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Dear Readers,

The theme of this issue was not selected randomly. Over the last decade the city of Baku has seen a spectacular economic rise, as increasing oil prices brought strong economic growth to Azerbaijan. The country's rapid rise can be seen in its GDP growth which quadrupled between 2000 and 2010.This growth and Baku's glimmering skyline, including the creations of world's leading architectural and construction firms, are seen as symbols of economic development and prosperity that many in the region have sought to emulate. Over the past few years the real estate sector is recording a

booming growth and development and we would like to offer our readers an insight into this interesting trend. This issue includes an independent overview of the sector, a brief on land administration and the new Construction Code as well as the number of interviews with the city's most prominent real estate developers.

Do not miss the "About Us" section featuring a number of important CSR activities we have been involved in over the last several months and of course the splendor and glamour of our 6th Annual Black&White Ball on p.46!

Kind Regards,Nargiz Nasrullayeva-Muduroglu

Dear Readers,

During my four years in Azerbaijan, I have been privileged to witness the phenomenon of a city evolving before my very eyes. In a very few years, Baku will be barely recognizable as the city of oil barons’ mansions and Soviet architecture. A glittering metropolis on the Caspian unfolds, home to some truly iconic buildings, new hotels, luxury office and retail space.Such rapid urban growth must pose some challenges to urban planning, so the establishment of infrastructure and better access to data are essential if the real estate market

is to be regulated and encouraged to grow. The adoption of a “one-stop shop” mechanism in land administration will go a long way towards ensuring more efficient registration procedures, lower costs and better service for customers. It is also encouraging to note that many of the new developments are in conformity with Azerbaijani and international construction codes and that environmentally friendly solutions are being implemented in a region that for years has suffered ecologically.It is the sincere hope of many that the very real benefits of all these developments will be felt and enjoyed by the citizens of Azerbaijan, as the country welcomes a new era of reform and growth in the real estate sector.Our sincere thanks to all of our advertisers and contributing editors for their support of Impact Azerbaijan.

Best wishes,Emma Triller

A Word from the ExecutiveDirector of AmCham

Editor’s Comment

CreditsEditor-in-Chief:Nargiz Nasrullayeva-Muduroglu

Editor:Emma Triller

Design & layout:QuadroM Media Agency

Photographer:Huseyn

Articles contributed by:Arzu GeybullayevaEmma TrillerNatalia CorobcoBaker & McKenzieDeloitte AzerbaijanIndian ClinicSalans

Advertisers:Aquavita-Taj Austrian Air Azerfon-Vodafone Deloitte Azerbaijan Garadagh CementHill InternationalHyatt HotelsThe Landmark HotelMozaik LLCNJT GroupNobel OilPasha Construction

Cover artwork:Quadro M

Printing:Nurlar

Publisher:American Chamber of Commerce in AzerbaijanTel: (+994 12) 497 13 33Fax: (+994 12) 497 10 91www.amchamaz.org

Advertising opportunities:Please contact the EditorEmma Trillereditor@amchamaz.orgTel: (+994 12) 497 13 33

The articles in IMPACT AZERBAIJAN express the opinions of the authors and do not necessarily reflect the position of the American Chamber of Commerce in Azerbaijan.

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contents

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Great Expectations:

A Landmark in Baku

Interview with the Secretary of the Working Party on Land Administration WPLA (UNECE) Ariel Ivanier on challenges facing Azerbaijan and reforms initiated by the government to regulate the real estate and construction sector.

An overview of developments in the real estate and construction sector, by Arzu Geybullayeva.

The doyen of the real estate and construction sector in Azerbaijan, Landmark owner Efruz Muduroglu looks back on a career spanning 50 years.

12 Ariel Ivanier, UNECE, on Reforms in Land Administration

AmCham member NJT shares its successes and strategies as the most reliable supplier of plastic products.

18 Promotion Feature

14 Hill Comes of AgeThe Flame Towers will be Azerbaijan’s most successful showcase of its program to embrace western international standards of construction and living.

Getting Real about Real Estate

RENtALS: (Price per Month):Residential:480 to 7200 AZNCommercial properties (shops):10 to 120 AZN per sq. mOffices and Business Centers: 25 to 60 AZN per sq.m

PURCHASES:Residential:500 to 5000 AZNCommercial:1200 to 30 000 AZN

Price per m2

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21 Cementing the Market:Domestic producer invests in technology to boost capacity. Interview with Horia Adrian, the General Manager of market leader Garadagh Cement.

37 About us

AMCHAM AZERBAIJAN

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46

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Business Events

5th Annual Black and White Ball

Committee Highlights

As a member of AmCham, your company has access to a vast network of business information and contacts.

48 M2M Discount Program

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Members’ News and Events

Projects

27 Draft Construction Code

Hind Klinikasi tells newcomers to Azerbaijan what they need to know about obtaining a health certificate.

A draft construction code has been introduced in Azerbaijan. Baker & McKenzie discusses the implications for potential investors.

IN FOCUS

30 A Clean Bill of Health

Park Bulvar brings the mall to Azerbaijan as a ‘life experience’. What are Bakuvians getting out of this?

24 A Revolution in Retail

32 Easy LeasingAmCham member Salans provides important information on the legal ramifications of commercial leasing in Azerbaijan.

A brief introduction to benefits to be gained from International Tax Treaties.

34 Bilateral tax treaties

MEMBERS

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The American Chamber of Commerce is proud to announce that the number of our members has now exceeded 200. We would like to congratulate everybody on this achievement and say that we are committed to supporting our members in working together to build a strong future for business in Azerbaijan.

New Members

AMEC

AREVA

Crown Hotel Baku

NORM LLCCaspian Crystal

GROUP 1 Security RealGaz LLC

Relaz Consult and Services LLC

Pasha Construction

ZQAN Holdinqs Limited LLC

AECOM Baku LLC

Caspian Accounting & Consulting Services

Capital Resources Advisors

Bank VTB (Azerbaijan) OJSC

Caspian Region Oilfield Services Corp

Borusan Makina Servis ve Tic A.S

The European Azerbaijan Society (Partner Organization)

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Great Expectations: Overview of the Real Estate Sector

Baku, once the city of Alis and Ninos, small pathways, oil barons and ordinary people, is now a booming capital of construction, pricey real estate, luxury cars and boutiques- a city of wealth and stature. Often called the Monte Carlo of the Caspian, Baku is no doubt a great place to live if you are wealthy. Its future is guaranteed by ‘black gold’ and its rapidly growing oil and gas industry has turned the capital of this Islamic country into a growing investment hub.

It is in this setting that the real estate market has became Azerbaijan’s rapidly evolving non- energy sector. And yet, with its quickly expanding economy on one hand, tight government control over most of the sectors of the economy on the other, and financial crisis still knocking on the

country’s door, the direction and the future of the market is rather obscure.

An overview of the sectorOverall, the real estate sector in Azerbaijan picked up pace in the early 2000s, when the country began to slowly reap the benefits of the incoming investment. According to Rena Akhundova, one co-founder of the Azerbaijan Association of Realtors and Managing Director of Caspian Property Services (CPS), a local company providing real estate consultancy and a range of other services, “in total, since 2000, in Baku and within the surrounding cities, 480 new residential complexes with a total of 11,879,400 m.sq were built”. As the Association of Realtors of Azerbaijan reports, at the end of 2009, the number of registered residential units totaled 1,720,000 overall. However, an additional 5% of illegal residential construction as well as the new construction units that have not been registered by the government should be added to that general number.

Nevertheless, as the financial crisis hit the world, it was also felt in Azerbaijan and in particular in the real estate sector. In fact,

Arzu Geybullayeva Regional freelance analyst, BA International Relations, MSc Global Politics

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1 Ilaha Mamedil, Real estate market will continue to devaluate, http://regionplus.az/ru/articles/view/7902 Trend Daily, Construction sector (first quarter of 2010), http://www.allbusiness.com/real-estate/real-estate-sector-performance-housing-market/14405466-1.html3 A. Fatulla, Real estate market is ready for growth, http://www.zerkalo.az/2010-04-27/economics/8942p2-aif-stroimateriali-nedvigimost4 Price on real estate in Azerbaijan might drop by another 12%, http://www.property.az/shownews.php?newsID=60&type=news&PHPSESSID=19e8258fe4db07aa8af1da953654524c5 Exclusive interview, Baku’s population is growing, which means that the prices in the real estate market will be growing too, http://www.novosti.az/exclusive/20090130/42704769.html

as CPS reports, starting from the last quarter of 2008 and the beginning of 2009, it was really the beginning of a crisis year for Azerbaijan’s real estate market. From 2008, the construction sector decelerated as private demand for housing dropped and no new construction foundations were laid. “A sharp decrease in demand versus growing supply and the expense of new constructions changed the structure of demand and supply in disproportionate form”, says Rena Akhundova, adding, “One of the most serious problems in the market was limitation of sales in cash that most adversely affected property owners, construction companies and real estate companies”.

From September to November 2008 alone, apartment sales in Baku fell by 20 percent, says Arif Garashov, head of the State Real Estate Registration Service. In 2009, the percentage changed slightly, with most of the real estate sales decreasing by 10 to 15 percent. In the first ten months of 2009, the cost of secondary housing was reduced by 14.1 percent and primary housing by 18.5 percent. Prices on land plots dropped by 17.9 percent in comparison to the first quarter of the aforementioned year. Co-founder of the Azerbaijan Association of Realtors and director of Consultancy Company “MBA- LTD” Nusret Ibragimov says that compared to the first quarter of 2008, in 2009, the market continued to lose momentum, contracting overall by an astonishing 40 percent.

2009 was a year of maximum loss in land sales as well. Rena Akhundova argues that a series of shortcomings are accountable for this. Overpriced land plots, existing problems with documentation and unofficial disloyalty of credit organizations alienated this segment from the real estate market and affected prices saliently. In addition, “a sharp slowdown in the pace of construction works, stagnation in operations of construction companies, reduction of funds obtained for construction works and the diminished volume of investments to this field affected the land market negatively.”

As noted in the research of the Public Association of Realtors, the average price of 1 m. sq of a plot in Baku is 147.7 USD, as of January 2010. The term for land exposition increased by 0.4 percent to 253 days. The highest price was registered in Nasimi district at 190,000 USD per 100 m. sq and the cheapest in the Absheron area, at 350USD per 100 m. sq in February of this year.

In addition to the financial crisis, the real estate market activity was strongly affected by the drop in the volume of funds flowing into the country i.e., money transfers. According to experts, approximately 70 to 80 percent of investments in the market are made up of financial resources earned by

Azerbaijanis living abroad. As the Central Bank of Azerbaijan reports, remittances declined by 16 percent between January and September 2009.1

Changes in costs of construction materials also had a substantial impact. Prices for construction materials grew by 19.8 percent in March of this year, which is a 13.1 percent increase according to the prices listed last year.2

Renting of property in Azerbaijan was also altered as a result of these small- scale crises. For instance, in comparison with February, in March 2010 the volume of housing rent decreased by 19.2 percent, and by 19.6 percent in the first quarter of this year. If in December of 2009, a total 220.9 thousand m.sq worth of property was rented out, in March 2010 it was only 59.8 thousand m.sq.3

However, as experts argue, this whopping drop won’t continue and prices are expected to get back to normal. In fact, they expect a shift as of 2011, when the real estate market should gradually pick up pace.4

Ibragimov relates the imminent stabilization of the market to an expected increase of prices in the energy sector. “Since oil prices are growing, as of mid 2010 or in the first quarter of 2011, we will be looking at growth in the energy sector and as a result an increase of prices in the real estate market. Following initial “symptoms” of growth in real estate, people will start purchasing property without waiting for another hike in prices, which will trigger activity within the market”.

Vafadar Akhundov, President of the Association of Realtors agrees, adding that together with an increase of prices in the energy sector, other factors such as increased mortgage and mortgage financing by the state will have a substantial impact and might trigger positive change in the market. In addition, a new trend might be observed, says Akhundov, namely that some might consider the option of selling property in installments ranging from 10 to 20 years, which will also have a significant impact on the market and the prices.

What is missingHowever, while hopes might be rising on Azerbaijan’s real estate horizon, a series of major shortcomings exist. Azerbaijan’s real estate market lacks real estate appraisers. Anyone can call himself an appraiser without having proper knowledge of the actual business. According to Nusret Ibragimov, currently

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6 News on real estate market of Azerbaijan, Prices on primary residential market in Baku dropped by 0.3% in March, http://www.realestate-foreign.ru/news_azeri.php?id_article=1145697 zone 1- downtown; zone 2- city surroundings; zone 3- around the center and the suburbs, 6 to 7km further from the downtown;8 News on real estate market of Azerbaijan, A new wave of demolition of illegal houses began in Baku, http://www.realestate-foreign.ru/news_azeri.php?id_article=109543

there are 900 registered real estate agencies. In reality however, this number is much higher, especially when one takes into account individuals who call themselves brokers but who have no education in this field. Ibragimov believes that this number is close to 6000 if not more.5

Existing purchasing power is also an issue. According to the public association of realtors as of February 2010, 1 m. sq of a residential unit costs an average of 880USD.6 More precise data is provided by CPS, reporting that if one splits the capital into different zones7, downtown being the highest end and suburbs the lowest, then one is looking at a 4,000 to 30,000AZN and 1,200 to 5,000AZN price range for 1 m. sq of commercial property. And yet, despite such high prices, the occupancy is high, between 85 to 90 percent, according to CPS. However, there is already a difference in prices of rent between months, as for instance, in March 2010, prices and the rent for commercial buildings in the capital dropped by 0.2 percent. Compared to the previous quarter the prices actually decreased by 0.3 percent and compared to the same period last year by 3.9 percent.

Residential units in new apartment blocks range from 1,200- 5000 to 500-650AZN per 1 m. sq., bearing in mind that the average monthly nominal salary in Azerbaijan according to the State Statistical Committee in 2009 was 263.4AZN for state employees and 356.1AZN for non- state employees.

transformationAs a result of growing construction, the landscape of the capital has been transformed immensely. Currently, Baku resembles a basket of colorful mushrooms of different sizes and shapes at best or simply one big construction site at worst. This is mostly because of non-existent urban planning. The new developments spring up chaotically, with little or no SWOT (strengths, weaknesses, opportunities, threats) analysis.

As a result, hundreds if not thousands of residents have been evicted from their homes over recent years, homes that were then demolished and replaced with skyscrapers or removed for highway expansions. One such case was observed in one of the districts of the capital, where the local executive authorities ordered demolition of around 50 illegal homes. Residents argue that when they bought this land they were given permission to build, while authorities argue that today, these constructions are all illegal.8

Those residents who are evicted are also unhappy with the compensation provided by the authorities. “This is not a government house, it is my own private property,” said one resident living in the city center whose house was about to be

demolished. “They are giving me $1,500 USD per square meter. How can I buy a new flat with this money? Yes, one can demolish a house, provided there is adequate compensation for it!”

Residents’ complaints are left unanswered by the city's executive authorities. According to a lawyer with the Islam, Democracy and Human Rights Center, the organization has received over 300 complaints from just one residential district this year alone. Most of the complaints regarded misuse of property laws and violations of civilians' legal rights.

Another persisting problem of the new all- purpose skyscrapers is that often they are built too close to one another or already existing buildings, thus ruining the general aesthetic of the city. Driving around, one might see a 15-storey high rise with one - to two-storey old residential blocks standing right next to it. This has drawn much criticism from local residents, who argue that such proximity is a violation of their privacy. In the meantime, a number of old residential buildings have been torn down in order to acquire plots for new construction, disregarding their historical value.

Dream or reality Once a Soviet country of box- like apartment buildings, Azerbaijan is now a booming capital of luxury high- rise, all- purpose buildings. However, most of the investment and construction is taking place in the capital, with almost no expansion across the rural areas. The real estate market overall, and in particular residential buildings are not affordable for average Azerbaijani residents even with the side- effects of the financial crisis. Urban planning is non- existent with little attention and care given to the overall layout of the city and its historical past.

The chaotic construction boom might be an alternative to the energy sector. However, with its frenzied development, it is unlikely that it will become a more long- term and stable sector. Despite predictions of experts for normalization of the market, as long as average citizen incomes remain low, ability to buy will also remain low.

We are yet to witness an effective coping strategy of the government and investors with the crisis, while ensuring compliance with codes of construction, and implementing urban development, zoning, SWOT analyses and other planning guidelines. Let us just hope that while Azerbaijan continues its transformation to a glamorous metropolis, it only does it for the better.

Impact Azerbaijan wishes to thank Caspian Property Services for their kind cooperation in providing data and information for the article. www.cpsbaku.com

A Landmark in BakuThe aptly named Landmark development is a familiar sight for Baku residents. But not many people know the man behind the building. Efruz Muduroglu began his career as a civil engineer in Turkish Cyprus and is considered a pioneer of the construction industry in his home country. He has been operating in Azerbaijan since the 90s. Here are his views, drawn from 55 years of experience in the business, in this exclusive interview with Impact Azerbaijan.

How has the real estate market developed over the last 5 years?In the real estate market in Baku, in the light of the big increase in volume during the first stage of the last five year period and the realization at the last stage of the same period that this trend will end up spoiling the city, there has been a considerable improvement in quality observed. It may also be considered that the World Economic Crisis has also, to a certain extent, contributed to bringing the situation under control even if with limited effect.

Has the position of investors been affected by the world economic crisis?Particularly after the World Economic Crisis there has been substantial change in the position of investors. Meanwhile, in achieving performance, securing finance has gained precedence over knowledge and experience. In Azerbaijan, this situation has been aggravated by the fact that credit interests are very high. From now on, investors will consist of those who may be able to benefit more easily from the limited possibilities at the banks and also perhaps partly of state organizations.

Some external banks who have come to the country or are in the course of coming here and are, probably because of high interest rates, wishing to use the possibilities at their disposal in Azerbaijan, may be widening these possibilities for investors somewhat. The financing of the Hilton Hotel construction by the “Yapi Kredi Bank” jointly owned by the Koc Group and Unicredit and, as we understand it, the market investigation here by Turkey’s “Is Bank” may be given as examples supporting this thesis.

How much space is on offer at Landmark? How do you evaluate this space in comparison to similar developments in Baku? Has Landmark influenced construction standards?Landmark complex consists of the following spaces:

Landmark I (Gross area 12 000 m2)Offices . . . . . . . . . . . . . . . . . . . . . . 11 100 m2Leisure Space . . . . . . . . . . . . . . . . . . . . 900 m2Landmark II (Gross are 5 700 m2)Offices . . . . . . . . . . . . . . . . . . . . . . . 5 260 m2Landmark III (Gross area 45 000 m2)

Offices . . . . . . . . . . . . . . . . . . . . . . 12 500 m2Retail . . . . . . . . . . . . . . . . . . . . . . . . . 600 m2Residential . . . . . . . . . . . . . . . . . . . . . . 610 m2Leisure space . . . . . . . . . . . . . . . . . . 15 800 m2

In our opinion, the position of Landmark Office and Hotel Complex compares well. We believe that the Landmark I, which was our first job, has contributed to the implementation in the country of construction complying with European and American standards and the establishment of this as local practice. We are of the opinion that Landmark Complex is in a balanced position and it may be easily and favorably compared with buildings both in Baku as well as similar buildings abroad. With the completion of Landmark III, we now have the possibility of giving additional services to our clients. No doubt, this has had a positive effect on the value of the whole complex.

What is your attitude to competition?In our 55 year working life and in the last 17 years during which we have been in Azerbaijan, we have never been afraid of or shunned competition. On the contrary, we have always welcomed this. However, we are of the opinion that under the

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Fifty five years and counting...

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changed circumstances with interest rates in the country being extraordinarily high and especially after the World Economic Crisis, it will not be possible to compete on similar terms.

The fact that numerous similar and somewhat large projects will be completed at the same stages and take their place in the market, is an issue to be followed with some anxiety not only by ourselves but also by many institutions and organizations operating in this field. Our only consolation lies in our belief that those who are behind these projects or those who gave permission for them are hopefully in possession of knowledge we don’t have about the long term economic potential of the country and the mobility this will activate. Up to now, the economy went very well and has been supported by high morale. The problem is hidden within the fact that the situation may reach saturation point and in the probability that the institutions which have made investments in this field start suffering losses. If such an unexpected situation arises, this becomes a very big loss for the future of Azerbaijan because the private sector which generates 80% of the economy becomes discouraged and it takes a long time to revive and reestablish this. On the other hand, there is no doubt that the replacement of buildings like Azerbaijan and Absheron hotels by modern up-to-date structures and other modern installations under construction will not only make the city more attractive but also contribute to its position in the global arena, providing appropriate possibilities for international congresses and other events. Needless to say, the priorities in the development of the country is not a subject on which we may express a decisive opinion.

It is very difficult to say what future rents may become and I will desist from making a statement about this. We are not in a position to pretend we are Nostradamus.

We envisaged the building of the Landmark Complex in a manner adaptable to different economic circumstances and certainly, time will show whether we have contemplated correctly or not.

How will you stay competitive in view of other hotels being built in Baku?Naturally, like all institutions, we too endeavour to organize our job in the best possible manner. However, at the time we commenced our Landmark III project there was no information that in such a small period of time the construction of such a number of Hotel and Office buildings would be commenced. We can imagine that the “Four Seasons” hotel will have an internal and external clientele peculiar to itself. However, with the rest there will certainly arise an environment of competition. We are not afraid of this. In our 55 year working life, the winning of big and complicated construction projects in various continents upon international tenders and the carrying out of the same has always taken place as a result of a keen competition. We are optimistic persons and are always prepared to show the best effort at our disposal.

How did you finance the Landmark III project?Landmark Tower, more appropriately Landmark III, may be

considered as a medium sized 45000 m2 project. This project has been financed up to ground level as basic construction by us and the rest of it, in the main, by the credits given by the IBA Bank. Under present day conditions, our burden in this respect may be cleared by spreading it over a period of 12 years or more. The longer the period we spread it over, the better it is for us.

Do current indicators allow you to forecast any trends in future rents? As we have previously mentioned, all information relating to the future not being at our disposal, it may not be possible to make a precise forecast and consequently we prefer to keep our thoughts in this respect to ourselves. Azerbaijan is a rich, well administrated country but one which cannot be considered very large. For this reason, economic, political and other trends worldwide will unavoidably affect the trends in Azerbaijan.

Can you describe some of the challenges you have faced as a developer of many years’ standing.In all our work we are using the most established and up-to-date systems and we are trying to train our personnel and work force accordingly. Because we prefer to work with local personnel both from an economic point of view as well as from our understanding of social responsibility, one of the most important aspects of our job is the difficulty in finding trained personnel. One other very important factor is to be able to find credit at an interest rate which may be considered reasonable. At the present time it would appear to be possible to obtain credit from abroad at an interest rate of Libor + 3-4%. However, they do not view favourably giving more than 20-30 million US Dollar credits to private sector operators in Azerbaijan. These amounts, on the other hand, are not of much use for largish projects in a country where 2nd and 3rd mortgages are not usual or well used practice, and where syndications are not readily entertained.

Given time, there is no doubt that we shall overcome this type of issues and become successful.

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trends in Land Administration

In March 2010, a workshop was hosted in Baku on "Efficient and Transparent Land Management in ECE Countries". The UNECE Working Party on Land Administration addressed measures for minimizing fraud and improving monitoring activities. Ariel Ivanier spoke to Impact about current challenges to land administration authorities in Azerbaijan and other CIS countries. Please describe some of the positive reforms you have noted in the regulation of the Land and Real Estate sector in Azerbaijan.In Azerbaijan, major reforms have been implemented to modernize the registration system, which aim at increased efficiency. At present, the registration of rights on real estate is maintained both on paper (register books and files with title deeds) and on electronic form at the territorial departments of the State Real Estate Register Service. A new system was developed by the national authorities in order to improve registration through automated procedures and to apply modern information technologies as well as set up local computer networks at the regional level. At the same time, specific software was developed for maintenance of the cadastre of land parcels, which is linked with the national registration system. Digital databases with modern technology are currently being built up to improve data exchanges related to real property transactions as well as to improve ordinary data maintenance procedures. The goal of authorities is to achieve a nationwide computer network linking all the territorial departments with the national office, where relevant information will be stored in a central server.

What are the major challenges facing Azerbaijan?The UNECE undertook a land administration review of Azerbaijan, which was published in year 2007 and an upcoming country profile on the housing sector also includes a chapter on land administration. The two studies have found that the main challenges in land administration are overlapping functions between different authorities and an unclear distribution of responsibilities between national, regional and local levels in decision-making. Some of these challenges are being addressed in the process of creating a “one-stop-shop” mechanism for land registration, but other challenges remain in what concerns upgrading the real estate

Ariel IvanierSecretary of the Working Party on Land Administration (WPLA), United Nations Economic Commission to Europe (UNECE)

cadastre, which is relatively under-developed when compared with the automated registration procedures. It is recommended that priority be given to ortophoto-mapping activities and to developing the cadastral (index) map. On what concerns land reform, although its implementation has been extensive, land fragmentation still poses a challenge to efficient agriculture. Also recommended is the need of more transparency in planning procedures and municipal decision-making process. Finally, there is the need to correct discrepancies between land maps and the actual location of land parcels, address the absence of adequate institutions to regulate real estate markets and the need to adopt objective methodologies for real estate valuation. Measures to enforce good customer service and monitor citizens’ access to information on land and real estate should also be developed.

In 2007 the Government of Azerbaijan approved a Real Estate Registration project to create a “one-stop-shop” system. How effective has this been in terms of facilitating registration, establishing a reliable database, making information accessible and reducing costs of transactions for consumers?The reform of registration of rights on real estate under the unified state structure (one-stop-shop mechanism) has passed through several stages and different agencies have been involved in this project. Beginning in year 2005, the authority for registration was concentrated under the State Real Estate’s Register Service (which works under the State Committee on Property Issues since May 2009). The goal was to create, according to existing international trends in land administration, an adequate institutional framework for maintenance of ownership rights by a single state body that could reduce costs for consumers as well as provide improvements in the efficiency and reliability of real property transactions. The reform would also allow a more transparent access to information on land and real estate. In 2007, the government approved a Real Estate Registration Project (RER, worth 38.5 million dollars) funded by the World Bank that seeks to create a single automated system for real estate registration to be finalized by year 2013. The project was set up to take advantage of synergies that will result of adopting the “one-stop shop” mechanism in land administration to facilitate registration, promote the merging of databases on land and real estate, increase the use of information technologies and reduce costs of real property transactions. It is a significant initiative that, if successfully finalized, will contribute to smoother land registration procedures and increased welfare for consumers.

What measures are recommended for minimizing fraud and increasing transparency? How is WPLA cooperating with the government of Azerbaijan to pass on best practices to increase regulation of the sector?

Eficiency, reliability and reduced costs for customers

The UNECE has addressed this question during a workshop on “Efficient and Transparent Land Management in ECE Countries”, which was held in Baku, Azerbaijan on 4 and 5 March 2010. The event featured presentations of national experiences in the ECE region dealing with recent reforms to increase transparency on access to information on land and real estate. The event also allowed the Working Party to discuss an ongoing study on fraud in real estate registration and conveyance, which was started after national authorities increased their awareness that fraud poses a real threat to sound land administration. The study, which aims at providing guidance and best practice examples, will be discussed in-depth during the seventh session of the Working Party on Land Administration in Geneva next June 2011. Preliminary findings have shown that solutions are available to ensure the security of transactions through better monitoring, training schemes for civil servants and restrictions in access to information for anonymous users. It is important to mention that no evidence exists in the region that the creation of electronic registration mechanisms has created new vulnerabilities to existing systems. On the contrary, in particular for countries where internet based land administration services are incipient, such as Azerbaijan, increased attention is needed by government authorities on all activities directed to increase public awareness of the advantages of e-government technologies to promote transparency.

What is the trend in the CIS region in regard to efficient land management? What changes do you expect to observe in 5 years?In general, land administration could be improved in the CIS region by reforming the taxation systems to make them fairer, more objective and transparent as well as by promoting a clearer definition of real property rights (especially in what concerns land reforms of formerly collectivized agriculture) and facilitating real property formation procedures. It should also be noted that the priorities and urgencies regarding the enactment of efficient land management reforms at the national level are uneven and vary from country to country. Thus, the implementation of policy changes should be incremental and contemplative of each individual national context. Amongst the

countries where the UNECE has been recently involved through the undertaking of land administration reviews, the following trends have been observed. In some countries in Eastern Europe and the Caucasus (such as Belarus and Azerbaijan), reforms on registration systems are well advanced and the authorities have implemented and made operational “one-stop-shop” mechanisms for cadastre and registration services. In these countries, introducing universal E-land administration mechanisms would further facilitate necessary reforms for property registration and conveyance. In other countries in Central Asia, governments are still dealing with the outcomes of flawed privatization processes undertaken during the 1990s, when reforms were pushed without sufficient regard for the creation of adequate institutional frameworks for real estate markets. Progress in these cases is expected to occur at a lower pace, with a focus on institutional reform. For instance, in Kyrgyzstan, pending challenges include improvements in the processes of land allocation, systematic land legislation, land payments, land use planning and rural development. In Tajikistan, the registration of land started only in 1998. In this country, current real estate registration processes are complex and not very efficient: there is a duplication of registration data and the parcel-based system is incomplete. In what concerns the expected changes for the next five years, due to limited available funds for implementing reforms at the national level, the UNECE foresees that international cooperation will be fundamental for the region to succeed. This should occur not only in the form of financial assistance, but also through training and capacity building activities for public officials, which in some cases are already underway.

Ariel Ivanier joined UNECE in September 2008 as Secretary to the Working Party on Land Administration. He is a political scientist and holds a Ph.D. degree from Boston University. Prior to joining UNECE, he has worked as a researcher at the Massachusetts Institute of Technology (MIT) and the Inter-American Development Bank. He has also earned university degrees in International Relations at SAIS Johns Hopkins University (MA) and San Andres University (BA).

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When a definitive chapter is written about the building of a new Baku ever since it became an independent republic in 1991, a space should be kept for the iconic 21st century Flame Towers project.

Towering to a maximum height of 192 metres, the iconic US$350 million development will comprise three curving towers ranging from 34 to 39 stories and rising from a podium with an extensive roof garden. The client is Azinko Development MMC, a private developer based in Baku; while HOK International Limited, out of its London office has prepared the design concept.

Located on a prime site in Baku and with views of the Caspian Sea, the mixed-use facility will be home to international high quality offices, a five star Fairmont hotel with a state-of-the art conference centre, flick restaurant, spa, and serviced apartments, as its prime attractions. The towers are linked by centrally-located retail and leisure facilities, and will have

a total built-up area of nearly 235,000 square meters (2.53 million square feet), with 1,200 basement car parking spaces. From the exterior on their impressive elevated site near the Azeri Parliament, the trio of towers will be shield-shaped in cross section and have a distinct look of three rising flames, a symbol from Azeri mythology.

When completed in the summer of 2011, the Flame Towers will not only serve as Azerbaijan’s most successful showcase of its progression to embrace Western international standards of construction and living, but they will also be an icon for other nations in the former Soviet Union (FSU) bloc to replicate whilst highlighting Azerbaijan’s leading status in the region. The vision of the Investor is to deliver a project of the design, style and standards you find in New York, London, or Dubai, and to raise the bar and set the standard of mixed use developments in Baku, in Azerbaijan, and the region.

“This is indeed a very challenging project for my team and

Hill Comes of Age in AzerbaijanA benchmark in the Caspian region

16 Spring / Issue 9

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for me, based here in Baku,” said Kevin Denton, General Manager of the Hill International (Azerbaijan) office in Baku and also the Project Director for the new development. “We have introduced and oversee processes and procedures of international standard - contracts, quality control, material selections and procurement, design management (the project utilizes the design/build fast track delivery method) and interior design, budget management, construction techniques, and safety that a project of this size and complexity requires. We work daily with the developer and contractor to ensure international standards and highly developed project management processes and procedures are maintained. For example, the project is being designed and built to comply to NFPA (National Fire Protection Association), the American fire and life safety code, as well as local codes. This required hiring experts and design consultants who are familiar with the code, and familiarizing the contractor and local authorities with the code.”

Implementing the best project management and contracting practices is always at the heart of New Jersey-based Hill International and no effort is being spared for the Flame Towers venture to assure its successful completion and position as a landmark symbol of Baku in the 21st century.

In January 2009, Hill International was awarded a contract to provide project management services for the development, which had been structured to be implemented on a fast track basis. Employing 2,300 professionals from all fields of construction and project management in 80 offices globally, Hill International has a reputation for the successful delivery of premier projects, as a consequence of which last year, Hill International was ranked by the Engineering News-Record (ENR) magazine as the 11th-largest construction management firm in the US.“This is our first major assignment in the Republic of Azerbaijan,” Raouf S. Ghali, president of Hill’s Project Management Group (international), said soon after putting pen to the contract. “We are honoured and excited to participate in the construction of this ambitious development, especially with its innovative design which we are sure will become a significant landmark in Baku. The project is important for us, as it has balanced the innovative, iconic nature of the design while maintaining the economic feasibility. Baku is an important strategic location for Hill as the newly-independent states have a growth potential due to the private and public investments.”“Hill International is a great resource for Azerbaijan”, Denton adds. “We have so many available resources and experience we can draw from. We can draw on experience from our 80 offices around the world and mobilize highly educated, experienced experts in a structured mobilisation timed to reflect the project needs. We have TCTs (Technical Core Teams) located in Ankara and Dubai that can provide technical reviews of plans and specifications, or any specific issue or need that may come up during a project. These teams comprise of experts from every discipline, as well

as support services such as scheduling and claims review and mitigation.” Denton continues, “Hill has Knowledge Centers, based in the UK and Dubai holding a library of every code, standard, and publication related to the design and construction of projects. It’s a great resource. All an employee has to do is request by e-mail a specific issue, and a Knowledge Center Analyst will research available reference material and e-mail it to the project site immediately.” Kevin continues, “Hill International has identified Azerbaijan and the CIS Region as a growth market, and has made a long term commitment to establish in Azerbaijan, not just for one project but to be able to offer clients a full range of services for projects from infrastructure to high tech buildings, such as the Flame Towers project. By offering a one-stop full range of services, from inception to commissioning, we expect to show more customers the value we add to a project and their business. We are looking for more projects to sustain our presence here.”

Challenges The Flame Towers project has come with its fair share of challenges however, and no one knows this better than 46-year-old Denton who maintains an 11-hour work schedule each day to ensure all is well.

“Right from the word go, Hill International has worked with the Developer to implement international standards of design, procurement, and construction management techniques to the project to achieve the Developer’s vision, some of which were introduced for the first time to the Contractor,” he said, hastening to add: “Baku was a new territory for Hill International.” For the contractor, DiA Holding, this is the largest project they have carried out and there is pressure on them to complete the project on time and within budget. “I have been extremely impressed with the level of skills and how hard their staff of Azerbaijanis and Turks work to achieve the project requirements.”

“Our personnel are a mix of Azerbaijanis, Georgians, Turkish, Polish, Americans, and British. All have been hand selected, and have experience on international projects, so they are familiar with international standards. All have been involved in large projects, hi-rise projects, and have 5 star hotel and retail experience. What Hill International contributes is international experience, and a highly developed framework of project management processes and procedures.”

Logistical challenges have not been easy to overcome either, with the need for procurement of some materials from outside of Azerbaijan.

“Reinforcing steel is sourced from Ukraine, cement from Turkey, glazing from the U.A.E., aluminum profiles manufactured in Germany, and so on. As a rule of thumb, it takes about 30

days for a bag of cement to arrive on site,” he said, explaining that the materials are shipped over land routes after being purchased.

“Azerbaijan continues to emerge quickly out of the Soviet era in many ways. Manufacturing facilities are coming on line. Laws and regulations are continuing to develop and evolve. Keeping abreast of the changes is a big challenge. Our first task was to set up the business, process work permits and residence visas and attract local trained personnel. Lack of up to date, reliable information about Azerbaijan, either on the internet or by way of word-of-mouth, did little to help. It has been frustrating at times, but we continue to be persistent and flexible.” he explained. “International standards in housing, and the conveniences we take for granted in the U.S. and Europe are now being developed in Azerbaijan. Many of our staff are in their second or third apartment but, all around you, there is a buzz of constant and rapid improvement, and they are keen to be part of this growth. It’s happening quickly. You can see improvements catalyzed both by private development and government programs.”

“There are dozens of tower cranes over the skyline, with most of the construction activity being focused around Baku. Projects have been also been identified for sports based developments, including a ski resort and golf course development, besides the setting up of wind farms and hydro-electric projects for power generation, road and water infrastructure, and wastewater treatment plants. We have similar projects throughout this region, and worldwide, and can apply our knowledge and resources to add value by working with the developer, or government agency, to secure the appropriate solution and to deliver it on time, within budget and most importantly, to the very best standards of quality” Denton said.

Yet another challenge was posed by the lie of the land and geological issues.“Existing unknown utilities were encountered on site. The site is on an incline with one side elevated 23 metres above the other. Thus, the excavation is five stories deep in places, and a massive bored-pile retaining wall was required to perform the excavation,” Denton said.

Also, according to Denton, the Flame Towers’ site, as with all developments in Azerbaijan, must be designed to recognise potential slip zones and a seismicity level-8 zone. Thus there was a need to drive concrete foundation piles 50 metres into the earth. “It’s the most massive foundation I have ever seen and the most heavily reinforced structure I have experienced.”

“Winds on site often reach 90-120 kilometres an hour, shutting down the tower cranes. The crane motors just can’t take it and safety would be unacceptably impaired in such conditions. Also, the building is located across the street from the Parliament Building, so work gets stopped for official visits

without notice. Other than that, we are basically on schedule.” he added.

Satisfactory progressDespite these issues, approximately 40% of the work has until now been completed, with the aim of delivering the project on time.

“Personally to me, Flame Towers is an exciting concept and design, based on Baku’s belief in the historical concept of worshipping fire. When I was asked to come here, and saw the concept drawings of the project, I wanted to be a part of it. I think it will be an internationally recognized and significant project.” he said.

These are changing times for Azerbaijan which is seeking foreign direct investments (FDIs) into its domestic economy. Be it oil or non-oil sectors, the government in Baku is doing all in its power to emerge as a preferred destination in the FSU states.

With crude oil prices stabilising above US$75 per barrel in the global markets and the state coffers benefitting, the expectation will be for a raft of new projects to be tendered and constructed.

Given their experience and with the success story of completing the Flame Towers project on time and within budget, Hill International will keep a hawk’s eye on new developments not only in Azerbaijan but also the adjoining FSU states.

Few will deny that the Flame Towers will serve as a benchmark in the Caspian region and will be a classic example for others to follow.

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18 Spring / Issue 9

Mr. Rauf Mehdiyev, Chairman of the Executive Board, “NJt Group”First of all I would like to take this opportunity to congratulate you! One of the companies of NJT Group recently received an award from the Economic Council of CIS. What was the award for? Thank you for your attention and congratulations! Indeed, on December 11, 2009, part of our group, “NJT2000” company received an award from the Economic Council of CIS for their achievements in providing high quality products and services in the category “Production of Manufacturing Products”. I would like to mention that this competition has been conducted since 2005 among CIS companies; at this particular competition only 6 companies within CIS countries were honoured. Three out of six prizes went to Azerbaijani companies, NJT2000 inclusive. This fact could be considered as one of the indicators of improvement in the local standards, and strengthening of the economy. In addition to a great number of prizes awarded, I would like to mention our successful activities, high quality and hygienic compliance of our products and receiving of the international certificate of quality ISO 9001:2000 in 2004. Our main goal is to prevent our clients from facing problems with lower quality as well as to make sure they use stable and guaranteed products by involving new technologies.

Which companies are you currently working with? Founded in 2000, and achieving remarkable success within a short period of time, NJT Group offers ready (prepared) plastic products to governmental agencies, private companies and individual entrepreneurs. We also develop cooperation with regard to product sales and marketing as well as purchasing raw materials and technologies from over 15 countries like Germany, Turkey, Russia, South Korea, Italy and others.

What are some of your most important projects?NJT group has already won a number of tenders and is therefore involved in the execution of several major governmental projects. We are aiming to widen our activities in this sphere in the near future. Our efficient personnel and the technological and production capacity of the group of companies make it possible to achieve our goals. As our prioritized activities, I would like to mention our close involvement in the re-establishment of the water supply, irrigation and drainage system of “Azersu” with the financial support of World Bank, as well as SOCAR/Azerigaz’s infrastructural projects on renewal (re-establishment) of gas-pipes all over the country.

Mr. Rauf Mehdiyev, Chairman of the Executive Board, “NJt Group”

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Would you like to emphasize any particular achievement which makes you so successful?It is worth mentioning that one of the most recent achievements of our companies was the purchase of new technologies from German company “Drossbach” with the support of Azerbaijan International Bank and Hermes Foundation, which gives us a chance to produce double wall corrugated pipes. I think, in the near future, we will be able to provide neighboring countries along with the local market with this type of pipe. These pipes are very durable and stable, therefore they have been widely in use for drainage and sewage systems. NJT Group is considered to be one of the leaders in CIS countries for production of plastic industry products because of the high quality, balanced price policy and professionalism and expertise of our personnel. For project implementation the company has a construction mechanism base, manufacturing plants for construction materials, laboratories for quality control of production and subsidiary farms.

Can you give us a brief description of your other products and services?NJT Group's BTQ (consumer utensils production factory) is certified and conforms to hygienic standards.Production of liquorice products (PLP) using extracts from the roots of liquorice for use in the tobacco industry and medical treatments.

Bakpek, implementing high technological standards, is building a modern refrigerator barn for storing more than ten thousand tons of agricultural products in the course of the year.“Kleirberit-Azerbaijan” is a Germany-Azerbaijan Joint Corporation. This company is engaged in the distribution of high quality adhesives used in the building and furniture sectors.“R-Plast Turkey” provides these production companies with high quality raw material and new technologies from Europe.NJT Group gives 50 years of quality assurance for many of their products.

How do you invest in your employees? Do you provide training? First of all, NJT Group, being interested in the opening of new work places by broadening local production, has successfully managed to attract young professionals and experienced employees. For the purpose of improving and developing the skills and professionalism of its employees, NJT Group organizes different types of trainings and seminars on a regular basis. Apart from this, we also pay great attention to improving the social security of our employees. Along with accidental insurance, we are planning to provide each of our employees with medical insurance.

Which countries do you operate in? What are your strategies for future expansion?Apart from Azerbaijan, NJT Group has mainly focused on CIS and Middle East countries' markets. For these purposes, NJT Group has launched branch offices in Kazakhstan, Turkey, Ukraine and United Arab Emirates. NJT Group, whoes the strategic plans include business expansion not only in countries of CIS region but all over the world, desires to enlarge its own positions in the broader area. That is why we have establishd representative offices on four continents and, in accordance with production requirements, we aim for growth in the quantity and scope of our operations in different regions. The major part of our profit goes back into production and to open new work places, thereby creating jobs. We are confident that banks consider us a reliable partner and would apportion credit under favourable conditions.Relying on wide experience, NJT Group is planing to use more innovative, modern technologies and exploit the opportunities of advanced information technologies. The company management realizes that if they don’t move with the times, they won’t achieve huge success in business.

What is the next big step for your company?In view of the transition to IFRS, International Financial Reporting Standards, in accordance with the decree of the President of the Republic of Azerbaijan Ilham Aliyev, a new system of administration has been introduced in the group of companies. We are currently implementing an action plan for the improvement of account registration, internal and foreign audits and developing professional personnel which spans the 3 year period 2009-2012.

For further information about NJT Group, please go to our website. http://www.njtgroup.az/

Double wall corrugated pipes

Cementing the Market

On the 20th kilometer along Salyan highway, the main industrial artery of Azerbaijan, lies the country’s only integrated cement plant. Truck drivers know it as “tsement zavod” with its origins in the Soviet industrial zeal of the 1950s. White clouds of steam – not smoke – billow out from the stacks of this domestic private giant, which forms part of the Swiss Holcim Group. With a capacity to churn out up to 1.3 million tons of cement per year, Garadagh Cement is a market leader. Mr. Horia Adrian, the General Manager from Romania, talked to Impact about the conditions in the market for construction materials. Low demand relative to previous years has led to price reductions of 27% on average. Despite this the company is pushing ahead with the introduction of new dry cement technology, which will “turn off” the steam on the stacks. This is one of the largest investments in the non-oil sector. Among other things, it will help increase output and solidify Garadagh’s 35% market share. From this vantage point Mr. Adrian graciously welcomes fair and healthy competition in Azerbaijan.

What is your assessment of the construction industry worldwide and in Azerbaijan? The construction industry worldwide suffered from a downturn in demand. Some regions were affected more than others. In Asia, for example, demand continued to rise whereas North America and Eastern Europe were hard hit by the global financial crisis. Azerbaijan saw a 25% drop in demand relative

to 2008 but it still fared better than other countries in the region. This drop was mainly attributed to the residential segment while infrastructure construction remained at the same level. How do you forecast supply and demand in your local market? There are various forecasting indicators in our industry, such as population growth, population wealth (GDP per capita), surface of residential, retail or office space, the number of new projects that are announced, just to name a few. The monitoring of trends in different sectors of the industry is a continuous process which depends on people collecting information. If the people are reliable, the choice of indicators becomes less important. What is the capacity and sales volume of Garadagh Cement?We have the capacity to produce approximately 1.3 million tons of cement per year. In 2009 we sold 1.1 million tons, which is equivalent to a 35% market share. Sales were affected by low demand although Garadagh Cement performed better than the market. Our current forecast is similar to that of last year. In the future we expect the domestic market to perform better than the regional.

Who are some of your best and your most profitable customers?We value and treat all our customers with respect. Every effort is made to identify and satisfy their different needs. We no longer think of selling products but concentrate on developing solutions. We conduct customer and job site visits to determine how our clients can benefit from working with us. Of course clients in the private and public sectors have different needs and expectations because they operate in separate market segments. Private companies work mainly in the residential segment, while infrastructure is dominated by public sector clients. We offer customized solutions for specific applications in both segments and provide technical assistance and support.

In classifying customers by needs, I see two groups – professionals and users. A professional customer wants to be more competitive in the construction market and therefore aims to optimize the production process by using the right raw materials. This is the customer we provide with extensive technical support, such as producing mix designs on request, developing products with specific chemical or physical properties, tailoring logistics services, and so on. Users, on the other hand, are only interested in the strength of cement. For them we have technical education services to explain that the durability of construction depends on all materials and methods used. It is important to find the right cement for the right application without compromising on the quality of other materials. Cement alone will not help if bad quality sand or gravel are used, for example.

We try to build quality awareness among our customers. Unfortunately people have a very short-term planning horizon

Domestic producer invests in technology to boost capacity

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and they forget that a bridge or a road is not built for two years, but for 50 or even 100 years. The use of products of doubtful quality, many of which are imported, will not improve the durability and safety of any construction.

Do you expect any new players to enter your market in the near future? Garadagh Cement is a major player in the cement market in Azerbaijan. However, it is not the only one. We have an average market share of 35%, which should be sustainable in the future. Garadagh Cement is an innovative company. We are on track along one of our key objectives to bring a new product or service to market every two years. There have been several announcements regarding new cement plants opening in Azerbaijan since my arrival in 2004. I think competition is healthy and I would be more than happy to welcome another fully integrated player in the domestic market. Competition is good for customers, for industry development and ultimately for us. Fair competition keeps a company fit to stay in the market. Unfortunately today’s competition does not bring many benefits to anyone due to doubtful variable quality and lack of services. We will appreciate fair and healthy competition that would benefit the entire construction industry in Azerbaijan. How do changes in technology and construction standards affect your business? We are actually driving changes in the local market. Garadagh Cement is currently undergoing the largest investment in the non-oil sector in Azerbaijan. The investment is aimed at replacing the existing wet technology clinker production line with a new dry kiln. This state-of-the-art technology will help reduce energy consumption, increase production capacity by 40%, and ensure compliance with the highest environmental standards. I would like to remind here that we promoted the introduction of European standards for cement back in 2005, even before the new Russian GOST was introduced in Azerbaijan. At Garadagh Cement we value creativity and innovation. We look for new solutions for the local construction market. Of course there are still innovations that did not reach Azerbaijan, but I would say that this is normal, considering the current level of industry development. Garadagh Cement is part of Holcim Group, one of the worldwide leaders in construction materials. We benefit from the vast experience accumulated inside the group over nearly 100 years. Besides we closely monitor domestic and regional market changes.

How do you manage relationships with distributors? In 2007 we introduced a distributorship system to supply the bag retail market. This was done in response to prevailing market conditions in Azerbaijan, specifically fake cement, price speculation, improper documentation, etc. In the last few years, improvements were made in all these areas. Low demand reduced price speculation in the retail market to zero. To achieve success efforts must be made to strengthen the

capacity to fight fake cement and increase awareness of bad quality products in the bag market.

Outside the bag retail market, all other market segments are supplied directly by Garadagh Cement. We strongly believe that it is mutually advantageous for us to stay close to our professional end users. Any potential customer need can be met quickly and in a personalized way. Existing market conditions call for this type of arrangement. Of course, we monitor these conditions closely to be able to adapt if necessary in the future.

What is your approach to ensure compliance with local and international environmental standards? Our objective is, first of all, to comply with local standards, but being part of an international group, we have to comply with Holcim’s strict standards as well. We use various criteria, including environmental ones, in selecting our suppliers. For instance, our transportation services subcontractors are required to modernize their fleets and bring them in line with European standards. We are committed to finalizing this process by the end of 2011. Finding local suppliers who are compliant with the highest environmental standards is definitely a challenge. It is a learning process, which can happen with our support.

What is your vision for the next five years?There are always challenges but I am confident that Garadagh Cement will always be a very adaptable and agile competitor. Our current investments in people and technology will help us preserve a competitive position to face any market challenges that may come.

Interviewed by Natalia CorobcoNCorobco@imgbaku.com

24 Spring / Issue 9

A Revolution in Retail

Park Bulvar is Azerbaijan's first mall, affording a glimpse into the future of retailing in Azerbaijan. Kadir Ozbey, the General Manager, puts it poetically. ‘It’s not just a shopping centre. It’s a life centre’, he says, expressing his vision for all that this iconic development represents for Bakuvians. Park Bulvar has something for everybody. It’s the ultimate shopping, eating and leisure experience, with 4 floors + mezzanine of name brands, restaurants, fast food outlets, a Cineplex, a bowling alley, bookstore-cafe and the largest Kids’ Zone in Baku equipped with computer games and a group play area for 1-15 year-olds.Visitors entering through 4 entrances, having left their cars in the 550-car underground parking lot, are treated to a plethora of the newest brand names as well as more familiar faces on the first 2 floors. The first floor also boasts a World Fashion Cafe.The 3rd floor Food Court has the world’s first Azeri Fast Food restaurant, appropriately named Kabab Park, where the management worked closely with 2 young entrepreneurs to offer the sophistication of Azeri cuisine in a take-away package. Kalinka is another first, featuring mouthwatering Russian blinis with a variety of toppings. Fan-Fang caters to those with a yen for Asian food, while Baskin Robbins and Segafredo, both oldies but goodies, are also present for the very first time in Baku.The 4th floor houses 2 new restaurants for those with the leisure to dine: ‘Zeytun’ with a mixed Azeri-Mediterranean cuisine and

Kitchenette with an international menu. Old and young will delight in a trip to the stars, complete with sound effects, in the Planetarium which screens all-day shows in Azeri, Russian and English. This is in the nature of a gift to the people of Baku, seen more in terms of enjoyment and educational value than as a money spinner.Six theatres in the Cineplex, in a host of designs to suit every age, mood and occasion will screen films in 3 languages. This is operated by a Russian partner with a strong track record in the management of entertainment complexes and cinemas.A mezzanine dividing the generous height of the top floor holds a bookstore-cafe and an area managed by Park Bulvar with gallery space for exhibitions and events.The basement is home to a drycleaning service, shoe and clothing repair and other essential services. Citimart occupies 1207 sq.m of supermarket shopping, extending their offer beyond fresh and dry goods to a bakery, cafe and bistro.Bringing all these internationally renowned names together is quite an achievement, especially in light of the economic downturn that took many brand names out of the running. Although this is a very young market, Park Bulvar counted on the concept being familiar to retailers. Maintaining close contact to local retailers as well as investigating abroad and talking to Turkish and European brands, especially in Spain and the UK, Park Bulvar came up with a concept and a business plan which enabled investors to attract big names to Baku. They say they

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Say 'Hello!' to Baku's first mall

have applied a rigorous selection and screening process to determine WHO gets in. Employing to ensure the best mix of goods. No amount of arm twisting by potential investors has prevailed against a strong determination to establish their reputation and ensure the best mix of goods.

Does Park Bulvar see itself as a formidable competitor for other retailers in Baku? ‘We do have the advantage of being the first development of this kind on the Neftchilar Avenue’, admits Business Development Manager Zarifa Mirzoyeva, ‘and maybe it’s going to make a difference to consumer expectations and cause some shops to close, but we are also pioneers, opening the way for others to explore and exploit this concept, and adopt our business plan in the future! This is not just about commerce. It’s about fun, leisure, enjoyment, about enhancing the quality of people’s lives’.

The mall targets what she calls a ‘middle market’. Keeping prices within controlled limits means that it aims to be affordable across all sections of society and appeal to those who head up the high street to Topshop, as well as to those whose habitual hunting ground is the rarefied designer outlet. And those who have kids will find it hard to resist the diversions on offer. Park Bulvar seeks to attract people who wish to spend quality time in a pleasant and stimulating environment.

The $40 million development covers a gross area of 40000msq, of which 17 500msq is leasable space. The key investor is Baku Plaza Ltd., and major client investors number Infinity for Debenhams, NOVCO with 10 stores, and Caspian Invest for the cinemas. The construction company INNOVA is a part of Azersun Holding, and employs sub- contractors for electrical and mechanical engineering work. The budget has been exceeded owing to the sophisticated roof design which necessitated a very exacting standard of construction. This also contributed to the construction taking longer than expected. This has been one of the challenges faced during the project. The location of the development on the boulevard has also posed problems, as water isolation, anchoring, and protection became necessary. Close cooperation with the boulevard management has been key to overcoming this challenge. Park Bulvar considers that it is worth it, to be in a fabulous location and give Baku a landmark with a beautiful, unique design to be proud of.The complex works with franchisers who sign a 3-year contract. There is a fixed price per sq metre of rental space. In the second and third year of the contract, the rent increases by 5%, irrespective of inflation and currency fluctuations. Contractual obligations are clearly laid out. (This is belatedly added to the list of challenges, as many tenants are simply not used to this, having hitherto dealt with a landlord with a few sheets of paper). Park Bulvar has had the difficult task of convincing tenants that the voluminous and comprehensive contract provides added security and is of benefit to all concerned parties.Park Bulvar expects to break even and start to show a profit in 8 years. When asked to comment on foreseeable trends

in retailing in Azerbaijan, they said that the situation can be misleading. It is not always possible to understand or accurately predict consumer behaviour or buying power. They hope that the prevailing desire for fast and cheap fashion will morph into a more informed taste based on increased exposure to global brands and their sophisticated marketing and presentation. For the moment, they are very happy to have brought all these ‘firsts’ together and eloquent in expressing their gratitude for the welcome they have received in Baku, the cooperation of the private sector, and the very positive indicators. The secret of their success? Says Ms. Mirzoyeva, ‘we have very special investors and a very special team.’

1 Floor Debenhams; Mango; Bebe; Aftershock; Nine West; Benetton 012; Benetton; Van Laack; Koton; Nike; Adidas;Coast;Pablosky; Sisley; Donna; Il Bernardo; Axara; Accessories; Liu Jo; Etam; BMW Accessories; World Fashion Cafe

2 Floor Debenhams; Fabrika; Austin Reed; Sel-Home; Cacharel; Pink; Colin’s Girandola; Banana Moon; Mayoral; Playlife; Shakh; VMF; So Chic; Pieces; Parfumeur; Incanto; Original Marines; Oasis; US Polo; Segue; Veromoda; Jack Jones; Only; Inci

3 Floor Happy Land (Kids Zone); Alma Store; Cinelli Home;Vodafon; Atom Toast; Fan Fang; Kalinka; Da Rancho; Baskin Robbins; Kabab Park; Sultan’s; Segafredo

4 Floor Cinema; Planetarium; Photo Studio (M Studio); Zeytun Restaurant; Kitchenette Restaurant; Bowling

+4 Floor (mezzanine)Gallery, La Vita Cafe

-1 Foor (parking)Supermarket and Services: dry cleaning, shoe repair, tailor, watch repair…

-2 Floor (parking)

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in focus

26 Spring / Issue 9

in focus

Coming Soon to a Skyline Near You

Full Moon Rising Crescent Towers

SOCAR Tower

Park Boulevard

Hilton Hotel

Mugam Theatre Absheron JW Marriott

Heydar Aliyev Cultural Centre

Baku Business Centre Sky Park Flame Towers

Altes PlazaPort Baku Project

Draft Construction Code: New Concepts and Requirements

Natik MamedovAssociateVagif KarimliAssociate, Baker & McKenzie, Baku

IntroductionSince independence in 1991, Azerbaijani’s economic policy has focused on attracting foreign capital into Azerbaijan. To this end, Azerbaijan has been implementing a legal regime to encourage foreign and local investment in various industrial sectors, including commercial, industrial and residential construction. While growing rapidly, particularly during the construction boom of 2003 to 2007, this market has not been subject to specific regulatory attention until recently. It had been regulated, for the most part, by the old Soviet-era regulations known as Gosudarstvenniye Standarty or GOST and Stroitelniye Normy i Pravila or SNIPs as well as uncodified construction law.

In early January 2009, the Cabinet of Ministers issued Resolution No. 7 On Approval of the Plan for Improvement of the State Construction Standards Documentation System, instructing certain governmental agencies, including the Ministry of Emergencies, the State Committee on Construction and Architecture of Azerbaijan, and the State Agency for Standardization, Metrology and Patents to jointly prepare: (i) a draft Construction Code, and (ii) a draft program on the State System of Construction Standards. The draft Construction Code has been prepared and has passed the first reading in the parliament. While not yet available to the public, the draft City Development Code has also reportedly been subject to discussion.

This article discusses the new legal concepts, regulatory and technical requirements relating to the commercial development introduced by the draft Construction Code.

Stages of Construction WorksThe State Construction Committee is the principle agency regulating construction-related documentation requirements. Presently, these matters are regulated by State Construction Committee Rule No. 7 On the Organization and Performance of Construction Works and

On Acceptance of Completed Structures for Use dated December 30, 1999 (“Rule 7”) and the Rules On State Supervision in the Construction Industry by the Ministry of Emergencies, approved by Decision No. 272 of the Cabinet of Ministers dated December 5, 2008.

The draft Construction Code makes the pre-development approval process more transparent by specifying the construction phases to be completed in the following sequence:

1 preparation and approval of initial project plans and drawings relating to the proposed land development;

2 (i) land allocation for the implementation of the project (unless private land is to be developed) and (ii) the issuance of construction pre-clearance. Currently, phases 1 and 2 are in reverse order, i.e., land allocation and pre-clearances are issued before review of the initial project documentation;

3 (i) specification of minimum engineering requirements based on the technical opinions of the relevant authorities and (ii) preparation of a construction passport and architectural-planning orders which are then given to the applicant;

4 engineering-research works and preparation of construction project documentation;

5 approval of construction project documentation by state authorities, including environmental, sanitary, geological, seismic, fire, gas and electrical safety clearances;

6 state evaluation or “expertise” of the approved construction project documentation;

7 a permit allowing commencement of construction;

8 engagement of a contractor;

9 supervision during construction including: (a) technical supervision – the developer/owner of the site who has the right to suspend construction upon discovery of defects or deviations from project documents; (b) internal operational supervision, including supervision of materials quality, testing and utility acceptance; (c) architectural supervision to ensure compliance with architectural, construction, technical and other technical rules and standards; and (d) state supervision by executive and regulatory authorities

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to ensure that construction complies with the project documentation and applicable regulations and standards; and

10 issuance of an occupancy permit.

State ExpertiseUnder the draft Construction Code, a Class One or Class Two construction1 is subject to a prior state “expertise”, as is already the case under current law. The draft Construction Code, however, imposes more stringent requirements for state-sponsored and state-funded projects and provides that the private projects are subject to state expertise of a lesser review which is likely to revive the development market.

Construction PermitThe draft Construction Code excludes small personal and agricultural projects from the construction permit requirements. It also improves the transparency of the permit application process: (i) state expertise (safety opinion letters) and construction pre-clearances, (ii) project construction documents, and (iii) evidence that a developer has contracted with an accredited laboratory to test the quality of the construction materials. All are required to obtain a permit to commence construction.

A permit application may be rejected if the project does not conform to the city’s (or area’s) general development plan. General development plans, however, should be made publicly available to ensure the success of the projects.

Construction Passport After land is allocated for construction, the local executive authorities prepare a construction passport2. At this point, an applicant must obtain from its utility providers the terms for gas, electricity, heat and water supply and for sewage, radio, communications and other services.

Rule 7 provides that a construction passport is one of the construction project documents needed to develop land. A construction passport generally includes (i) a drawing of the allocated land, indicating adjacent streets and intersections, (ii) information on the surface of the land and the existence

of structures and communication and utility infrastructure, (iii) the location and direction of communication lines, (iv) a topographic map of the land, (v) the nature and terms of the construction project, and (v) the opinions of state authorities and utility suppliers concerning land allocation and the proposed construction. The draft Construction Code makes these construction passport requirements more specific.

The draft Construction Code also shortens the term of construction passports from two years to six months – during this period, an applicant is required to prepare the construction project documents and commence the land development. The draft Construction Code now requires a construction passport for new developments and for all types of construction, including renovation – an issue not specifically addressed by current law.

Suspension of Construction Works The draft Construction Code provides for suspension of the construction works for up to three months upon: (i) a decision of state supervisory authorities, (ii) suspension of construction for more than one month, (iii) the owner’s request to suspend construction; (iv) the owner’s application to conserve the construction site; (v) discovery of serious construction defects affecting safety on the construction site.

1 Class One structures include oil and gas pipelines, oil reservoirs of 10,000 cubic meters or more, hydro and thermal electric stations, water reservoirs of 10,000 million cubic meters, sport stadiums, concert exhibition halls, cinemas, theatres, museums, subway tunnels and stations, transportation infrastructure and buildings at least 100 meters in height. Class Two structures include all other residential and office buildings, except for residential buildings and suburban houses of up to 12 meters in height.

2 In the City of Baku, the Main Office of Architecture and Urban Construction of the Baku City Executive Authorities.

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A lengthy (up to three years) suspension is envisioned due to: (i) non-compliance with construction standards and rules; (ii) the need for amendments to construction documents as a result of changed circumstances during construction; (iii) the owner’s financial inability to continue the project; or (iv) construction materials and equipment not being supplied during the term of the project.

Professional LicensingThe draft Construction Code introduces a professional licensing requirement. A license is required for all professional practitioners engaged in construction, including engineering-research, project document preparation, construction-assembling and construction materials and products manufacturing. The draft Construction Code also requires the licensing authorities to (i) establish specific standards and requirements applicable to each category of professionals subject to licensing and (ii) create and maintain a publicly available register of the licensed professionals.

Professional Indemnity InsuranceThe draft Construction Code also requires professional indemnity insurance to cover claims of professional negligence in connection with licensed services.

Construction InvestorThe draft Construction Code introduces the concept of a construction investor. This term, however, is not clearly defined. From the few provisions in the draft Construction Code, it appears that not only the owner of the construction site but also contractors, subcontractors (such as construction design and engineering firms), lenders and other parties providing financing or having an equity (through a joint venture) participation in the development project are deemed construction investors and given the same protection afforded to the owner of the site.

Foreign ParticipationUnder current Azerbaijani law, foreign contractors and design firms may engage in construction activities or provide construction design services (i.e., those related to the preparation of construction project documents) only jointly with Azerbaijani citizens or Azerbaijani legal entities holding a valid license allowing them to provide these services. However, these foreign service providers are not required to conduct these activities through a joint venture

with local participation. The draft Construction Code, while not crystal clear, appears to eliminate the local participation requirement.

Conclusion Further discussion of the draft Construction Code is anticipated at the Milli Majlis, hopefully leading to improvement prior to adoption, with a number of critical issues addressed and new innovative provisions introduced. These welcome changes should make regulation of the construction industry more transparent, market-oriented and incentive-driven and effective.

Natik Mamedov is an Associate in Baker & McKenzie’s Baku office. He is a member of the firm's Corporate and M&A, Real Estate and Construction, IT and Telecommunications practice groups. Natik graduated with honors from Baku State University in 1992, and received his LL.M. degree in Corporate Finance and Law from Widener University Law School, Wilmington, Delaware, in 1996. He was admitted to the New York bar in 1997. Prior to joining Baker & McKenzie, Natik Mamedov worked at several law firms in Philadelphia, PA, Washington DC, NYC and Moscow. He also taught at the School of International Relations of Baku State University, and worked as a managing counsel at the National Bank of Azerbaijan

Vagif Karimli is an Associate in Baker & McKenzie's Baku office. He is a member of the firm's Energy, Mining and Infrastructure industry group, Real Estate, and Antitrust and Competition practice groups. Vagif graduated with honors from the law faculty of Baku State University in 2004. He received his LL.M. in International Law from the same university in 2006 and a second LL.M. from Amsterdam Law School at Universiteit van Amsterdam, the Netherlands, in 2007.

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A Clean Bill of Health:How to Obtain a Health Certificate

Dr.Rajani Chandra-DMelloChief Medical OfficerDr Ronald DMELLO Director of the Indian Clinic

Few people know exactly what is required in the way of medical tests to obtain a clean bill of health for the State Migration Service (SMS). Indeed, one might argue that taking a test after one has already entered the country is a bit like closing the stable door after the horse has run off.

However, to give you a clearer idea of what to expect, AmCham member Hind Klinikasi (Indian Clinic) has provided the following information on the basis of its experience in conducting medical examinations and issuing the certificate of health required by the State Migration Service when you apply for work and residence permits in Azerbaijan.

It is mandatory to provide a certificate from an authorized medical center, certifying the applicant to be “practically healthy”. Although the tests performed by medical centers to certify “practically healthy” may vary from center to center, in most cases, blood is tested for contagious diseases such as HIV, Syphilis, Hepatitis B, Hepatitis C and Tuberculosis. A general blood test and general check-up is conducted by a physician. Sometimes, at the discretion of the physician, additional tests might be ordered such as ECG (if cardiac ailments are suspected especially in the elderly) or a chest X-ray (if tuberculosis is suspected). However, in most cases which are uncomplicated, the whole process takes not longer than a day.

FAQs:If the patient has a vaccination certificate which proves he/she has already been vaccinated against certain diseases, e.g. Hepatitis A & B, TB, is he/she still required to be tested for these diseases?Vaccinations are not a 100% guarantee that the person will not contract the disease. Therefore even if the person is vaccinated he/she may still get infected (although the chances are fewer) or the person may have been infected even before the vaccination was administered. So the physician issuing the certificate would like to be sure of the absence of infections before certifying to that effect. Certificates of

vaccinations from an authentic and reliable source such as NHS (UK), CDC (USA), etc. can exempt a person from re-vaccinations if and when they become mandatory. Currently, there are no mandatory immunization schedules for adults in Azerbaijan.

What information is the applicant expected to provide for the doctor? Any medical complaint he/she has, medications the person is currently taking, whether he/she has had any episodes of high fever lately and any other info the person thinks is relevant and important for the doctor to know.

What languages are spoken by personnel at Hind Klinikasi? Azerbaijani, Russian, English.

Under 'general blood/urine test', what exactly is tested? It is the full blood count, which gives the physician a fair idea of the presence of anemia, inflammatory processes or any allergic reactions in the body, etc.

The "general urine test" checks for bile pigments in urine, proteins, glucose, red & white blood cells, salts, microorganisms, etc. If we find something suspicious only then more detailed investigations are requested.

What are the charges for the standard tests without complications and for issuing the certificate? At the Hind Klinikasi we charge AZN 75 for the tests, which include:

1. General blood test2. General urine test3. Tests for infections – HIV, Syphillis, Tuberculosis,

Hepatitis B & Hepatitis C4. ECG5. Physician’s consultation

There is no charge for the certificate issued.

Our thanks to Dr. Rajani Chandra-D’Mello M.D., Ph.D. and Dr. Ronald D’Mello M.S.

Dr. Ronald D’Mello holds a Masters in Vascular Surgery and is the Director of the Indian ClinicDr. Rajani Chandra-D’Mello holds a Ph.D. in Obstetrics and Gynecology, is a consulting ObGyn & Fertility Specialist and also the Chief Medical Officer of the Indian Clinic.

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Legal Aspects of Commercial Leasing

Vagif Ahmadov AssociateEmma SilyayevaAssociate, Salans Baku

If you are looking to rent office premises or a workshop, this article is for you. We have attempted to highlight some of the requirements of Azerbaijani law which are often raised by potential lessees of commercial real property.

Parties in a leaseAs you probably know by now, foreign nationals and companies cannot own land under Azerbaijani law. As a corollary of this, foreigners cannot be lessors of land. The Azerbaijani state, municipalities and Azerbaijani persons (physical persons and legal entities) can act both as lessors as well as lessees of land.

Foreign nationals and companies can, however, be owners and lessors of immovable property other than land, such as an apartment or a private house.

title documentsObviously, it would be normal to expect that anyone offering to let premises on the basis of a lease has obtained a document confirming the ownership of the premises. However, it is not so unusual to be offered the use of a workshop for which no title documents are available.

As lease agreements must be notarized, one would expect notaries to inspect title documents prior to the notarization. Our recent experience suggests, however, that not all notaries do this as rigorously as one would expect. For this reason, it is necessary to check the ownership of the leased property in order to avoid any claims from third parties.

Currently, the ownership in respect of immovable property is evidenced on the basis of an extract from the Register of Immovable Property. The law has identified different forms of extract, depending on the nature of the immovable property. For example, an extract for the ownership of land is different from the extract confirming the ownership of an apartment.

Contents of a lease agreementThe minimum provisions to be contained in a lease agreement are the following: the amount and term of rent, the possibility to sublease the property, the obligations of the lessee in connection with the use of the property, the allocation of obligations concerning the restoration and repair of the leased property and the return of the property to the owner after termination of the agreement in the state defined in the agreement.

The law also binds lease agreement parties to requirements which may not be mentioned in the lease. For example, a lessee is not responsible for wear and tear on leased property used for its designated contractual purposes. Also, the costs of maintaining and cleaning leased property are not recoverable from the lessor.

Moreover, the leased property must be suitable for the uses outlined in the lease agreement, and the lessor must continue to maintain the property in the lease. The lessor is also responsible for ensuring that the property has the characteristics specified in the lease agreement and that the rights of third parties do not hinder the use of the leased premises.

A lessee must provide the lessor immediate notification of any incompatibility with the lease agreement uncovered by the lessee during the term of the lease and the necessity to take measures to protect the premises or its users from unexpected danger. For example, notice must be given in the event the lessor must rectify any defect. The requirement to provide notice is also required in the event third party rights are declared in respect of the premises.

Notarization and registrationEven though this requirement is sometimes questioned, under the Civil Code of Azerbaijan, a lease agreement in respect of immovable property must be notarized. However, notarization is not required for an agreement to lease land from the state or a municipality.

Where the lessee has a right to sub-let the immovable property, the notary should refuse to notarize the sub-lease agreement if the main lease agreement itself is not notarized. An agreement to sublease from a lessee of state-owned land must also be

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notarized. However, the consent of the state must be obtained for the purpose of the conclusion of such lease.

The lease of immovable property for a term exceeding eleven (11) months is also required to be registered. The state does not guarantee the protection and immunity of land rights which have not been registered. The current registering authority is the Registry Service of Immovable Property under the State Committee on Property Issues.

Preliminary lease agreementIt sometimes happens that, although the parties want to proceed with the immediate signing of a lease, some time is required to prepare the lease. In this case, it is possible to conclude a preliminary agreement to enter into the lease agreement within the timeframes specified in the preliminary agreement.

The preliminary agreement must identify all major terms and conditions of the lease and must be concluded in the form of the main agreement. As there is a requirement for lease agreements to be notarized, the preliminary agreement to lease premises must also be concluded in notarized form.

All preliminary agreements, including those applicable to leases of immovable property, must indicate the period within which the parties undertake to enter into the main agreement – in our case, the lease agreement. If no period is specified, the main lease agreement must be signed and notarized within one (1) year from the date of the preliminary agreement.

Subleases and AssignmentsThe lessee of premises cannot sub-let such property without the consent of the lessor. The law suggests that consent to sub-let to a third party may be withheld on objective grounds relating to the identity of the third party. In any case, it is advisable to include in a lease agreement a provision obliging the lessor not to “unreasonably withhold” consent to sub-let. Alternatively, the lease can be negotiated to include the specific conditions for sub-letting.

In general, the law suggests that the assignment of leases of land or other immovable property is only possible with the consent of the owner or lessor of such land or property. It appears to be possible to conclude a tripartite assignment agreement which contains the consent of the owner/lessor.

termination of leasesAccording to the Civil Code, a fixed-term lease agreement terminates upon the expiry of its term. But under certain conditions a fixed-term lease agreement can be terminated prior to the expiration of its term. For example, a lessee may

terminate a lease agreement with immediate effect if the property substantially deteriorates and the lessor fails to remedy such breach. A lessor may also terminate with immediate effect if the lessee fails to pay rent or a substantial portion thereof for two (2) consecutive months or if the lessee uses the property in such a way which substantially violates the rights of the lessor.

If the term has not been defined in the lease agreement, it may be terminated only at the end of the year with six (6) months prior notice.

Under the Civil Code, an agreement to rent premises, for which the rent is paid on a monthly basis, may be terminated by three (3) months’ notice provided the notice to terminate is submitted on the first day of the first month (e.g., the notice is submitted on 1 September to terminate a lease agreement as of 1 December). However, it appears that the Civil Code only gives this right to a lessor.

The Law on Leases, which is one of the first legislative efforts to regulate the relationship between lessor and lessee, appears to allow a lease agreement to be terminated in accordance with the agreement of the parties concerned. However, since this law was adopted prior to the Civil Code, the latter has precedence. It appears that the lessee could terminate upon three (3) months’ notice only if this was acceptable to the lessor (e.g., if expressly set out in the lease agreement), but not otherwise.

The leasing of commercial property can be an exercise having many potential pitfalls for unwary lessees. However, abiding by the requirements of the law is essential in order to have the assurance that there are no potential problems in the future.

Vagif Ahmadov is an Associate with experience in corporate, banking and finance, employment and property (real estate) matters. Vagif's work has also involved advising on foreign investment and project finance matters, and his background includes the full range of corporate and commercial matters in Azerbaijan. He taught comparative employment and public international law at Baku’s Western University in 2002-2004, as well as international arbitration law at Khazar University in 2006.Vagif graduated from the University of Greenwich (LL.B., first class with honours, 1999) and from the University of Cambridge (LL.M. in International Law, 2000).

Emma is an Associate and specialises in corporate and commercial law, mergers and acquisitions, employment and antimonopoly law, as well as intellectual property law.Her experience includes working with clients on issues of due diligence examinations concerning real estate and corporate matters. Emma graduated from Baku State University law faculty in 2004 and received her LL.M. from the University of Caen, France, in 2008.

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The following article has been prepared to give a brief introduction of benefits which can be gained from international income tax treaties to members of AMCHAM and companies considering investment opportunities in Azerbaijan. The article should not be considered as a comprehensive summary of the income tax treaties signed by Azerbaijan and before application the reader must seek professional tax advice.

Azerbaijan has entered into bilateral income tax treaties with over 30 countries. As of 1 May 2010 there were in force income tax treaties between Azerbaijan and the following countries:

This list is constantly updated. Some new treaties are being negotiated. Information about new treaties is available on the web page of the Ministry of Taxes of Azerbaijan at http://www.taxes.gov.az/.

Although each treaty generally deals with the same matters, they are different in at least some respects. Therefore, it is important to focus on the terms of the specific treaty that may apply to a specific situation.

Purpose of treatiesThe income tax treaties generally pursue a number of objectives with the main purpose being avoidance of double taxation of income by each treaty country. Most treaties provide clarification in certain issues which are ambiguously treated under the domestic legislation of the treaty countries. Another major objective of the treaties is to provide for cooperation between the tax administrations of the treaty partners.

Essentials for Benefiting from Double tax treaties

1. Austria 13. Hungary 25. Romania2. Belarus 14. Iran 26. Russian Federation3. Belgium 15. Japan 27. Switzerland4. Bulgaria 16. Kazakhstan 28. Tajikistan5. Canada 17. Korea Republic 29. The Netherlands6. China 18. Latvia 30. The United Kingdom7. Czech Republic 19. Lithuania 31. Turkey8. Estonia 20. Luxemburg 32. Ukraine9. Finland 21. Moldova 33. Uzbekistan10. France 22. Norway 34. UAE11. Georgia 23. Poland 12. Germany 24. Qatar

Recognition of treaties by the Azerbaijan lawArticle 2.5. of the Tax Code states the following: “Should any international treaty to which the Republic of Azerbaijan is a party provide for regulations that differ from those contained in this Code and legislative acts established on taxes, the provisions of said international treaties shall govern.”

Production sharing agreements signed between the Government of Azerbaijan and major oil multinationals as well as Host Government Agreements signed for the Baku-Tbilisi-Ceyhan oil pipeline and South Caucasus Pipeline which became part of the Azerbaijan legislation also recognize the application of double tax treaties.

taxes covered by treatiesTreaties signed by Azerbaijan typically cover profit tax, income tax of physical persons, property tax and land tax existing under the legislation of Azerbaijan. Normally, taxes similar in nature to those mentioned are also covered in the foreign treaty country. Therefore, it is important to note that indirect taxes like value added tax are not dealt with in the income tax treaties.

Beneficiaries of treatiesThe treaty benefits are normally made available to “residents” of the treaty countries. Normally, a “resident” is defined as a person who, under the laws of that country, “is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature…”1. If a taxpayer happens to be a resident in both countries, then the following so-called “tie-breaker” rules help to define the residency of that person:

• permanent home;• centre of vital interests;• habitual abode;• nationality;• mutual agreement of the contracting states.

Rights of countries over income items

Emil GarayevSenior Tax ConsultantNarmin MirzazadeSenior Tax Consultant,Deloitte Azerbaijan

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Business income. Normally “business profits” of a foreign person are exempt from tax in Azerbaijan unless that person carries on the business through its permanent establishment in Azerbaijan. A permanent establishment is typically defined to include a fixed place of business, such as a place of management, a branch, an office, a factory, a workshop and a mine, an oil and gas well, a quarry, installation or structure or any other place of extraction and development of natural resources.

Under Article 19.1. of the Azerbaijan Tax Code a timeframe required for establishment of a permanent establishment in Azerbaijan is 90 days in any 12 month period. A great advantage that an applicable treaty can avail to foreign investors is to extend the time limit for establishing a permanent establishment in Azerbaijan. For instance, in accordance with Article 5(2)h) of the Azerbaijan/Austria treaty a building site or construction or installation project will result in creation of a permanent establishment only if it lasts more than twelve months.

Personal service income. Tax treaties provide for an exemption from tax in Azerbaijan for income from independent personal services performed in an independent capacity (e.g. as a lawyer, engineer, accountant or architect) if such income is not attributable to a fixed place. Most of the treaties concluded by Azerbaijan also provide for an exemption for an expatriate employee’s personal service income provided that the employee spends in Azerbaijan fewer than 183 days in any twelve month period and the salary is paid by a non-resident

employer which does not have a permanent establishment or a fixed place in Azerbaijan. 2

Non-business income. Normally tax treaties eliminate or reduce the withholding tax applicable to investment type income such as interest, dividends and royalties. It is commendable that some of the treaties signed by Azerbaijan in recent years provide for reduction of the Azerbaijan withholding tax on some of the non-business income items. For instance, the Azerbaijan/Luxemburg treaty reduces the 14% withholding tax rate applicable under the Tax Code to 5% or 10%.3

Capital gains. Tax treaties normally provide that capital gains may be taxed only by the country of residence. However, gains from the sale of personal property attributable to a permanent establishment or fixed base may be taxed by the country where the permanent establishment or a fixed base is located. In addition, gains from the alienation of real property or stock in a company the assets of which primarily consist of immovable property may be taxed in the country where the immovable property is located.

Elimination of double taxationIn essence, there are two main methods of avoidance of double taxation:

1) The exemption method;2) The credit method.

1 Article 4(1) of the Azerbaijan/UK treaty.

As per the exemption method, one of the countries exempts the taxable income that has already been taxed in the other country.The prevailing method to avoid double taxation is the credit method; i.e. in order to eliminate double taxation, a treaty determines which of the countries has the primary entitlement to tax that income. The amount of tax normally payable to each country is calculated without regard to the fact that another country may also be taxing it. Then, after the tax has been paid to the primary country, the secondary country will allow the earner to take a tax credit for the amount of tax paid to the primary country, against the tax owed to the secondary country, but only up to the amount of tax paid to the primary country or the amount of tax due to the secondary country, whichever is less. If the tax paid to the primary country is equal to or more than the tax imposed by the secondary country, then the tax payable to the secondary country is eliminated. If the tax paid to the primary country is less than the tax imposed by the secondary country, then the secondary country will receive the difference between the two taxes.

Practical aspects of application of treaties in AzerbaijanApplication of income tax treaties is governed by the Rules “On Administration of International Agreements for the Avoidance of Double Taxation concluded between the Republic of Azerbaijan and other States” dated 19 November 2007 approved by the Minister of Taxes of Azerbaijan. The Rules stipulate two methods for benefiting from income tax treaties:

• Application of treaty benefits in advance;• Application of treaty benefits retrospectively

Only interest, dividend and royalty income of non-residents from Azerbaijani sources may be exempt from taxation in advance. For that a non-resident is required to provide the Azerbaijani payee of income with so called DTA-03 form (Claim for the exemption of tax or application of limited taxation with respect

to the income derived from Azerbaijani sources) approved by the tax authorities where the non-resident is registered and the Azerbaijan tax authorities.

The Rules also provide advance tax exemption for business profits provided that a division of a non-resident not forming a permanent establishment is registered in Azerbaijan. Such exemption is applied upon submission of a special application form DTA-04.

Other types of exempt income should initially be taxed by way of withholding at the source of payment according to the statutory Azerbaijan tax legislation and then such taxes may be refunded to the non-residents. For this a non-resident should complete and file DTA-06 form to the tax department where the payee of income is registered. According to the Rules tax refund is executed within 45 days after the submission of the application. However, in practice tax refund takes significantly longer and can sometimes be challenging.

Emil Garayev was born in 1984 in Baku. He possesses bachelor and master degrees in Law from Baku State University. He has been working in the Tax and Legal Department of Deloitte Azerbaijan for the last three years. His work focuses on advising local and foreign investors on various tax and legal matters. Emil is well experienced in addressing complex tax issues relating both to domestic as well as cross-border transactions.

Narmin Mirzazade was born in 1984 in Baku. She graduated from Baku State University successfully majoring in Law. She received her Master’s degree in Civil and Commercial Law from the same University. In 2006 she joined Deloitte Azerbaijan. Narmin has more than three years' experience in advising foreign and local companies on different tax and legal issues. She has participated in a number of tax due diligence projects, advised clients on a variety of tax and business issues and is currently in charge of a number of tax accounting and filing projects.

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2 Article 16.2 of the Azerbaijan/Germany treaty.3 Article 12.2. of the Azerbaijan/Luxemburg treaty.

Nuran Kerimov joined Deloitte in 2003 to start the Deloitte tax practice in Azerbaijan. He has devoted most of his professional life to the practice of local and international taxation. He has significant experience in advising both international and Azerbaijani companies and individuals on a variety of tax and associated business issues. Before joining Deloitte Nuran worked

for BM International Law Firm, Ernst & Young and Salyan Oil Ltd.Nuran holds a Master of Law (LL.M.) degree from the University of Georgia, USA, and a Bachelor of Law degree from the Voronezh State University, Russia.

Nuran is an active member of the AmCham Tax Committee which liaises with the Government of Azerbaijan on tax policy and foreign investment protection issues.We congratulate him on his appointment and wish him success in his new role and responsibilities.

Nuran Kerimov named Partner heading up Deloitte’s office in Azerbaijan

AmCham Azerbaijan

Established in 1996, AmCham is com-posed of over 220 members and asso-ciates active in every sector of the Azer-baijani economy. We represent 80% of all foreign investment, as well as a significant portion of local investment which allows us to promote American, Azerbaijani and multinational corpora-tions. This includes leading companies in Energy, Banking, ICT, Legislative/ Financial Consulting, Professional Ser-vices, Education, Real Estate Develop-ment, Health, Transportation, Travel and Production fields.

An active and positive influence in Azerbaijan, we conduct our mission with integrity and respect for the country, observing all local laws and insisting on the highest ethical standards in all relationships and transactions.

Why join?Key member benefit – best networking opportunities in Azerbaijan!

As a member of AmCham, your company has access to a vast network of business information and contacts in Azerbaijan and in the US government, as well as valuable information on US businesses across Europe through ECACC (European Council of American Chambers of Commerce) and US Chamber of Commerce.

Additional Member Benefits include:

Annual Employee Salary SurveyQuarterly Inflation SurveyAmCham Membership DirectoryAmCham Resource Library

For more detailed information please visit our website www.amchamaz.org

to applyTo apply for affiliation with AmCham, a candidate must submit a written application in the form adopted by the Board of Directors. Membership applications are available at the AmCham office or on our website at www.amchamaz.org. The application form should be completed and sent to our office with the company registration certificate issued by the Ministry of Justice of Azerbaijan.

A candidate meeting the objective and subjective requirements for affiliation with AmCham is accepted as either a Member or Associate upon receiving an affirmative majority vote of the Board of Directors and paying the first year’s fee for the candidate’s category of affiliation.

To maintain affiliation with AmCham, Members and Associates must continue to meet our eligibility requirements, be in good standing in the community, and be current with all financial obligations to AmCham.

About usThe American Chamber of Commerce in Azerbaijan is a private, non-profit business association supporting and promoting the interests of business in Azerbaijan.

MembershipThere are two types of affiliation with AmCham: Member and Associate.

Member status includes voting privileges and eligibility for Board and committee chairmanships in addition to the privileges granted to Associates. For affiliation as a Member, a candidate must be a legal entity, registered and doing business in Azerbaijan and be in good standing in the community, as determined by the Board of Directors.

A legal entity, branch or representative office of a legal entity is eligible to be affiliated with AmCham as an Associate, subject to the Board of Directors’ determination of good standing in the community.

Associates are eligible to participate in various activities; receive our regular publications, including the Membership Directory, Annual National Employee Salary Survey and Quarterly Inflation Survey. Associates, however, are not entitled to vote or serve on our Board of Directors.

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AmCham Azerbaijan

Spring / Issue 938

AmCham StructureBoard of Directors

Executive Committee

Dan MatthewsPresident

Baker & McKenzie

Aysel Suleymanova Member Relations and

PR Manager

Aylan Aghamaliyeva

Administrative Assistant

Zaur KerimovAccountant

Nargiz Nasrullayeva-Muduroglu

Executive Director AmCham Azerbaijan

Movlan PashayevBoard Member

PricewaterhouseCoopers

Ilgar VeliyevBoard MemberErnst & Young

Donald LuEx-Officio Board Member

US Embassy

Teyba GuliyevaBoard Member

Societe Generale

Seymur KhalilovBoard Member

BP

Bob DastmalchiBoard Member

Chevron

Wayne WalzBoard Member

Caspian Regional Oilfield Services

Stanley EscuderoBoard MemberShieldbearer

Bakhtiyar MammadovBoard Member

Halliburton

Alum BatiBoard Member

Wicklow CorporateServices

Staff

AmCham Azerbaijan

39

Business Events

On February 18th, 2010 all AmCham members were invited to a cocktail party preceding our General Meeting to elect the 2010 AmCham Board of Directors.

At the cocktail each candidate had an opportunity to give a short, 3 minute speech to introduce themselves and present their individual election platforms : a summary of their pledges, reasons for standing for the AmCham Board and goals to be pursued during their term. Following this, the candidates took questions from the membership.

Continuing to review the topic of environment, we invited Mr. Zakir Ibrahimov, Chairman of the Executive Board of "Tamiz Shahar" JSC (Clean City) to be our Special Guest Speaker. Heading one of Government's landmark environmental projects entrusted with the function of management, placement and disposal of household wastes according to modern standards, as well as improvement of the overall environmental situation of the city, Mr. Ibrahimov updated our members on the work that has been done to date, future plans, world practice and lessons to be learned.

Mr. Ibrahimov graduated from the Law Faculty of Baku State University in 1995. He started his carrier in Aztijaret" JSC where he was a Leading Specialist in Law and Business Development from 1995 to 1998. In 1998 he moved to Azpetrol Group of Companies where he held various positions including Lawyer, Head of Procurement and Special Projects Department until 2003. In 2003, Mr. Ibrahimov became a Deputy General Manager of EUPEC PipeCoating Azerbaijan Joint Venture. In 2004, Mr. Ibrahimov re-joined Azpetrol Group of companies as Head of Strategic Research, PR, Marketing & Procurement Departments. In 2005 Mr. Ibrahimov was appointed General Manager of Azpetrol in Moldova.

Since February 2008, Mr. Ibrahimov has held the position of Chairman of the Executive Board of "Tamiz Shahar" JSC which is the state-owned company operating in the field of waste disposal and utilization services for Greater Baku.

Mr Ibrahimov is fluent in English, Russian and Turkish, and has basic communication skills in Italian and French.

AmCham held its Annual General Assembly at the February Members’ Luncheon. Four out of ten members of the 2010-2011 AmCham Board of Directors were elected by AmCham members, with voting taking place during the luncheon. Election results were announced immediately afterwards. We would like to congratulate Alum Bati, Wicklow Corporate Services, Dan Matthews, Baker & McKenzie and Movlan Pashayev, Pricewaterhouse Coopers Azerbaijan, on their re-election. We welcome new Board Member Teyba Gouliyeva, Societe Generale, on board!

Immediately following the elections, members were presented with a snapshot of the Chamber’s 2009 achievements in a Year In Review Address by AmCham President Dan Matthews. The program also included a presentation on "The Impact of the Global Economic Crisis on the Caucasus and Central Asia" by Ms. Nienke Oomes, Mission Chief for Azerbaijan, International Monetary Fund (IMF) in Azerbaijan.

Our special Guest Speaker this month was Mr. Mukhtar Babayev, Vice President on Ecology of the State Oil Company of Azerbaijan (SOCAR). In light of 2010 being declared the Year of Ecology by President Ilham Aliyev, Mr. Babayev briefed us on the environmental projects that will be carried out by SOCAR in 2010. Mr. Babayev graduated from Moscow State University in 1991 and Russian Foreign Trade Academy in 2000. He started his career in 1991 in the State Economy Planning Committee of the Republic of Azerbaijan, moving on to the Ministry of Foreign Economic Relations between1992-1993. Mr. Babayev joined the Foreign Economic Relations Department of the State Oil Company of Azerbaijan in 1994, Marketing and Economic Operations Department in 2003 and assumed the post of Vice President for Ecology in 2007.

Meet the Candidates Cocktail

Monthly Members’ Luncheons

18 February 2010

24 February 2010

31 March 2010

30 April 2010

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AmCham Azerbaijan

Spring / Issue 940

Committee Highlightstax & Customs Committee ICt CommitteeAMCHAM’s Tax and Customs Committee has been very active this past quarter. The committee members have submitted their recommendations on Tax Code amendments to the Government of Azerbaijan. According to the majority of tax professionals involved, certain changes have been proposed to Articles No 13.2.12; 13.2.16.18; 13.2.14. 7; 102.1.8; 150.3.1; 150.3.2 and 204 of the existing Tax Code, subject to further consideration by the Parliament.

Within the framework of committee activities held in April, we invited Mr Idris B. Isayev, Head of the Finance-Budget Department of the State Social Protection Fund of the Azerbaijan Republic to be our Guest Speaker. Followed by a long Q&A session, Mr Isayev updated members on the results of the latest surveys, statistics and trends submitted and introduced by the agency.

As a part of the committee’s Best Practice session, AMCHAM membership is interested in international experience in terms of legislation regulating holdings as business structures. Considering the fact that business entities in Azerbaijan are often structured as holdings, our membership is particularly interested in world practice, in legislative coverage, current law and regulations, as well as practical implementation. The above issue is of particular interest to tax professionals represented by the committee. In light of this, we are delighted to have representatives of the IFC and Delegation for the European Union to the Republic of Azerbaijan as Guest Speakers at our next committee meeting.

A presentation on “The real cost of illegal software” was made by the representative of Microsoft Azerbaijan Mr. Eldar Djangirov. Azerbaijan takes 6th place in the world on piracy and illegal distribution of software. Igor Yakovenko proposed placing information related to this issue in the mass media and writing a letter to the Ministry of Information and Communication Technologies and the National Bank of Azerbaijan.

AZEL kindly hosted a joint ICT meeting on Monday, 19 April. The meeting featured representatives from Chemonics Mr. Craig Blakeley, Mr. William B.Garrison and Mr. Eldar Gocayev, who were eager to meet the members of AmCham.

The following questions were discussed during the meeting:

1. The current state of e-commerce in Azerbaijan: who is using it, how much is it being used, and what are the plans for using it in the future?

2. To what degree are the existing e-commerce laws and regulations in Azerbaijan helping or hurting the effort to develop a more robust e-commerce system?

3. Ideas from the committee members as to what changes in the legal and regulatory structure for e-commerce in Azerbaijan might assist in the development of e-commerce. 4. To what degree should e-commerce transactions be subject to, or exempt from, VAT?

AmCham Azerbaijan

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HSE Committee HR Committee

BFI Committee

In light of the Presidential announcement, AmCham’s HSE Committee has decided to dedicate 2010 to ecology. In this regard AmCham has already conducted a series of meetings with the management of EKOL and Tamiz Shahar. EKOL is a Closed Joint-Stock Company established in 2006 according to the agreement signed between SOCAR (51%) and a foreign investor - «Lancer Services S.A» Company (49%). The main purpose of the company is to carry out environmental protection services by applying modern technologies within and outside of the Republic. Tamiz Shahar was established in accordance with the Decree on “Improvement of Solid Municipal Waste Management in Baku City” in 2008 by the President of the Republic of Azerbaijan. Pursuant to this decree “Tamiz Shahar” JSC was entrusted with the disposal, including placement and deactivation, of solid household waste generated in the territory of Baku and its suburban settlements.

Following our discussion, the following joint projects are proposed for implementation by EKOL, Tamiz Shahar and the AmCham HSE Committee this year:

1. A series of training sessions on ecology along with a drawing competition for school children (May 2010)2. Summer School for university students (May/June 2010) 3. Joint Tree Planting Action in areas where most of the oil & gas companies are located (October 2010)

The committee has held a number of meetings since January 2010, one of which featured Mr Rushtu Safarov, the Director of the State Industrial Safety and Mining Supervision Agency (SISMSA) and Azerbaijan State Scientific Research Institute for Safety and Labor Protection. Making Labour Safety a special focus, Mr. Safarov gave us a brief overview on the role and mission of the structures headed by him. We are also pleased to inform you that following Mr Safarov’s speech during the HSE meeting, AmCham is considering translating and publishing some of the books issued by the agency he represents. Striving to provide our members with the best information resources, we believe that HSE professionals will benefit from this valuable data.

The last meeting of the HR Committee featured Mr. Rizvan Kerimov, the Head of "Partnyor LLC" law firm and independent contractor for a number of oil companies operating in Azerbaijan. Mr. Kerimov provided information on some relevant topics and responded to members’ questions on labor regulation issues. The second part of the meeting covered discussion around the perspectives of HR Committee work in 2010, its main directions and challenges. The following issues were raised by the committee administration:

• Summer students and interns – share practices and presentations

• Labor inspections: dos and don’ts• Employment of disabled employees – statutory

requirements and how the HR community/ committee can contribute. Related cooperation with the HSE committee.

• Recruitment agencies – short presentations, introductions.• Changes in pension legislation – pros and cons.

It is also planned to widen the scope of HR committee activity by means of developing inter-committee cooperation and being more active in the community.

Issues discussed by the committee included:

• Life and endowment insurance in Azerbaijan – a practical framework was presented by Ateshgah Insurance. The legal framework of this topic was presented by PricewaterhouseCoopers • Financial services sector development in Azerbaijan was presented by Samir Balayev (Unibank) and Viladi Maniyev (AIG Caspian).

AmCham’s BFI Committee invited a representative from the Ministry of Finance, Zeka Mirzayev, Head of Insurance Market Regulation Sector at the Department of Financial Markets Regulation, to attend the meeting.As insurance issues fall within the scope of the HR Committee, this meeting will be a joint committee meeting.

Baku welcomes Mr. Stefan Kuehr from Austria who takes up a position with The Rezidor Hotel Group as General Manager of Park Inn Azerbaijan & Radisson Blu Plaza Baku. Mr. Kuehr has attended Higher Vocational Schools for Tourism and Catering in Austria where he was awarded the title “Diplomierter Hotel- & Touristikkaufmann”. He has a

degree in Business Management from the University of Applied Sciences. Mr. Kuehr has worked his way up from internships in various organisations to Chef de Bar in Corsica, Sales Manager in Austria, Restaurant Manager on river cruises in Switzerland, Catering & Event Manager in Austria, Director of Food & Beverage and Executive Assistant Manager/Hotel Manager in Park Inn Pulkovskaya, Russia, followed by the post of GM at Park Inn Almaty Airport Hotel, Kazakhstan. He brings an impressive resume and experience to his new position, and we wish him all the best.

Mr. Wolfgang Groeger is leaving Baku after spending 4 years here as Country Manager of Austrian Airlines. He began his career with AUA in Vienna in 1972, followed by a stint in Libya, as Station Manager (Tripoli) and Regional Manager (Libya) from 1984 to 1988.

This was followed by 7 years in New York, until 1995, where he opened the Austrian Air Station at JFK International Airport. From 1995 to 1998, he served in Prague as Country Manager in the Czech Republic. His job then took him to Bucharest, again as Country Manager for Romania and Moldova. He came to Baku in 2006. He is moving to Florida, where he will run his own business, “IMEX4U”

which offers event management, consulting and import-export. Mr. Groeger has been a loyal and valued member of AmCham, and we wish to thank him for his unstinting support of the Chamber and all its activities. He served as Chairman of the Travel, Hospitality and Tourism Committee, and sponsored many AmCham events. We are sorry to say goodbye and wish him and his family the very best for the future.

PwC legal team is headed by Farhad Hajizade, a law professional with fourteen years of both local and international legal expertise and experience.

Before joining PwC with his own law practice, he was the managing partner of a regional law firm for 4 years. Prior to that, he worked as chief legal council to an oil company, the largest mobile operator in the

country, as senior associate at an international law firm and as legal advisor to the Government of Azerbaijan.

Farhad's expertise primarily covers corporate and commercial law matters in such areas as oil & gas, telecom, infrastructure, construction and aviation, with specific focus on restructuring,

M&A, due diligence, share transfers, equity financing, lending transactions, international arbitration and contracts law. He also has extensive experience in representing clients in negotiations with business counterparts and government agencies (Cabinet of Ministers, ministries, state committees, state funds etc.).

Members’ News and EventsNew GM for Park Inn/Radisson

AmCham bids farewell to AUA Country Manager Wolfgang Groeger

On 1 March 2010, PwC Legal, operating as part of the Tax & Legal Department of PricewaterhouseCoopers commenced activities

PricewaterhouseCoopers Azerbaijan celebrates its 15 year anniversary in 2010

Farhad’s contact details are: Farhad Hacizade e-mail: farhad.hajizade@az.pwc.com Phone: 994 12 497 2515 ext (1182)

Spring / Issue 942

AmCham Azerbaijan

AmCham Azerbaijan

ProjectsApril 2010Inflation Survey – Consumer Price Index AMCHAM is pleased to introduce

the first Consumer Price Index report for 2010. The figures for Q1 are pretty impressive: CPI only rose by 0.67% for Azerbaijani consumers and 0.79% for Expatriate consumers. However, the largest upward effects came from Fruits & Vegetables and Non-durable household goods where prices rose by 4.55% and 2.69% respectively. Over the last twelve months (the base is 100 at 31 March 2009) the inflation is still 6.25 % for Azerbaijani consumers and 6.94% for Expatriates. We hope that this report, created exclusively for the benefit of our members, will assist you in your budget analysis and forecasting. A copy of this report is available in the "Members only" section of our website. Please let us know if you need a password reminder to access this section.

Breakdown of AAIP changes (the base is 100 at 31 March 2006)

III Q/2009 IV Q/2009 I Q/2010

AmCham Azerbaijan

AmCham Corporate Social InvestmentECOLOGYAs a part of our Corporate Social contribution AMCHAM HSE Committee, in cooperation with EKOL Engineering Services conducted a series of trainings on ecology in schools No 20, 23, 6, Zarifa Aliyeva School and SOS Children’s Village. According to a Presidential decree, 2010 has been declared the Year of Ecology, so the committee has worked to increase the level of awareness on ecological issues among schoolchildren. A presentation was delivered by Magsud Babayev, Head of the Ecological Monitoring Department (Mobile Division), who has been working for the Ministry of Ecology and Natural Resources for many years and is recognized as one of the leading specialists in the country. In his presentation Mr. Babayev gave an overview of the unique natural heritage of Azerbaijan and the importance of preserving exhaustible resources. We were gratified to have Mr Kamil Akimov, Advisor to the General Director of EKOL and former Minister of Energy of the Azerbaijan Republic as our Honorable Guest. He shared a number of interesting facts about the history of oil and gas. At the end of the presentation the children were presented with informative brochures published by AmCham HSE Committee and corporate gifts generously donated by EKOL.

We would like to extend sincere thanks to our committee members Sabuhi Rzayev from KBR, Nariman Aliyev from Panalpina and Ilham Kerimov from Cross Caspian for their valuable contribution to this project. Special thanks go to EKOL for their outstanding work and incredible input to this exciting initiative! In line with the AmCham Corporate Social Responsibility mission, our HSE Committee has issued informational brochures "Preserve the Nature!" teaching schoolchildren how to save exhaustible natural resources. The brochure emphasized the importance of saving water, energy and paper, and described ways in which children could do this. The brochures were distributed among 8th, 9th and 10th grade classes in a number of city schools. We would like to thank our committee members KBR and Panalpina for their financial support in publishing this educational literature.

BUSINESSContinuing to support business directed projects, AmCham traditionally allocates funds to the Business Case Competition organized by the Azerbaijan Alumni Association. As in previous years, we donated 3000 AZN to this featured event held in May 2010. The history of ABCC goes back to 2002: motivated by the lack of business case analysis practice in Azerbaijan, MBA Enterprise Corps Volunteers spearheaded this project. AAA was given the exclusive right to hold and organize the ABCC. In the past, around 300 qualified students have participated in the ABCC. Today, the past participants of ABCC hold leadership positions in many businesses and organizations in Azerbaijan.

EDUCATIONAn additional 5000 AZN gathered during the auction at AMCHAM 6th Annual Black and White Ball will go to the Junior Achievements School Economics Education Program. Using

its successful experience in delivering up-to-date economics and business programs, Junior Achievement Azerbaijan offers interested companies a partnership within the School Economics Education Program (SEE) in 2010-2013 with the total requested budget of $575,851 ($191,950 annual budget). The program’s target audience will include secondary school students in grades 9-11, college students and educators. The SEE brings theoretical and practical knowledge of basic economic and business components to secondary school and college students and fosters work-readiness, financial literacy, and entrepreneurship skills. The program helps develop the business workforce through economic and business training for students and teachers.

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Spring / Issue 946

AmCham Azerbaijan

6th Annual Black & White BallAmCham hosted its 6th Annual Black& White Ball on Friday, 21st May 2010. This was yet another spectacular event to light up Baku’s social scene, themed ‘AmCham on Park Avenue’. This event gave Chamber members and guests an opportunity to entertain friends, clients, colleagues and business associates in a very unique environment: the 20th floor of the Landmark Hotel. AmCham offered the ultimate urban experience on the penthouse floor of Baku’s tallest building, treating guests were to a stunning bird’s eye view of the city by night. Along with a gourmet four course dinner prepared by the Landmark Hotel, guests enjoyed an exclusive program including an outdoor champagne cocktail reception, live entertainment during the reception and dinner, dancing till dawn with a live band and a DJ and a surprise prize drawThis prestigious black tie event with over 260 people in attendance was one of Baku’s most high profile social functions providing the best visibility for companies. We were pleased to provide a number of sponsorship opportunities to showcase businesses to a distinguished audience of Baku’s leading decision makers. We wish to thank our grand sponsor Azerfon-Vodafone, main sponsors Garadagh Cement, Lufthansa and Microsoft and all the member companies which generously sponsored various parts of the program, and contributed to its success.

AmCham Azerbaijan

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48 Spring / Issue 9

AmCham Azerbaijan

How to join the Program: Members willing to join the Program and offer their products/services at special discount to AmCham Regular Members have to inform the AmCham office in writing. A discount provider has to indicate the product(s) or service(s) and discount rate(s).How to obtain discounts:All Regular Members, no matter whether they provide discounts as part of the Program or not, can obtain discounts. Members can find information about the discounts in the M2M Section of our website www.amchamaz.orgHow is M2M advertised? The program will only be advertised internally through the AmCham communications channels: AmCham Website and AmCham Quarterly Magazine – “IMPACT Azerbaijan”. Note: The cards are for personal use only. A card holder is committed to return the card to AmCham in case he/she leaves a Member establishment.

TM

(M2M) Discount Program15% off in all restaurants and bars. 15% off on all laundry and dry cleaning services

10% for Accommodation; 10% Food & Beverage; 15% discount on accommodation & all F&B

10% on following 3M products: Visuals (Digital and Rear Projec-tion Film); Construction; Stationary (Post It, Scotch)

5% on any travel arrangements

10% in all F&B Outlets.

10% on all Published Retail Room Rates

10% on all office chairs15% on office furniture (excluding metal)

10% on all our products

Up to 20% on various types of insurance

Up to 25% on various services

Up to 15% on medical services

50% on AG Club Premium Package; 20% on AG Club Gold HEI Package

Up to 15% on all types of insurance

Up to 10% on all products

Up to 7% for tickets(access to the business class lounge in H.Aliyev Airport included)

Up to 10% for onsite helpdesk supportUp to 15% for remote administration

5% discounts on hourly fee rates

15% on Duke and Heritage rooms 15% for rentals of conference rooms; 10% on all catering contracted with rentals; 10% on F&B in Belvedere Restaurant; 20% on one year membership in Aura Spa

5% for all Altes Group apartments portfolio

HYATT HOTELS BAKU

CRESCENT BEACH HOTEL

3M

PHILOSOPHY TRAVEL

PARK INN

RADISSON

OFFICE SYSTEMS

MOZAIK LLC

GARANT SIGORTA

BAKER & PARTNERS

INDIAN CLINIC

AG BANK

ATA HOLDING

AZEL

LUFTHANSA

SEABAK

WICKLOW CORPORATE SERVICES

EXCELSIOR

ALTES GROUP