression of the Azerbaijani intelligentsia, elite and national leaders from 1920 to 1930 followed the defeat of the 1st independent Azerbaijani Democratic Republic. Thus until 1990, the Azerbaijani Soviet Socialist Republic (AzSSR) was an integral part of the USSR as one of the "founding" republics of the Union and a major industrial and cultural centre of the Empire. The collapse of the Soviet bloc brought independence along with a serious economic and political crisis. The consequences of the disintegration of the Soviet Union were complicated by the ongoing aggression by the Republic of Armenia. Armenian nationalists backed by the late Soviet administration launched a separatist movement in Western Azerbaijan (Nagorno-Karabakh). A long lasting and bloody military conflict started in 1988. The conflict was further complicated by civil confrontation within Azerbaijan. A few political groups were competing for power in the country. A succession of weak, largely incapable governments ended in 1993 when veteran politician and popular leader Heydar Aliyev was elected President. A decade of rehabilitation and growth started. Under the leadership of Heydar Aliyev, the government re-established peace and stability in the country, reinforced state infrastructure and civil rule throughout the country, and launched a proactive foreign policy campaign aimed at the political integration of Azerbaijan internationally. In 1994 major oil & gas contracts with the consortia of oil giants such as BP, Amoco, Total and others were concluded. From circa 1997 onwards, major political reforms aimed at bringing Azerbaijan to international standards in the areas of the rule of law, democracy, human rights and freedoms started as well. The era of Heydar Aliyev ended in December 2003 with the decease of the national leader. However, the policy decisions taken by him, including integration into European common space, democratisation, the creation of a liberal market economy and socially oriented policies remain the undisputed development vectors for the current government. 1.2 Snapshot of the Azerbaijani Economy  Azerbaijan is the fastest growing economy worldwide Following sharp decline in early 90s of the last century Azerbaijan achieved stable and rapid growth for 10 consecutive years starting from 1995 (see chart). Now the country is one of the most rapidly recovering economies in the world. The GDP annual surplus in 2005 was 26.4%. A record growth in 2006 was at 34.5% (highest growth indicator globally for the year). It is highly probable that the country will be the global leader in economic growth in the year 2007 too. Nominal wages grew by 19% in the year 2006. Almost all other major economic indicators point out a similar growth pattern.  Baku is the center of Azerbaijani economy and the home for most of Azerbaijan's 3,500 industrial enterprises, petroleum extraction and refining, metallurgy, aluminum processing, petrochemicals, chemical production are located in the city and its satellites. Consumer goods production consists of food processing, textiles, and wine production. Baku is also strong in services including banks, hotels & restaurants and logistics. Sumgayit (3rd largest city and Bakus satellite) production centers on chemical and petrochemical production, textiles, and aluminum smelting; Ganja is the home to an aluminum refinery and also specialises in textiles, machine building and metallurgy. The effect of the early 1990's economic decline is evident in agriculture - a critically important sector in Azerbaijan, employing about 35% of the labour force. Cotton is Azerbaijan's leading crop, together with grape (for wine production), fruits, vegetables, and tobacco. The country is the regional leader not only in the overall economic growth, but in direct foreign investment attraction as well. The 2005 UNCTAD Trade & Investment publication quotes Azerbaijan as the No 1 globally as per the FDI Inflow Performance Index. Azerbaijan is also in top 20 in equity capital attraction in absolute terms. This is mainly due to the favourable environment created in the lead sector of the economy i.e. the oil & gas industry. It opened for international business in 1994. Since then a number of international contracts for the oil and gas fields were signed with the principal oil businesses such as BP, Statoil, Total, Exxon, Itochu, Lukoil and others. The "jewel in the crown" of the economy is the Baku-Tbilisi-Ceyhan oil pipeline connecting the Caspian offshore fields with the Mediterranean Turkish port. It is taking crude oil from the ACG (Azeri, Chirag, Guneshli) project led by British Petroleum. The pipeline is ready and being filled with crude oil to be sold at the Turkish port of Jeyhan. The transport capacity of the pipe is over 1 million barrel a day. The Azerbaijani government is committed to constructing a network of oil & gas pipelines throughout the region to promote international cooperation and trade. The oil & gas projects are to bring substantial cash inflow into the country from the year 2006 onwards. All in all, Id like to say, I think Azerbaijan is a happy country because today it has really great opportunities for development. Azerbaijan is situated in the very important - in terms of efficient use of its oil and gas fields - geographic area. However, these factors are not enough to achieve success in all spheres of the countrys life. The important thing, at the same time, is the unity of the people led by wise leadership. With belief in the great leader and supporting his steps, the people of Azerbaijan has managed to build a consolidated society and developing economy. President of The Republic of Korea HE Mr Roh Moo-Hyun Latvia, as a European Union member, attaches great importance to cooperation with Azerbaijan because the shortage of energy resources impedes rapid development of Latvias economy. Azerbaijan can play a key role in providing energy security in Europe. We reaffirm our support for implementation of energy projects Ex President of Latvia HE Mrs Vaira Vike-Freiberga Notwithstanding this apparently bright prospective, the government of the country took a number of steps aimed at the reduction of the country's dependency on the oil revenues and evasion of the so-called "Dutch disease". The State Oil Fund, a transparent state agency under public scrutiny is accumulating the oil revenues from the international contracts thus preventing possible Azerbaijani Manat deflation which would potentially be damaging for local manufacturers and exporters as well as other possible negative economic trends. The regional development and non-oil economy development strategies aimed at the diversification of the economy are also prioritised. The main source countries of FDI for Azerbaijan are currently the United States, UK and Turkey. The cumulative FDI in the year 2006 amounted for circa 4,500 mln USD. The country received even large FDI stock in 2005. Foreign direct investments outside the oil & gas sector currently are mainly in construction, services, transport, telecom and manufacturing. Azerbaijan is consistently expanding its international trade capacities as well (see chart). This was achieved mainly due to two factors: export of ever increasing amounts of Azerbaijani crude and oil products and the expanding internal market which resulted in rise in import of manufacturing equipment and consumer goods in the country. At the moment EU is the main export destination for Azerbaijan, with Russia and CIS countries remaining the main source of import. The country's domestic product is largely contributed by private business. Its share constituted 81% of GDP in 2006. This is the result of several stages of privatisation of the formerly state owned property and development of new privately owned industries. However, a number of key segments of the economy are still state controlled. Many of them are now "open for privatisation" by the Presidential Decrees which creates additional investment opportunities. The government uses several methods of privatisation with the most popular being the acquisition by a "strategic investor" or via "investment tender". Azerbaijan has one of the lowest external debt / GDP ratios in the region and a sound financial system. The National Bank has been pursuing the "stable manat" (local currency) policy consistently for last 10 years with the annual inflation not exceeding one digit figure. The fiscal system is further characterised by a very low deficit of state budget not exceeding 1% of GDP in 2006. For more information on current trends in the Azerbaijani economy please refer to the website of the Ministry of Economic Development at  HYPERLINK "http://www.economy.gov.az/"www.economy.gov.az and the AZPROMO resource  HYPERLINK "http://www.azpromo.org/"www.azpromo.org 2. BUSINESS CLIMATE 2.1 Business conduct framework and FDI regime The Republic of Azerbaijan is the leading FDI destination in the region. In the last decade the total FDI stock in Azerbaijan exceeded 25 billion USD. Azerbaijan has achieved gradual improvement in the overall legal framework for the investment activities in the country for last several years with a number of practical regulations liberalising conduct of business and reducing red tape. It carried out a revolutionary legal reform several years ago with adoption of new Tax code, Civil and Civil Procedure Codes, Land Code, Labour Code, Customs Code, Foreign Exchange Law as well as Law on International Arbitration made the system significantly more transparent and friendly for local and foreign businesses. The Government managed to open up economy for the international business and introduce investments friendly laws and regulations. Generally, the Azerbaijani legislation establishes a very open national regime for FDI (which means that FDI are welcome in any sectors where the local investor is allowed to invest). Such a regime also applies to the privatisation of the state owned property. There are no special permissions or specific registration requirements for foreign investment. The licensing was substantially simplified with foreign investors' interests in mind. As of now a foreign investor in Azerbaijan enjoys a non-discrimination regime. The major economic policies are FDI element inclusive, for example, the Government lifted limitations for foreign participation in the banking sector. Privatisation process is open for foreign investors as well. Any FDI restrictions are strictly limited to national security matters. The major factors that turned Azerbaijan into a leading FDI destination and provide sound justification for doing business here are: Abundant resources Azerbaijan is rich in mineral and climatic resources. The Caspian Sea oil & gas reserves are one of the major deposits globally. Azerbaijani proper has also substantial explored deposits of precious metals (including gold and silver), ferrous and non-ferrous metals, various construction raw materials deposits etc. One of the major resources the country has is its natural diversity. Despite relatively small size, the Azerbaijani territory due to complex terrain and geography has a number of distinct climatic zones ranging from humid subtropical climate to semi-arctic. This creates unique opportunities in agriculture and tourism. Favourable location Azerbaijan is located on the very south-eastern border of the European continent and serves as the natural bridge between Europe and Central Asia as well as it is the most convenient route from the north-east of Europe to the Middle East. The country is the logistics hub for the Caspian region. Excellent infrastructure of Baku (including largest regional sea and air terminal) is the best choice for any business entering the markets of the Caspian Sea region. Competitive cost of production Azerbaijan has long lasting industrial and trade traditions. The industrial revolution has taken place here in the late XIX century due to expanding and advanced oil production and processing sector. Further industrial development led to growing R&D base. A large R&D centre, Academy of Sciences with circa 7,000 research studies, exists in Azerbaijan in parallel with a number of universities and colleges. The country is rich in engineering skills yet the wages are still very competitive. Azerbaijani governments policies in respect of utilities tariffs are manufacturer friendly. FDI friendly laws Azerbaijani legislation is evolving in accordance with the strategic goal of the Government which implements the "welcoming policy" for foreign businesses. Foreign investments are protected by certain guarantees provided by the government and legislation, including: I. Guarantee against deterioration of legislation - the general rule is that legislation in force at time of making an investment continues to apply for subsequent 10 years; II. Guarantee against nationalisation and requisition - foreign investments are not subject to nationalisation (except in cases of harm to population and state) and requisition (except in cases of natural disaster, epidemics, accidents, emergencies). Foreign investors are guaranteed immediate, adequate and effective compensation in case of nationalisation and requisition. Compensation should be commensurate to the amount of the investment at the time of nationalisation or requisition, payable in foreign currency and may be freely transferred abroad; III. Guarantee of compensation of damages - foreign investors are entitled to compensation of damages, including lost profits, incurred as a result of unlawful acts of state authorities; IV. Guarantee of repatriation of profits - foreign investors are entitled to repatriate profits derived from foreign investments subject to payment of applicable taxes and duties. The new Foreign Investment Bill currently under discussion in the Parliament is expected to reinforce the above guarantees as well as to introduce new legal instruments to protect foreign businesses. The Government will continue the policy of support to industries with priority given for privately-held enterprises including foreign-owned enterprises. There are no general trade barriers or prohibitions for import of any types of goods in Azerbaijan and a minimum non trade barriers level for international trade exists. The country is not a member of WTO yet, though the Government started the accession process. Exported goods are not subject to any customs duties and restrictions. Regulations exist for the export of strategic commodities such as electricity, petrol, cotton and non-ferrous metals. A foreign investor is particularly welcome to enter the Azerbaijani market with a so called green field project. This is particularly attractive bearing in mind the regional markets and the geographic location of the country as the transportation hub for the Caspian region and Central Asia. The Government has introduced a number of initiatives recently aimed at the improvement of dialogue with the business community. Apart from the standard methods of communication with the government via its ministries and agencies, foreign investors can effectively deliver messages via such structures as the Azerbaijan Export & Investment Promotion Foundation (AZPROMO) aimed at the promotion of export & investment mainly in the non-oil sector (for more information please refer to  HYPERLINK "http://www.azpromo.org/"www.azpromo.org). One more governmental initiative is the Azerbaijani Investment Company JSC, a state-owned joint-stock company, established by the Presidential Decree of 30th March, 2006 with charter capital of AZN 90,000,000. The main objective of the AIC is to implement fixed-term equity investments in the private sector and to assist FDI in the non oil sector in Azerbaijan. Steps aimed at simplifying the process of business start-ups were undertaken recently. Azerbaijani legislation is permissive in respect of expatriate staff employment. Other substantial comparative advantages of doing business in Azerbaijan include such important factors as macroeconomic and political stability in addition to Bakus reputation as being the only metropolitan capital on the Caspian Sea. Pursuant to the 1992 Foreign Investment Law in force, foreign investment, may take any of the following forms: Participation in enterprises and organisations established with legal entities and citizens of the Republic of Azerbaijan on a shared basis; Establishment of enterprises wholly-owned by foreign investors; Purchase of enterprises, property, buildings, structures, shares in enterprises, other shares, bonds, securities, and certain other property, which, under the law of the Republic of Azerbaijan, may be owned by foreign investors; Acquisition of rights to use land and other natural resources, and also other proprietary rights; and Conclusion of agreements with legal entities and citizens of the Republic of Azerbaijan providing for other forms of foreign investments. Enterprises with foreign investment include joint ventures, enterprises wholly-owned by foreign investors, and representations (offices and branches) of foreign legal entities. Bilateral Investment Treaties. Azerbaijan has 34 bilateral treaties on the mutual protection of investments. Several more treaties are currently being negotiated. Azerbaijan is also a party to a number of multilateral treaties concerning foreign investment. Please see ANNEX 1 for the list of bilateral treaties on the encouragement and protection of investments. 2.2 Company Incorporation A company may start operations in Azerbaijan from the moment of state registration. Currently, registration authorities are carried out by the Ministry of Justice of the Republic of Azerbaijan. Without a formal registration with the relevant authorities, such as the Ministry of Justice, the Tax Authorities, the State Statistics Committee and others, a company may not maintain a bank account, clear goods through customs, etc. Some measures aimed at establishing the system of single window (one-stop-shop) are currently under way. On April 30, 2007, the President charged the Cabinet of Ministers, together with the aforementioned state agencies, with the duty to prepare draft for setting a system whereby a single state agency will be responsible for registering business entities. There are numerous forms by which a legal entity/company can be incorporated in Azerbaijan. There are no specific rules for the incorporation of companies by foreigners apart from the standard legal and translation requirements. In general, foreign businesses tend to open representative offices/branches and register as a local company. The Law on State Registration of Legal Entities and State Register sets out the requirements of the legal registration process. One may start his own business in Azerbaijan with 100% foreign investment or form a joint venture with a local partner. There are no specific requirements for the size of share or legal limitations for the foreign element in a company and investment. There are no additional general business licenses or permissions apart from general business registration for the start up. Certain but limited number of documents is required for submission to the Ministry of Justice for registration purposes (for foreign participants / shareholders, these documents include, inter alia, extracts from the companies' register, documents of statute and corporate governance). Azerbaijan has recently acceded to the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents and legalisation requirement ceased to exist in respect of documents produced and executed abroad in the convention member countries. The new Law On State Registration of Legal Entities and State Register determined the timeframe of the entire process. The basic term for state registration is set at 5 working days. In case of failure of the Ministry of Justice to issue a certificate of registration within the statutorily prescribed term or to issue a letter refusing registration, a company shall be considered registered, in which case the Ministry of Justice is obliged to issue a registration certificate within the following 10 business days. The state register of legal entities includes general information on a legal entity and founders of a legal entity. Any interested party is entitled to request extract from a register and copies of documents submitted for registration. The state duty for the registration of the banks, stock exchanges, insurance companies, representations and branches of foreign legal entities is 220 AZN, for the registration of legal entities involved in agricultural business - 2.2 AZN (2 AZN 20 Kopeck), and that in respect of all other legal entities - 11 AZN. Azerbaijani law generally recognises the following types of commercial legal entities (commercial legal entities are defined as those operating for profit): I General partnership II Limited partnership III Limited liability company ("LLC") IV Joint-stock company (open type and close type) LLCs and joint stock companies are most popular choices of legal entities. Please see ANNEX 2 for a brief comparative analysis of these two types of legal entities. Joint Stock Companies. A JSC is a legal entity with charter capital divided into a certain number of shares. JSC shareholders are liable for the obligations of the JSC only to the extent of their shares' par value. A single individual or legal entity may be the founder or the shareholder of a JSC. The charter capital of a JSC is divided into a fixed number of shares of a stated par value. A JSC has a Board of Directors comprising at least three individuals who are either shareholders or independent directors. The Supervisory Board is mandatory for JSCs with more than 50 shareholders. General Meeting of Shareholders (GMS) is the supreme body in JSC. General Partnership ("GP"). A general partnership is a legal entity comprised of at least two individuals and/or legal entities. An individual may participate in the creation of a GP only it such individual is registered as an entrepreneur. Individuals and/or legal entities may only participate in one GP. General partners are jointly subject to the partnership's liabilities. To the extent that the partnership does not have sufficient assets to cover its obligations, the partners are then personally liable for such obligations. Limited Partnership. A limited partnership ("LP") has one or more general partners and one or more limited partners, General partners are personally liable for the partnership's obligations. Limited partners' liability is limited to the amount of their contributions. A person may only participate as a general partner in one LP. Similarly, a partner of a GP may not participate as a general partner in a LP. Limited Liability Company. A limited liability company ("LLC") is an entity established by one or more individuals and/or legal entities contributing their participatory interests to the charter capital. A LLC having only one participant may not be a sole participant of another LLC or any other company. The participants of a LLC are normally liable only to the extent of their contributions. A LLC is not normally responsible for the obligations of its participants to third parties. Additional Liability Company. An additional liability company (ALC) is an entity established by one or more individuals and/or legal entities contributing their shares to the charter capital. The legal structure of an ALC is similar to a LLC, except that the participants in an ALC may assume liability for the company in excess of their contributions, as regulated by the charter. Cooperative (Kooperativ, a concept close to a Building Society). A Cooperative is a voluntary union of at least five individuals and/or legal entities, for the purpose of satisfying needs of its members through the consolidation of their financial or in kind resources. Depending on the purpose of their activity, cooperatives may be of different kinds, such as consumer or housing cooperatives. Non-Commercial Organisations. An Azerbaijani non-commercial or not-for-profit organisation is an entity created to engage in various social and economic activities, not related to the generation of profit and distribution of such profit to its equity holders. Since an Azerbaijani non-commercial organisation is treated as a legal entity, it may own property, enter into contracts, acquire ownership and intellectual property rights, incur obligations in its own name, maintain an independent balance sheet, maintain settlement and other bank accounts, and act as a claimant and defendant in courts and arbitration. Azerbaijani non-commercial organisations are presumed to engage in non-commercial activities. Under the Civil Code, non-commercial organisations may be created in any of the following forms: public association, foundation and union of legal entities. Other forms permitted include federations, schools, universities and clubs. Public Associations. A public association is a voluntary, not-for-profit organisation created by its members to engage in activities in their mutual interest. Azerbaijani law authorises both individual and corporate membership in public associations. A member in a public organisation loses any ownership or other rights to property transferred to the public association, including their membership contributions. Members of the public association are not responsible for its obligations and, likewise, the public association is not responsible for the obligations of its members. In the event of the liquidation of a public association, any property remaining after liquidation is allocated for the purposes specified in the charter. If this is not possible, such property is remitted to the state budget. Foundations. A foundation is a not-for-profit organisation created by individuals and/or legal entities to engage in public, charitable, educational and other kinds of social activities. Since an Azerbaijani foundation is not subject to a minimum requirement for the number of founders, it may be created by one individual or legal entity. Moreover, they are not based on membership, i.e. the founders do not become its members. A foundations founders are not responsible for its obligations. Likewise, a foundation is not responsible for the obligations of its founders. Unions of Legal Entities. A union of legal entities is created by business or non-commercial entities to provide for the cooperation and coordination of their entrepreneurial or non-commercial activities, representation, and the protection of their common interests. A union is not responsible for the obligations of its corporate members. Corporate members, however, are responsible for the unions obligations to the extent provided under the unions charter. Subsidiaries. A legal entity, whether or not established in Azerbaijan, may form a subsidiary in Azerbaijan in one of the three legal forms available for commercial purposes, i.e. a JSC, a LLC, or an ALC. A subsidiary is a separate and distinct legal entity; the parent enterprise may contribute property to its subsidiary but, typically, is not liable for the obligations of the subsidiary. A parent company, however, may be held liable for the obligations of its subsidiary in bankruptcy if such bankruptcy was caused through the fault of the parent company in connection with the execution of its instructions. Additionally, a parent company and its subsidiary are jointly liable for obligations incurred by the latter as a direct result of the implementation of instructions of the former, even if the former is not in bankruptcy. 2.3 Acquisition & ownership of land and property A revolutionary land reform was implemented in Azerbaijan in the 1990s. The country was one of the first among the former USSR republics to introduce private ownership of land as well as free trade and transfer of titles to land and distributed the large portion of land to the population. A lot of formerly state owned real estate was also either sold or distributed to population and businesses. Azerbaijani law provides for the following basic rights in land: (I) ownership; (II) lease; and (III) use. The real estate in the Azerbaijani legislation is best matching the term "immovable property". Further to recent adoption of the Law On State Register of Immovable Property, creation of rights in property (ownership and other rights), transfers and termination of rights are subject to state registration with the register of immovable property. The Law recognises registration of the rights in immovable property carried out by various state authorities prior to the date of the law and provides for data transfer to the Register from various state authorities engaged in registration of rights in immovable property in the past. The Register in accordance to the Law will be available to a limited list of persons entitled to receive information on data maintained in the Register. As a general rule, registration of property rights over immovable property shall be accomplished within 20 days. The Law contains special provisions in respect of registration of certain rights in immovable property: ۉ Ownership and other property rights regarding unfinished construction of immovable property can be registered in advance. ۉ Property right regarding individual apartments in unfinished buildings or non-residential properties and mortgages thereon can also be registered in advance. ۉ In the event immovable property is leased or given for use for a period exceeding 11 months, such right shall be registered by either party of a lease or use agreement. The concept of ownership in Azerbaijan includes rights to exercise possession, right to use/benefit and the right to dispose of the land (transfer ownership or other rights in land to third parties). It should be noted that ownership right in land is a privilege of (I) the Republic of Azerbaijan, (II) municipalities, and (III) Azerbaijani individuals and legal entities. Foreigners (individuals and legal entities) and stateless individuals cannot own land in Azerbaijan. Foreigners who acquired ownership rights in land through general legal procedures such as enforcement of security interest, grant or succession shall dispose of their ownership within one year; otherwise the land shall be acquired by the state or relevant municipality. International organisations, foreign legal entities and foreign citizens and states may lease land in Azerbaijan, although they may not own land and may not be granted a purchase option on a lease. There is no legal limitation for ownership of buildings, constructions etc. by foreign individuals and legal subjects. Certain categories of land plots are in the exclusive ownership of the state or municipalities, and may only be leased by or granted for the use of private persons. Individuals may own land within the limits established by law. In addition to ownership, the Land Code recognises perpetual and temporary land use rights, lease rights and easements. Temporary land use right is granted for up to 99 years and may be extended by the parties. A perpetual land use right is granted for an indefinite period. The holder of such rights is liable only for the land tax for the land use. Perpetual and temporary land use rights are granted by the state and municipalities only in exceptional circumstances to a limited number of persons listed in the Land Code. Landowners may grant perpetual or temporary land use rights under an agreement with the land user. Land use terms are defined by an agreement between the landowner and the land user. Land lease is the use of land for a definite period, for a charge. Leases are concluded for a period agreed by the parties. Rent payments for the lease of privately held land parcels are freely negotiable. Rent payments for state or municipally owned land parcels are determined according to market conditions, but cannot be less than specified statutory rents. With regard to agricultural land, discounts from statutory rents are available depending on market conditions in the agricultural sector. 2.4 Obtaining licenses A license is granted without discrimination to any entity that satisfies the requirements for that specific license. Thus (with certain exceptions), foreign investors may obtain licenses under the same conditions and in with the same procedure as Azerbaijani nationals. Normally, a licensee may not transfer a license to another legal entity or individual. Licensing in Azerbaijan is regulated by the presidential decrees and orders of the Cabinet of Ministers of the Republic of Azerbaijan. The Ministry of Economic Development is the government agency entrusted to exercise overall control in the field of licensing and to maintain a single register of licenses. Regulations on procedures for the licensing of specific types of activities are generally issued by the Cabinet of Ministers. An applicant is required to submit all documents specified in the regulations and pay the required fee, upon which (subject to the application meeting all requirements) a license is issued within 15 days. The basic term of any license is five years. Azerbaijani licensing system was reformed in 2002. Number of business activities requiring a license was reduced from more than 200 to 30. The application, paper processing and regulating bodies were defined and the overall procedure streamlined. However, currently the list reaches approximately 50. As the result of the reform, the licensing system in Azerbaijan was liberalized. Licensing differs from the permitting procedure related to special hazardous activities such arm trade or nuclear materials storage. In Azerbaijani terms this type of permits is called special licenses. A person who wishes to obtain a license to carry out specified entrepreneurial activity should either create a legal person or register as an entrepreneur, i.e. become an individual businessman. In the ANNEX 3 you may see the list of business activities requiring a license. No other business activities require special permits as of the date the publication went to press. The list of documents required for obtaining a permit is limited. No other documents can be requested from a business to get the license. 2.5 Hiring & Firing Labour relations governing the employment of all workers and employees in the Republic of Azerbaijan are regulated by the Labour Code, effective 1 July 1999 (the Labour Code), together with other laws issued pursuant to the Labour Code. The main legislative act regulating labour issues is the Labour Code adopted in 1999 that codified the legislative acts adopted in the early years of independence and number of lower tier normative legal acts that expand certain provisions of the Labour Code. A standard working week is 40 hours. Overtimes and work during days-off (which are Saturdays, Sundays, public holidays and a mourning day) are compensated in the manner provided for in law. Employment relations are established by virtue of execution of an employment contract, which is made without a fixed term in most cases. In limited cases (such as seasonal nature of work, work under a fixed term project or assignment, agreement of employer and employee) employment contract can be made for a fixed term. Probation period of up to 3 months is allowed in most cases and the contract can be terminated by either party upon giving a 3-day notice. Fixed-term contract will be deemed to be extended unless terminated by a notice within 7 days of the expiration of the original term of the contract. A contract without a fixed term can be terminated by employer in cases specified such as gross violation of labour duties by an employee, redundancies, determination of an employee's qualification as inadequate for performance of his duties, change of labour conditions etc. An employer is under a duty to give a termination notice. The general term of such a notice is 2 months (e.g. redundancies). However, certain exclusions are available (e.g. in case of gross violation of labour duties). An employee can terminate a contract at any time upon giving a 1-month notice. In certain cases when employment is terminated by the employer, the employer shall allocate to an employee a fixed number of days in a working week to allow an employee look for a different workplace. Termination of employment with certain categories of employees (e.g. pregnant women, women with children below 3 years of age) is prohibited, unless employer is being liquidated. In cases of termination of employment due to redundancy, termination of work place or liquidation of an enterprise employer shall pay to the employee severance payment, which may total to up to three months of employee's salary. Generally, legal entities are required to make monthly social insurance contributions in the amount of 22% of the salary fund of its employees. Legal entities are also under an obligation to withhold employees' social insurance contribution in the amount of 3% of employees' gross salaries and transfer same on behalf of the employees to the State Social Fund. Individual entrepreneurs are, generally, required to pay social insurance contributions in the amount of 20% of the average statistical monthly salary for the previous year. Different rates are provided for certain categories of individual entrepreneurs (such as auditors, private notaries, auditors, accountants etc.) Azerbaijani law also provides for obligatory medical insurance procured by employers. Compensation in Foreign Currency All salaries paid in Azerbaijan must be paid in manats. Probationary Period To have force in law, a probationary period can be stated in an employment contract and may not exceed three months. Minimum Wage Employee remuneration may not be lower than the minimum monthly wage, currently 50 manats (approximately US$ 59) per month. Work Week The regular work week is 40 hours, reduced for certain groups of people. Overtime is, as a rule, not enforceable unless necessary for state defense, public safety, ensuring the supply of public utilities, and in certain other situations. The duration of overtime work may not exceed a certain limit established by the Labour Code. For each hour of overtime work, an employee must be compensated at a rate at least twice his or her normal hourly rate. Holidays Employees are entitled to 21 official public days off, 20 of which are public holidays and one is a day of mourning. The minimum paid annual leave is 21 calendar days, more for certain groups of employees. Sick Leave Except for the first 14 days of any absence, compensation for sick leave is provided by the State Social Protection Fund, not the employer. Maternity Leave Women are entitled to be paid maternity leave for 70 calendar days prior to and 56 days (70 in certain cases) after the birth of a child. Maternity pay is provided by the State Social Protection Fund. Dismissal Grounds for dismissal include, among other things: staff redundancy; employees lack of ability to perform required employment duties; and violation of employment duties as determined by the employment contract. There are certain restrictions covering the dismissal of certain categories of employees. In certain cases, an employer is required to report an employees dismissal to the appropriate state authorities. Cost of Employment Employers are required to pay social security contributions on behalf of their employees. Income Tax The employer is obliged to withhold income taxes for its employees and certain social contributions. Foreign Workers in Azerbaijan Foreign employees who are employed by enterprises (affiliates or representative offices) operating in Azerbaijan are subject to Azerbaijani labour law, except for those working in enterprises, branches or representative offices located in Azerbaijan under employment contracts concluded in the foreign state where the employer is located. Foreign nationals wishing to work in Azerbaijan are required to register at their place of residence and obtain a work permit. Work permits are issued by the Ministry of Labour and Social Protection. Heads of representative offices and branches of foreign legal entities (and their deputies) are not required to obtain a work permit in Azerbaijan. 2.6 Foreign trade regulation Azerbaijan has started negotiations with WTO on accession to the organisation. The government has undertaken a number of steps to liberalize foreign trade. As of the end of 2006, the weighted average import tariff in Azerbaijan was 5.8 % i.e. significantly below the international average. Import and export is one of the most rapidly developing business segment in Azerbaijan. The average annual growth in foreign trade in recent years is approximately 15%. Azerbaijan is developing trade relations with a number of countries. In 2006, there were trade operations with more than 140 partners. The European Union remained the major destination for export of Azerbaijani goods. Russia and CIS are the major importers. The main export commodities are oil and petrochemicals, a/c products. The import includes machinery and luxury goods, constructions materials etc. Azerbaijani law recognizes several customs regimes applicable to goods imported in Azerbaijan, of which most important to foreign investors being transit, customs storage, bonded warehouse, temporary import, processing on and outside customs territories. Imports and Exports by countries in 2006 (mln US dollars) TotalImport TotalExportmln US$ratio. %mln US$ratio. %5267.3100.06372.1100.0Russia1181.522.4Italy2845.444.7Italy124.62.4France347.55.5UK6.08.6Russia344.25.4Turkey385.07.3Turkey388.16.1Germany403.87.1Turkmenistan95.20.1Turkmenistan317.57.0Georgia285.24.5Ukraine223.35.3Israel684.810.7China197.94.2Korea683.51.1Netherlands909.31.7Iran295.94.6USA141.03.8Singapore918.91.4India57.41.1Greece181.92.9Japan188.23.6Tajikistan130.82.1 In the case of temporary import, no duties are applied and the goods must be re-exported from Azerbaijan until the deadline established by the customs authorities. The goods brought under the temporary import regime should be re-exported without substantial changes in their nature. Import of goods into Azerbaijan is subject to imposition of imports duties (ad valorem duties ranging from 0% to 15%, per unit duties, duties per metric units). Excise tax applies to certain types of goods (e.g. tobacco and alcohol products). Azerbaijan adopted destination VAT principle and VAT (currently set at 18%) is payable (subject, of course, to applicable customs regime) on the declared value of goods (including assessed import duties and excise tax). Certain categories and types of goods are import exempt and to some others 0% VAT applies. 0.15% customs clearance fee is applicable to all imports/exports with certain minor exceptions. Exports are exempt from customs duties, except for certain types of metals and metal products. Under PSA (Production Sharing Agreement) regime, contractors, its agents and sub-contractors are entitled to import and re-export from Azerbaijan free from import duties and restriction goods employed for hydrocarbon activities. Imports under PSA regime are subject to zero rate VAT. Similar regime applies under HGAs (Host Government Agreement). Another important development worth mentioning is a number of regional trade initiatives including Central Asia - Caucasus - Europe transport corridor (TRACECA) and Russia-Azerbaijan-Iran transport corridor (North-South Transport Corridor). The projects are directed at stimulation of international trade along the above routes via coordination of trade policies and tariffs, upgrade of infrastructure, simplification of customs procedures etc. The impact of the above initiatives on international trade of Azerbaijan and on its status of a regional transportation hub is substantial. 2.7 Currency regulation & repatriation of profit Foreign exchange Foreign exchange transactions are governed by the Law on Currency Regulation. The National Bank of Azerbaijan administers the overall enforcement of currency regulation. Various aspects of foreign currency regulation also cover precious metals and foreign securities, among other matters. Azerbaijans currency control legislation distinguishes between residents and nonresidents, with more stringent requirements currently applying to residents. The definition of resident includes private individuals having a permanent place of residence in Azerbaijan and legal entities established in accordance with Azerbaijani legislation. Branches and representative offices of foreign entities established in Azerbaijan do not fall within the definition of a resident. Currency operations are divided into routine currency operations and operations involving the movement of capital. Routine currency operations include: Transfers for payment of goods and services under import/export contracts with a term of payment not exceeding 180 days; Transfers in connection with the financing of export/import transactions with a term not exceeding 180 days; Transfers of dividends, interest, and other income from deposits, investments, credits and other operations; and Non-commercial transfers, for example including transfers of inheritances, wages, pensions or alimony. Operations involving the movement of capital are deemed to include all other non routine currency operations, e.g.: Direct investment in entities for the purpose of deriving profit and obtaining control over the entity; Purchase of securities; Payments for ownership and other rights to immovable property; Import/export transactions under credit terms of more than 180 days; Deposits by banks of currency values for more than 180 days; and Any other currency operation not deemed as a routine currency operation. Currency operations involving the movement of capital must be performed in a manner approved by the NBA. No procedure, however, has been established by the NBA on this point and, in effect, no licensing of the currency operations involving the movement of capital is required at present. Foreign exchange regulations are comparatively less restrictive for non-residents. Nonresidents are permitted to hold offshore bank accounts without restriction, may deposit their funds offshore, and are not bound to sell foreign currency proceeds or submit a report upon withdrawal of foreign currency. Non-resident legal entities may purchase foreign currency on the domestic foreign currency market for routine currency operations and in other cases stipulated by legislative acts. Import/Export of Foreign Currency in Cash by Individuals. Resident and non-resident individuals are treated equally with regard to the import/export of foreign currency in cash. There are no limitations on the amount of foreign currency an individual may bring into Azerbaijan, provided that such amount is declared to the Azerbaijani customs authorities. Azerbaijani customs authorities are required to issue a certificate to an individual importing more than US$ 10,000 or its equivalent into Azerbaijan. Residents can export of a hard currency in the amount up to the equivalent of USD 10,000 free of tax without any documentation except the tax declaration. Non-residents, however, are required to submit some documents. Residents must pay a 1% fee for the amount from USD 1,000 up to USD 10,000. In case the USD 10,000 threshold is exceeded, supporting documentation must be provided in any event. Pursuant to the newly-issued regulations of the Azerbaijani National Bank, residents may transfer currency to certain states (member states of the Organisation of Economic Development and Cooperation, Russia and those having bilateral investment related agreements with Azerbaijan) for the purposes stated in the regulation: direct investment, acquisition of securities, real estate purchase, transfer of currency to the residents deposit in foreign bank. There is no specific limitation as to the amount allowed for transfer. Foreign companies and individuals may have both Manat and foreign currency accounts in a local bank. All settlements within Azerbaijan including payments of employee salary should be made in Manats with a few exceptions. A permission of the National Bank of Azerbaijan is required to conduct certain transactions in foreign currency. From 1st January 2006 new Azerbaijani manats were introduced to replace the old ones. The exchange of banknotes is accompanied by denomination of the currency at a rate of 1 to 5000. The international abbreviation for the new manat is AZN. 2.8 Taxes Tax policy and collection of taxes in Azerbaijan is carried out by the Ministry of Taxes. For the purposes of this review we will concentrate on corporate taxation. Currently, there are two different types of tax regimes in Azerbaijan. The companies that work predominantly in the oil & gas sector under the Production Sharing Agreements (PSA) are subject to the oil consortia tax regime which will be looked at below in this publication. The statutory tax regime is applicable to all other legal entities. The statutory tax regime is regulated by the Tax Code 2000 and numerous normative legal acts. The tax legislation in force is regarded as one of the best pieces of legislation among the transition economies. All Azerbaijani enterprises, representative offices, branches, and individuals engaged in business activities (as well as foreign entities and individuals conducting business activity in Azerbaijan through a permanent establishment (PE) as defined under the Tax Code) must register with the tax authorities regardless of whether or not their activities are taxable in Azerbaijan. Divisions which have not established a PE are subject to a separate regime. Double Taxation Treaties. Azerbaijan has entered into bilateral treaties for the avoidance of double taxation with 25 countries. Double taxation treaty negotiations are currently underway with Bulgaria, Denmark, Greece, India, Kuwait and Kyrgyzstan. Road Tax Legal entities and individuals of foreign states as well as persons owning vehicles in Azerbaijan Republic must pay this tax when using the territory of the Azerbaijan Republic. Taxes are assessed on cars, buses and trucks depending on seat number, days spent in Azerbaijan and number of other conditions (e.g. US$15-US$25 per day for buses, etc.) Simplified Tax This tax is intended to ease tax burden for small size businesses and is in lieu of general profit tax. Simplified tax is charged at the following rates on the gross revenue of the taxpayers: 4% for taxpayers operating in Baku 2% for taxpayers operating in other regions of Azerbaijan In order to quality for this tax, the total revenue should not exceed 24,750 Azerbaijan manats (approximately USD 29,100 at the current exchange rate) in a three month period. The payers of the simplified tax are also exempt from VAT, profits tax and property tax. Simplified tax is payable on a quarterly basis. Dividend Withholding Tax Dividend withholding tax of 10% applies to both domestic and foreign shareholders. Tax is withheld in the currency in which the dividend is paid. Double Taxation Treaties (DTT) may reduce the rate at which dividend tax applies. See the ANNEX 4 for brief information about DTTs in Azerbaijan. Other Withholding Taxes Foreign legal entities with no permanent presence (permanent establishment) in Azerbaijan are subject to withholding tax on income derived from sources in Azerbaijan at the following rates. 10% - Interest 14% - Rent and Royalty 6% - Freight income 6% - Telecommunication services 4% - Financial leasing and insurance payments 10% - Other income For detailed information on Tax rates please see ANNEX 5. Losses and bad debts Losses may be carried forward over the next five years using one of the following two options. Under the first option, losses can be offset against the taxable profit in a given tax period in the amount of up to 20% of the amount of such taxable profit for that tax period. Alternatively, losses can be carried forward on a pro rata basis where 20% of the total losses is used in a given tax period. Losses cannot be carried back. Bad debts may be deducted from taxable income only if recognized as having no value in the accounting books of the company and if they were reflected as income in previous periods. Losses and bad debts recovered in the future periods shall be recognized as income in the period of their recovery. VAT registration There are detailed requirements for registration and accounting for VAT, with penalties for non-compliance. Companies with taxable transactions exceeding a certain threshold (currently approximately $25,000 USD per three consecutive months) must register as VAT payers. Other companies carrying out business activity in Azerbaijan may voluntarily register. Only registered VAT payers may charge VAT or claim a credit for input VAT that they pay. Interest and penalties There are certain interests and penalties applicable for failure to comply with the tax legislation. For example, interest on outstanding tax liabilities accrues at a rate of 0.05 percent per day. The following penalties may also be applicable: Breach Fine Failure to register as a taxpayer with the tax authorities AZN 44Failure to file declarations AZN 44Understatement of tax liability 25 percent of understated tax Payments from petty cash while bank accounts are imposed tax sanctions or penalties by the tax authorities20 percent of expenses paid from petty cash Failure to notify tax authorities on changes in a taxpayers registration documents AZN 44 The statute of limitation period for a tax law violation is set as three years. A more detailed information on the Production Sharing Agreements may be obtained from the Oil & Gas (including regulatory environment of the industry) article of this publication. Accounting The new Accounting Law 2004 stipulates gradual transition to the new accounting standards based on IAS by 2008. Thus the Soviet-era accounting principles will eventually cease to regulate the financial reporting. It should be noted however, that Azerbaijan has already made substantial advancement towards new financial reporting philosophy. The banks as well as the companies under Production Sharing Agreements and similar commercial deals are not regulated by the 1995 Law on Accounting. The new Law charges the Cabinet of Ministers with the task of publishing new National Accounting Standards (NAS), which are yet to be developed. The Law stipulates that all significant entities including credit institutions, insurance companies, investment funds and commercial organizations meeting certain criteria will be subject to International Financial Reporting Standards (IFRS). Others (except for small private businesses) will have the choice of using either the IFRS or NAS. Small private business will have the right to choose between the NAS or a simplified method of accounting. All entities registered in Azerbaijan (Azerbaijani Legal entities, representative offices and branches) are required to maintain their books and records on the territory of Azerbaijan, in local currency, and in accordance with the Azerbaijan accounting legislation (AAL). This includes the use of a mandatory, and quite rigid, chart of accounts. In most cases this will necessitate the employment of a Full-time, experienced Azerbaijani chief accountant. The Civil Code 2000 contains general provisions regarding financial reporting and audit requirements for legal entities. Joint stock companies and limited liability companies are required to use independent auditor to audit their annual financials (in addition, joint-stock companies are required to publish their annual accounting reports and balance sheets). Any legal entity with the value of balance sheet exceeding 1 mln AZN (1,150,000 USD) or annual revenues exceeding 500 thsd AZN (580,000 USD) shall perform audit of its balance-sheet. Legal entities with balance-sheet value of below 1 mln AZN or annual revenues below 500 thsd. AZN are allowed to prepare simplified balance sheet. Tax Code 2000 also contains certain provisions dealing with accounting matters, such as depreciation. Depreciation is made in accordance with a declining balance method and the following rates apply to these selected categories of assets: - buildings, facilities and installations - up to 7%; - machines, equipment and computers - up to 25%; - vehicles - up to 25%; - intangible assets - up to 10% when life time is not defined or in accordance with life time when life time is defined; - other fixed assets - up to 20%. Actual capital expenditures for production purposes made in a current tax year in form of buildings, facilities, installations, machines, equipment, computers vehicles and other assets may be depreciated at a rate of up to 2 times of standard rates, i.e. depreciated in an accelerated manner. An accelerated depreciation rate was recently also introduced for the leased equipment in order to stimulate this financial service. As mentioned above separate chart of accounts based on western accounting principles has been adopted for the commercial banks few years ago. AAI differs from TFRS and generally accepted accounting principles in other countries (e.g., the United States). A summary of the most significant differences is as follows. Accounting policies. AAL do not require detailed disclosure of accounting policies used in the preparation of the financial statements or footnote disclosures that provide additional information, analysis and clarification of the financial statements. Property, plant and equipment (PPE). Property, plant and equipment is maintained under the historical cost convention (at acquisition price or cost of production including transportation and assembly costs) as modified by the revaluation of assets. At various times since 1992, PPE was revalued in accordance with Government decrees (most recently in 1996). Indexes used for these revaluations did not necessarily properly account for the changes in the value of Manat nor did they result in the value of the underlying fixed assets to which they were applied being revalued to a current market value. Revaluations of property, plant and equipment are generally not required under 1AS and US GAAP. Impairment of assets. AAL does not permit the recording of an allowance against the carrying value of an impaired asset. This includes setting up an allowance for tangible assets as well as inventories, accounts receivable and other assets. IAS requires, among other things, that long-lived assets and certain identifiable intangibles that are held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, allowances may be made upon the carrying value of short-term assets (for example, accounts receivable) when it is likely that the full carrying value of the asset will not be recovered. Deferred taxes. Deferred tax assets and liabilities under IAS are recorded for the expected future tax consequences of existing differences between financial reporting and tax reporting basis of assets and liabilities, and loss or tax credit carry forwards. Under AAL rules, there are no provisions regarding deterred tax accounting. Equity. In the balance sheet of an Azerbaijani company equity is represented by charter capital, paid-in-excess capital, reserve capital, appropriated earnings, social funds and retained earnings for the current and previous years. Deductions can be made directly from reserve funds for non-tax deductible expenses. Under IAS, equity is generally represented only by capital stock, additional paid-in capital and retained earnings for the current and previous years. Intellectual property In 1996 and 1997 Azerbaijan started implementation of the national system for registration and protection of intellectual property rights. Intellectual property rights in Azerbaijan include: all rights to industrial property (including inventions, industrial designs, utility models, trademarks, and geographic names); and copyright and related rights. Current legislation pertaining to intellectual property includes the Law On Copyrights and Related Rights (the Copyright Law), the Law On Trademarks and Geographic Names, the Law On Patents, and the Law On Topology of Integral Schemes. Under existing legislation, the Cabinet of Ministers is empowered to authorise various state agencies to register and protect intellectual property rights in respective areas. The State Agency for Standardisation, Metrology and Patents is responsible for the issuance of patents and trademark registration. There is also the State Copyright Agency. Beyond this however, procedures for the registration and protection of various intellectual property rights differ from one state agency to another. Azerbaijan is a party to several international agreements concerning the protection of intellectual property including: the Convention Establishing the World Intellectual Property Organisation; the Paris Convention for the Protection of Industrial Property, the Madrid Agreement Concerning the International Registration of Trade Marks, the Madrid Protocol, the Patent Cooperation Treaty, and the Eurasian Patent Convention, the Performances and Phonograms Treaty of the World Intellectual Property Organisation Copyright Treaty of the World Intellectual Property Organisation. Azerbaijan is a first to file and not a first to use jurisdiction, meaning early registration of intellectual property rights is essential to ensure protection. Patent protection is granted to an invention if it is novel, inventive and useful. The maximum duration of protection for an invention patent is 20 years. Utility models are granted patent protection if they are new and industrially applicable. The term of utility patents is ten years. An industrial design right is characterized by an artistic and structural form which determines its external appearance. Patent protection is granted if an industrial design is novel, original, and capable of industrial application. The term is ten years. Patents may be assigned and/or licensed by their owner(s) to natural persons or legal entities. However, an assignment must be registered with the relevant state agencies to be valid. Infringement carries civil, criminal and administrative liability. The right to a trademark is based on registration with the respective state agencies. Trademark registration is granted for a term of ten years, renewable every ten years. Assignments of licenses for trademarks and geographic names must be registered with the relevant state agencies. Legal protection is given to the appellation of origin of goods based on registration with the relevant state agencies, and to trademarks existing under international agreements on the registration thereof or bearing the status of a known trademark. Violations of intellectual property rights carry civil, criminal, and administrative liability. The Copyright Law protects works of science, literature and the arts (copyrights) as well as stage productions, phonograms of radio or cable broadcasts, and computer programs and databases (allied rights). Copyright protection is normally granted to the author without registration. The right to use a copyrighted work may be re-assigned. A copyright provides protection for the lifetime of the author and normally for a period of 50 years following his or her death. Rights to computer programs, databases and topologies of integrated circuits are protected under the Copyright Law and the Law on Topology of Integral Schemes. The unauthorised re-creation (copying) of computer programs, alteration of existing programs, and unlawful accessing of legally protected computer information are criminal offences. Proper quality is determined by legislative norms and technical specifications applicable to a particular product. Certain goods are subject to mandatory certification by state agencies, in accordance with procedures established by legislation. The advertising and distribution of goods without such certification is prohibited. Dispute resolution & arbitration Courts Azerbaijan has a three-tier court system - courts of first instance, appellate courts and cassation court. Courts of first instance are the district (city) courts of general jurisdiction, local economic courts, and military courts. It is necessary to emphasise that Azerbaijani courts are undergoing a critical stage of transition and reforming from a soviet type "just courts" to an independent and modern judiciary. Vital steps such as re-appointment of judges and recent legal reforms are underpinning this process. It is safe to say that Azerbaijani system is becoming more relevant and appropriate for an open market economy Courts of general jurisdiction address disputes arising out of civil, family, or land-related matters, use of natural resources, environmental protection, tax, administrative and other matters, where at least one of the parties to a dispute is a physical person and where he does not have the status of an entrepreneur, or, if he has such status, the dispute arises other than in connection with the carrying out of his entrepreneurial activity. The economic courts consider cases in respect of economic disputes arising from civil, administrative and other legal relations between legal entities and physical persons with the status of individual entrepreneurs. Pursuant to the Decree of the President, the Economic Court of Appeals was liquidated and the regional appellate courts were established in Baku, Ganja, Sheki, Sumqayit and Ali-Bayramli cities. The decisions of the appeal courts can be further appealed to the court of cassation. The appellate board for civil cases of the Supreme Court considers appeals brought in respect of the decisions of boards for civil case of appellate courts. The appellate board of the Supreme Court for economic cases reviews the decisions of the decisions of boards for civil case of appellate courts. The cassation court is located in Baku. Mandatory enforcement Enforcement procedures set forth in Law on the Execution of Court Orders apply to judgments of Azerbaijani and foreign courts as well as international arbitration and foreign arbitration awards. The following documents have the status of execution orders: - court orders (e.g. judgments of Azerbaijani courts, interim orders, awards of international arbitration courts and tribunals, decisions of courts of foreign states and arbitration courts); - notarised agreements concerning the recovery of alimony; - execution notes of notaries; - decisions of state bodies (officials) authorized to consider cases relating to administrative offences; - decisions of other state bodies when provided by law. The documents should be submitted to a bailiff for execution within following periods: I. writs issued in accordance with courts decisions and courts orders one month; II. writs issued in accordance with resolutions of courts on taking of measures related to provisional remedies - immediately; III. execution notes of notaries and decisions of bodies (officials) authorised to consider cases on administrative offences - ten days; IV. writs issued in accordance with decisions of international arbitration court and arbitration tribunals and decisions of courts of foreign states and arbitration courts - three years. Failure to voluntarily execute the appropriate decisions triggers obligatory execution. The following are obligatory execution measures: I. foreclosure and subsequent sale of assets; II. garnishment of salaries and similar payments; III. foreclosure of debtor's assets in possession of third parties; IV. taking of debtor's assets with subsequent transfer to claimant. Referral of a dispute to arbitration is a permitted dispute resolution mechanism. In general, matters over which courts have jurisdiction can be arbitrated in cases provided in law, international agreements and upon agreement of the parties. Certain matters over which Azerbaijani courts have exclusive jurisdiction cannot be arbitrated and include, inter alia, rights over immovable property located in Azerbaijan, cases concerning the recognition of patents, or other marks or rights, if such were registered (or application for registration was filed) in Azerbaijan, cases where an action is brought against a carrier under a contract for the carriage of goods, or cases relating to the existence of a legal person registered in Azerbaijan or cases where cancellation of a decision taken by a legal person is sought. Interestingly enough, civil procedure legislation does not set forth provisions regulating the conduct of domestic arbitration. Hence, one can naturally assume that the parties are at liberty to provide for these by their agreement. Commendably, Azerbaijan has made significant progress as far as international arbitration is concerned. Azerbaijan has acceded to 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards when ratification procedure was completed on 29 May 2000. Azerbaijan has also enacted the Law On International Arbitration, which basically adopts the UNCITRAL Model Law on International Commercial Arbitration of 21 June 1985. In addition, Azerbaijan is a signatory to 1998 Agreement on the Order of Reciprocal Enforcement of Arbitral Awards and Economic Court Judgments on the Territory of the country-members of the Commonwealth of Independent States. Decisions on enforcement and recognition of foreign arbitral awards are taken by the Supreme Court. In certain cases, enforcement can be declined, most notably, if: I. an award contravenes legislation, offends public policy or sovereignty of the Republic of Azerbaijan; II. the principle of reciprocity is not adhered to; III. there is a valid judgment of an Azerbaijani court relating to the same parties and same subject-matter; IV. an award has not entered into force in the country where it was made. The New York Convention will certainly not apply to the recognition and enforcement by the Azerbaijani courts of domestic awards (where an award is made in Azerbaijan arbitral proceedings). In the absence of relevant provisions in the civil procedure law, the Law on International Arbitration could be looked at for guidance. Under said law an international commercial arbitral award made in arbitration proceedings in Azerbaijan may be set aside if, inter alia: I. the notice of the appointment of an arbitrator or arbitration proceedings were defective; II. the dispute does not fall within the scope of the arbitration agreement; III. the composition of the arbitration tribunal or the arbitration procedure was not in accordance with the agreement of the parties; IV. the subject-matter of the dispute is not capable of settlement by arbitration under legislation of the forum state; V. the arbitral award is in conflict with Azerbaijani legislation. 2.12 Privatisation Foreign investment Under Privatisation Programmes Under the Privatisation Law, the following are considered to be foreign investors: Foreign legal entities and their subsidiaries; Azerbaijani legal entities in which participation of foreign investment exceeds 50% of the entity's charter capital; Foreign nationals; Stateless persons. To date, Azerbaijan has undergone a long process of transferring from a state-dominated economy to the current situation where 82% of the economy is held in private hands. This became possible largely thanks to the de-nationalisation of state owned enterprises and property. Privatisation occurred in two stages. The denationalisation of small sized enterprises was carried out within the First Stage Privatisation Programme (1995-1998). Thirty-nine thousand enterprises as well as 1.3 million hectares of land were sold and distributed to private persons and legal entities, more than 1,550 medium and large enterprises were transformed into stock-companies. Few large enterprises were also sold to investors as part of the Programme. They include, among others, a brewery, and cement and steel plants transferred to foreign investors. In general, the sum of revenues from privatisation in 1995-2006 was 235.02 million AZN (more than 270 million USD). As a result of privatisation, 500,000 job places were made available. Currently, the Second Stage Privatisation Programme adopted in 2000 is underway and covers more strategic and broader sectors of economy such as transport, communication, construction, chemical and heavy engineering industry, metallurgy, etc. It stipulates privatisation of mainly medium and large enterprises. The enterprises are declared "open for privatisation" by special Decrees signed by the President. The list of enterprises currently open for privatisation is available to the public. The law also contains the list of exemptions, i.e. enterprises that can not be denationalised. Such enterprises include military and other facilities of strategic importance. Railways, radio and TV stations, irrigation systems are excluded from the privatisation as well. The programmes explicitly do not mention any difference as regards as to who may participate in privatisation, i.e. foreign national takes part in the process on a non discrimination basis. The State Committee on Management of State Property is in charge of privatisation process. There are few privatisation methods legally adopted in Azerbaijan: - direct sale to strategic investor; - sale at the investment tender; - special cash and voucher auctions; - general auctions; - sale to employees on preferential terms. The Government also practises long term transfer of management to a private operator in accordance with an obligatory investment programme. Presently, the number of medium and large enterprises privatised within both Privatisation programmes is over one thousand. As a result of privatisation 355.5 million USD was invested to privatised enterprises. There are, however, still very substantial opportunities in privatisation as a mode of entry to the market. At present privatisation process plays a significant role in the development of the economy. hereto, in order to improve the privatisation process, a number of measures such as involvement of advisory companies, independent experts and valuators, educational and promotional works, organisation of different events with participation of local and foreign investors are being implemented by State Committee on Management of State Property. Besides this,  HYPERLINK "http://www.stateproperty.go.az/"www.stateproperty.gov.az and  HYPERLINK "http://www.auksion.az/"www.auksion.az web sites provide comprehensive information about enterprises open for privatisation, investment projects in different sectors of economy as well as current situation of privatisation of state property. 3. SECTORS REVIEW 3.1 Oil & Gas (with regulatory framework) By the late twentieth century with the discovery of huge oil reserves, Azerbaijan, which at that time was a part of tsarist Russia, quickly became one of the oil industry centres of the world, providing for approximately half of the worlds oil supply. A number of foreign oil companies and powerful investors, including Shell, Rothschild, the Nobel brothers and many others had interests in Azerbaijan. Unfortunately, with the collapse of the Russian Empire in 1917 and the appearance of a new state, the Union of Soviet Socialist Republics, the gates for foreign businesses to Azerbaijan closed for a substantial period of 74 years. In the late twentieth century, the country again become the hot spot for the oil men of the world. The Azerbaijani government invited the largest international oil companies such as British Petroleum, Amoco, Total, Elf, Lukoil, Itochu and others to jointly develop the previously closed hydrocarbon reserves of the Caspian basin. Now the country is on the verge of its second oil boom. Azerbaijan attracted a large number of foreign investors to operate in oil fields in accordance with Production Sharing Agreements between the government and the prominent western companies. By now, most of the global oil & gas corporations either operate or are present in Azerbaijan: They are active players on the Azerbaijani oil market. Azerbaijan's oil production (total liquids) averaged 646,000 barrels per day (bbl/d) in 2006 (SOCAR) and the remainder mainly comes from an international consortium - Azerbaijani International Operating Company (AIOC). Around 60% of Azerbaijan's oil output comes from the State Oil Company. Its portion, however, will decrease as the international contracts are developed. AIOC's main offshore field known as Azeri-Chiraq-Gunashli (ACG) has proven crude oil reserves of 5.4 billion barrels (between 40%-70% of Azerbaijan's total reserves). The exploitation of the hydrocarbons in Azerbaijan as well as similar projects in the neighbouring countries led to the development of the regional system of pipelines. Two major pipelines were renovated in late 1990s: Azerbaijan-Georgia (Baku-Supsa) and Azerbaijan-Russia (Baku-Novorossiysk) and now transport the bulk of Azerbaijani oil. The new Baku-Tbilisi-Ceyhan (Azerbaijan-Georgia-Turkey) pipeline which is estimated to cost $4 billion and become one of the largest energy projects globally is the main oil pipeline in the region. Parallel to the BTC a gas pipeline Baku-Tbilisi-Erzurum is envisaged. It is to take the natural gas from the recently discovered major Shahdeniz oil field to Turkey and possibly further to Greece and the south east of Europe. As the BTC pipeline is fully operational and ACG developed, oil production and exports are expected to increase dramatically. The peak of Azerbaijan oil production is projected for 2009 with 1.3 mln bpd, roughly four times current production. State Oil Fund (SOFAZ) On December 29, 1999, the Azerbaijani President Heydar Aliyev signed a decree creating a State Oil Fund of Azerbaijan (SOFAZ). It is a mechanism whereby energy-related windfalls are accumulated and in principle efficiently managed. In so doing, the government is demonstrating its overriding desire and determination to avoid the inherent risks for any nation in the midst of an oil and gas boom to spend excessively and create macroeconomic distortions. In December 2006, SOFAZ reported $1.7 billion. Azerbaijan has proven natural gas reserves of roughly 30 trillion cubic feet (Tcf), and the potential for even larger reserves. The country's leading natural gas producer, the Bahar oil and gas field, is located off the southern tip of the Absheron Peninsula and currently accounts for slightly over half of the country's natural gas output. The Gunashli field accounts for approximately 67% of the oil and 50% of the natural gas produced in the country. Azerbaijan opened the Caspian Sea region for international business. The oil & gas sector of the Azerbaijani economy is an excellent example of a successful cooperation between multinationals and the government of a country in transition. The country's oil & gas policy proved extremely successful in opening it up for the international businesses in other sectors. At present, a number of international service companies, engineers, shippers in the oil related industries successfully do business in Azerbaijan Production Sharing Agreements The Government of Azerbaijan in PSA is represented by the national oil company, the State Oil Company of the Azerbaijan Republic (SOCAR), which has been responsible for implementing Azerbaijan's state policy for the oil and gas industry. SOCAR has executed all of the PSAs concluded so far between the Government of Azerbaijan and foreign oil companies. Owing to the absence of any national legislation that covers the oil and gas industry and specifically addresses the need for sector growth, such PSAs have been enacted into the legislative system of the Republic of Azerbaijan as laws of the country. Each PSA does not only constitute a part of the Azerbaijani legal system: it also takes precedence over "general" Azerbaijani legislation in the event of any inconsistency between the PSA and any other Azerbaijani law of general application. To date 27 PSAs have been signed and adopted as laws of the Republic of Azerbaijan. One of the areas of particular interest to foreign oil production and service companies is the tax regime introduced by the PSAs. Given the significance that the Government attaches to the development of the energy sector in Azerbaijan, substantial tax concessions have been granted to the oil companies involved in the development of the energy sector of Azerbaijan under production sharing agreements. The principal objective of oil and gas taxation is to maintain a balance between obtaining a fair share of revenues from oil- and gas-related activities carried out in the country and retaining the attractiveness of the oil fields in Azerbaijan and the Azerbaijani sector of the Caspian Sea to foreign investors. Each PSA contains a specific article dealing with the taxation of oil and gas production. In accordance with PSAs (which are uniform with regard to taxation), oil companies pay only one tax: namely, a Profit Tax on the taxable profit derived from sales of oil and from certain other sources specified in the PSAs, at a fixed rate for a calendar year. The Profit Tax rate varies, depending on the PSA, from 25% to 32%. Oil companies that are parties to a PSA Contract will not be liable to any existing or future taxes (except for the Profit Tax) of any kind whatsoever in respect of their oil and/or gas production. The taxable profit (or loss) of Contractors under PSAs is computed in the generally accepted manner, i.e. sales income less tax-deductible expenses. The list of tax-deductible expenses is specified in each relevant PSA and is usually quite extensive. The revenues of foreign companies providing services to oil companies under the scope of a PSA (Foreign Sub-contractors) are subject to a withholding tax at different rates varying from 5% to 8% depending on the particular PSA. Only goods and services supplied by Foreign Sub-contractors on the territory of Azerbaijan are subject to this tax. No other taxes are payable by Foreign Sub-contractors operating under any PSA. Value Added Tax is not applicable to any supplies and sales within the ambit of any PSA. Under the PSAs, Double Tax Treaties entered into between Azerbaijan and a relevant country may apply as long as they provide better treatment for persons operating under the PSA. Contractor Parties as well as Sub-contractors (including the Foreign Subcontractors) may import and re-export free of duties and taxes any machinery, equipment, fixed assets, goods, works, and services for use under the PSAs. Although the system of regulation of the industry through PSAs is in place and working effectively, the Government of Azerbaijan continues improving the legislative base of this sector of the economy. A number of laws regulating the oil and gas industry have been approved by the Azerbaijani Parliament (Milli Majlis) over the past few years, including the "Subsoil" and "Use of Energy Resources" laws. As part of restructuring programme taking place in the energy sector of Azerbaijan, a new Ministry of Industry and Energy was established by Presidential Decree on 6 December, 2004. Although the full competencies of the new Ministry have not yet been defined, it is expected that the new Ministry will regulate issues related to the oil and gas industry. Energy Azerbaijan's existing power generation capacity, fuel resources and infrastructure is not only able to satisfy domestic needs for energy but can also offer substantial export opportunities for electricity. Production and consumption of electricity (million kWh) 19952000200120022003200420052006Energy storage1794320056206122107623722241172234826309Import8991357164223752436237320821766Total production1704418699189691870121285217442287224543Total consumption 15001  16423  17086  16317  18407 189552004321655industry44422671388130414390499846975225construction1753675253787210360agriculture2603803827662696487499510transport663537551503657512587650household40759902101721113912079119041225313795other30432474158094754896717971115Losses24432770256038344444415440313775Export4993789669258711008880879 New legislation and a wide-range of reforms have been introduced in order to satisfy the demands of the market recently. The main legislative acts regulating the power sector are the Law On the Use of Energy Resources (the Energy Resources Law), dated 30 May 1996, the Law On Electrical Energy (the Electricity Law), dated 13 June 1998, and the Law On Electricity and Heat Power Stations, dated 28 December 1999. A medium and long-term strategy for the power sector was prepared recently. A Decree of the President dated October 21, 2004 mandating a new "State Programme on usage of alternative energy sources" gave additional impetus to the industry. In parallel with this, the "State Programme on development of Fuel-energy complex of Azerbaijan Republic in 2004-2015" was prepared and approved by Head of State. A loan from the Japanese International Cooperation Bank in 2002 facilitated the construction of an oil-associate gas generating plant with capacity of 400 megawatt. An agreement to build another similar plant also reached. Another off-gas processing plant with a capacity of 517 MW is under construction by Siemens in Sumgayit. The goal is to increase energy generation and to achieve better environmental protection. It is estimated to complete construction works till the end of 2007. It is also expected that finance for 330-220 KV electric transmission lines designed to link the four national power systems of Azerbaijan, Russia, Iran and Georgia will be provided by international sources. A project financed by KfW bank of Germany, aimed at replacement of some of equipment (transformers, switches etc.) in high-voltage (330-220 and 110 KV) sub-stations of the power supply system is underway. The construction of new station with the capacity of 300 MVt produced by Finnish company Vartsila at Sangachal has been considered rational and in February 2007 preparation works of the construction area began. The difference of this station from others is that here will be used gas fuel as well as black oil fuel. This station will play a big role at strengthening of Baku and Absheron peninsula power security in future. The works on the project are planned to be finished by the end of 2008. The construction of second power block with the capacity of 400 MW at Shimal power station in Shuvalan is planned. The Japanese company Tepsco and Finnish company Enprima provide advisory services to this project. Now the process of election of lead contractor proceeds. The execution of this project will play the main role at the power maintenance and strengthening of power security of Baku and of the entire Absheron region. Participation of private business in power generation and distribution is permitted by law, and electricity generated by private producers may be delivered to consumers without any restrictions. Fuel is supplied to private producers may be delivered on the same terms as to state owned power stations. The Azerbaijani government's priorities in respect of projects aimed at improvement of energy supply to households and industry are as follows: ۉ Rehabilitation of the Ali-Bayramli Electric Station (1050 MVt) ۉ Construction of new medium-sized generating stations (100 MVt) by private investors. (intended to improve service to consumers, promote competition and enhance the sustainability of the system) ۉ Construction of small wind farms and hydropower stations. The expert opinion is that they may be very efficient. Private investments are welcome. ۉ Construction of new hydropower stations. ۉ Introduction on the Azerbaijani market (or domestic production) of the energy efficiency equipment and technology. Private capital in the electricity sector is encouraged by legislation in order to support energy efficiency and to increase the confidence of investors. Since independence, the implementation of power sector legislation has been complicated by, among other things, the absence of a state agency performing functions such as the issuance of relevant licenses, tariff regulation, and the conclusion of contracts with investors. The creation of such a regulatory agency became an urgent issue in 2001 in the light of the above mentioned developments in the power sector. A Presidential Decree On Establishment of the Ministry of Industry and Energy of the Republic of Azerbaijan was issued on 6 December 2004. Under this decree, the new Ministry of Industry and Energy is to assume the functions of the previous Ministry of Fuel and Energy and some of the authorities of each of SOCAR, Azerenerji and Azerigaz. Matters within the Ministrys competence include the preparation and implementation of state policy in the fuel and energy complex, including the production, transportation and processing of oil and gas. Specifically, the Ministry prepares, negotiates, executes and oversees implementation of production sharing or other agreements on behalf of the state with respect to the development of hydrocarbon reserves in the Republic of Azerbaijan. Under the Energy Law, a foreign investor wishing to enter the power market must obtain a permit to do so and, thereafter, conclude a contract with authorised state agencies to conduct certain activities. Contractors are also required to have their business plans approved by central and local state executive authorities. As a general rule, special permissions to carry out activity in the power sector are granted and the contractors determined on a tender basis. The Electricity Law requires that individuals and legal entities must obtain special permission for conducting activities in the generation, transportation and distribution of electricity. Such permission is issued by the relevant executive authority pursuant to an application by an interested party. In order to obtain such permission, an applicant is required to meet the quantitative needs for electrical energy, provide for an economical and effective supply of electricity within the boundaries of the area, and prevent possible damage to the environment and historical and cultural monuments. Information of a technical and financial nature must also be provided. All power projects and production, technological processes and services, facilities and devices connected with or related to the use of energy resources and their production, transmission, and consumption, are subject to mandatory certification, i.e. confirmation that they comply with established ecological, sanitary, fire, construction, and health and safety standards. Additionally, major projects as defined in the Energy Resources Law require a feasibility study by the state commission created for such purposes. Existing Azerbaijani legislation provides that consumers have the right to choose any energy supplier regardless of its location. Energy is supplied under agreements between consumers and energy suppliers. Agreements on the sale and purchase, transportation and exchange of electricity and heat must comply with the Rules on the Use of Electricity and Heat. Energy consumption is subject to mandatory metering. The procedure for disconnecting consumers from the network or termination of power supply is regulated by the Rules on the Use of Electricity and Heat as well as by agreements with consumers. The suspension of a power supply or the disconnection of some consumers is prohibited. The list of such consumers is determined by an authorised state agency. Agriculture Production of Azerbaijani a/c Years19961997199819992000200120022003200420052006Production, mln USD9038248849461060117912701400150618812202Increase, %26.6-8.87.27.012.111.27.710.24.67.59.3 Azerbaijan is one of the world's oldest agricultural centers. The country's climatic diversity allows a very broad range of crops to be cultivated. At the moment agriculture accounts for approximately 12% of domestic product. The sector is growing rapidly. The annual average growth since 2000 in the sector has been 9.7 %, i.e. one of the highest sustained growth rates registered. Agriculture and related sectors are the principle employers in the country. The reforms in the agricultural sector of the economy continue, and despite substantial decline in the early years of transition, agriculture in Azerbaijan is now firmly on the way to rehabilitation and growth. Following almost full denationalisation of the sector (at the moment circa 99% of the sector is in private ownership) a number of steps were taken by the government to support the farmers as well as producers of processed a/c products. In addition to meeting most of domestic demand with high quality products, the country's agricultural producers are traditional suppliers to a number of large regional markets. The most substantial one is the market of the former Soviet Union (including Russia). Azerbaijani fruits, vegetables, wines and brandy are the trademark of Azerbaijan in the region. Apart from food products Azerbaijan is also traditionally strong in cultivating such non food crops and products as cotton, silk and tobacco. The sector has already exceeded the best outputs of soviet times for a number of products, such as fresh fruits and vegetables, cattle and poultry. Azerbaijan is strong in such items as wine and brandy production, tea, tobacco and hazelnuts. Substantial business opportunities are now opening up in the agriculture of Azerbaijan for a number of reasons. The Azerbaijan government has embarked on a very ambitious Programme of Regional Development. The Programme includes development of agriculture and food processing development as one of its key elements. It also includes rehabilitation of major infrastructure, promotion of exports, more effective management of businesses, rehabilitation of existing facilities and development of green-field projects. Along with traditional agricultural products, substantial opportunities exist in export oriented segments. It is definitely worth mentioning that the Government introduced tax holidays for the producers of a/c production that continues up to now. The measure has undoubtedly stimulated the growth in the sector. Please see ANNEX 6 for some statistics on major a/c products grown in Azerbaijan. 3.5 Food and Beverages The food processing industry in Azerbaijan consists of three main segments. These are meat processing, production of dairy products and processing and canning of fruits and vegetables. Food products are high on the Government's agenda for import substitution. Although this policy has been relatively successful, and food products are declining in prominence within Azerbaijan's imports, there are still significant opportunities in a number of areas. Several small businesses are engaged in processing of dairy products and a few medium and large companies undertake packaging and mass sales. There are twelve large meat processing plants in Azerbaijan, mostly in private hands. Forty-three plants are active in the canning industry, and although they were previously state-owned, most of them are also now private. In order to provide markets for local agricultural producers there is still a need for substantial rehabilitation and renovation of storage and processing facilities. Significant opportunities exist in export-oriented agricultural production and processing. Azerbaijan's pomegranate, feijoa and grape juices and its olives, hazelnuts and other produce are all competitive in international terms. Azerbaijani wine and brandy are traditional export products. The major markets include Russia, Ukraine and other countries of the region.  Telecom & IT Azerbaijani telecommunications is the second largest recipient of foreign investment after the oil industry. The first wave of liberalisation took place in the 1990s when a number of foreign investors entered the market. The largest FDI stock is in the mobile telephony, followed by a number of enterprises with the foreign capital in land lines operating companies, internet providers and cable TV companies. Foreign investors are represented by Turkish, Israeli, UK, Russian, US etc. capital. The sector now is on the verge of further restructuring. One of the major steps taken is continuing privatisation of the state shares in the telecom and IT enterprises. The Azerbaijani telecom market is expanding rapidly. It is one of the leading sectors contributing to the economy growth. 125 thousand land lines were installed in 2004 only which is above 10% growth. Number of mobile telephone subscribers exceeded 3 million in 2006 and continues to grow rapidly.  At present there are 14 telephone sets per 100 inhabitants. The similar indicator is 18.8 for urban areas and 3.8 for rural areas. There are about 850,000 Internet users in Azerbaijan with a network of service providers throughout the country. Further development of the telecom services is underpinned by the construction of Trans-Asia-Europe fiber-optic cable. It will give an impetus to introduction of new internet related services, international traffic etc.  There are three GSM mobile operators in the country: Bakcell, Azercell and Azerfon and Catel mobile operator with CDMA standards. New GSM operator Azerfon entered Azerbaijani mobile market in March 2007. By the end of 2006 the number of subscribers of Azercell reached 2,333,387. Coverage area of the network is 77% of Azerbaijan's territory. The capital investments made by Azercell since 1996 was 546 mln USD. All the above as well as the developing legal framework aimed at liberalisation of the market undoubtedly provides for substantial business opportunities for foreign companies with technologies and skills. Under the Communications Law, the state has exclusive ownership of all radio frequencies. The State Radio Frequencies Commission is authorised to issue radio frequency use permits to telecommunications businesses. This Commission also prescribes the rules and procedures for obtaining such permits and for operating at various frequencies. The Communications Law also recognises the right of foreign individuals and legal entities to own and operate networks and devices in Azerbaijan. Such devices must be jointly certified by the Ministry of Informational Technologies and Communications and the Azerbaijan State Standards Agency and their subordinate bodies, as well as accredited test laboratories. Foreign capital inflow into the telecommunications industry has evolved primarily in the form of joint ventures with the entities subordinate to the Ministry of Communications, which acts both as the ultimate partner and supervising authority. Such joint ventures are engaged in the production of telecommunications equipment and the operation of telecommunications facilities. However, under the Presidential Instructive Order On the Privatisation of Certain Enterprises and Facilities of the Ministry of and Communications of the Republic of Azerbaijan, dated 29 March 2001, the Government announced its intention to privatize the state-owned share of joint ventures in which the Ministry of Communications and its subordinate enterprises and institutions have participated. Construction Legislation Pursuant to the Presidential Decree On Measures to Eliminate Monopoly and Privatise the Construction Sector, dated 2 December 1997, the state monopoly in the construction sector has been eliminated, and private persons may now engage in construction activities. The above measures along with overall economic development led to a booming real estate market. A number of local and foreign developers are active in the field. The hot spot of the market is undoubtedly capital Baku city. The 2004 growth in construction sector of 37% is largely attributed to the increasing opportunities on this market. It is increasingly competitive though there are certainly opportunities for newcomers in luxury apartments, guest houses management and international sales areas. The main laws regulating construction are the Law On the Basics of City Construction dated 11 June 1999, and the Civil Code. Other legislation regulating construction includes: legislative acts of a general nature such as property, land, safety, environmental protection, fire and sanitary regulations; construction rules, norms and standards; and legislative acts regulating specific sectors where structures or facilities are constructed. The construction rules and standards of the USSR (GOST and SNIP) are still effective in Azerbaijan. According to Presidential Decree dated August 31, 2007 toughening government control over the countrys construction sectorMinistry of Emergency situations ensures government control over all stages of construction activities across the country, andstops construction of the public and residential buildings unless the construction regulations in force are observed. The Decree also gives relevant instructions to the Ministry of Labor and Social Protection of Population, the Ministry of Taxes and State Committee for Town-planning and Architecture. As for the law On the Basics of City Construction foreigners and foreign legal entities may engage in construction works in Azerbaijan only in conjunction with Azerbaijani nationals or legal entities. Azerbaijan is a booming construction market. There are several reasons behind the rapid development of the business in Azerbaijan in the last few years. The major one is the large capital investment in local infrastructure related to oil and gas projects. As a result this business area has evolved into a very competitive sector with a number of strong companies able to deliver the highest international standards in construction. The sector is growing year by year. Substantial increases in business and residential construction have been registered since the late 1990s in response to the growth of both commercial and household purchasing power. With the grown of demand for better living conditions the real estate prices in Azerbaijan are increasing on yearly basis (see chart). The construction industry has been undergoing a large further development. Since 2004 the trend changed in favour of residential development. Because the income of the population is growing with the state and industry development, the demand for new construction has been increasing. Therefore, it is highly likely that the proportion of residential construction will increase substantially as a result of increasing income of population. However, the construction growth is also observed in agricultural, transport and industrial sectors, which are the results of positive economical reforms and target programs carried out by the Azerbaijan government, for developing the non-oil sectors. During the 1st six months of 2006, in total 1358 authorisations were given for construction of production and non-production buildings & units. The construction sector is a major employer. Average number of workers in the construction sector As market research in the field shows, there are currently significant opportunities to introduce state-of-the-art construction technology in Azerbaijan, as well as in architectural and engineering services, the production of construction materials and so on. Textile & cotton Azerbaijan has a long tradition of production, spinning and weaving of cotton and silk. Industrial weaving started in the late 19th century. Further industrialisation of Azerbaijan in the 20th century stimulated rapid development of light industries including textiles. The main raw materials for the domestic textile industry are cotton, wool, silk cocoons, leather and synthetic fibre. They are produced locally in abundance. After a period of crisis in the mid 1990s, cotton cultivation has increased. The sown area for cotton rose by almost 10% between 2002 and 2003, to reach 66800 hectares. Output rose by more than 23% over the same period, to 99500 tonnes. This indicator rapidly grew further to reach circa 130,000 tons of raw cotton in 2006. More than half of the increase was derived from higher productivity. The overall potential production of cotton in Azerbaijan is as much as 800000 tons from approximately 280000 hectares. This level was achieved in mid 1980s with massive capital investment by the Soviet government. Other raw materials that are also important for the weaving industry of Azerbaijan are wool and silk cocoons. In 2006, the local sheep stock reached circa 8 million, and approximately 13600 tons of wool was produced. There is a potential to produce over 9,000 tons of silk cocoons annually by increasing the area of mulberry plantations to 25000 hectares. Normally, 1 kg of silk cloth is produced from 3.5 kg of local cocoon (the Japanese standard is 1 kg of silk per 2.8 kg of cocoon). So the potential of the local silk industry is 2600 tons or about 18 million m2 of silk cloth (1 kg - 5-7 m2). There are also opportunities for leather production and processing in Azerbaijan as livestock-breeding has been growing rapidly for the last few years. Markets for Azerbaijan's textiles, in addition to the local market, include Russia, Central Asia and Iran. No export duty is payable on such products. Textile products exported to the EU are free of quotas and permits, and only the import customs duty is payable. Products of Azerbaijan origin attract import duties significantly lower than those from other countries. Undoubted comparative advantages of the textile industry in Azerbaijan are: - Cheap labour and low production costs; Strong historical traditions in weaving; Local raw materials; Favorable location. Direct access to Central Asia and the Caspian Sea region. Proximity to large potential markets; The opportunity to locate production in small and middle-sized towns of the country; Opportunities arising from privatisation of state owned textile plants. Transport & logistics Azerbaijan has a relatively developed transport infrastructure. It includes 25000 km of roads, over 2000 km of railroads, and 3 international airports, including the largest one in the region, as well as several regional airports. It also has the largest Caspian port. The challenges for Azerbaijan include both upgrading of existing infrastructure, some of which was poorly maintained in 1990s, and construction of new infrastructure to reinforce its status as a transit point for goods from Central Asia to Europe. All segments of Azerbaijan's transport industry are experiencing rapid growth. Shipping, for example, has enjoyed an average annual growth rate of almost 20% since the mid-1990s. Aviation is one of the leading segments, with a cumulative investment exceeding 200 mln USD in recent years. Rails transportation is growing at a similar pace, largely due to ever-increasing volumes of goods in transit across the country. Pipeline transport of oil and gas is also expected to grow rapidly over the next few years as large-scale oil projects come on stream. The transport sector in Azerbaijan, comprising railway, aviation, roads and maritime shipping, amounts for about 10% of domestic output. Azerbaijan has taken significant steps to implement structural reforms in the transport sector and has implemented significant improvements in rehabilitation and construction of roads, railways, and other infrastructural installations. In June 2003 the Ministry of Transport's functions and duties were radically amended to achieve a clear differentiation between transport policy and transport operation. This was a significant step towards modernising the transport sector in Azerbaijan. Total goods transported (1995-2006) 1995199819992000200120022003200420052006Tons115282833829299380 18092 64898 445 110 001 117 313 128 328  145 078Dynamics %-25.7-7.211.58.615.56.211.76.69.313.0 Particular attention is being paid to the role of multi-modal transport to serve the needs of Euro-Asian logistics. This involves the establishment of a favorable transit environment, delivering smooth transportation of goods and passengers across the region. Azerbaijan stresses the importance of developing efficient Euro-Asian trading links as a means of increasing prosperity and improving the living standards of the people of all countries involved. All this helps Azerbaijan in its effort to integrate into the global economy. The Government of Azerbaijan together with the private sector is actively involved in the cooperation with international donor agencies and investors in transport. Such institutions as the World Bank, EBRD, EU-TACIS and ADB are active both in the country and in the region. Azerbaijan strongly supports regional transport initiatives and promotes international transit transportation. Its infrastructure projects include the construction and rehabilitation of railways, highways, ports, and airports. The European Union (EU) sponsors development of the transport sector through both TRACECA and national projects. The EU goals include linking the East-West transport corridor to the Trans-European Networks. The European Bank for Reconstruction and Development (EBRD) is investing in capital projects in ports, railways, and roads, including involvement with TRACECA. Private investors are currently investigating opportunities for an international logistics centre close to Baku, with access to rail, road and water transportation. The interational logistics centre will become the primary hub for transport and industry. Investments in the transport sector are welcome in Azerbaijan and the country offers a variety of Public Private Partnership (PPP) investment models. Tourism & hotel management Azerbaijan is aiming at promoting itself as a new tourist destination as opposed to traditional "tourist" countries. It just recently re-entered the maps of global tour operators. Though a comparatively new this business in Azerbaijan proved to be particularly successful. This is mainly due to substantial natural potential of Azerbaijan in respect of tourism development. The natural attractions include: rare climatic and terrain diversity, mountains and warm sea, medicinal hot springs, mud volcanoes and natural gas flames areas. The history of Azerbaijan and the monuments of few civilisations and religions add up to the above. The oldest Early Christian church, the only operating Fire-worshippers Temple in the world, medieval castles scattered all over the country, Old City of Baku and Maiden Tower are located here. Baku has the best developed infrastructure in the region with modern hotels, resorts, international and traditional cuisine, convenient air links to Europe and Asia etc. The positive impact on the development of tourism in Azerbaijan was made by the years of political stability and economic development in the last decade. The sector received a further stimulus after establishment of the Ministry with the portfolio which includes tourism. Consistently grows the number of businesses engaged in tourism industry in Azerbaijan. Measures by the government play key role in sector's development: After implementation of steps stipulated in the Decree "On Tourism" (June 4, 1999) the number of inward tourists increased significantly. As number of tourists visited Azerbaijan in 2002 was three and a half times the number of tourists that visited in 2001. Total number of visitors to the country is increasing year by year. 200020022003200420052006 Number of visitors 681,000 793,345 1,066,290 1,197,000  1,261,686 1,258,578 Business visits account for the majority of trips to Azerbaijan at the moment (the so called business tourism). Simultaneously, there is at the same time substantial growth in the outward tourism as well. Opportunities exist for the development of regional tours (the so called Silk Way Tours in countries of the Central Asia & Caucasus). A number of internationals such as Hyatt, Radisson and Park Inn already have operations in Azerbaijan. Obviously, the potential for development is very high bearing in mind the natural and historical attractions of the country. The country's main wealth is its diversity. There are 9 climatic zones present with a number of tourist attractions such as sea and mountain resorts, mineral and medicinal waters and clays, unique Naftalan therapeutic oil, fascinating sceneries etc. The capital and the countryside are rich in historical monuments, religious shrines of ancient and medieval times. Azerbaijani cuisine and rich flavored wines as well as the widely known Caucasian hospitality of the people are the brand of the Republic of Azerbaijan. The tourism industry, including hotels, resorts, restaurants aimed at the domestic consumer is on the verge of a boom following the rapid growth of population's purchase power. Financial sector: banks, insurance & leasing The Financial Sector is one of the most dynamic and investment-attractivesegments of the economy and hold a key position within the rapid development process in the country,.This sector has a great potential, and with the recent application of modern technologies, it already offers high quality services meeting international standards. The positive outlook of the financial sector has roused increasing interest of investors, in particular, International Financial Institutions (International Finance Corporation, European Bank for Reconstruction and Development etc.) and resulted in the inflow of foreign capital. It is beyond any doubt that the banking system is at the center of the financial sector. At present, the role and position of banks in the countrys economy is strengthening, their resource base is developing and creditors and investors have more trust in the banking system. The countrys banking system consists of the National Bank of Azerbaijan (NBA) with functions of the central bank as well as commercial banks dealing with commercial activity and other non-bank credit organisations . The NBA carries out such functions as determination and implementation of monetary policy, regulation of the cash money turnover, monitoring the payment system as well as licensing of commercial banks and control over their activities. As a state regulator in the field of regulation of the banking system, the NBA achieved stability in the field of organisation of an effective bank control system, and the promotion and application of reforms. Over the past 5 years the following progress has been achieved. Legislative base of banking activity has been improved and it fully meets international standards. Advanced international experience and new banking legislature meeting requirements of Basel Committee came into force. This is very important for the protection of the interests of depositors, creditors and investors, along with forming the new legal base meeting international standards for banking activity. Rapid growth rate in the banking sector goes on. The favourable macroeconomic situation and implemented reforms accelerated the development of the banking system and supported the strengthening of the mediation role of banks. In the last 3 years all parameters of the banking system have grown 2 times. In 2006 alone, growth in actives of the banking system was 68%, in credits to real sector 64%, and in capital 55%. The comparison of bank actives to GDB increased from 19% at the beginning of year to 21% (according to non-oil GDP from 37% to 47%, capital GDP comparison from 2,8% to 3% (in comparison to non-oil GDP from 5,6% to 6,5%), and the comparison of credits to real sector to GDP from 11,8% to 13,0% (in comparison with non-oil GDP from 23,1% to 28,3%). In 2006, competition between market participants in all directions of banking became stronger, quality and security of banking services increased, and a group of leading banks was formed. As of the volume of actives banks consistuent to the group of 14 banks (excluding IBAR) having developed by high level of banking system strengthened their place in market. Increase of competition also affected the activity of banks in regions: credits increased by 66,4%, deposits by 75,6%. Increase of competition in bank services market also affected to the strengthening of banks places with foreign capital in retail bank services. During the year number of banks with foreign capital reached 21 (at the beginning of year it was 18). At the end of year share of these banks in deposits of natural persons was 28,7%, in credit portfolio of system 23,5%. As a result of improvement of competition environment during the year on allocation of banking services geographically (5 bank branches and 14 ATMs per 1000 sq km) and demographically (5 bank branches and 13 ATMs per 100.000 person) Azerbaijan surpassed such developing countries as Iran, Russia, Lithuania, Georgia and other post-soviet countries. In general, the index of Azerbaijan on allocation of financial services geographically is above median level calculated among 98 countries (according to the number of branches 4.8, on the number of ATMs 10.1). The amount of credits (deposits) in comparison with GDP per capita (accordingly on credits 8,87 and on deposits 1,13) in Azerbaijan is higher than in abovementioned countries as well as in other developing (Turkey, Bulgaria, etc.) and some European countries (Denmark, Italy, Spain, Austria, etc.). This index is quite higher of median level calculated among 44 countries (accordingly 3,75 and 0,66). Duties of banking system. One of the sources for the increase of the bank systems resource base is funds attracted from legal entities: the amount of funds attracted from companies and organisations increased by 59,5%. (???) deposits which is another source of increase of bank systems resource base increased by 65,7% and by January 1, 2007 amounted 819,5 mln. AZN. The increase in amount of populations deposits connected with not only increase of populations income, but also with widening of banks network, high quality and range of banking services. Actives of banking system. In 2006 bank actives increased by 67,8% and by January 1, 2007 amounted 3778 mln. AZN. The amount of credits to non-financial sector increased by 64% and amounted 2298 mln. AZN. As a result the share of operations in structure of banks actives increased from 56% to 60%. The volume of operations on crediting of real sector increased by all banks. One of the factors of positive dynamics in crediting of non-financial sector is high level of demand for credit resources of companies and organisations, as well as, widening of credit resources. The other important inclinations in 2006 was rapid development of credit market long-time segment. As for the time structure of credits to non-financial sector it is essential to note the increase of long-term credits share. Thus, the volume of credits with payment period more than 1 year increased by 2,3 times and reached 52,3% of all credits. The increase of long-term credits shows the strenghtening of realisation of investment potential and capitalisation of non-oil sector by bank sector. Capital of banking system. By 01.01.2007 total capital of banking system having increased by 55,4% amounted 524,1 mln. AZN which was due to the increase of I grade capital. So, I grade capital increased 56,3% and amounted 420,5 mln. AZN which is 81% of total capital increase. Another positive result in 2006 was additional income from emission of banks stocks. In general, the number of banks with capital more than 10 mln. AZN icreased from 8 to 11. The same figure on total capital since January 1, 2007 remains on 18,7%. Healthy competition environment among banks as well as financial sustainability of banks has been strengthened. Regular increase and consolidation of capital of banks contributed to enlargement and stability of the banking activity and at the same time offered an opportunity to mitigate risks. By 01.01.2007 total capital of banking system having increased by 55,4% amounted 524,1 mln. AZN which was due to the increase of I grade capital. So, I grade capital increased 56,3% and amounted 420,5 mln. AZN which is 81% of total capital increase. Another positive result in 2006 was additional income from emission of banks stocks. In general, the number of banks with capital more than 10 mln. AZN icreased from 8 to 11. The same figure on total capital since January 1, 2007 remains on 18,7%. Development of Bank infrastructure. The works on improvement of bank infrastructure were continued in 2006. Card Processing Centre MilliKart (National Card) has been certified by international card organisations, works on devolution of the centre to management of banks has been completed. The newly accepted law On Insurance of deposits at the end of 2006 prepared by National Bank will increase the trust of population in banking system and as a result increase stability level of financial system. In 2007 measures on institutionalisation of Mortgage Fund will be implemented. One of significant components of financial stability guarantee is safe and efficient functioning of payment system. In order to standardize control of payment infrastructure on the basis of international experience Metodology of payment systems activity control based on principles of payment systems control of International Accounting Bank was prepared and is being introduced. Within activity against dirty money-laundering and financing of terrorism preliminary normative base was created, special reporting system in bank operations was improved. This activity of National Bank was estimated by World Bank mission and was accepted appropriate to international FATF principles (40+8). Due to the development of banking system in 2006 implemented institutional and infrastructural measures increased attractiveness of banking system for foreign investors and 3 banks received foreign investments. The most important event in banking system in 2006 was acceptance of the law On Mortgage prepared by National Bank. In order to attract local and foreign investors to mortgage lending according to the degree of the President of The Republic of Azerbaijan dated 16.09.2005 On establishment of mortgage credit system in The Republic of Azerbaijan Azerbaijani Mortgage Fund within National Bank of The Republic of Azerbaijan was established and began its activity. Reforms in banking system. In 2006 measures in banking sector was implemented according to main directions determined by Programme on Strategical Development of National Bank of Azerbaijan (2005-2007 years). Continued capitalisation and consolidation had positive affect to the strenghtening of financial potential of banks, increase of range and quality of bank operations and services, effectiveness of finalcial mediation function and trust depositors and creditors in banking system. Increase of banks total capital accelerated the process of banks stock capital increase. Increase of rationality on corporate governance standards introduction in banks was one of the main terms in the stable development of banking system in 2006. As a result of implemented measures in this area the introduction of corporate governance strandards wwas brought to acceptable level in 20 focus group banks. During the report year the process of transition to International Standards on Financial Reporting (ISFR) has been completed. Creation of healthy competition environment in banking system was one of the priorities. According to Presidential degree On aditional measures in connection with deepening reforms in financial-banking system in Azerbaijan Respublic dated on 01.03.2005 in order to accelerate privatisation process of state banks measures on sanitation of their actives, strenghtening of financial status and additional capitalisation were held. In 2006 National Bank completed works on adjustment of normative and legal base of banking control and institutional structure to Main principles of effective bank control of Basel Committee on Banking control and Basel-1 capital agreement. With the purpose of increase to transparency in the banking activity and strengthening market discipline, extra emphasis is placed on application of corporate governance standards and transition to International Financial Accounting Standards. Azerbaijani manat is stable for several consecutive years now. There was a trend of slight appreciation of AZM to the US dollar in 2004. The exchange rate policy is based on two factors: stable currency and favorable conditions for external trade. The Government's debt level is low with total public debt at 1.9 bln USD. Bulk of this amount is owed to IMF and WB on the soft loans terms. Licensing. All banking activities, including the acceptance of deposits, maintenance of correspondent accounts, cash operations, money transfers and lending, are subject to licensing. Only the NBA has the right to grant licenses for banking activity. Standards for Domestic Banks. The Management Board of the NBA establishes standard prudential requirements (including minimum capital and monetary and non-monetary rations of a banks capital) and reserve fund requirements. Senior management of all banks (the chairman of the board and his/her deputies, the chief accountant, the head and chief accountant of branches) are subject to certain compulsory standards and are certified by the NBA, which certifies all persons authorized to sign documents in the name of a bank and its branches. Banks are restricted from engaging directly in insurance, commercial and manufacturing activities. Banks with Foreign Participation. Foreign banks may operate representative offices, branches, joint ventures, and wholly owned subsidiaries in Azerbaijan. Representative offices may not obtain a banking license. Foreign individuals and foreign entities which are not banks may set up, operate, and acquire shares in banks in Azerbaijan. Azerbaijani law does not define the term bank with foreign participation so this term should be broadly construed to embrace virtually all banks with foreign capital, regardless of the extent of foreign ownership. Banks with foreign participation are subject to the same restrictions as domestic banks, as well as certain additional restrictions. For example, general managers and their deputies of banks with foreign participation (or their branches) must be citizens of the Republic of Azerbaijan Insurance Insurance market is one of the most dynamic sectors of the Azerbaijani financial market. Although insurance market is on the first stage of its development, according to analysis of financial indicators it could be said that growth and development direction of the market by and large is on a right path. There are two public organisations in the field: The Union of Azerbaijani Insurers and Union of Insurance Societies of Azerbaijan. Activities are directly contributing to the insurance market development and reinforcement of the companies. Seven insurance majors are also the members of the Insurance Council established by the Ministry of Finance of Azerbaijan. A number of internationals are also involved in local insurance market either directly or through local companies. It should be noted that since 1993 Azerbaijan is a associate member of international system of automobile owners liability insurance - 'Green Card' and cargo transporters' liability insurance 'TIR Carnet'. Currently work on fulfillment of normative requirements for completing Azerbaijan's full membership is conducted. There are 35 types of insurance products on the Azerbaijani insurance market. 9 of them are mandatory insurance and 26 are voluntary insurance products. Below is the list of products as per the segment of market they occupy: 1. Motor vehicle insurance (automobile) 5. Third parties liability insurance 2. Property insurance 6. Health insurance 3. Cargo insurance 7. Life insurance 4. Accident insurance 8. Financial risks insurance During the last five years legal framework operation of the market has been re-established. In particular the Law On Insurance, On mandatory Insurance of Motor Vehicle Owner's Liability, Law On Mandatory Fire Insurance of Property, Law On Mandatory Ecological Insurance etc. were adopted. Periodic increase to the minimum charter capital of insurance companies is aimed at consolidation of the market. As of beginning of 2007 joint charter capital of Azerbaijani insurance companies increased to 41.41 mln AZN. Share of Azerbaijani capital in this figure is 88% the rest is foreign capital. Currently there are 29 insurers, 7 of them are joint ventures, 6 of them are with foreign investment. Capital market The securities market in Azerbaijan is regulated by provisions of the Civil Code and a number of presidential decrees, resolutions of the Cabinet of Ministers, and acts of the State Committee for Securities. The State Committee for Securities, created at the end of 1998, is authorized to regulate activities on the securities market. Under the Civil Code, securities may be issued as registered or bearer securities or order papers. In addition, depending on the methods of placement, securities are of two types: Investment securities, which are placed through separate emissions and, regardless of the time of their acquisition, have equal rights thereunder within the respective emission, such as shares and bonds; Non-emissive securities are placed otherwise and have different rights, such as options, warrants, privatisation checks, futures, mortgage certificates, bills of lading, etc. There are two forms of securities: Documentary, in which the rights of securities holders to the securities are established by a paper document or, in the case of depositing securities, by entries in a deposit account. The specific requirements for the certificates are determined by the State Committee for Securities; and Non-documentary, where the rights of the securities holders to the securities are evidenced by the entries made in the shareholder register or by the entries made in a deposit account. Disclosure Requirements The Civil Code imposes different reporting and disclosure requirements depending on the nature of the placement, with more extensive requirements being imposed on an open JSC. Regardless of the type of securities placement, the issuer must present a report to the State Committee for Securities on the results of the issuance and placement of the emissive securities not later than 30 days after completing the placement. An issuer who has announced a public placement must publish the balance sheet and the report on the results of its business in the mass media annually. The acquisition of a certain percentage of the shares of the issuer by affiliated persons may be regulated by anti-monopoly legislation. Stock Exchanges A stock exchange may only be formed as a closed JSC, and must obtain a license from the State Committee for Securities to operate. The Baku Stock Exchange was established by the State Committee for Securities at the end of December 1999. Shareholders of the exchange include banks and investment companies. Baku Stock Exchange (BSE) entered 2006 with new opportunities to develop domestic capital market together with shareholders and partners. At present, Baku Stock Exchange is engaged in trade, depository, clearing, information and consulting activities. Stocks, corporate bonds, T-bills, notes and repo financial instruments are traded at Baku Stock Exchange. Trading floor of Baku Stock Exchange has 30 broker workstations equipped by computers and communication means. Trading session is executed in real time regime by the means of Electronic Trading System of Baku Stock Exchange. Baku Stock Exchange holds the license to execute depository activity. Baku Stock Exchange does not charge fee for depository services provided for state securities. Baku Stock Exchange has the clearing account in National Bank and calculates liabilities of transaction participants during the trading session and by the result of trading session settles transactions. Baku Stock Exchange regularly and operatively refresh official web site  HYPERLINK "http://www.bse.az/"www.bse.az, which is available in 3 languages. Subscribers for analytical services of Baku Stock Exchange are provided with daily bulletins, regular analytical notes, monthly reviews and reports on different fields. Baku Stock Exchange experts hold regular meetings with potential issuers and Investors in order to find best solution for capital accumulation and management. Baku Stock Exchange is the member of the Federation of Euro Asian Stock Exchanges and other international organisations. For further information please contact Baku Stock Exchange at:  HYPERLINK "mailto:info@bse.az" info@bse.az Survey of BSE for January-December 2006 During January-December 2006 the total turnover of Baku Stock Exchange made AZN 1,388,496,544.39, exceeding similar indicator for 2005 by 2.68 times. The state and corporate sectors of securities totaled AZN 1.214,784,492.56 and AZN 173,712,051.83, respectively. In terms of percentage share ratio, the state and corporate sectors make 87.49% and 12.51%, respectively. During 12 months 2005 this ratio was 84.54% for the state sector and 15.46% for the corporate sector. The share of the corporate sector of securities in the exchanges total turnover for January-December 2006 reduced by 2.95 pct. against the same period of 2005. This reduction for the most part should be explained with an increase of the government securities turnover by 2.78 times. The trade volume in the corporate sector also increased compared to 2005 and made 2.17 times; however, it was less than the growth in the state sector. On the whole, the growth of exchange transactions was observed in all segments of the securities market excluding repo operations. In terms of share ratio significant changes in the volume of transactions occurred only in some segments Notes primary and secondary markets, repo operations market, primary market of corporate bonds, and primary markets of stocks and T-bills (Pictures 1 and 2). Meantime, the largest growth over the similar period compared to the preceding year was registered in the primary market of corporate bonds at a rate of 9-times increase. The average monthly growth of exchange turnover made 120.04% during 12 months of this year. The BSEs average daily turnover for January-December of this year made AZN 5,667,332.83, exceeding the same indicator for the last years relevant period by 2.75 times. Last year the average daily turnover indicator was AZN 2,061,756.07. Picture 1. The structure of exchange turnover for January-December 2006  EMBED Microsoft Office Excel Chart  Picture 2. The structure of exchange turnover for January-December 2005  Picture 3. Shares of the corporate and state sectors in the total turnover of the BSE for January-Decmber 2006  EMBED Microsoft Office Excel  Picture 4. Shares of the corporate and state sectors in the total turnover of the BSE for January-December 2005  EMBED Microsoft Office Excel  For January-December 2006 the primary market in the exchanges total turnover as well as in the same period of the last year formed the basic part of the gross turnover totaling in absolute expression AZN 1,118,688,029.70, which represents an increase of 3.15 times in this component compared to the same period of 2005. The volume of the secondary market in January-December 2006 also exceeded the same indicator for the 2005 same period by 4.29 times coming in absolute expression to AZN 148,293,811.77. Repo operations during the considered period reduced in comparison with the same period of 2005 by 4.49% making in absolute expression AZN 121,514,702.92. Since over the considered period the volumes of all market components excluding repo operations increased in comparison with the relevant period of 2005, it is obvious that the shares of these components in the total volume somewhat changed. That is, predominance of the primary market in the turnover in January-December 2005 continued in 2006 increasing by 11.84% to 80.57%. The share of repo transactions reduced by 15.83 % against the same period of 2005 and was 8.75%. The share of the secondary market in the total exchange turnover grew by 4.00 % in the period under review and made 10.68% outrunning the repo operations figure (Pictures 5 and 6). Picture 5. Shares of the primary and secondary markets in the total turnover of the BSE for January-December 2006  EMBED Microsoft Office Excel  Picture 6. Shares of the primary and secondary markets in the total turnover of the BSE for January-December 2005  EMBED Microsoft Office Excel  As noted above, in the considered period of this year the exchanges average daily turnovers increased by 2.75 times in comparison with the same period of 2005. The following graph represents the way they changed in months during all this period in 2006 and 2005 (Picture 7). It can be concluded from the graph that in 2006 for each month the average daily turnovers exceed the similar indicator for 2005 year at least by 1.7 times. Additionally, it should be noted that in 2006 certain alternation is observed in the growth and reduction of the average daily turnovers each month; in 2005 there was a stable growth trend starting from April to November. Moreover, the largest average daily turnover falling on November 2005 exceeded the smallest turnover of the considered period falling on February, 2006 only by 1.83%. Picture 7. Average daily turnover for January-December 2006 and 2005  EMBED Microsoft Office Excel Chart  It becomes more descriptive if to separate the exchanges average daily turnovers on government securities and corporate securities, which are illustrated in the following graphs (Pictures 8 and 9). Here it is possible to note certain identity in divergence of the average daily turnovers starting from January of both 2005 and 2006. For example, while the turnovers on government securities grow on a continuous basis both in 2006 and 2005 the turnovers on corporate securities do not exceed a certain marginal bar over the whole period (January-November). In 2006, it was about AZN 1 mln., and in 2005 AZN 0.5 mln. The only thing to note is that in December 2006 it exceeded this marginal bar by AZN 639 thousand, and in December 2005 by AZN 761 thousand. Moreover, analyzing the following diagrams it is possible to note that in December 2006, the divergence in the average daily turnovers between government securities and corporate securities slightly reduced as in the analogous month of the last year as a result of the growth of the turnover on government securities in December, as we noted above. In both cases it becomes clear that the volumes of government securities exceed the volumes of corporate securities. In December 2005, the difference in these indicators made 3.46 times, for the same month of 2006 the difference made 3.62 times. The similar divergence in the average daily turnovers between government securities and corporate securities is the evidence of that the state sector of the securities market is the most substantial part of the exchange market of the country. Picture 8. Average daily turnover of government and corporate securities, January-December 2006  EMBED Microsoft Office Excel  Picture 9. Average daily turnover of government and corporate securities, January-December 2005  EMBED Microsoft Office Excel Chart  Considering the aforecited conclusion that the government securities market is dominating sector in the securities market, lets view the list of the brokers, which provided their services, and the list of the dealers for the volume of operations they carried out in that segment. In December 2006, International Transaction Systems held the first place for the volume of brokerage services provided in the government securities market (except the repo transactions market) the company rendered brokerage services to 1 client in the total amount of AZN 48,238,695.82. The second was Standard Capital it provided brokerage services to 7 clients in the total amount of AZN 40,504,497.90, which is AZN 7.734,197.92 less than the indicator of the leading broker. Tekhnika Capital Management occupied the third place with AZN 36,637,959.98. In December 2006 the amount pretending to priority in the ranking of the brokers grew in comparison with the previous month. So, in November 2006 the leading amount of brokerage services provided made AZN 33,157,897.90. Moreover, in December 2006 the number of the brokers which provided services did not change 7 brokers. In December 2006 in the government securities market (excluding repo operations market) Koch Bank Azerbaijan headed ranking of the dealers with dealer operations in the total amount of AZN 24,224,629.92. The second leading dealer was AzerTurkBank which carried out dealer operations making AZN 7,072,857.32, being less by AZN 17.151,772.6 than the indicator of Koch Bank Azerbaijan. Bank of Baku held the third place in the ranking with AZN 7,034,738.88 of dealer operations. In December 2006 the amount pretending to precedence in the ranking of the dealers grew compared to the preceding month. So, in November the leading amount of dealer operations totaled AZN 18,130,353.70; in December this amount was by 1.34 times. Moreover, the number of the dealers acted in the market in December did not change 6 dealers. For further information please contact Mr. Chingiz M. Asadov, at:  HYPERLINK "mailto:asadovc@bse.az"asadovc@bse.az Overview of the regions Economic RegionsLankaranAranAbsheronGuba-KhachmazSheki-ZagatalaGanja-GazakhNakhchivanYuxari Garabagh & Kelbajar LachinDaglig ShirvanAdmin unitsAstara, Jalilabad, Lerik, Masalli, Yardimli, Lankaran districtsAgdash, Aghjabadi, Barda, Beylagan, Bilasuvar, Geokchay, Hajigabul, Imishly, Kurdamir, Neftchala, Saatli, Sabirabad, Salyan, Ujar, Zardab districts, Mingachevir, Yevlakh, Ali-Bayramli citiesSumgait city, Absheron, Khizi districtsDevechi, Khachmaz, Guba, Gusar and Siyazan districtsSheki, Zagatala, Gabala, Oguz, Gakh, BalakenGanja, Akstafa, Dashkesen Gedebey, Goranboy, Naftalan, Khanlar, Gazakh, Samukh, Shemkir, Tovuz districtsNakhchivan city, Julfa, Sharur, Ordubad, Babek, Shahbuz, Sadarak and Kangarli districtsAgdam, Terter, Khojavend, Khojali, Shusha, Jebrayil, Fuzuli. Including cities as Khankendi, Kelbajar, Lachin, Zangilan, Gubadli Agsu, Ismailli, Gobustan and ShamakhiTotal area 6.08 thousand sq km21.43 thousand sq km3.34 thousand sq km7.66 thousand sq km8.96 thousand sq km12.49 thousand sq km5.5 thousand sq km15.08 thousand sq km 6.06 thousand sq kmShare in countrys total area7%24.7%3.9%8.8%10.3%14.4%6.3%17.6% 6.9%Population800.2 thousand people1750.6 thousand people412.4 thousand people476.6 thousand people553.4 thousand people1142.6 thousand people 379.4 thousand people850.7 thousand people 273.1 thousand peopleShare in total population 9.3%20.5%4.8%5.5%6.4%13.3%4.4%9.9%3.2%Workforce387.8 thousand people948.4 thousand people171.9 thousand people268.3 thousand people303.4 thousand people650.9 thousand people203 thousand people 143.1 thousand peoplePopul. density p. per sq km131 8 1123 62 61 91 6856 45Key sectors of economya/c production manufacturing & agriculturemanufacturing and a/c production-a/c production & tourisma/c , tourismprocessing and manufacturing agriculture, a/c processinga/c, animal breeding, sheep breeding, beekeeping  Agriculture, food processing, industry Major productsfruits & vegetable, tea-citruses, growing, viticulturecotton, grain-growing, wine-making, arid subtropical fruit-growingolives, cattle breedingvegetables, fruits, graintobacco, silkworm, fruits, grain, viticulture, meat and dairy productionpotatoes, viticulture, grain, fruitstobacco, fruits grain, viticulture, silkworm breedingviticulture, grain fruits, tobacco  Agriculture, viticulture, vegetables, winemaking, fruits, animal husbandry 4.1 Overview of the Absheron Economic Region Absheron economic region is the largest contributor to countrys domestic production. It is situated very favorably on the territory of the strategic Absheron peninsula. Terrain consists of hills, sub-mountain plain and low mountains. Arid subtropical climate is typical. Another major factor is that Baku with 2.5 million population is located here. The region is rich with brick, lime, cement raw material, quartz and mason's sand reserves. Absheron peninsula is also rich with balneal resources. It is supplied with water by artificial channels from Samur and Kura rivers. Gas extraction and petroleum production, petrochemicals and chemicals, ferrous and non-ferrous metallurgy, energy, light and food industry, R&D are the dominant sectors in the economy of Absheron. Construction, transport and services are well developed too. Construction enterprises of the region produce glass, polymeric and other materials. Agriculture of Absheron is of suburban type and includes cattle and poultry, vegetables, wine-making, flowers and arid subtropical fruits cultivation. Climate of the district allows for growing of olives, saffron, pistachio and other produce. Infrastructure is well developed. All major railways and highways as well as sea and air connections pass through the region. Northern shores of the peninsula are a major health resort area with a number of popular beaches. 4.2 Overview of the Aran Economic Region Aran is centrally located in Azerbaijan. More than half of the territory of the district consists of a plain below sea level. Mainly arid subtropical climate is typical. The region is the traditional area of settlement of population. The main resources are oil, natural gas, iodide-bromine ore, construction materials. Abundant solar energy, water reserves of Kura and Araz rivers, large land resources are also among natural advantages of Aran. Manufacturing mainly conglomerates in the south-west (Ali-Bayramli, Salyan, Neftchala) and north-west (Mingechevir and Yevlakh). Chemicals, machinery, light industry and food processing, construction materials form the major portion of the economy of the district. There is a number of chemicals production plants in Mingechevir, Salyan and Neftchala. Ali-Bayramli and Salyan are heavy industry centres. Cotton weaving (Mingechevir), pre-processing of wool (Yevlakh), leather production (Ali- Bayramli), carpet weaving (Gazi Mammad) are the key sectors of the light manufacturing. Agriculture is mostly based on irrigated farming. Aran is situated on the vital transport routes (railways and highways). Major connections from Baku to Georgia, Iran and Turkey are passing through the territory of the district. Yevlakh-Baku air connection is operating. Alet-Astara four-strip highway is under construction. It is expected to accelerate economic growth and stimulate trade and services. There are great opportunities for organisation of various production including organic honey, tobacco, fruits, green tea, silk cocoon, juices, tinned goods, leather, asphalt covering, mineral waters, silk, furniture, woodworks, ferro-concrete materials and constructions, furnishings etc. 4.3 Overview of the Daglig Shirvan Economic Region Dagliq Shirvan economic region is situated in the central part of Azerbaijan. Shirvan plain occupies territory of Agsu, Ismayilli, Qobustan and Shamakhi administrative divisions. The terrain of the economic region splits into the plain and mountains. The climate of the region is very diverse. Mountainous part has moderately cold climate with plain being hot and dry. There are brick, bank stone, sand, loam, detritus and other construction materials deposits. The mountains are rich with mineral water springs some of them are thermal. Regions beautiful natural attractions, diverse climate, hot medicinal springs, wealth of local traditions in cuisine create favorable conditions for development of recreation and tourism businesses. Mountainous tourism can also be developed. There are also numerous trade, services and public health enterprises in the region. Dagliq Shirvan is specialising in viticulture, winemaking, animal husbandry. Main emphasis in animal husbandry is cattle breeding. Traditional handcrafting (carpets) is also popular. There are great opportunities in cultivation and processing of a number of products such as grape, grain, fruits and vegetables, meat, dairy products, organic honey, as well as various types of juice and other preserved food, construction materials, leather, asphalt, mineral waters, spinning and sewing consumer goods, confectionary, furnishings, woodworks etc. Opportunities within tourism industry should be emphasised. 4.4 Overview of the Ganja-Gazakh Economic Region Mild climate, beautiful natural attractions, mineral waters create favorable conditions for development of recreation and tourism business in this region. There are magnificent Goy-Gol and Hajikend resorts 1500 m above sea level. Naftalan is world famous for natural medicinal oil. Ganja-Gazakh is the second largest economic power in the country. The region gives 12-13% of the total output. Industry consists of processing and manufacturing. Metallurgy is largely located in Ganja and Dashkesan. Heavy manufacturing holds leading position. Other sectors are automotive, agricultural machinery services, telecom. Agricultural produce forms the supply base of the region's light industry. This region gives 13-14% agricultural production, 80-85% of potato, 28% of grape and 15% of animal husbandry of Azerbaijan. In Ganja and Gazakh the major sectors in agriculture are potato, viticulture, grain, gardening and fruits. Cotton is cultivated in Goranboy, Gazakh and Akstafa. Shemkir and Samukh are specializing in grape. Gedebey, Shemkir and Tovuz are leaders in potato and Goranboy is specializing in grain. Gardening, fruits and animal husbandry are also the rapidly growing segments of the local economy. 4.5 Overview of the Guba-Khachmaz Economic Region The region is located in the north east of the country and borders Russia in the north. It has long coastal line with the Caspian Sea. The main sectors of the regions economy are agriculture and manufacturing. Tinned fruits and vegetables production (Khachmaz, Guba), fish processing (Khudat), carpet weaving (Guba, Gusar, Khachmaz) are the regions specialties. Grain and dairy products constitute major products in Khachmaz and Devechi. Heavy industries are represented by oil and gas production (Siyazan), electronics plant (Guba), swarf processing (Khachmaz). Main resources of the region include oil, natural gas, shale oil, sand, gravel, clay. The region has dense river network and large water reserves. As the region is one of the significant sanatorium and-spa areas the recreation potential is substantial. Regionally famous Nabran recreation area is located here. Communication lines connecting Azerbaijan with Russian Federation pass through this region. 4.6 Overview of the Lankaran Economic Region Lankaran economic district is situated in South-East of Azerbaijan with territories of Yardimli and Lankaran administrative districts included. The economic district boarders Caspian Sea in the east, Iran in the west and south. Territory of the district consists of two major parts: Lankaran valley and Talish Mountains. The district stands out among other economic districts due to the fact that 7 climatic zones from overall 11 are present here. The region is rich in brick, bank stone, sand, loam, detritus and other construction materials. It also has plentiful thermal medicinal springs. The main natural resource of the district are forests along the flank of hills and fertile land. There are few unique and rare specimen of flora such as 'shumshad', 'damiragaj' (iron tree), oak with chestnut leaves and others. 26% of the district's area is covered with forests. Processing of the a/c products is one of the principal sectors of Lankarans economy. Humid subtropical climate, fertile lands, water and sufficient workforce amount for great opportunities to develop agriculture up to the mosty up to date standards. Priority is with vegetables, tea, citruses & fruits as well as winemaking. Baku-Astara railway and Baku-Astara highway parallel to the former are the major transport routes. The North-South Transport initiative that is expected to boost regional trade along Iran-Azerbaijan-Russia-Northern Europe route will pass through the region. It is possible to develop ecotourism, restaurant business, fitness & entertainment centres Mountainous tourism can also be developed. Bearing in mind that neighbouring Iran with 60 million population has no modern tourist resorts it is appropriate to develop all sectors of tourism locally. 4.7 Overview of the Nakhchivan Economic District Nakhchivan economic district consists of the territory of the Nakhchivan Autonomous Republic surrounded by Turkey, Iran and Armenia. The main trademark of Nakhichevan is its location on the historical trade routes connecting East and West. 32% of the territory is 600-1000 meters above sea level, 48% is above 2000 meters above sea level. Climate is continental and arid. The region has the autonomous status within Azerbaijan with a local government and parliament. Nakhichevan is rich in molybdenum, complex ore, rock salt, dolomite, marble, construction materials. Also there are more than 200 valuable mineral water springs such as Badamli, Sirab, Vaykhir and others. The key sector of the economy of the district is production and processing of farming produce. Famous sheep breed "Balbas" is the local specialty. Beekeeping is also developing. The transport system of the economic region allows freight through the territory of Iran, road connection with Turkey and via international Nakhchivan Airport. There are unique tourism attractions on the territory of the region such as Ilandag, Ashabulkef, Nahajir blister (volcanic) cones. 4.8 Overview of the Sheki-Zagatala Economic Region Sheki-Zagatala economic region is located on the South flank of the Great Caucasus, in the northwest part of Azerbaijan. This is one of the most beautiful parts of the country. The district borders with Russia in the north-east and Georgia in the north-west. Height varies from 100 m to 4,466 m (Bazarduzu peak) and the climate is diverse. Copper mines, 90% of sulfur-pyrites, 97% of lead, 99% of zinc are in this economic region. Filizchay ore considered to be a unique field in the Caucasus. It may boost metallurgy and chemical industry locally. There are also raw construction materials such as sand, gravel, stone, loam, etc. The key sector of the economy of the district is agriculture. Fertile land, abundance of water and workforce create great opportunities for development. Agriculture consists of tobacco, silkworm breeding, fruits, grain, viticulture, sheep breeding and dairy production. Light and food industries are dominant. Business opportunities in tourism should be noted in particular. Sheki and Zagatala are also major tourist attractions due to historical and natural attractions. 4.9 Yukhari Garabag and Kelbajar-Lachin Economic Regions Territories of Lachin, Kelbajar, Zangilan, Gubadli, Khojavend, Khojali, Shusha, Jebrayil and Khankendi are completely, territories of Agdam and Fuzuli are partially under armenian occupation. In both regions the key sector of economy is agriculture. Major sectors in agriculture are viticulture, grain growing, fruits and tobacco raising as well as as pastoral cattle breeding. Animal husbandry also develops in this economic region. Mineral resources include large deposits of precious metals (gold) and thermal springs, mercury, marble, building stone, copal, perlit. For further information please refer to the Secretariat of the State Programme on Regional Development at:  HYPERLINK "http://www.economy.gov.az/"www.economy.gov.az 5. General information 5.1 Living & Working in Azerbaijan Xosh Gelmishsiniz - welcome to Azerbaijan! Hospitality is one of the special talents of the people of Azerbaijan. Whoever travels to the South Caucasus - and especially to Azerbaijan - will leave deeply impressed by its hospitable people. Walk around anywhere in rural Azerbaijan and you will be immediately invited by a friendly family to have cay (tea) in their home. Of course, such an invitation is less likely when walking down the streets of modern boomtown Baku, but nevertheless the hospitable attitude of the Azerbaijani people can be felt everywhere. Therefore you will have no difficulties to feel welcome while being here. For most expatriates, living and working in Azerbaijan means living and working in Baku and Absheron (the peninsula on which the two biggest cities of the country Baku and Sumgayit are located). The European look and feel of the modern city centre of Baku is quite a surprise to most visitors. But there is a lot of history to discover as the face of Baku has over the centuries been influenced by many different cultures. That is also why the city centre of Baku is a very unique mixture of ancient and modern architecture, ranging from 11th century Caravansarays (kind of combined motels cum marketplace for ancient trade caravans) to Belle Epoque Mansions build by Oil Barons in the 19th Century and the whole bouquet of Soviet Architecture. In some of the streets you will feel like in Paris, in others like in an old desert village on the Silk Road and in some corners like in Moscow or East-Berlin. However, despite almost 3 Million inhabitants, Baku has kept its cosy small town flair. This particular flair has however been recently distorted by the unprecedented construction boom which has taken over half the city. Standard twenty-storey office and apartment buildings are mushrooming everywhere and endanger the architectural heritage of the city. Prices for building material and real estate have skyrocketed in the last two years. When renting an apartment, you should expect prices comparable to other European capitals. The living standard for an expatriate in Azerbaijan has been improving steadily since the late nineties. Nowadays, you can get almost all mod cons from fitness centres to wholegrain bread. The infrastructure - especially on Absheron - has been substantially improved in recent years. Mobile telecommunication coverage has reached 95% of the country and wireless high speed internet access is available throughout the city of Baku. The national road system is currently under construction and considerable investments are also being made in the power and energy sector. Water and waste water infrastructure is planned to be upgraded in the near future as well. The many power cuts that were common until recently, are now history. Only in the rural regions can you sometimes still experience difficulties. There is a whole range of restaurants offering a feast of fresh and healthy dishes prepared with tasty greens, vegetables and of course meat from the foothills of the Caucasus as well as delicacies from the Caspian Sea like sturgeon and caviar. The available international cuisine ranges from Japanese, Malaysian, Chinese, Indian, German, English Pub Food, Georgian, Russian, Italian to Lebanese and many more. But you can also indulge in the wide variety of kebabs and local Plov (rice dishes). The Azeri cuisine is extremely rich and eating plays an important social role in everyday live. As a guest you will get invited more than once to a typical Azeri dinner or wedding, which will confront you with mountains of Lucullan treasures. Culture is an important ingredient of entertainment for the Bakuvites. A turn-of-the-century Opera house and a Philharmonic Concert House regularly host international and regional events. The Baku-Jazz-Festival has become an international event - featuring major international artists like Al Jarreau, Aziza Mustafazadeh, Herbie Hancock and many others. Baku is a relatively safe city. It has one of the lowest crime rates of all member countries of the Council of Europe. Walking around in Baku is therefore safer than in most other big cities in Western Europe. Of course, you should avoid unknown places after dark and not display a lot of cash openly in public. Dress code for men is long trousers at any time and temperature of the year, whereas women can wear any fashion without any problems. In Baku you will see mini-skirts next to traditional female dresses. Although English and other foreign languages are now studied by the younger generation, do not expect to get by without the knowledge of basic Azeri or Russian. The health care system is still undergoing complex reform efforts. Especially in the rural regions of Azerbaijan, medical services are very basic. In Baku, facilities with modern equipment and internationally trained doctors are available. Minor operations can be conducted according to European Standards in Baku. For complex and long term treatments, there is still a lack of capacity. German-Azerbaijan business relation date back over 200 years and have traditionally been friendly. The Siemens brothers were among the first international entrepreneurs that invested in Azerbaijan: first into the mining sector and later in Telegraphy and Electricity/Power generation. Today, the German industry is already active in many sectors, but wants to intensify the relations by supporting especially the non-oil sector. The non oil sector is playing a vital role for securing the sustainability of the wealth of the Azeri people in the future. The GermanAzerbaijan Business Association (DAWF) comprises nearly 70 German/Azerbaijani Companies and has over the past 8 years become the primary hub of business relations between the two countries. Among many other activities, the DAWF - organized extensive business networking events for the visit of President Aliyev to Berlin in February 2007 and will host a German-Azerbaijan Business Forum on the 19th of October 2007 within the framework of the planned visit of Federal Minister of Economy and Technology Michael Glos to Baku. The DAWF represents the German-Azerbaijani business community and is a comprehensive network for establishing and expanding any business activity in Azerbaijan. Personal contacts are a decisive success factor for doing business in Azerbaijan. Some unwritten DO's and DON'T's exist, which should be understood beforehand by talking to fellow business men, who have been around for some time. A steadily growing number of German companies contact the DAWF for support in establishing a co-operation with Azerbaijani companies or simply to become part of the German business network. The member companies come from a wide range of branches such as industrial services, finance, construction, communication, consulting, medical and pharmaceutical, logistics, machine building and the public sector. The DAWF provides support to the members and non-members by assisting them in the first steps, like analysing market potential, searching for business partners and looking for qualified employees. The DAWF also receives inquiries from Austria, Switzerland and other European Countries. The successful co-operation with the Ministry of Economic Development, the Azerbaijan Export and Investment Promotion Foundation (AZPROMO) and many other Ministries contribute to a professional exchange of information. The DAWF actively informs the business community in Germany about business opportunities in Azerbaijan. No matter whether you come to life and work in Azerbaijan or simply as a guest, you will enjoy many unique hospitable moments on an old by-road of the ancient Silk Road. In Azerbaijan, you can traverse cultures from (Central) Asia to (Western) Europe within a couple of kilometers and from modern times of Globalisation to medieval and ancient times of history. Between the Caucasus and the Caspian you will encounter a young country opening up to the global economy, with the currently highest GDP growth rate in the world. You will find beautiful and diverse landscapes, wonderfully peculiar sights like mud volcanoes and candy-cane coloured mountains, and, most importantly, friendly, hospitable, open-minded and tolerant people keen on making your stay in Azerbaijan enjoyable. Xosh Gelmishsiniz! Florian Schroeder, German-Azerbaijani Business Association (DAWF), mail@dawf.com 5.2 Labour market One of the major comparative advantages for selecting Azerbaijan as a place to do business with is its competitive labour market. The total workforce in Azerbaijan accounts for approximately 4 million people. Below are some statistics figures on local labour in dynamic between 2002 and 2006: Labor Market: 2002 2003 2004 20052006Employed, thsd Average wage in AZN Registered unemployed 3,726.5 63.08 50,9633,747 76.61 54,3653,817 96.68 55,9453,850 117.9 56,3433,973 141,3 53,862 The literacy level of circa 98% and number of people with higher and professional education (exceeding 1.2 million) undoubtedly add up to the point of Azerbaijan being an extremely competitive employment market. Azerbaijani labour is multilingual. Apart from Azerbaijani one can expect a local employee to speak Russian and Turkish. Azerbaijan is also one of the most successful examples of how English is spreading in the working environment. English is slowly but surely becoming the office language at least in Baku. There are 53.9 thousand officially registered unemployed with apparently more unemployment being unregistered by statistic authorities. 5.3. Visas & Work Permits In order to enter Azerbaijan a foreigner normally should obtain a visa. There are few categories of nationals with different visa regime. CIS country nationals (apart from Turkmenistan) do not require a visa. In order to enter Azerbaijan they need to present at the border a valid passport. All the other nationals will need a visa. Visas are obtainable at the Azerbaijani Embassies and Consulates abroad (see the list of Azerbaijani Embassies abroad further in this publication). There is a back up mode of obtaining a visa at Baku Heydar Aliyev International airport for EU, North American and certain other nationals. The visa one may obtain is short term and it is strongly recommended to have your visa issued in advance. The following documents are required in addition to payment of the duty: a) one copy of the completed visa application form (application forms may be photocopied); b) one passport-size photograph or a photocopy of the passport data. Single entry visas are normally valid for three days to three months period. Multiple entry visas are normally up to one year with unlimited number of entries. If the visa has not been used within the period of validity stated it becomes invalid. A return visa might be given to foreigners who have a personal passport if they apply for it when leaving the Republic of Azerbaijan to return for a period of up to one month. This visa becomes invalid if not used within six months from the date of exit from the Republic of Azerbaijan. A single or multiple transit visa is granted to foreigners going to other countries but passing through the territory of the Republic of Azerbaijan. If the transit visa has no notes or seals about non-stop passage, the bearer has the right to stay in the Republic of Azerbaijan for no longer than five days. Foreigners wishing to prolong their visas in order to stay longer in the Republic of Azerbaijan, must do so in advance, before the expiration of the period indicated in their current visa. The following documents must be submitted to obtain a visa from the Consular Department of the Ministry of Foreign Affairs of the Republic of Azerbaijan in Baku: - one copy of the completed visa application form (application forms may be photocopied); - original passport or re-entry permit (no copies accepted); - one passport-size photograph attached to the application form; - receipt for the payment of duty; - a letter of invitation from the receiving Party A foreign citizen wishing to stay in Azerbaijan for more than a month should register with the local police authority at the place of residence. Please see Annex 9 for consular fees payable for Azerbaijani visas. Who needs work permits and how to obtain it. A foreign national who comes to Azerbaijan with intention to work here, have to obtain a work permit. The permits are issued by the Ministry of Labor and Social Protection. Work permits are issued for one year period. The term of validity can be extended for another year, but no more than 4 times in a row. The following categories of foreign nationals do not require work permits: - Permanent residents, entrepreneurs, management of companies established through international agreements, staff of diplomatic missions, staff of international organisations, businessmen (no more than for 3 month period), persons employed by relevant executive authorities, persons engaged in religious activities provided by religious organisations registered by the Government, accredited staff of mass media, sailors, sportsmen and artists, researchers and professors at the universities. The following documents must be submitted to obtain a work permit from the Ministry of Labor and Social Protection of Population (MLSPP): - Application (can be received from the MLSPP); - Copy of the license issued to the Employer; - Copy of the document verifying that foreign employee is able to undertake activities envisaged in the work contract. 5.4 Business etiquette Appointment and Meetings Arrange appointments in advance. Try to do so via telephone and confirm it with a letter or an e-mail. It is a very good idea to call on the day or the day before to check that it is still convenient. Local business people only take very seriously those appointments that are reconfirmed. The dynamics of business life means that people at senior level tend to change their schedule at short notice. Although Azeris do not practice time keeping and punctuality perfectly, they will expect you to do so. If you do arrive on time it is not uncommon for you to be left waiting while a previous meeting is wrapped up or a telephone conversation is taking place. You may have to wait but you will almost certainly have the meeting. So try to leave plenty of time between meetings to allow for slippage. A shock to many visitors is how long it takes to move around the city. Baku is quite compact and the centre in particular is well suited to walking although the sidewalks, steps and pedestrian areas are not very well paved and one needs to look where you are walking. But in a car, traveling in and around Baku is an increasingly time consuming and frustrating activity. The number of SUVs, cars and buses on the citys streets is rising at an alarming rate. The citys streets are narrow, not well surfaced generally, and there is no provision made for off-street parking. Finding a place to park can be a real challenge. In addition, Baku is in the process of being rebuilt and construction activity is at every turn. Business visitors are advised to leave plenty of time to travel from one place to another. Baku drivers are also slightly erratic if compared with most western driving standards. Business hours are 9:00 a.m. to 1:00 p.m. and 2:00 p.m. to 6:00 p.m. Monday to Friday. Government departments and agencies usually work Saturdays too, at least until lunch time. Shops and restaurants are generally open seven days a week. The business community tends to work quite long and rather variable hours. Lunch can be taken as early as 12:00 pm (mainly by the oil sector) and as late as 3:00 p.m. Many managers work later than 6:00 p.m. Most Azeris eat early in the evening rather than late. Factors and events affecting the working routine Azerbaijan is a secular state but approximately 80% of Azerbaijanis follow Islam. Muslim prayer times impinge relatively little on the typical working day. However, during the Holy month of Ramazan (which changes every year) many Azerbaijanis fast from dawn to sunset and then break their fast immediately after sunset by having a meal [Iftar]. Managers need to be aware of this as it can affect the normal working routine and heighten staff eagerness to leave the office in time to have their first food (and drink) since before dawn. Fasting is growing in popularity each year, especially amongst young adults. A time to avoid traveling to Azerbaijan on business, or at least to check first, is during July and August since many Azerbaijani businesspeople take extended vacations to spend time with family in their holiday homes or, increasingly, abroad. Azerbaijan has many secular and Islamic holidays and one day of mourning. The 2007 calendar is: January 1, 2, 3, 4, 5 New Year January 20  Martyr s day (Day of Mourning) March 8  Women s day March 20-24 Novruz Bayram May 9 - Victory day May 28  Republic day June 15 - Salvation day June 26  Army day Oct 12, 13  Ramazan Bayram December 20, 21  Gurban Bayram December 31  Solidarity day Major holidays are December 31 to January 3 (incl.) to celebrate Solidarity of all Azerbaijanis and the international New Year, and Novruz Bayram over March 20-24 (Muslim New Year) in 2007. In addition to these Azerbaijan has one day of mourning on January 20 in remembrance of hundreds of Azerbaijanis massacred by Soviet troops in 1990. All businesses, shops and even TV and radio will be closed down or with somber programming for at least the first half of the day. (Warning: try not to offend anyone by referring to this day as a holiday) The Islamic holiday of Kurban Bayram (December 20-21 in 2007) falls on different dates each year due to the lunar cycle. This Islamic festival is a 'sacrifice festival.' Marking the end of the pilgrimage in Mecca, Saudi Arabia, it is based upon the Quranic story of Abraham's willingness to sacrifice his son for God. A day or so the festival you may see a sheep or a cow bought by families and tied up outside apartment blocks or living on balconies until the day arrives. The animal is then slaughtered and the meat distributed among the family, neighbours and the poor. The festival is more widely celebrated in the regions than in Baku, and in the outskirts of the city rather than the city centre.. Ramazan ends with the festival known as Ramazan Bayram. Families will visit each other and children will receive presents, sweets or money. Business communication Azerbaijan s official language is Azerbaijani (Azeri) and all state documentation is in the Azeri language. Russian is widely known and spoken but most official meetings will be conducted in Azeri. Many Azerbaijani businesspeople have a good command of English and the vast majority of young people speak English to some level, especially those who work in foreign companies. In general, the knowledge of the English language is proficient. Other international languages spoken include French, Italian and German, but more usually by those in businesses that are specifically oriented to a particular country. If you are unsure as to your counterpart's linguistic capability, it is may be worth investing in an interpreter so as not to appear to take it for granted that the person you are visiting will be able to communicate in your language or provide an interpreter. Remember to slow your speech down and to speak clearly. Always confirm meanings, conclusions and agreements. Rather than 'get straight down to business', engage in some small talk and always wait for the other to initiate the change in topic. At most meetings the person you are visiting will offer you tea or sometimes coffee. Often tea (Chai) will be served automatically by an assistant and delivered to the meeting table. It will usually be served in tulip shaped glasses with lemon slices and wrapped sweets or chocolates are often provided. Many Azerbaijanis serve tea but sometimes chose not to drink theirs but are pleased if you drink yours. It is done as a courteous act of hospitality. Sugar may not be offered as many Azerbaijanis prefer to sip their Chai and eat something sweet to accompany the drink. If sugar cubes are offered you may find your host places one in his mouth and drinks his Chai through the sugar cube. He will not expect you to do the same unless you wish to. Business Dress Code Business dress is always conservative but varies slightly with the seasons. Men generally wear suits or jackets and ties. Similarly, women should wear smart professional outfits. In the hotter weather (and temperatures can regularly reach over 27 degrees in summer months), men usually switch to short-sleeved shirts with or without ties. Light coloured summer suits are also acceptable. The oil sector, especially foreign companies, adopts rather more informal standards. Shorts are not advisable either at work or socially. Outside Baku, and especially in the regions, while men s dress code remains the same, women should wear more conservative clothing. Women are advised to refrain from high fashion and many women might find that they feel more comfortable in longer skirts or trousers. No shorts. At the beach, normal beach wear is worn by Azerbaijanis and foreigners alike. Topless bathing is not allowed. When visiting a mosque, bear in mind that it is a place of worship. Never enter a mosque with shoes. There is always a rack where shoes can be kept. Make sure your feet are clean and will not bring in dust or mud. Men should not wear shorts and must wear a shirt or t-shirt. Women should be covered fully, especially their hair. If you do not have a scarf, ask an attendant as some are usually put aside for foreign visitors. If you are invited to someone s home, you may find that you are offered the opportunity to take your shoes off and wear slippers. Most Azerbaijani families always remove their outdoor shoes when entering the home. Welcome Topics of Conversation At initial meetings, it is a good idea to get to know your Azerbaijani counterpart on a personal level. Ask about his/her family without prying. Questions about children will be welcomed. Find out about their work, role and company. The Azerbaijanis are proud of their country and will enjoy answering questions on their culture, climatic zones (of which they have nine), picturesque countryside and their ancient history--although be sure to avoid more modern political history. Azerbaijanis follow international current affairs and will usually be opinionated. Topics to Avoid Avoid giving opinions over sensitive issues involving Armenia, especially the war over Nagorny Karabakh and the protracted efforts by the OSCE Minsk Group to find a solution to the conflict (which remains is a state of cease fire). Azerbaijan has had a turbulent political history which may be best left in the past. Try and avoid this subject as a whole. Unless you know the subject well and have a good understanding of local sensitivities, you are advised to avoid discussing religion. Islamic values of Azerbaijanis vary from person to person and one needs to know your counterparts views before discussing this topic. In general, it is wise to be careful as to how you approach any topic about Islam. First Name or Title? When addressing an Azerbaijani, especially middle aged or older men, the most common method is to call a man by his first name followed by 'maulim' [pronounced malim]. So, Emil Hassanov would be Emil Maulim. Similarly a woman's first name would be followed by 'Xanum' [pronounced ha-num]. Maulim and Xanum are Azerbaijani for  Teacher/Mr . and  Madame/Miss/Mrs respectively. In official letters men should be addressed as Canab and women as Xanum. For example, Hormetli Canab Heydar Emil Hassanov, or Hormetli Aygun Kazimova. Hormetli means  respected . Gift Giving Gift giving has no real place in business relationships or etiquette. Relationship building and the like will usually take the form of dining or sight seeing trips rather than lavish gifts. However, if a gift is given it will be accepted graciously. It is always a good idea to bring gifts from your own country. Small craft items are always well received. Be aware that Azerbaijan is a Muslim country. Before giving alcohol to anyone, be 100% sure that they drink. The only time you would need to give any great thought to gifts would be if you were invited to an Azerbaijani s home for dinner. Decorative items for the home such as ornaments, vases or small pictures are always acceptable. Flowers are not usually taken to a host, but can be if felt appropriate. It is best to ask a florist for advice on what is best to take. If the host has children, take some expensive sweets or biscuits. Note: Flowers must always be given in odd numbers. Azerbaijanis associate an even number of stems with death. They would buy ten lilies to lay on a grave, for example. So, a dozen red roses given in admiration in Europe or US would need to be 9 or 11 in Azerbaijan. Making a Deal Always come to Azerbaijan with two things clearly in mind. Firstly, your success will in most part depend on your ability to build effective personal relationships, and secondly, you will need to have well defined goal backed up with means to perform. Business remains personal in Azerbaijan, although a more corporate culture is developing led by the foreign oil companies. But even in those companies its often a matter of who, rather than more that what you know. Many smaller Azerbaijani businesses and several groups of companies are family owned and run. It is not unusual to find several relatives in one business or group of companies. Azerbaijanis will want to do business with those they like, trust, feel comfortable with and with those who can initiate a long term relationship. If they feel you are hiding something or there is an element of suspicion about your motives, you may not get very far. Building a relationship with your Azerbaijani counterpart[s] is therefore critical. The first meeting is often a matter of getting to know each other and introducing the subject. Once a relationship has been established you can safely move on to more detailed business matters. It may take several meetings to achieve real progress. As well as looking to the person, Azerbaijanis are also astute businesspeople. Ensure your proposal clearly demonstrates the mutual benefit and profitability of any agreement or partnership. It is also very important not to underestimate the business acumen and position of your counterpart. Whilst he or she may not have had (and often cannot have had) the years of experience you may possess, they will not welcome visitors suggesting how they should run their business. Remember, you may need them a lot more than they need you. Azerbaijanis are primarily oral and visual communicators, so in addition to written statistics, projections and the like, try to present information vocally or with maps, graphs and charts. Decision making can be slow. It is often the case that you will be directed to meet and negotiate with less senior members of staff from the outset or after an initial introduction. If this happens dont read anything negative into it. Once it is reported to the very senior management that you are seen as trustworthy, reliable and that your proposal is financially viable, you will then move on to meet more senior members. Almost all decisions in business in Azerbaijan are made at the very highest levels of the company (or government structure). Azerbaijan has a long history of trade dating back to the ancient times. They are canny negotiators. They will usually start off very demanding gage your response. Prior to negotiations know your target figure and work slowly towards it through meaningful concessions. When conceding, it may help to ensure that you present this as much as a favour and out of respect and a liking for your counterpart[s]. Try to concede only once you have gained agreement on a reciprocal concession on a separate or related issue. Do not use deadlines or pressure tactics. They won t get you very far. Indeed, you are much more likely to be the victim of such tactics. Remain calm and be patient. It may not always be necessary to focus only on financial benefits when negotiating. It is just as useful to point to areas such as power, influence, honour, respect and other non-monetary incentives. However, profit usually overrides all at the end of the day. Entertaining Most business entertaining will take place in restaurants. Azerbaijanis enjoy food and the meal is a time for relaxing and engaging in some good conversation. The protocol of Azerbaijani hospitality dictates that the host always pays for the meal. The concept of sharing a bill is completely alien to the culture. You may try and offer to pay, which may be seen as polite, but you would never be allowed to do so. The best policy is graciously to thank the host and then a few days later to invite the host to dinner at a restaurant of your choice. It may be a good idea to inform the restaurant manager that under no circumstances are they to accept payment from your guests. Your choice of restaurant is important. Senior Azerbaijani businessmen and officials do not welcome the idea of eating somewhere that is too public. Top hotels and restaurants are usually considered fine, and many have separate dining rooms for private meetings. Meeting purely for a drink in the evening happens only rarely. Evening meals may be accompanied by some alcohol, depending on your dining companions attitude to alcohol. If they have an alcoholic drink with their meal then it will usually be wine or vodka or both. Beer is less usual. If vodka is served there may be toasts. You will not be expected to make a toast but can do so later in the meal if you wish. Toasts are usually made for the business, family or friendship. You will not be considered anti-social if you do not down your glass of vodka in one. Taking a sensible mouthful at each toast will be acceptable. Vodka glasses are constantly refilled. Azerbaijanis often drink fruit juice in accompaniment to the vodka. A traditional Azerbaijani meal will comprise several courses. Salads and cheese usually start the meal, followed by various chicken, fish and lamb kebabs brought in echelons. Soup is less often served but Caspian sturgeon is popular and traditionally eaten with a sauce made from pomegranate (which has a strong flavor). Copious amounts of bread will also be served. Azerbaijanis smoke during meals and will often take breaks between courses to have a cigarette and a few drinks before moving onto the next. Tea (or sometimes Turkish coffee) is often served at the end of a meal, usually with something sweet. Conducting yourself in public When greeting someone, shake hands firmly, but note that Azerbaijanis will resist shaking hands while standing over the threshold of a door. This can lead to some confusion on arrival unless you are aware of the tradition. When departing, it is generally customary to again shake hands. Friends and relations will greet each other with either one or two kisses on the cheek, even men. It is better to avoid kisses as part of any greeting or farewell until you are familiar with the custom. Woman can be quite offended if you attempt to kiss them on the cheek in situations where in other cultures it might be acceptable. When entering a room, if you are not automatically met by someone, greet the most elderly or most senior first. At social occasions, greet the person closest to you, then work your way around the room or table anti-clockwise. If you want to adopt local custom, greet people with the Islamic greeting of 'Asalamu alaykum' [peace be upon you]. Many Azerbaijanis smoke. There are no legal controls on where people can smoke but it is generally accepted that one does not smoke in confined places such as lifts and buses. Many taxi drivers smoke but will sometimes ask if passengers mind. There are smoking sections in all restaurants or the restaurant will probably be open for smoking at any table. Azerbaijanis do not usually wait for others to finish eating before they start to smoke. When seated opposite someone, try not to sit with your legs apart. Keep them together or cross your legs. Also try not to allow your feet to touch someone else s. If the feet of two Azerbaijanis touch you will see the person whose feet touched the other briefly touch the hand of the other person. This is a customary way of a reassuring demonstration that you wish no ill-intent to the other person who you just  kicked . Holding hands with someone of the opposite sex is acceptable in Baku and beaches but less so in rural areas. Kissing (other than as a greeting) in public should be avoided. To wave down a taxi or bus, stretch out your right arm and move your wrist inwards repeatedly. To avoid frustration you should note that taxis usually have their taxi signs illuminated whether they are carrying passengers or not. Queuing in Azerbaijan is not practised widely. Banks and some service sector businesses try to control clients but it is far from what most business people from Europe or US are used to. It is not uncommon for people to jump queues or even go straight to the front. It is best to be patient. If frustration gets the better of you, politely point out you were in the line before them--although most of the time this will make little difference. Language Policy All state bodies, local authorities, state agencies, political parties, non-governmental organisations (funds and public associations), trade unions, and legal entities (including their representative or branch offices) are required to use Azerbaijani in their official interactions and transactions. Any notarisation, legalisation, registration or other forms of documentation in a foreign language require translation into Azerbaijani with subsequent notarisation of the translation. Seals and stamps of entities operating in the Republic of Azerbaijan must be in Azerbaijani. Letterheads, signage, announcements, advertisements, price lists, price tags, labels, and certifications and instructions applying to goods produced in Azerbaijan (and all other visual information) must be in Azerbaijani and, additionally, may be in other languages where necessary or desirable. For services rendered to foreigners, a foreign language may be used together with Azerbaijani. 5.5 Useful hints Weights & measures Azerbaijan uses metric system Time Greenwich + 4 hour Language The state language is Azerbaijani (Azeri), besides; the overwhelming majority of the population speak fluent Russian, many of them understand and speak Turkish, Persian, Georgian and other languages. In the hotels, bars and company offices, English is prevalent. Visas The duration of a visa can be either short-term (from 3 days to 3 month) or long-term (up to one year) and are categorised as either. business or tourist visas. They are registered through the Ministry of Foreign Affairs. Currency The national currency is Azerbaijani manat (AZN). 1US$ = approximately 0,87 AZN in 2006. Exchange of any currency is carried out in banks or numerous bureau de change. Banks usually work from 10.00 to 17.00-18.00. Credit Cards In hotels, big trade centers and supermarkets, international credit cards and US dollars are accepted. In small stores and restaurants cash is paid (as a rule in local currency). Communication The telephone communication system is effective and mobile coverage is extensive. Hotels have direct international dialing codes in addition to related business facilities; fax, computers, internet etc. Internet services are also rendered in numerous internet cafes in Baku and main cities. Public phones are rare. Mass Media Along with Azerbaijani newspapers and magazines local newspapers in English and Russian are available. Foreign English press is available in large hotels and by subscription. Electricity The power standard is 220/240 V, 50 Hz. Water Tap water is safe for drinking, but in the hotels and restaurants spring water is mainly used in plastic bottles or boiled water. Medical Service The first medical aid is usually free. There are also private medical clinics and services, doctors that can speak foreign languages. A wide range of medicines are available in pharmacies, some of which are open 24 hours a day. Transport Public transport in Baku is provided by the Baku underground system and minibuses. One can use taxis round the clock. It is better to negotiate a price in advance. Customs Rules The import quota allows bringing three liters of spirits and three boxes of cigarettes. Technical passport is necessary for the owner of imported transport mean. Export of black caviar must not exceed 300 gr. Goods and objects of art with cultural and historical value should be accompanied by a permit from according authority Work Hours The weekend is usually considered to be Saturday and Sunday (mainly for civil servants), though many stores and supermarkets work every day. The beginning of the workday is at 8h00-9h00 and trade closes between 21h00-23h00. Restaurants and bars close considerably late. Trade deals It is allowed to bargain about prices in the markets; it is a usual phenomenon. The salesperson may compromise in certain cases. Living cost Azerbaijan has become a highly popular destination, and thousands of foreigners have settled happily, enjoying the countrys combination of high living standards and low living costs. Although in most respects life in Azerbaijan is approaching Western standards of living, the cost of living remains substantially lower than in Western Europe. Shopping Retail in Baku has undergone a revolution in the past decade with many big shopping centres now located in the different parts of the city. Concepts of shopping and customer service are now comparable to those of Western countries. Sport In keeping with its reputation as a successful sporting nation, Azerbaijan Republic provides a wealth of sporting opportunities. The most popular sports are football (soccer), wrestling, boxing, martial arts, volleyball etc. Recently a significant number of Olympic sport centres, swimming pools and sport schools for children have been established and a number of Olympic sport centres are under construction. Azerbaijani sportsmen won 1 gold and 3 bronze medals at the Athens 2004 Olympic Games. ANNEXES & MAPS ANNEX 1 Table: Bilateral Investment Treaties #CountrySigned Ratification DateAustria4 July 200024 October 2000Belgium-Luxemburg Economic Union18 May 200426 October 2004Bulgaria7 October 20041 March 2005China7 March 1994not ratifiedEgypt24 October 200213 May 2003Finland26 February 200313 May 2003France1 September 199827 November 1998Georgia8 March 199619 April 1996Germany22 December 199525 June 1996Great Britain4 January 199615 March 1996Greece21 June 200426 October 2004Iran28 October 19961 December 1998Israel20 November 2006not ratifiedItaly25 September 199717 February 1998Kazakhstan16 September 199615 November 1996Korea23 April 2007not ratifiedKyrgyzstan23 April 199726 June 1997Latvia3 October 20051 March 2006Lithuania8 June 2006not ratifiedLebanon11 February 19984 December 1998Moldova27 November 19978 December 1998Norway25 September 1996Pakistan9 October 199512 March 1996Poland26 August 199713 February 1998Romania*29 October 20025 December 2003Saudi Arabia10 March 200510 May 2005Switzerland23 February 2006not ratifiedTajikistan15 March 20075 June 2007Turkey9 February 199414 June 1994UAE20 November 2006not ratifiedUkraine25 March 19976 June 1997USA1 August 199714 April 1998Uzbekistan27 May 199616 July 1996OPEC Foundation19 November 20029 December 2003 * As Romania is joining the EU the proposals on the amendments to the Treaty was presented to Azerbaijani Government. ANNEX 2 Brief comparative analysis of LLC and JSC as per Azerbaijani law JSCLLC1. Minimum number of FoundersAt least 1 founder. Closed-type JSC-maximum number of shareholders may not exceed fifty. If such limit is exceeded, such close-type JSC must either be reorganized into an open-type JSC, or be judicially liquidatedAt least 1 founder. However, there is not a statutory limit for the number of participants.2. Liability of FoundersThe participants/shareholders are not personally liable for the obligations/liabilities of JSC/LLC. Liability of founders is limited to the amount of their equity (capital) contribution.3.Capital RequirementsOpen Type 4,000 AZN circa 4,650 USD / Closed Type 2,000 AZN, circa 2,300 USD. Charter capital must be paid in full prior to state registration. Capital contributions in kind must be valued by an independent auditor. Value of in-kind contributions of a newly founded company and existing company is determined by a foundation meeting and general meeting of shareholders respectively.There is no specified minimum capital requirement. However, the Civil Code 2000 states that the minimum capital is to be set by the relevant executive authorities. Charter capital must be paid in full prior to state registration. Capital contributions in kind must be valued by an independent auditor.4. SecuritiesShares must be registered at the State Securities Committee. Placement of securities can be public (offer to public at large) or close (offer to a limited group of investors). Open joint-stock companies can place securities only through public offering (except for establishment and reorganisation of a company and conversion of shares) and close joint stock companies can place securities only through close offerings.Paid in capital of participants is not considered to be a security. Therefore, there are no registration requirements with the State Securities Committee.5. Transferability of Shares/ participatory interestOpen type no restriction on transferability of ones shares to another. Closed type shareholders have the right of first refusal.  Unless provided otherwise in the Charter, a participant may alienate (sell/transfer) his shares to third persons. However, the other participants have the right of first refusal, if the Charter does not provide otherwise. 6. Management structureThe General Meeting of Shareholders (GMS) is the supreme governing body, which has exclusive competence in fundamental matters (such as amendments to Charter and to the Capital Fund, any decision on liquidation, reorganisation, etc.). The law does not allow delegation of such powers to other inferior governing bodies. A JSC which has more than 50 shareholders must create a Supervisory Board. The management body can be either in the form of a board or individual director.Same as JSC, except there is no requirement for a Supervisory Board, which can be established if so desired by the participants. 7. AccountabilityA JSC must make public its annual report and balance sheet. 7. Liquidation & Reorganisation A voluntary liquidation or reorganisation is upon a decision of a general shareholders meeting. A JSC may be reorganized into a LLC. A voluntary liquidation or reorganisation is upon the decision of a general meeting of participants. A LLC may be reorganized into a JSC. 8. Tax Identical tax treatment (except in case of distribution of net profits). ANNEX 3 List of business activities requiring a license NoType of activityExecutive body to issue a licenseState duty (conv. unit - AZN 1,1 1Design and engineering survey of buildings and constructions of the I and II levels of responsibility in accordance with state standards: certificate of engineering and surveying works quality control system (the contract with quality control laboratory attached); certificate of factory personnel; copy of the document on taking 3-month extension courses on earthquake stability proofing in the projects of the buildings and constructions building and reconstruction.State Committee of Town Planning & Architecture  120.0 units2Cartographic activities: copy of documents confirming the stuff level; document of State Agency for Standardisation, Metrology and Patents of the Azerbaijan Republic, confirming the conformance of devices and instruments, their fitness for use to metrological requirements; information on the conditions of storage, stock-taking and utilisation of marked materials.State Committee on Land and Cartography 120.0 units3Storage and disposal of radioactive and ionized waste: plan of the activities of the ground on safety measures and emergency situations, worked out in accordance with government standards; information on the ground protection and intrusion alarm system; information on providing of the workers with the necessary devices and equipment. Ministry of Ecology and Natural Resources  120.0 units4Utilisation and neutralisation of toxic: certificate of technical potentials of the applicant for collection, transportation, storage and processing of waste; official record on availability of places (grounds) for storage and disposal of waste, satisfying the requirements of sanitary and environmental standards and regulations; plan of the activities of the enterprise on safety measures and emergency situations, worked out in accordance with government standards; information on the provision of grounds for recycling and neutralisation of wastes by protection and intrusion alarm system; information on providing of the workers with working clothes and the necessary devices and equipment. Ministry of Ecology and Natural Resources  120.0 units5Storage, processing and sale of non-ferrous metals and industrial waste including precious metals and stones: copy of documents confirming the right of user (right of property, tenant right, etc.) for the equipment on nonferrous waste processing, and certification of personnel working with this equipment in accordance with established procedure; document of State Agency for Standardisation, Metrology and Patents of the Azerbaijan Republic, conforming the conformance of equipment and plants on this type of activity to government standards. Ministry of Economic Development 500.0 units6Sale of oil products: document confirming the commission of the petrol stations; document of the relevant district organ of State Agency for Standardisation, Metrology and Patents of the Azerbaijan Republic, conforming the availability of the necessary oil containers and equipment and their conformance to government standards. Ministry of Energy and Industry 500.0 units7Sale of gas products: document confirming the commission of the liquid gas stations; document of the relevant district organ of State Agency for Standardisation, Metrology and Patents of the Azerbaijan Republic, conforming the availability of the necessary containers and equipment for the fulfilment of the envisaged works and their conformance to government standards. Ministry of Energy and Industry 500.0 units8Medical activities: document of State Agency for Standardisation, Metrology and Patents of the Azerbaijan Republic, conforming the conformance of equipment, envisaged for medical activities to normative-technical standards; copy of documents confirming the qualification of the staff providing medical service. Ministry of Health  200.0 units 9Pharmaceutical activities: document from State Agency for standardisation, Metrology and Patents of the Azerbaijan Republic, conforming the conformance of equipment, envisaged for pharmaceutical activities to normative-technical standards; copy of documents confirming the stuff level.Ministry of Health  200.0 units10Ethyl alcohol and strong drinks: Ministry of Agriculture 2500.0 5000.0 110.0 unitsExecutive authorities of cities and region (excluding executing authorities of urban districts)11Tobacco goods:  Ministry of Agriculture 2500.0 5000.0 110.0 units Executive authorities of cities and region (excluding executing authorities of urban districts)12The use, production, sale, purchase, import and export of technical facilities Ministry of National Security  1000 units13Carriage of passengers and goods by sea: relevant document of the Register of Naval Shipyard on the right of sailing; notarized copy of diploma, conforming fitness for higher or secondary marine professions, in accordance with which the applicant or engaged specialists may hold relevant post based on the regulations of sea transport Ministry of Transport  2000 units14Carriage of passengers and goods by air: information on relevant carriers, owned by applicant or being in his use (title, type, model, year of production, registration certificate), certificate on technical conditions of the above-mentioned carriers; documents on availability of corresponding education of workers subordinate to the applicant and directly engaged in transportations.Ministry of Transport  2000 units15Communication services (telephone, cellular, paging, radio relay, setting and operation of cable television, express postal service): copy of the document (certificate) conforming the conformance of the equipment to be used in accordance with the subject of license to international standards and normative documents; technical conditions of specialized equipment, envisaged for the information gaining, from the point of view of national safety, agreed with the Ministry of National Security of the Azerbaijan Republic; availability of the special-purpose equipment for the uninterrupted power supply of all types of worked up, created and run systems of electric coupling in the entire communications network in order to get information for national security purposes; certificate of the State Committee on Radio Frequency on giving appropriate radio frequency for the vehicles for radio communication on each object, if radio communication Ministry of Communication & IT 5000 units16Activities in the field of projection and production of data protection facilities Ministry of National Security  1000 units17Activities of educational institutions (secondary, vocational schools and academies): information on pedagogical, research and educational employees of educational institutions; detailed information on material and technical basis of the institution (total and study area of the building, number of educational and laboratory rooms, precise information on laboratories, libraries, sports gymnasium, educational and scientific equipment). Ministry of Education  2000 units18The activities on assistance to the Azerbaijan Republic citizens to get the job in foreign countries: contract on job placement of the citizens of the Azerbaijan Republic in foreign countries concluded with legal entities and natural persons of foreign countries; letter of guarantee as an attachment to the proposed labour contracts on ensuring of social protection of the citizens of the Azerbaijan Republic in accordance with international standards. Ministry of Labour and Social Protection  200.0 units 19Banking activities National Bank 5000 units20Activities of non-governmental social funds Ministry of Finance  1000 units21Insurance activities: contract, conforming the payment of minimum amount of authorized capital stock of legal entity, in accordance with the procedure, established by the legislation; regulations of the voluntary types of insurance, providing fulfilment of insurance activities; copy of documents, conforming availability of no less than 2-year seniority of specialists, engaged as managers or availability of higher education and 4 years of seniority, irrespective of above-mentioned terms. Ministry of Finance  1000 units22Auditing activities: copy of the document, conforming availability of higher education of the applicant or specialists, engaged to the spheres of business accounting, Chamber of Auditors  200.0 units23Activities of commodity exchange: regulations of commerce, approved at the general meeting of the exchange constitutors and attested by the seal. Ministry of Economic Development  1000 units24Activities of stock exchange: copy of the report on the balance sheet and financial and economic activities, prepared at the date of the last report; copies of certificates of competency for stock exchange activities, issued by State Committee on Securities under the President of the Azerbaijan Republic (hereinafter SCS) to 3 (three) employees from the established posts of the applicant; prepared in accordance with the standards approved by the SCS: copy of the regulations on security trading; copy of the regulations of the securities issue (listing) and lay off the sale (delisting); copy of the regulations on calculation and accounting of contracts made at exchange; certificate of availability of the place satisfying the exchange activities up to the mark, of software support, of technical devices and the other necessary equipment in accordance with the procedure established by SCS according to with existing legislation. State Committee for Securities  5000 units25Activities of investment fund: information on stock issue by the applicant (type of stocks, form of issue, nominal value of stocks, sum total of issue, number of the issue state registration and the registration date, the title of registration authority); copy of the agreement concluded among the fund and depositary; copy of the contract made with the fund manager on the investment fund management in accordance with the Requirements on the contract on investment fund management, established by SCS; copy of the contract made with independent auditor; notarized copy of the license of the fund manager for the securities management State Committee for Securities  1000 units26Activities of professional participants of equity market for broker activities (for legal entities): report on the balance sheet and financial and economic activities, prepared at the date of the last report; copies of certificates of competency for broker activities implementation, issued by SCS to 3 (three) employees from the established posts of the applicant; certificate of availability of the place for the broker activities implementation with appropriate conditions, of software support, of technical devices and the other necessary equipment in accordance with the procedure established by SCS according to with existing legislation for broker activities (for natural persons): copy of certificate of competency of the natural person for broker activities implementation, issued by SCS; certificate of availability of the place for the broker activities implementation with appropriate conditions, of software support, of technical devices and the other necessary equipment in accordance with the procedure established by SCS according to with existing legislation. for dealer activities: report on the balance sheet and financial and economic activities, prepared at the date of the last report; copies of certificates of competency for dealer activities implementation, issued by SCS to 3 (three) employees from the established posts of the applicant; certificate of availability of the place for the dealer activities implementation with appropriate conditions, of software support, of technical devices and the other necessary equipment in accordance with the procedure established by SCS according to with existing legislation. for activities on securities management (for legal entities): report on the balance sheet and financial and economic activities, prepared at the date of the last report; copies of certificates of competency for implementation of activities on securities management, issued by SCS to 3 (three) employees from the established posts of the applicant; certificate of availability of the place for implementation of activities on securities management with appropriate conditions, of software support, of technical devices and the other necessary equipment in accordance with the procedure established by SCS according to with existing legislation. State Committee for Securities  2000 units27Activities on production and sale of all types of security forms: information on technology and equipment, ensuring high protection of the security forms development and numeration, and also on their falsifications and other violations; information on the conditions of the care and sale of security forms, including their specimens and accounting system. State Committee for Securities  3000 units28Production of strict accounting blanks: information on availability of relevant equipment, satisfying the requirements of strict accounting blanks publishing; copy of the document (documents) confirming the skills of the management (with the exception of accountant general) organizing the production of strict accounting blanks in the sphere of polygraph. Ministry of Finance  200.0 units29Production of various seals and stampsMinistry of Internal Affairs  500.0 units 30Tourist activities: copy of tourist routes and programs (no less than one route and program); copy of the agreement, confirming the provision of tourists with relevant hotel and carriers for tourist routes. Ministry of Youth and Sports  500.0 units 31Customs broker activitiesState Customs Committee32Establishment of customs storehouses, storehouses for temporary keeping, spare storehousesState Customs Committee33Tele-radio broadcasting (TV and radio broadcasting, additional information broadcasting, cable broadcasting, satellite broadcasting, activity on provision of broadcasting implementation of foreign TV channels via satellite with coded setNational Television and Radio Council34Collection of raw wild plant for drugsMinistry of Ecology and Natural Resources35International and local transportation of passengers and goods Ministry of Transport36Import, export and transition of precursorsMinistry of Health 200.0 units37Operation of hotels and similar establishments Ministry of Culture and Tourism1500 units38Transportation of dangerous products via vehiclesMinistry of Emergency Situations550 units39Construction and use of liquid and natural gas related establishmentsMinistry of Emergency Situations2200 units40Mountain and well boring worksMinistry of Emergency Situations2200 units41Construction and repair of elevatorsMinistry of Emergency Situations550 units42Organizing side-shows (attraction)Ministry of Emergency Situations2200 units43BHquv% ' < -/H=ƱƱƱƱƱtj`ۢhh@g5\hhI5\&hhI56B*\mH ph333sH hhImH sH hhV7B*mH phsH hhIB*mH phsH )hhI56B*\]mH phMMMsH  hhIhhI5\mH sH #hhI5B*\mH ph˜%sH #hhI5B*\mH phMMMsH "0BCDEFGHeqrstuv7kd$$If$$44 lal $7$G$If7$`7$$7$a$#A#9% & ' ; <  7kd$$If$$44 lal7$`7kdO$$If$$44 lal $7$G$If  { | ] Q7kd$$If$$44 lal7kd<$$If$$44 lal $7$G$If7kd$$If$$44 lal] ^ 6 7 Q7kdx$$If$$44 lal7kd)$$If$$44 lal $7$G$If7kd$$If$$44 lal   Q7kde$$If$$44 lal7kd$$If$$44 lal $7$G$If7kd$$If$$44 lal %&~~G7kdR$$If$$44 lal7$`7$7kd$$If$$44 lal $7$G$If7kd$$If$$44 lal&Q7kd?$$If$$44 lal7kd$$If$$44 lal7kd$$If$$44 lal $7$G$If  Q7kd,$$If$$44 lal7kd$$If$$44 lal $7$G$If7kd$$If$$44 lalRSQ7kd$$If$$44 lal7kd$$If$$44 lal $7$G$If7kd{$$If$$44 lalFGN5kd$$If$$44 lal5kd$$If$$44 lal $7$G$If7$`7kdh$$If$$44 lalde#W5kd$$If$$44 lal5kd$$If$$44 lal5kdM$$If$$44 lal $7$G$If#$-W5kd $$If$$44 lal5kdy $$If$$44 lal $7$G$If5kd. $$If$$44 lal-./0GHno7kdZ $$If$$44 lal $7$G$If7$`5kd $$If$$44 lalxyQ7kdG $$If$$44 lal7kd $$If$$44 lal $7$G$If7kd $$If$$44 lalef{7kd $$If$$44 lal $7$G$If7$`$7$a$7kd $$If$$44 lal23QKD7$^$7$a$7kd $$If$$44 lal7kd $$If$$44 lal $7$G$If7kd4 $$If$$44 lal7$$7$a$  h i #!$!<"=""""""#######$h-D7$M ^ha$$7$a$=G=""""########!& '_'`'a'b'{''''ϽxixixixXXM?hhI5\mH sH jhhU hh5B*mH phsH hh`B*mH phsH hhB*mH phsH #hh5B*\mH phsH #hhI5B*\mH phsH #hh6B*]mH phsH #hhI6B*]mH phsH  hhI5B*mH phsH hhIB*mH phsH  hhI6B*mH phsH ### # # # # ###%% &!& ' ''3'`'a'b'c'd'e'f'g'h' $7$a$gd$h-D7$M ^ha$h'i'j'k'l'm'n'o'p'q'r's't'u'v'w'x'y'z'{'''''$ & F2 -D7$M a$$h-D7$M ^ha$'''>(((P*Q*++--T.U...////00a2b2z2$7$a$ $h7$`ha$h7$^hh7$`h7$ & F2 7$'(((>(B(D((++--a2b2z2{2"3:3=4>4J4V44˹˹vkYkKkhhI56mH sH #hhI5B*\mH phsH hhImH sH hhI5mH sH hhI6mH sH  hhI5B*mH phsH jhhIUhhIB*mH phsH #hhI6B*]mH phsH hhIB*mH phMMMsH %hhIB*OJQJmH phMMMsH #hhI5B*\mH ph˜%sH z2{2222222222223333 3!3Jkd! 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$$G$Ifa$nkd$$If\'#:e n44 la $$G$Ifa$pkd$$Ifw\'#:e n44 la"Tu $$G$Ifa$pkdw$$Ifw\'#:e n44 la $$G$Ifa$pkd6$$If\'#:e n44 la9D $$G$Ifa$pkd$$If\'#:e n44 laDEHm $$G$Ifa$pkd$$If;\'#:e n44 la $$G$Ifa$pkds$$If\'#:e n44 laAbm $$G$Ifa$pkd2$$If\'#:e n44 laConstruction, repair and control of power engineering equipmentsMinistry of Emergency Situations2500 units44Production, construction and repair of lifting, metallurgy equipments, boilers operating under pressure and tonnagesMinistry of Emergency Situations2500 units45Diagnostics and supervision of equipments and constructions used in potentially dangerous establishmentsMinistry of Emergency Situations2500 units46Agreement based fire security service for establishments and inhabited objectsMinistry of Emergency Situations3600 units47Production, purchase and test of fire-extinguishersMinistry of Emergency Situations3600 units48Set up and repair as well as provision of technical support for fire security systems and means Ministry of Emergency Situations3600 units49Repair and technical support for fire-extinguishers, restoration of their good quality Ministry of Emergency Situations3600 units50Construction, reconstruction and renovation of fire security buildingsMinistry of Emergency Situations3600 units51Precious metals and stones: Production Repair and use TransactionsMinistry of Finance5000 500 550 units ANNEX 4 Table: Double Taxation Treaties CountryDate of Ratification by Azerbaijan Great Britain29 September 1995Pakistan 25 June 1996Norway 25 June 1996Uzbekistan 16 July 1996Kazakhstan 15 November 1996Turkey 27 December 1996Georgia 15 April 1997Poland 13 February 1998Russia 10 April 1998Moldova 8 December 1998Ukraine 24 March 2000Austria 24 October 2000Belarus 1 February 2002France 19 February 2002Romania 5 December 2003Lithuania 10 September 2004Italy26 October 2004Belgium26 October 2004Germany1 March 2005China14 June, 2005Canada30 December 2005Latvia1 March 2006Czech Republic 1 March 2006Finland 21 April 2006Luxemburg2 October 2006 ANNEX 5 The table below summarizes some of the characteristics relating to Azerbaijani taxes: RATEPAYERSTAXABLE BASEEXEMPTIONS1. Profit Tax Generally - 22% Lower rates are applied to certain activities and companies operating in Azerbaijani regions All enterprises (resident and non-resident). Resident enterprises are subject to tax on its total profit. Non-resident enterprises operating in Azerbaijan through permanent establishments (PE) are subject to tax on profit from such operations.Difference between income and deductible expenses. In case of a PE gross income generated from Azerbaijani sources through a PE less the amount of expenses incurred with respect to such income. profit of charity organisations (except from entrepreneurial activity); grants, membership fees and donations received by non-commercial organisations; income of international, interstate and intergovernmental organisations (except from entrepreneurial activity) etc.2.Withholding Taxes from income of non-residents 4%, 6% and 10% depending on type of income Enterprises or entrepreneurs making payments to non-residents. Payments made by the PE of non-residents are treated the same as the payments of resident enterprises. The gross income of a non-resident from an Azerbaijani source not attributable to a PE of the non-resident in the territory of Azerbaijan are subject to taxation at the source of payment, without deduction of expenses.3. Income Tax of Employees Sliding scale (0% - 35%) Enterprises or entrepreneurs making payments to employees. Payments made by the PE of non-residents are treated the same as the payments of resident enterprises.Any salaries, payments or benefits received by an employee in respect of employment.Income of diplomats or consular employees who are not citizen of Azerbaijan; employment income of a person who is not a citizen of Azerbaijan, whose stay in Azerbaijan during the tax year (the same as the calendar year) is less than 182 days - if this income is paid by an employer or in the name of an employer who is not a resident of Azerbaijan and is not paid by or on behalf of a PE of a non-resident; gifts, material aid and inheritance up to certain limits; compensation for damage caused etc.4. Value Added Tax (VAT) 18% Any person registered or required to register as a VAT payer. There is a requirement to register for VAT purposes if turnover of a taxpayer exceeds a certain threshold. Persons importing goods to which VAT applies are considered payers of VAT on goods so imported. Value of goods, works, services provided and value of taxable import.The cost of property purchased from state enterprises in the course of privatisation; the provision of financial services (including a financial lease); contributions to a Charter Fund etc. The following are subject to 0 (zero) rate: The purchase of goods or services, or importation thereof, with the proceeds of foreign grants; exports etc.5. Excise Tax Various rates (per unit, volume etc) All persons engaged in the production of excisable goods in Azerbaijan or importation of such goods into Azerbaijan.Release of excise goods produced in Azerbaijan and import of excise goods into Azerbaijan. Excise goods are spirits, beer and all kinds of alcohol, tobacco products, petroleum products.Transit transportation of goods through the territory of Azerbaijan; temporary imports of goods into Azerbaijan except for goods intended for re-export; goods that are intended for re-export and secured under a pledge etc. 6. Assets Tax Different rates depending on type of assets. (up to 1%) All persons having assets (buildings or their part, vehicles, fixed assets etc.) in ownership. In most cases average yearly value of the assets.facilities that are used for environmental preservation, fire protection or civil defense purposes; pipelines carrying products, rail and motorways, communication, power transmission lines, irrigation system facilities etc.7. Land Tax Different All persons owning or using land in Azerbaijan.Land plots granted for use or ownership.Land plots of residential area of common use;rates depending on location and type of land plotsnational border zones and land designated for defense purposes etc.8. Mining Tax (Royalty) 3% - 26% All persons engaged in extraction of commercial minerals from subsoil strata (including Azerbaijan sector of the Caspian Sea)Commercial minerals extracted from subsoil strata in the territory of Azerbaijan (including Azerbaijan sector of the Caspian Sea).9. Road Tax Different rates depending on type and capacity of the vehicle, number of seats, distance traveled etc.Non-resident enterprises and non-resident individuals that own motor vehicles that enter the territory of Azerbaijan and use this territory for passenger and cargo transport.Vehicles of foreign states entering the territory of Azerbaijan. 10. Simplified System Tax 4% for taxpayers operating in Baku and 2% for taxpayers operating in other regionsEnterprises and individuals with a quarterly turnover not exceeding certain limit (currently 22500 manats around 26,000 USD)Total proceeds realized by a taxpayer from sale of goods or services and from activities non-related to sales.Exempt from payments of VAT, assets and profit taxes. ANNEX 6 Major products of agriculture statistics  ANNEX 7 Goods carried in transport sector (thousand ton) Total of which:19951999200020012002200320042005200642 0207311680 18092 64898 445 110001 117 313 128 328  145 078railway90381416315876153901746420345206742652229687sea571373828779102471138113272132091368013507air294837313152757473pipeline132381936015054165181583117262181411853427427road140023216340434504625373859070652146951874384 Gross rate passenger turnover by various transportation modes (% to previous years) Total of which:19951999200020012002200320042005200696.1 100.2 101.7 102.6 99.9 103.1 103.6 104.8106.3By cos & persons total of which:98.5100.5102.0102.799.9103.1103.6 104.8 106.3railway84.594.5104.9109.395.6106.6110.7104.7105.8sea92.369.584.991.7127.392.9153.89094.4air84.383.6100.6100.0104.4118.4126.2110.6110.3road95.8102.8104.2104.2101.3103.8102.4104.4105.8 ANNEX 8 Minerals & mining  Apart from major oil & gas deposits there are numerous mining sites for ferrous and nonferrous metals, unique construction materials. An area to be mentioned specifically is the north west of the country (Dashkesan, in particular). Major deposits of aluminum ore, iron ore and non ferrous metals make the region a very interesting part of Azerbaijan to explore. Apart from metals, construction materials including gypsum, limestone, trim stone etc. scattered all over the country are of particular interest. The deposits of iodine, gold and other precious metals, mineral spring, etc. add up to the diverse geology of Azerbaijan. The processing industry that was inherited from the times of USSR allows for speedy rehabilitation of a number of prospective fields. As mentioned before the laws permit a foreign company to become a manager of the mining fields in Azerbaijan after conclusion of an appropriate agreement with the Government. ANNEX 9 Table. Consular fees for Azerbaijani visas ActivityDuty An ordinary entry-exit visa upon the address of a private entity engaged in economic activity or/and of a public entity (from 3 days up to 3 months): Ordinary entry-exit visa;  40 US dollars Double entry-exit visa;  80 US dollars  Multiple entry-exit visa (up to 1 year) registration upon the address of a public body or private entity;  250 US dollars Visa to privately studying students;  20 US dollars  Ordinary transit visa;  20 US dollars Double transit visa; 40 US dollars  Visa extension: 24 hours; 48 hours; 72 hours; from 3 days up to 1 month;  10 US dollars 20 US dollars 30 US dollars 40 US dollars      PAGE 1  PAGE 63  PAGE 72 Products (thsd tons)20052006Cereals (after peeling ratio)2126,92078,9Cotton196,4130,1Tobacco7,14,8Potatoes1083,1999,3Vegetable1126,61186,4Market garden crops363,8362,1Grapes79,794,1Fruit and berries625,1662,3Tea leaves0,740,65 Year200020022003200420052006Thsd people153,6178,0180,0190,6194.4222.8Percentage in countrys total population1.92.12.12.22.32.6Percentage in total economically active population4.04.74.74.74.95.5 Products19901991199219931994199519971998199920002001200220032004Cereals (after peeling ratio)13641291128511009888811080926107515081970214820102105.9Cotton542539336284283274124112,96,891,583,680,499.6135.7Tobacco52,957,352,344,920,811,715,114,68,617,312,73,34.76.5Potatoes185179156152150155223312394469605694769930.4Vegetable85680555548748242449550267078091697410461076.2Market garden crops67,561,950,146,944,941,957,178,8206261290330356.7355.3Grapes1196112560741131330814514411276,968,162,16554.9Fruit and berries36749400346323324330390436477497516572.1424.6Tea leaves30,726,622,62419,49,41,60,92,71,11,41,40.91.0 Territory: 86.6 thsd. square km, (11.5% forests, 1.6% water surface, 50% agricultural lands, of which 27% pastures, 36.9% other lands). The territory also includes Azerbaijani sector of the Caspian Sea. The country is situated between 44 and 52 of east longitude, 38 and 42 of north latitude, Baku is located in 40 parallel. Neighbours: Borders with Iran in the south - 765 km and Turkey in the south-west - 15 km, Russia in the north - 390 km, Georgia in the north-west - 480 km, Armenia in the west - 1,007 km. The widest part of the Azerbaijan section of the Caspian Sea is 456 km. Some useful macroeconomic indicators (2006): GDP 17.77 billion AZN Annual growth 34.5% GDP per capita 2,120 AZN Annual growth 40.1% Inflation 11.4% Investments 7.27 billion AZN Annual growth 8.0% Domestic investments 30.9% Foreign investments 3.3% Weighted exchange rate for 1 USD 0.87 AZN Chart.  EMBED Microsoft Graph Chart  Share in GDP by sectors (2006): - industry 58.3% - agriculture 7.1% - construction 7.5% - transport 5.3% - communication 1.8% - wholesale and retail 5.1% - social services 8.4% - taxes 6.5% Chart. Azerbaijani foreign trade  EMBED Microsoft Graph Chart  To date, 27 PSA were concluded between Azerbaijan and translational oil corporations. The shareholders in the largest PSA (Azeri, Chirag, Guneshli) are: BP, Unocal, Inpex, Statoil, ExxonMobil, TPAO, Devon, Itochu, Delta Hess and SOCAR. The oil reserves in this field alone are 630 mln metric tons. Peak production of a number of products in Azerbaijan ProductPeak production thsd tonsYearGrape2,126.11984Cotton831.21981Tobacco65.21986Tea34.51988 Area used for crops cultivation 2006 (thsd. ha)  EMBED Microsoft Graph Chart  Azerbaijans active role in the establishment of the Transport Corridor for Europe, the Caucasus and Central Asia (TRACECA), together with its being the base for the TRACECA Intergovernmental Commission (IGC), is a powerful indication of its open transport policy. The TRACECA IGC, which includes in its membership Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan (Central Asia), the three Caucasian States and Bulgaria, Moldova, Romania, Turkey and Ukraine, was set up to promote transportation on this corridor, remove non-physical barriers, establish transport-related communication links and to promote logistics capabilities and multi-modal transport. More information on TRACECA can be obtained via  HYPERLINK "http://www.traceca-org.org/"www.traceca-org.org Chart. Consumer Price Index, Inflation %  EMBED Microsoft Graph Chart   EMBED Microsoft Graph Chart   EMBED Microsoft Graph Chart   EMBED Microsoft Graph Chart  As per Azerbaijani law: License is an official record permitting relevant types of entrepreneurial activities to a legal person, as well as to a natural person engaged in entrepreneurial activities without creation of a legal person, irrespective of its organisational and legal form. Dinamics of bank actives and credits 0 1000 2000 3000 4000 01.01.06 01.01.07 Bank actives Credits mln. AZN Comparison of main bank indicators with non-oil GDP (%) 2005 2006 0 10 20 30 40 50 Actives ss Total capital Credit to real sector Populations deposits (%) 0% 20% 40% 60% 80% 100% 01.01.2006 01.01.2007 01.01.2006 01.01.2007 01.01.2006 01.01.2007 01.01.2006 01.01.2007 01.01.2006 01.01.2007 Actives Credits to real sector Populations deposits Credits to regions Deposits from regions IBA Big banks Other banks Distribution of bank services market (Special emphasise on banks) Dinamics of clients funds 0 300 600 900 1200 1500 01.01.20066 01.01.2007 mln AZN 0 20 40 60 80 (%) Legal entities funds (left scale) Natural persons deposits (left scale) Legal entities funds growth rate (right scale) Natural persons deposits growth rate (right scale) Net Exports Capital Baku Language Azerbaijani Currency New Azerbaijani Manat (AZN) Chart. Private share in GDP EMBED Microsoft Graph Chart  Chart. 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