Azerbaijan: Energy-Rich, And Hungry For More

An rendering of the planned Heydar Aliyev cultural center (Courtesy Photo) BAKU -- On the streets of the Azerbaijani capital, the country's spectacular energy windfall sometimes translates into gridlock.

The city's Soviet-era streets are now clogged with cars. At rush hour, Baku's seafront avenues are jammed full with everything from high-end Mercedes to boxy Ladas. At moments when the traffic clears, the vehicles race to get ahead, making street-crossings a hazard for pedestrians.

It's an era of prosperity for the former Soviet republic. The country's budget is brimming with oil and gas revenues, and officials are feeling expansive. One billion dollars has been earmarked for defense; another $10 billion is being held for civilian initiatives.

Azerbaijan's economy grew from $10.7 billion in 1995 to more than $80 billion a decade later. In 2007 alone, growth skyrocketed by 25 percent. But the country wants more -- and is pressuring the European Union to help.

Baku wants Brussels to speed up work on the Nabucco gas pipeline, designed to carry Caspian fuel from Turkey to Austria.

The pipeline has been held up by commercial and regulatory squabbles, and worries about potential suppliers like Iran and the Central Asian states. But Natiq Aliyev, Azerbaijan's energy and industry minister, says such concerns are inconsequential -- because his country alone could fill Nabucco's annual expected capacity of 25-30 billion cubic meters (bcm).

"Azerbaijan is developing its unique Shah Deniz field with its huge reserves of gas -- over 1.2 trillion cubic meters," Aliyev says. "The country is ready today to supply it. But it needs pipelines."

Eager Consumers

An EU delegation visiting Baku last week was clearly impressed. The bloc's external relations commissioner, Benita Ferrero-Waldner, related a story: Two years ago, President Ilham Aliyev had told her Azerbaijan's gas reserves would not last long. Now, she says, the president, citing newly discovered deposits, promises plentiful supplies "until 2050."

Energy Minister Aliyev says Azerbaijan's proven reserves amount to 2 trillion bcm -- enough to cover Europe's entire gas consumption for four years. (Last year it was able to export only a comparatively minuscule 9 bcm -- although for the first time, some of it achieved the symbolic aim of reaching Europe, namely Greece.)

But Azerbaijan's sights are set higher. Dmitrij Rupel, Slovenia's foreign minister representing the current EU Presidency, says Azerbaijan is trying to "establish communication" with Turkmenistan, a potential contributor to Nabucco. The EU supports the idea of a trans-Caspian pipeline, but remains skeptical of the size of Turkmenistan's gas reserves. Natiq Aliyev, too, says Turkmenistan needs a "gas audit" first.

Azerbaijan's government has urged the EU to show greater "political will" in its dealings with the Caspian Sea region, where countries are vulnerable to the spoiling tactics of their powerful northern neighbor Russia, which is intent on monopolizing energy shipments to Europe.

The EU is aware of Russian competition. Alan Waddams, the first head of a new full-fledged EU diplomatic office in Baku, says Russia is working to prevent Azerbaijan's plans to develop independent transit routes to Europe.

"There's a constant play, a constant competition for these resources. Not only in Azerbaijan, but also in the eastern Caspian [region]," Waddams says.

Natiq Aliyev confirms this, saying that "Russia is afraid to lose Central Asian gas." Other Azerbaijani officials also use words like "nervous" and "angry" when describing Russia reactions to Nabucco.

Heydar Babayev, Azerbaijan's minister for economic development, says such Russian reactions are "normal," and that Moscow also opposed the Baku-Tbilisi-Ceyhan oil pipeline -- ultimately in vain.

Babayev makes light of Azerbaijan's difficulties with its bordering countries, saying the country's "best neighbor" is the Caspian Sea.

No Trickle Down?

It can reasonably be argued that Azerbaijan's government is not the best ally of its own people. Gasoline may be relatively cheap -- around $0.70 a liter -- and the middle class on the ascendancy in central Baku. But the energy sector, despite its scope only employs 1 percent of the country's workforce. Little of the revenue generated trickles down to the rest of society; the World Bank estimates that nearly a third of Azerbaijanis live in poverty.

A 72-year-old pensioner in Baku's up-and-coming old town complains that his monthly allowance of 60 manats -- approximately $70 -- is barely enough to keep body and soul together. "If I put this toward the cost of electricity and other supplies, then what shall I eat?" he asks.

Babayev says the government's "Norwegian-style" oil fund has earmarked $3.3 billion for infrastructure, health care and education projects this year. Civil society activists and opposition journalists, on the other hand, talk about fully equipped but empty hospital buildings and other grandiose, but pointless, projects in remote regional locations.

Much attention has been focused on the decision by Azerbaijan's government to commission a foreign architect, Iraqi-born Briton Zaha Hadid, to build a massive glass-and-aluminum cultural center in central Baku in honor of Heydar Aliyev, the former president and father of Ilham. The cost of the project is expected to run into the tens of millions of dollars.

EU officials acknowledge a "puzzling" lack of long-term strategy in Azerbaijan's development efforts.

The EU's Waddams notes that Azerbaijan has the distinction of having been "the first Muslim democracy" in the world in 1919-20 when it was, fleetingly, independent.

That past is unlikely to come to life again in the foreseeable future. Opposition activists note that the government's current policies are more liable to pave the way for Islamic fundamentalism, rather than a return of democracy.

Moreover, they say Azerbaijan's political freedoms have declined in an inverse ratio with the oil proceeds. If in 1998, 55 percent of the country's media was independent, then today only 5 percent remains so. Cases of arbitrary imprisonment of independent journalists are on the rise, and one was killed under suspicious circumstances in 2006.

EU officials say they have raised these and other issues with the Azerbaijani government. They note that the upcoming presidential election in October is not likely to be free and fair. But critics fear that an energy-poor Europe is unlikely to cast a critical eye on the human rights policies of potential supplier nations.