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Dear Readers,

Striving to be up to date with the latest changes in the legislation affecting our members, we are the first to bring to your attention a topic that is probably the most relevant for all this summer - new migration procedures, introduced by the Government of Azerbaijan with effect from July 1st 2009. Interviews with the Head of the State Migration Service, Chief of Labour Policy Department and Chief of Reimbursement and Labour Relations of the Ministry of Labour provide the Government's perspective on the question of labour and employment of both local and foreign nationals.

Another important piece of legislation highlighted in this issue is the New Customs Code. Do not miss an expert overview of the changes that the new code brings and the prognosis on its adoption.

We are very happy with the way this issue has turned out and hope that you will agree with us.

Kind regards,Nargiz Nasrullayeva-Muduroglu

Dear Readers,

As our cover suggests, we have spent the last few months grappling with the impending procedural changes in the migration process, new legislation and amendments to existing legislation. We should like to express our gratitude to the Ministry of Labor and the State Migration Service for providing answers to questions on these issues.

While we applaud and welcome the initiative to streamline procedures and increase the ease of application for migration and labor permits, we initially found it difficult to find reliable and precise information. This has changed. Our interview with the Head of the State Migration Service and indeed his presentation at our Members’ luncheon mark an important milestone in AmCham’s dialog with the Government, opening a long desired channel of communication. We welcome this very positive development and look forward to increased cooperation with Government agencies to work toward our common goal of strengthening the economy and promoting prosperity through a healthy business climate.

We shall be in communication with the State Migration Service to further clarify issues arising from the release of this information.

We thank all contributing editors and advertisers for their unfailing support of Impact. We hope this issue will be the perfect flight companion on your travels this summer.

Have a wonderful vacation! 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

Photographers:Dena BarmasHuseyn Asim-zadeh

Journalist:Ayten Aliyeva

Contributors:Natalia CorobcoJim DillahuntyMichael KunzEmil GarayevNarmin MirzazadeNatik MamedovBrian O’Shea

Advertisers:Ace Forwarding CaspianAustrian AirAzercellBakcellBaker & McKenzieHoliday Inn Baku AirportHyatt HotelsMozaik LLCNipro’s Allied’s InternationalNobeil OilRoyal BankShieldbearer

Cover artwork:© McCann Erickson Azerbaijan

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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Interview: Ministry of Labor

Interview: State Migration Service

Azerbaijan’s New Customs CodeBy Brian O’Shea

Customer Service: Part III: The Flow of InformationBy Jim Dillahaunty

Mr. Eldar Mammadov and Mr. Abulfat Magerramov Labor Policy Department provide answers to some of our most pressing questions about amendments to the Labor Code.

The imminent implementation of a one window policy and the overhaul of application procedures for a residence visa/work permit have given rise to many questions and concerns. Mr. Arzu Rahimov gives information which will clarify the issue.

Changes to the Customs Code may provide a solution to the problems facing importers in Azerbaijan.

The third in the 3 part series on Customer Service discusses the art of gathering insightful and useful information from your customers and the flow of information between an organization and its customers.

IN FOCUS9 Azerbaijan: Human Capital Development

By Natalia Corobco

How to design a strategy for human capital development in Azerbaijan?An in-depth analysis of talent management in the new economy: Current Trends, Opportunities, and Areas for Improvement.

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MEMBERS

Committees play an important role in sharing information, raising issues of common concern and proposing possible solutions. How can they be made more effective?

New legislation to benefit oil and gas contractors and subcontractors is to be introduced. Effective implementation will depend upon the prevention of overly subjective assessment and the timely release of information to potential beneficiaries.

This article discusses the Azerbaijani law issues associated with recent market developments and legislative initiatives designed to bolster market development and promote real estate investment in Azerbaijan.

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Interview: Alinaghi Asghari, Chairman, AmCham Tax & Customs Committee

Azerbaijan Introduces Preferential Regime for Oil and Gas Industry

Real Estate Opportunities: New Trends in Residential & Commercial Development

Business Leaders Join Efforts to Advance Reform through WTO

30 About us

AMCHAM AZERBAIJAN

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AmCham at home

AmCham Structure

Business Events

AmCham abroad: ECACC Conference

Committee Highlights

AmCham Projects:

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

We had the very great pleasure to be addressed by Ambassador Richard Morningstar on the U.S. Government’s energy policy in the Caspian region

33 Caspian Oil & Gas Exhibition

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Consumer Price Index Report for 2009 Website Updates

M2M Discount Program

42 Members’ News and Events

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Interview: Arzu Rahimov, Head of State Migration Service

In order to improve the mechanism of migration management and to simplify the procedures for granting permissions to foreigners and stateless persons for lawful residence and engaging in work activity, as well as to ensure transparency in this sphere, the President of the Republic of Azerbaijan signed a Decree on Application of the “Single Window” Principle in migration management from 1 July 2009. The State Migration Service of the Republic of Azerbaijan was appointed as a unit body implementing the “Single Window” principle. We asked the Chief of the State Migration Service of the Republic of Azerbaijan Mr. Arzu Rahimov to answer our questions about recent changes made in the migration management

Impact was granted an interview with Mr. Arzu Rahimov, Head of the State Migration Service of Azerbaijan. He answered our questions about application procedures for the combination work and residence permit card.

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mechanism, and appeal procedures for obtaining cards and required documents.

What are the appeal procedures for obtaining residence cards and work permits and which documents should be submitted to the State Migration Service? What is the duration of the process? First of all, I want to clarify the reasons for such changes. As you know, the economic growth, rapid development of the oil and non-oil sector and huge investment opportunities attract foreigners to Azerbaijan. Regulation of migration processes and insurance of transparency are the main purposes of these changes. This Decree simplifies this process. Concerning the relevant required documents, all information is presented on the official Internet site of the State Migration Service www.migration.gov.az. The English version of the website will be available from 15 June. Consideration of the documents should take 20 working days from the date of submission of documents to the State Migration Service. If before foreigners had to apply to different ministries and relevant bodies for obtaining cards, now related to these issues he/she will apply only to the State Migration Service.

There are foreigners working some days offshore and some days onshore. What are the procedures for them? The foreigners arriving in and working in the Republic of Azerbaijan need to obtain cards for lawful temporary residence and engaging in labor activity. If the validity period of card is expired and the foreigner hasn’t completed his/her work, he/she has to apply to the State Migration Service for extension of the period of temporary residence card and work permit indicating the purpose of extension. For this purpose the foreigner must submit a letter from the organization indicating the reasons. If the foreigner enters the country as a labor migrant under a visa regime for a period of 30 days within 30 days he/she has to apply to the State Migration Service in order to legalize his/her staying in the country. After relevant procedures, this foreigner will be provided with the temporary residence card and work permit.

What will the procedure be for a foreigner who has terminated a contract with one company and concluded a contract with another one? If the foreigner has terminated his contract with one company and concluded a contract with another one, the first company must inform us about termination of the contract. Then the foreigner must submit the copy of the contract concluded with the other company and after this he/she can obtain a new permission card and work permit.

If the foreigner has obtained a temporary residence card and work permit before 1 July and the validity period of his/her document expires in October of this year, will he/she have to obtain a new one?

If the foreigner has obtained a temporary residence card from the State Migration Service, if he/she has notification, and if we have the list of such persons we will gradually invite and provide them with a new cards.

Do you have enough resources to cope with the huge flood of applications after 1 July? We would not start a process if we were not sure of our resources and opportunities.

Is the new card valid for all entry points by air, land and sea? Yes. At the borders of all types of transport there are border control points.

A medical certificate is one of the required documents. Could you please provide more information on the exact medical tests to be carried out? Who can issue the medical certificate? The certificate could be issued in any clinic. Concerning tests, we don’t stipulate any special tests, we just need a Health Certificate. That is the current situation. In the near

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future we plan to open a clinic under the patronage of the State Migration Service. After this we will determine which laboratorial tests will be carried out for obtaining a medical certificate.

Children under the age of 14 do not always travel with their parents. Will you issue a separate document for them to travel? Yes, as in other countries we will issue a separate card to all family members of migrants. Naturally, if the parents allow their children to travel.

If the foreigner has lost his/her permission card abroad how can he/she re-enter the country? This person should apply for an entry visa to the Embassy of the Republic of Azerbaijan in his country and after entering the country he/she should apply to the State Migration Service with a statement that he lost the card. We’ll research the case, and if he really did have it before, we will restore the card.

What if there is no Azerbaijan Embassy in the country? Where should the person apply for the entrance visa to Azerbaijan? In these cases the foreigner can obtain a visa through a third country where the Azerbaijan Embassy is.

What exemptions will be made for employees working on longer running projects who need to stay longer than the 5 year limit? According to the law of Azerbaijan Republic a foreigner may engage in labor activity in the country for not more than 5 years. After 5 years he/she should leave Azerbaijan for one year. The law is the law. There will be no exemptions.

What if the validity period of the visa is expiring, but the Card is not issued for a foreigner yet? We issue a receipt to the person who submitted documents and applied for the card to the State Migration Service. They can submit this receipt to the relevant bodies.

How can one invite his/her relatives if he/she is a labor migrant in Azerbaijan? First of all, he should send an invitation letter to his/her relative, and the relative should apply to the Azerbaijan Embassy for entrance visa. If the foreigner wants to invite one or several relatives who will stay with him in the country for a longer period, he should apply to the State Migration Service of the Republic of Azerbaijan and explain the reasons why he needs these people to stay with him. If there is a fundamental reason for this (spouse, son, daughter and etc) we issue a residence card for them. All such cases are addressed individually.

Thank you very much Mr. Rahimov. We were pleased to meet with you.

List of documents, duration of the process and state fees for obtaining a new card.

Foreigners and stateless persons must submit the following documents to the State Migration Service for obtaining a permit for temporary residence in the territory of the Republic of Azerbaijan:

• application for granting permission for temporary residence - 1pcs;

• copy of passport or equivalent document and document confirming the identity of stateless persons;

• notarized document or in other form equal to notarized document certifying the existence of cases giving a basis for granting permission for temporary residence;

• medical certificate; • copy of the relevant document giving the right for

foreigners and stateless persons to reside and stay in the Republic of Azerbaijan;

• finger prints meeting the requirements of biometric identification

• 2 photos (3,5x4,5cm); • notarized written consent of children aged 14 - 18

years. • document giving basis on moving to the place of

residence (extract on the state registration of the property right from the state register of real estate, certificate, rent or tenancy agreement or other document specified by the legislation of the Republic of Azerbaijan) or the application of the persons who provide the citizen with the place of residence;

• receipt for payment of state fee: If the foreigner’s or stateless person’s application is related to obtaining a work permit in order to engage in paid labor activity in the territory of the AR and permit for temporary residence on the basis of a work permit, they must submit the following documents along with the abovementioned documents:

• notarized copy of the document confirming possession of foreign employee of the required educational or professional qualification to implement intended work;

• reference substantiating necessity of employment of foreign employee in the intended job vacancy;

• copy of the regulation or certificate about the state registration of juridical person according to the legislation of the Republic of Azerbaijan who submitted the application and the document confirming identity of host physical person;

Consideration of the documents should take 20 working days from the date of submission of documents and after this process the State Migration Service gives relevant decision on granting permission according to the legislation. At present the state fees for granting a work permit for engaging in paid labor activity in the territory of the Republic of Azerbaijan are determined in the amount of 1000 AZN and for a permit for temporary residence in the amount of 6 AZN.

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Interview: Ministry of Labor

When did the latest changes and amendments to the Labor Code come into effect?The amendments and changes have been in effect since 19 May 2009 when they were first published.

What is one of the changes to the Labour Code in regard to the terms of a contract?One change is that a short term contract becomes permanent after 5 years. This refers to any fixed term employment contract which is extended and exceeds 5 years.Example: an employee is hired on a fixed term contract (e.g.1 year) in 2009. If his contract is renewed every year, it remains a fixed term one year contract, but when it exceeds 5 years, in 2014, it becomes an indefinite contract.This refers only to employment contracts regulated by the Labor Code.

How long must companies wait for an employee returning from military service to register for reinstation?An employee returning from military service must report for work within 60 days if he wishes to retain his position.

The Labor Code stipulates that the employee responsible for office safety should do only this job and no other. How does this rule apply to organizations with a smaller workforce. Is the regulation different for administrative and for manufacturing workplaces?If the number of employees exceeds 50, no service is required to be set up, but one employee must be designated responsible for office safety.If the work force numbers between 50 and 500, a committee to deal with safety issues must be established.If the number exceeds 500, the positions of HSE Manager and Deputy Manager must exist.

Eldar Mammadov, Chief of Labour Policy Department and Abulfat Magerramov, Chief of Reimbursement and Labour Relations answered our members’ questions

If the number of employees is very low, the head of the organization is automatically responsible for office safety, and this must be mentioned in his/her contract.In a manufacturing workplace where hazardous conditions might be present or machinery operated, organizations must have one person responsible for HSE issues, regardless of the number of personnel.

Is there any plan to increase the duration of maternity leave (70 calendar days before and 56 calendar days after the confinement)?Not at present, but it might be under consideration in the future, in accordance with international standards.

What is the position of an employee on partially compensated social vacation if she wishes to return to work earlier than the stipulated 126 days? Her date of return is entirely up to her. There is no restriction preventing her from returning earlier if she so wishes.

If an employee wishes to take extra time (up to 3 years) for childcare, will she receive compensation? How much is due to her?This is termed partially compensated social vacation. The employee is compensated by the Social Protection Fund. For a child up to 18 months the mother receives 20 AZN per month. For a child from 18 months to 3 years, the mother receives 10 AZN per month.

Is there any suggestion to calculate vacations on the basis of the calendar year rather than the work (contractual) year?In order to make the calculation more accurate, this has to be calculated on the basis of the work year. At present there is no plan to revise the Labor Code in regard to this.

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Azerbaijan: Human Capital Development

by Natalia Corobco, MBA IMG strategy & communications

Azerbaijan has experienced several years of strong economic growth coupled with poverty reduction and job creation. Almost half a million new jobs were created1 from 2003 to 2007. In the same period official unemployment went down by over 30% to 6.5%. Despite these positive indicators, Azerbaijan continues to rank low in the Global Competitiveness Index (69 out of 134 countries). The quality and quantity of education is one of the worst performing categories.2 Many business people consider the lack of an adequately educated workforce a big obstacle to growth. This boils down to three key problem areas: (i) Undefined state strategy for human capital development; (ii) Weak infrastructure and market network; and (iii) Underdeveloped market for private education.

Strategy for Human Capital DevelopmentThe skills, experience and knowledge of individuals (otherwise known as human capital) create value for companies and the economy as a whole. In 2007 the government of Azerbaijan spent about 2.7% of the GDP on education, which is comparable to the level of developed countries3. The Ministries of Education and Labor work on implementing programs for improving vocational education and training. In the Global Competitiveness Index Azerbaijan scores well on labor market efficiency, which includes pay and productivity, female participation in the labor force, and labor-employer relations.

The downside includes poor quality of math and science education, management education, and enrollment in secondary and tertiary education. The legal framework and lack of strategic priorities pose significant challenges for a breakthrough in this area. To understand where the

inefficiencies lie, your author talked with Mahammad Nuriyev, the Dean of the School of Economics and Management of Khazar University. Professor Nuriyev emphasized the role of selection, forecasting and private enterprise in facilitating improvements in the quality of education.

Selection is the fundamental tool for determining talent quality and identifying appropriate areas for individual development. In Azerbaijan this process is dysfunctional resulting in the pipeline effect, whereby the number of graduates corresponds to the number enrolled. A more appropriate approach would be to concentrate scarce resources on those who can reach maximum potential in a given area. In other words, what is the point of spending public money on educating a linguist for five years if this person is never going to create value for the economy by becoming one? This is not to say that the goal is

1 ETF Country Plan, Azerbaijan, 20092 Global Competitiveness Index3 State Statistical Committee of Azerbaijan

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to establish an elitist system. People should be educated to the degree and in the field where they demonstrate maximum aptitude. To do this in Azerbaijan the selection process should occur on a continual basis in the form of tests and interviews.

School quotas are established by the Ministry of Education and prescribe the maximum number of students that can be admitted to a given program. In theory quotas are based on forecasts, signaling priority areas for economic development. For instance, if in the next ten years the government wanted to create an IT powerhouse in Azerbaijan, it would need to start training computer specialists today. Forecasting is essential to develop the right competencies to maximize value added. But in reality state universities compete for quotas, creating distortions in the labor market. That is probably why over 43% of university graduates major in education as opposed to finance or engineering4.

Without a functional signaling mechanism the need for information among young adults and their parents needs to be met. Parents who grew up in the Soviet Union may not be well-positioned to advise their children on the choice of profession in a market economy. Preferred study programs rarely reflect a student’s future career path. A good method to fix this would be to create awareness among youth and parents. Another solution is to restore the value and credibility of education by promoting an entrepreneurial model.

Transfers from one university to another have been made difficult in Azerbaijan. This creates complications for those who want to change focus in the first or second year of study. For the same reason students cannot transition to programs commensurate with their level of commitment and aptitude (from difficult to easy schools). This kills what would be healthy competition among schools for the best students. As a result the market cannot accurately establish talent quality. No differentiation among schools reduces the alternatives of employers in terms of hiring decisions and leads to conformity in compensation. Diplomas cease to serve as a guarantee for quality.

Similar problems afflict institutions providing vocational and specialized secondary education. The government has adopted a program for developing vocational education in 2008-2012 with a focus on strengthening infrastructure5. Beyond resources, this type of education suffers from reputational problems. It is perceived to be low status and poor quality. Here the rupture with the private sector is particularly acute. Businesses are not involved in defining appropriate skills sets. Moreover most positions advertised, even for secretarial and support personnel, require higher education.

There is often no link between the type of training received and the future field of employment (no clearly defined career paths). Without application the acquired skills vanish along

with the investment made, undermining an individual’s work ethic. The employee is forced to learn new skills more suitable for the job market. The system of 107 vocational and 60 specialized schools mostly dates back to the Soviet times. Enrollment rates are very low (in 2007 approximately 80,000 students in vocational and specialized secondary schools versus 1.5 million students in general education secondary schools) but the system offers as many as 300 areas of specialization, despite a limited resource base and demand for a broader skill set.

Infrastructure and Market NetworkIn transitioning to a market economy Azerbaijan, like other countries in the former Soviet Union, lost most of its educational resource base. The economic problems that were relevant

4 State Statistical Committee of Azerbaijan5 ETF Country Plan, Azerbaijan, 2009

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then are no longer relevant today. This is compounded by the fact that Azerbaijan speaks its own language and cannot easily borrow literature from other countries. Entrepreneurial schools like Khazar University switched to English as the official language of study, adapting American and European programs to local requirements. For many other schools outdated libraries and curriculums are still an area of concern, not to mention physical infrastructure, such as classroom conditions and computer equipment.

A more intangible component of infrastructure in education is the network with parents, businesses and organizations. This network is essential in establishing the link between education and employment. The employability of graduates should be among key criteria for evaluating the quality of an academic institution. It is meaningless to churn out students with any type of degree if this cannot be translated into specific job opportunities linked to the area of study. Research shows that today the majority of people seek and find employment through friends and relatives6 often in areas unrelated to their education and training. It is not surprising that such candidates do not live up to the expectations of their employers.

A good example of a company with transparent hiring policies, which advertises to candidates in public areas frequented by youth, is McDonald’s. This business is an incredible machine that runs on manuals of routines and maintains its own farm for agricultural produce. McDonald’s employs close to 540 people and processes 500 job applications per month. Turnover among line employees reaches 25-28% but is close to zero among managers. Maksud Mirzoyev, the General Manager, is not one to complain but he admits that there are more applications than qualified candidates. Thanks to companies like this Azerbaijan ranks well on the extent of staff training in the Global Competitiveness Index. By 2010 Mr.

Mirzoyev plans to open another three restaurants, growing his workforce by nearly 80%. All the new hires will have access to training and development programs.

Finally the education system falls short of preparing a consistently high quality cadre of teachers. Diminishing capacity leads to a patchy supply of qualified labor and slows the development of human capital overall. Compensation plays an important role in this process. It is clear that money is not in the top five reasons for becoming a teacher anywhere in the world. However the concept of reservation wage tells us that pay should meet a minimal threshold to ensure adequate performance. Teaching salaries currently stand at about 67% of the average wage in Azerbaijan (equivalent to approximately 216 AZN per month)7. Low pay in education has significant repercussions on the social and economic development of the country. It has the power to discredit an entire system.

Competitive Market for EducationEntrepreneurial problem-solving has enabled individuals and organizations to reinvent industries and develop new business models. That is why in a system riddled with problems it is not unusual to find a part that can operate unscathed. A pioneer of private education in Azerbaijan Khazar University has adopted the American credit-based system. This allows it to practice selection at every stage until the students develop the appropriate set and level of skills. The school emphasizes employability and attracts companies and faculty that can help them with job placements for graduates. Faculty comprises people with

6 Study on Employment and Further Paths of Youths Graduating from Vocational and Technical Schools in Azerbaijan

7 State Statistical Committee of Azerbaijan

Data Source: State Statistical Committee of Azerbaijan

Note: Excluding mining with 86.2% of value added, only 1.1% of employment and a 391.8% wage level.

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international degrees and business experience. Most have full-time jobs and consider teaching a prestigious hobby. A new teaching class is formed to support the state’s strategy for human capital development.

As most private initiatives go, none is without difficulties of its own in Azerbaijan. For private universities this comes in the form of a value added tax. State universities, which receive about half of the funding from the state budget and half from tuition fees8, are not required to pay this tax. Yet it is clear that a competitive market creates the much-needed balance of supply and demand. In education it builds the link between hypothetical student profiles and what the market requires, defining real not imaginary career paths. Competition creates a focus on quality and pushes schools to develop innovative solutions, form partnerships with foreign schools, and expand their knowledge base.

There is no hard data available on the level of private sector spending on education and training. Multinationals in Azerbaijan provide similar opportunities for employee development as in other countries. Mid- and senior-level managers are sometimes given the possibility to attend trainings abroad. This is a good way to motivate employees and improve the work ethic. Local companies outsource staff training to providers, such as Allianz Group, which delivers HR and business courses. External training alternatives (even for basic skills such as language and computer knowledge) are still fairly limited and constricted by the lack of qualified trainers. The signs are that the market will continue to grow as individuals seek to improve their qualifications.

The development of management education as demonstrated by the proliferation of MBA programs is a priority area for the government. Projects such as the Azerbaijan Diplomatic Academy (ADA), which promises an impressive campus in the near future and already has world class facilities, are no doubt beneficial. However elite education does not solve the problems of an entire economy. ADA may help to create a new class of diplomats that will contribute to a good image of the country abroad. This will not prevent the problem of

8 http://www.britishcouncil.org/eumd-information-background-azerbaijan.htm

• Air, Rail, Sea & Road freight forwarding

• Project Logistics & Module Movements

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• Personal Effects Removals & Relocations

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Address: Akademik Hasan Aliyev 63, Baku AZ1110, Azerbaijan. Tel: 994 (12) 4654776 / 4656787 / 4659710Fax: 994 (12) 5643761Email: office@acecaspian.comWeb: www.acecaspian.com

quality in education from resurfacing. Lack of a properly trained workforce has a negative impact on economic growth. Azerbaijan should establish the strategic direction it is moving in, be it manufacturing or IT, and develop the human capital to support this movement. Some of the key measures include:

• Determine the developmental priorities of the state and communicate them through appropriate legal frameworks and policy decisions;

• Facilitate the evolution of the market for private education, encouraging competition among schools to improve quality and build networks with parents and businesses;

• Revise the legal framework to improve candidate selection and the level of fit between individual aptitude, degree of program difficulty and optimal career path;

• Create a stronger link between study programs and em ployment opportunities to avoid unnecessary expenditure on a superfluous number of graduates in areas of low value added;

• Allow the private sector to define relevant skill sets given the state’s developmental priorities through surveys and flexible curriculums.

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Expert Opinion: Azerbaijan’s New Customs Code

By Brian O’Shea,Legal Advisor,USAID TIRSP project

How much customs duty must I pay? To an importer, the answer to this question may be the difference between a profit and a loss. And the sooner the importer can get a reliable answer to that question, the better positioned he will be to calculate his costs, negotiate prices with his suppliers and customers, and market his goods.

An importer might research the customs tariff laws and regulations, or he might consult with a customs broker or other expert to estimate his duty liability. But, there will always be doubt because Customs authorities are by law normally empowered to make the final decision. And, this decision is traditionally made by Customs only after the goods have arrived.

Azerbaijani importers may soon have a solution to this problem. A new Customs Code, which is now under consideration by the government of Azerbaijan, will provide importers with a right to obtain a “binding ruling” from Customs before the goods are shipped to Azerbaijan. These “binding rulings” are just one of a number of revised or new provisions designed to provide the Azerbaijan customs administration with the necessary legal basis for modern customs processes based on international trade facilitation and security standards. Comprehensive in scope, the draft Customs Code contains over 400 articles covering all aspects of import, export and transit processing.

Why a new Customs Code? Customs now operates under a code that was adopted in 1997. Since that time, the international trade environment has evolved and changed, in some ways that could not be anticipated when the current law was written. Customs requires new legal authority to respond to these challenges. For example, information technology has increasingly become the primary medium of exchange of trade data; a Customs

organization that continues to rely on paper documents is outdated and a bottleneck to flow of legitimate trade. Levels of trade have also greatly increased worldwide – Azerbaijan’s imports alone have increased by over 600% from 1997, as measured by value. Customs organizations worldwide have understood that they must develop new strategies to cope with such steadily-increasing trade volumes using their limited manpower and resources.

In addition, since the adoption of the current Code, Azerbaijan has applied to join the World Trade Organization (WTO) (1997); signed Partnership and Cooperation Agreements with EU member countries (1997); and become a member of the World Customs Organization (WCO) (1999). Commitments to these organizations require Azerbaijan to bring its trade regime – including its customs law – into full conformity with the rules of the international trading system.

And, finally, as a result of the attack on the World Trade Center on September 11, 2001, all countries now recognize that new customs procedures are required to prevent international trade from being used as an instrument of terrorism.

What is New?The general goal of the new Customs Code is to provide Azerbaijan Customs with a solid legal foundation for

New Customs Code - Some Key Changes

• Electronic Processing o Primary method of communication with Customs

will be electronic data processing • Security and Safetyo Airlines and other carriers will be required to

submit consignment data to Customs prior to their arrival to Azerbaijan

o Customs shall base its controls on principles of risk management and assessment

• Simplification of Customs Procedureso “Authorized Economic Operators” will be subject

to reduced controls and allowed use of simplified customs procedures

• WTO Transparency/Fair Processo Traders may obtain “binding rulings” from

Customs on requesto Traders can choose to appeal customs decisions

to a higher Customs authority or directly to a court

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development of a modern customs administration. Foremost among these changes is the adoption of electronic messaging as the primary means of communication with Customs. The new Code establishes a general principle that all exchanges of information between Customs and businesses shall be based on electronic data processing methods, except for cases otherwise specified by the Customs Committee [Article 40]. Since 2002, customs agents have been able to submit declarations electronically to the Customs system but a paper version with a signature is still required by Customs Code. Under the new Customs Code, Customs will be able to accept directly electronic import and export declarations, as well as the electronic transmission of any supporting documents that may be required for clearance (e.g., invoices, certificates of origin, etc.). [Article 145]

The draft Code also contains provisions to enable Customs to respond more effectively to the threats to safety and national security presented by global terrorism. In particular, there are provisions to implement World Customs Organization’s “SAFE Framework of Standards”. These provisions will require the airlines, trucks, and ocean vessels that bring goods to Azerbaijan to notify Customs before arrival of the goods, in order to allow Customs the possibility to assess the incoming shipments for safety and security risks. Like import and export declarations, carriers will be generally required to submit these advance notifications – called “brief import declarations” – electronically. [Articles 122 to 125]

The Code establishes that principles of risk management and analysis, including the use of post-clearance audit for control of imported goods, shall be used as the basis for customs

control. This is in line with accepted international best practices, which recognizes that with limited resources, Customs must use a systematic risk-based approach to ensure that the focus of control efforts is on those transactions which pose the greatest threats, and allow low risk transactions to pass with limited controls. [Articles 371 to 376]

In that regard, the new Code provides for the possibility of reduced Customs controls on “Authorized Economic Operators” (AEO). These are businesses who have demonstrated a high level of reliability - in terms of compliance with customs rules, control systems and financial solvency. If Customs grants their application for AEO status, these “low-risk” businesses will generally be allowed to use simplified procedures (such as simplified declaration data requirements), and permitted to

Draft Customs Code Binding Rulings

• Can be requested by “any interested person” (e.g., the importer, exporter, buyer of the goods)

• Issued in advance of the transaction concerned• Covers question about tariff classification,

customs valuation, country of origin of goods, or amount of customs payments

• Legally binding on both Customs and the recipient of the ruling

• Valid for three years, unless revoked, cancelled or modified

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clear their goods under reduced customs controls [Articles 32 to 35].

Transparency and Accountability Azerbaijan’s WTO membership application has had an important impact on the development of the new Customs Code. There are new provisions in the draft Customs Code to conform Azerbaijan’s regime to WTO rules on customs valuation, protection of intellectual property rights, and rules of origin. The new Customs Code will also incorporate WTO rules on transparency and accountability. These include the “binding rulings” program, mentioned at the start of this article, and rules for administrative appeals.

Binding Rulings A binding ruling is a Customs official written decision that is issued on request of an importer or exporter before the goods arrive to the customs office. Binding rulings programs are well-known and heavily used in international practice. The United States customs administration, for example, initiated its binding rulings program more than 50 years ago, and now issues thousands of rulings to importers and exporter each year.

Rulings issued by Customs are “binding” on both the trader and Customs. That is, a trader that receives such a ruling must present it to Customs at the local office where he declares his goods for export or import, and that local Customs office must apply the decision to the imported or exported goods, if they are satisfied that the goods are the same as those described in the ruling letter. [Article 54]

The obvious benefit to an importer who obtains such a legally-binding ruling is that he will know with certainty how much duty and tax he will be required to pay before he ships his goods. But there are also advantages for Customs. Because a transaction covered by a ruling has already been examined before the goods arrive to Azerbaijan, Customs can focus their resources on clearing other imports involving unknown or higher risks. Moreover, a rulings program can promote greater consistency and transparency in Customs decision-making. Although a ruling issued to one importer is not legally binding on another, it does represent Customs official decision on the transaction described in the ruling, at least as of the date the ruling was issued. Customs authorities thus would normally be expected to apply the decision to other import transactions where the goods or other relevant transaction details are identical. Where rulings are published – as they are in the United States and EU via a searchable database, subject to protection of the importer’s confidential information – other importers or exporters of identical goods are able to predict with greater confidence how Customs might treat their transactions.

Administrative Appeals. An administrative appeal procedure provides traders with access to an independent authority within the Customs administration who can review and correct, if necessary, decisions (or omissions) that are made by local Customs officers.

The draft Customs Code would allow any “interested person” to appeal decisions to a higher authority within the Customs organization. In other countries, such as the United States where administrative appeal process is heavily used, importers typically make such appeals against the tariff classification or customs valuation or amount of duty or fees that a local Customs office charges on an import shipment. Under the draft Customs Code, these appeals generally must be decided by Customs, in writing, within 30 days. [Articles 55 to 58]

The general advantage of an administrative appeal is that disputes can be resolved more quickly, and at a lower cost, than through a formal judicial proceeding. Of course, the person who makes the administrative appeal always has the right to go to court.

PrognosisThe State Customs Committee has submitted the draft Customs Code to the Cabinet of Ministers for review and approval by the government. It is expected that the draft Customs Code will be presented to Parliament for consideration in 2009 and, possibly, enter into force at the beginning of 2010.

Many of the provisions of the Customs Code are not self-executing; that is, the Code sets out general principles that must be implemented by secondary legal acts developed by the government or by the Customs Committee. Thus, much of the detail regarding the new procedures will depend on the work of these bodies.

The administrative rulings and appeals program mandated by the new law is intended to provide greater predictability and transparency in customs processing, and to reduce transaction costs. The utility of such programs to the trade is proven by their heavy use in countries around the world. Importers and exporters in Azerbaijan should thus be similarly encouraged to investigate and take advantage of the new rulings and appeals procedure, once adopted.

Mr. O’Shea is a customs legal advisor working for Economic Integration Forum Inc. on the USAID TIRSP project providing assistance to the Government of Azerbaijan to accelerate its WTO accession process. Mr. O’Shea has worked as a customs and trade lawyer and advisor for over 20 years on various customs modernization and reform projects in South Africa, Europe, Central Asia and the Middle East. Prior to this, Mr. O’Shea was special trade counsel to an international law firm in Washington, D.C., and served for three years as an attorney with the U.S. Customs Service. He holds a Bachelor of Arts degree from the State University of New York at Buffalo, and a Juris Doctorate from Vanderbilt University. He is a licensed U.S. Customs broker.

This article is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this article are the sole responsibility of the USAID Trade and Investment Reform Support Program in Azer-baijan and do not necessarily reflect the views of USAID or the United States Government.

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This is Part III in the series of articles on customer service. In Part I, we identified customer service as an interconnected system of operational units. In Part II we discussed properly identifying, and placing an economic value on customers. This article presents the concepts of information and messaging that flows:

a. From customers to the organization b. From the organization to its customers c. Internally within the organization

Gathering Information From Customers Gathering insightful and useful information from your customers is an art. It is easy to survey customers, but in many instances customer surveys do not provide useful information to an organization. Customers are very good at responding to surveys, telling organizations of their desires, but little about how those desires and interests might be put to use in product design and improvement. In some respects, surveying your customers is similar to asking your teenagers at home, “What would you want to make your family life a more delightful and rewarding experience?” Is there any doubt that the responses you would receive would be something like, “more video games, less homework, and a new cell phone!” The same can be said for customers; they will eagerly provide you with superficial information. The challenge for organizations is to understand how customers are using their products and services and what jobs they are trying to accomplish when they select your brand.

I was riding a train in Southern California not so long ago when the conductor handed me a survey that was designed to understand the needs and interests of its riders so that they could boost ridership. There are only two ways to increase ridership; have the people who already ride the train travel more often, and appeal to the interests of people who would ride the train but could not for some unknown

reason. I asked the conductor how they were distributing the survey forms, and he replied, “We are handing them out to all the passengers.”

Although on the surface it might seem like a good idea to survey current customers, a more useful understanding might be gained by also including prospective passengers. Rudimentary analysis would divide a market into three major segments; Customers, Prospects, Non-customers. In this analysis, it is easy to see that limiting the survey to only customers neglects a substantial portion of the market, namely your prospects. In the railroad's survey, the information gained could only serve to increase ridership among its current customer base.

One very useful method that the organization may find useful is to have its managers and executives spend time with customers to better understand their needs and interests and what motivates customers to select your product or service over that of a competitor. One CEO I interviewed in the United States who operates an international tour company goes on at least one tour a year with his firm’s customers. From that experience, the CEO is able to gain first-hand information about how customers experience his company's services. If you are a senior executive, who decides to spend time among the customers it is very important to the validity and quality of the information you gather, that you

Customer Service Part III: The Flow of Information.

By Jim Dillahunty,International Speaker and Consultant in the field of Leadership Development

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do not distinguish yourself from those with whom you are sharing the experience. That is to say, you should dress like your customers and participate in all the experiences that you are asking your customers to do. Executives who want to understand the customer experience should leave behind their tailor-made suits, private cars, and entourage of secretaries and assistants. If you look and act different from the customers, they will treat you accordingly and you will likely not gain any information about the true nature of their experiences.

Sending Information to CustomersThe normal mechanisms organizations use to deliver information to customers comes in the forms of the advertising and public relations campaigns. The first question to ask yourself about the information that you are delivering to your customers is “is it really the truth.” It is easy to fall victim to the clever sayings and illustrations of an advertising agency in terms of how it positions your product or service in the marketplace. Clever sayings, calls to action, and marketing catch phrases should never substitute for, or obscure the truth. How many times have you seen television advertisements in which the last frame is a microsecond posting of fine print too small to be read by viewer. That is an indication the advertisement may not be telling the whole truth about the product, service or offer. It does not take consumers long to either add to or take away from your brand value by their experiences in selecting your product. If it does not live up to the advertisement, not only have you burned the customer, you have thrown away future sales and the likelihood that a satisfied customer will provide you with referrals.

In addition to your advertising and public relations the front-line personality organization; those that meet directly with your customers convey a lot of information about the nature of your organization. If these employees or sales representatives are truly delighted with your company and your products that enthusiasm will be readily seen by customers and prospects alike.

Your employees are living beacons that either add to, or take away from your brand value. This is especially true if your employees happen to be in company uniforms. Many of us have had a bad customer experience with a uniformed employee. Not only do we go away angry at the organization, but we keep a visual reminder in our memory of the uniform and logo of that organization. It should be understood that front-line employees, especially those that wear the uniform or insignia of the company, should receive adequate training in how to properly interface with customers. That training should include dealing with customers who may be upset, or had a bad experience with

your product or service.

Internal Information flowInformation flow is more than a two-way street back and forth between your organization and your customers. A critical avenue of information flow can be observed in how well information flows within your organization. Ask yourself “does critical information flow from its collection point to the individuals who can most readily use and act upon it?”

I had the experience of walking into a major department store with a store discount coupon in my hand, which I had just clipped, from the morning newspaper. I approached the sales clerk and told her what I wanted; she found the item and brought it to the cash register. I presented my 25% discount coupon and my credit card. She looked at the coupon and then at me and said she did know not anything about the discount, and she would have to call someone. It seemed like 15 minutes went by as she made multiple calls throughout the store trying to find someone who knew about the 25% discount published in the morning paper. Every call she made, to store managers and other departments heads, returned the same answer; no one knew a lot about the sale. In frustrated exasperation, she explained to me, “They never tell us anything around here.” From that experience, I formed the perception that the value I saw in the product came from its brand name, and no loyalty was owed to the retail distributor.

SummaryUnderstanding how information flows from your organization to customers, from customers to your organization, and internally within your company, presents a number of opportunities for your organization to differentiate itself from its competitors. Understanding what your customers are trying to do with your product or service is perhaps the most critical piece of information an organization can ever obtain from its users. The information that you deliver to your customers requires that such advertising and public relations be truthful. Your staff members who directly interface with customers require not only training in customer service, but access to the information that allows them to present a competent image.

DR. JIM DILLAHUNTY is an international Speaker and Consultant in the fields of Leadership Development, leading in Chaos, and Customer Service (see www.NewParadigms.com.) Dr. Dillahunty has collaborated with Drs. Ken Blanchard (The One Minute Manager) and Stephen Covey (The Seven Habits…) in two books; Blueprints for Success, and Roadmaps to Success. Jim received his BS and his MS in Materials Engineering at the University of Massachusetts; he earned his MBA at the University of Southern California and his Doctorate at the University of Phoenix in the field of Organizational Leadership.

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Interview: Alinaghi Asghari, Chairman, AmCham Tax & Customs Committee

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How do you see the role and function of the AmCham Tax and Customs Committee?The Committee plays a very constructive role for the benefit of its members. It proactively addresses both existing and new issues by maintaining a dialog with the related organizations, commenting on draft legislation and organizing forums for discussions of ‘hot topics’. TCC continues to keep in close contact with all members, non-members and government officials through regular meetings and attendance of various forums and conferences, as well as increasing awareness of the membership on tax and customs issues and tendencies.

What progress and achievements of the committee can you highlight? How would you further improve its effectiveness? Although we are not an executive unit, we play an effective role as a link between our members and related administrative and ministerial organizations. As our main achievement over the years I believe we can note the high level of trust of the members in TCC and at the same time the importance of TCC to other governmental and non-governmental organizations.

Active participation of members in the committee meetings and sharing their experiences in the business environment can lead to higher performance of the committee. Regular meetings of the committee and keeping the members updated on regulations will further improve its efficiency.

Which areas would you like the committee to focus on in future?Beside encouraging the members' active participation in the meetings, the committee should continue to further increase the knowledge of members on regulations.

Expanding its relations with related governmental organizations is another area of concern. This needs the practical support of the board of directors of AMCHAM to assist the committees in creating a strong presence and relations with those organizations.

Please describe specific problems you have encountered in the area of tax and customs.

Alinaghi AsghariCPA Director, Member of The BoardWEIR Standard Oilfield Services Limited

We need structured relations with the government and specific channels of communication with related organizations to achieve efficient solutions to the questions and problems which our members are facing. We still have not reached such a position.

In practice one feels some degree of distance with the law books. The knowledge of our members of their rights and their eagerness for the betterment of business environment is essential for a better future.

What, if any impact will the new customs code have on member companies?Certainly the new code will create a more transparent and clear basis for customs formalities in Azerbaijan. Depending on the level of its implementation it will result in higher predictability and lower cost of customs processing for both importers and exporters.

The possibility of administrative appeal to an independent authority within the Customs administration under the new code is a great change to be noted. This should result in resolving the disputes more quickly and at lower cost. Those disputes might be the tariff classification, customs valuation, amount of duties or fees that a local Customs office charges on an import shipment.

What are your expert recommendations to the government of Azerbaijan from the private sector in the area of simplifying and improving tax and customs procedures?The value of any law is measured by its use in practice. I believe the one window practice has had a positive impact on relations with the tax administration and hope it will be the same with the customs administration.

I believe it would be beneficial if both tax and customs administrations would create an expert public relations department which traders could access easily without going through ministerial formalities, to discuss their problems and possibly get prompt guidance in handling problems they are facing.

Alinaghi Asghari was born on February 14, 1971. He has lived in Azerbaijan since 2000. He is married and has a daughter. He has Master's degrees in Finance and Accounting, Certified Public Accountant (CPA) from the USA.

He has over 17 years of experience in the areas of Audit, System Ananlysis and Design, Finance and Accounting. He is Executive Director in production, trade and service sections.

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Azerbaijan Introduces Preferential Regime for Oil and Gas Industry

The President of Azerbaijan approved the Law "On application of a special economic regime to export-oriented oil and gas operations" on February 2, 2009. The law, which became effective on April 17, 2009, will apply for 15 years and may be extended for a longer period by the Parliament.

The law sets a precedent for the successful cooperation of businesses and the government in pursuit of a common objective. It is especially commendable to note that the government demonstrated genuine interest in the initiative put forward by private companies and actively involved the latter in agreeing to the framework of the new law. The initiative for creating a special economic regime to further advance the appeal of Azerbaijan’s oil and gas infrastructure for use in the greater Caspian region came from private oil and gas companies. It became obvious that there is a niche for Azerbaijan-based shipyards and fabricators of equipment for the oil and gas industry in neighboring Caspian markets. The boom in Azerbaijan’s oil and gas industry during the last decade has also enhanced the specialist capacity of the country.

The law is designed to create simplified fiscal, customs, currency and employment regulations for contractors to serve oil and gas projects performed outside Azerbaijan. Therefore, its application to existing projects within Azerbaijan, including Production Sharing Agreements (PSA) and Host Government Agreements (HGA), is specifically prohibited.

The new law defines export-oriented oil and gas activities as any supply of work, services and goods in the territory of Azerbaijan in connection with oil and gas projects undertaken outside Azerbaijan. Oil and gas operations include exploration, valuation, production, stabilization, preparation, refining, storage, loading, transportation, and the sale and purchase of crude oil and natural gas.

Contractors and subcontractors are the main parties intended to benefit from preferential treatment under the law. The law sets certain requirements to qualify as a contractor, which include being an Azerbaijan legal entity and having existing production capacity, labor force, technology and finance. It

should be noted that companies with foreign investment can also qualify as contractors. Although the rationale for restricting the ability of foreign legal entities to qualify as contractors is not clear, presumably the restriction is designed to increase the local content in the industry.

Taxation regimeThe new law provides for a special tax regime for qualified taxpayers. Contractors can choose to pay either profit tax in accordance with the Tax Code or a withholding tax in the amount of 5% of gross revenue (i.e. without the right to deduction costs). This option enables contractors to choose between the two methods based on the expected profitability of future projects.

Nevertheless, the withholding tax option may be more attractive to contractors because paying profit tax under the Tax Code includes complex compliance obligations. Under the Tax Code, a taxpayer must maintain accurate accounting of income and expenses, and the treatment of deductible expenses for profit tax purposes has traditionally been an area of disagreement between the tax authorities and taxpayers.

Depending on the country of incorporation and citizenship, the law differentiates between local and foreign subcontractors. According to the law, local subcontractor corporations are subject to profit tax under the Tax Code, whereas local individual subcontractors can pay either personal income tax or a simplified tax under the Tax Code. Unlike local subcontractors, however, foreign subcontractors that are corporations can only pay the 5% withholding tax.

The law also protects contractors against future increases in the profit tax rate.

Dividend and interest payments made by contractors and foreign subcontractors and the repatriation of net profits by permanent establishments of foreign subcontractors to their head offices are not subject to tax. In addition, contractors are exempt from asset and land taxes. Export of goods, services and works by contractors are subject to VAT at 0%.

Contractors are also entitled to offset input VAT incurred on the purchase of goods and services related to export-oriented oil and gas projects against other tax liabilities, with any balance of VAT able to be reclaimed from the State Budget. The law guarantees a full refund of VAT within 20 days after

Emil GarayevNarmin MirzazadeDeloitte Azerbaijan

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which require a work permit before starting employment in Azerbaijan.

Project approvalA project certificate must be obtained for each contract to carry out export-oriented oil and gas project -- the certificate serves as a basis for qualifying for benefits set out in the law. Foreign subcontractors without a permanent establishment in Azerbaijan are not eligible for a project certificate but they can enjoy the preferential treatment through their customers who are qualified as contractors under the law.

Several steps are necessary to obtain a project certificate: the contractor or subcontractor must file an application and supporting documents with the relevant executive authority (which is yet to be determined); the executive authority appoints an expert within two days of receipt of the application to issue an expert opinion which is issued within 15 days; and based on a positive expert opinion, the certificate is issued within three days.

The format of the application and the list of required documents have not yet been determined by the authorities, and it is likely that a presidential decree will be issued to clarify these issues and state which government authorities will be responsible for implementing the provisions of the new regime.

While the new law represents an important policy measure of the Azerbaijan government calling for better utilization of the country’s oil and gas infrastructure in uneasy economic times, its success depends on how easy and transparent administration of the regime will be in practice. It is important that the implementation rules are objective and grant minimal subjective discretion to government officials.

Although it would be an overstatement to view the law as a radical reform to the entire oil and gas industry in Azerbaijan, it will definitely will be of benefit to certain contractors, will improve the country’s economic profile in the face of increasing competition for foreign investment and help to affirm Azerbaijan as a regional hub for oil and gas investment.

Narmin Mirzazade 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 in Azerbaijan. Narmin has more than 3 years of experience in advising foreign and local companies on different tax and legal issues.Emil Garayev possesses Bachelor's and Master's degrees in Law from Baku State University. He has been working in the Tax and Legal Department of Deloitte Azerbaijan for the last 3 years. His work experience concentrates on advising local and foreign investors on various tax and legal matters.

filing an application without the authorities having to conduct a full-scale audit.

It should be noted that foreign individuals will be subject to Azerbaijan personal income tax only on income from direct employment in Azerbaijan. This effectively means that an expatriate who becomes a tax resident in Azerbaijan will not be paying Azerbaijan personal income tax on his/her worldwide income.

It is also unclear why the legislator has limited the possibility of paying simplified tax to Azerbaijan citizens. Unfortunately, the law does not exempt expatriates from making mandatory social insurance contributions in Azerbaijan, which could reduce the attractiveness of the new regime to foreign contractors and their foreign employees.

Customs regimeThe law provides an exemption from VAT and customs duties on the import and export of items required for export-oriented oil and gas operations. Contractors and subcontractors pay a customs processing fee of AZN 275 for each customs declaration, irrespective of the value of goods. According to the law, the transfer of imported goods between the projects related to PSAs and HGAs and projects governed by the law is exempt from VAT and customs duties.

Currency controlUnder the special economic regime, contractors and subcontractors can open and operate bank accounts in Azerbaijan, but they must notify the Central Bank of Azerbaijan and the relevant executive authority, which is likely to be the Ministry of Taxes of Azerbaijan, of any offshore bank accounts. Additionally, contractors and subcontractors can freely repatriate profits from Azerbaijan after payment of applicable taxes. They can also pay their expatriate employees in Azerbaijan in manats and in foreign currency outside of Azerbaijan.

Employment issuesAccording to the law, at least 80% of contractors' and subcontractors' employees must be Azerbaijan citizens if the project lasts for more than six months. Exceptions are made where no local labor force is available, if the training of a local labor force would take more than six months or the cost of training of local specialists is 20% percent higher than the cost of employing foreign specialists. Employment of foreign citizens is subject to existing labor migration rules,

Copyright © 2009, Deloitte Touche Tohmatsu. All rights reserved.

New Trends in Residential & Commercial Development

IntroductionFollowing the construction boom earlier this decade, the Azerbaijani real estate market has undergone substantial change, in both the residential and commercial sectors.1 The global financial meltdown, however, has significantly impacted a number of planned and on-going developments here. While construction has slowed in recent months – for a number of reasons, including the unavailability of credit – interest remains high among major local developers and project negotiations continue.

This article discusses the Azerbaijani law issues associated with recent market developments and legislative initiatives designed to bolster market development and promote real estate investment in Azerbaijan.

Residential MarketResidential development has consistently led the real estate market in Azerbaijan for more than a decade. According to the State Statistics Committee, nearly 200 construction companies have been registered in Azerbaijan, with more than half of them involved in residential development.2 During that time, residential development may be divided into three periods: (1) the pre-boom period from the late 1990s through 2003; (2) the construction boom from 2003 through 2007; and (3) the post-boom period from 2007 to the present. Each period is characterized by the use of different types of contracts for residential development. Each type of contract or “construction mode” (or a combination thereof) appeared due to commercial factors and financing requirements as well as legal developments such as the enactment of the Civil Code

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of Azerbaijan in 2000 and other subsequent amendments to Azerbaijani law.

(i) Construction Contracts 3

An individual wishing to “purchase” a unit in a proposed or partially built residential complex (not yet state-commissioned) would typically be required to “order” the construction of the unit by entering into a construction contract with a developer. The purchase price would generally be paid in several installments. A “unit owner” was not responsible for the contractor’s obligations to third parties. The risk of non-completion, however, was always a major concern, particularly where the interval between the final installment of the purchase price and completion exceeded six months.

(ii) Participation in Residential Cooperatives 4

With the Civil Code’s introduction of cooperative ownership, residential developers have been actively using residential cooperatives as a way to pre-sell unfinished residential units to end-users. Under Azerbaijani law, a cooperative is a voluntary union of at least five individuals or legal entities created for the purpose of satisfying the material and other needs (such as housing) of their participants. Members of a cooperative make contributions to a “share fund” to pay construction and other costs. While the cooperative’s members, by law, are in a position to control the construction process (as they may retain a contractor or do construction themselves), in practice, however, this has only been available to a few “founding” members who also participate, generally on an informal basis, in the management of the cooperative. While “regular” cooperative members are not actively involved in the construction of residential units, they are, perhaps unfairly, still fully liable for the co-op’s obligations, including tax arrearages.

(iii) Purchase of Residential Certificates 5

An amendment to the Civil Code in 2004 introduced “residential certificates” as a form of property development financing. A residential certificate is a documentary security representing a holder’s right to redeem the certificate for title to a residential

By Natik Mamedov,Senior Associate Baker & McKenzie, Baku

1According to the data released by the Property Market Participants (an Azerbaijani public association), the construction market in 2008 ex-panded by 6%, resulting in the development of a total 1.35 million sq. m.2With such major developers as the Akkord Group of Companies, Azinko Holding, Altes Construction (Altes Plaza in Yasamal District and Altes Park in Nasimi District), Azimport LLC (AgSaray complex in Nasimi District), Bakmonolit LLC (Eurohouse complex in Nasimi District), Siti Developer LLC (Orient City complex in Nasimi District), Incom LLC (Roseville complex in Narimanov District), and Araz Cooperative (Sun City complex in Yasamal District). 3Construction contract-based development was most typical during the pre-boom period.

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unit developed with financing obtained through the sale of residential certificates. Residential certificates, however, are not yet commonly used in Azerbaijan, mostly due to the lack of a ready market and the lack of specific rules regulating their issuance, use, and redemption.6

Commercial Market

With the slowdown in the residential market, the commercial market has expanded to include the development of elite hotels managed by name brand operators,7 warehousing facilities, shopping malls,8 lately fashionable multi- and mixed-use complexes and towers,9 (v) infrastructure-related construction (including roads, transport, water supply, sewers, power infrastructure, and telecommunications),10 and resort and entertainment development.11 While the commercial market is developing, its overall success will ultimately depend not only on the country’s oil and gas revenues but also on how Azerbaijani law develops to better facilitate development.

Business LicensesAzerbaijani law requires separate licenses for (i) construction (except residential buildings and suburban buildings up to 12 meters in height), (ii) engineering works, and (iii) preparation of construction project documents for Class One and Class Two buildings and structures. As the commercial market matures, it is becoming subject to more stringent regulation and licensing. Recently, the licensing rules were amended to impose minimum qualification requirements for each license. To be eligible for a construction license, for instance, an applicant must demonstrate that it has (i) at least five construction specialists, each with a minimum of three years experience; (ii) the necessary technical equipment, including construction equipment, vehicles, technical and security facilities, movable power generators and stations, and control measurement devices; (iii) a certificate on the technical compliance of its measuring instruments; and (iv) third party liability insurance. While the introduction of the qualification requirements is a positive development, more detailed regulation is needed to ensure that the quality of construction conforms to international standards.

Zoning

Zoning is a regulatory “division” of urban areas into different zones such as recreational, residential, agricultural, commercial, industrial, mixed, and special uses (e.g., power plants, sport complexes, airports, and shopping malls) according to a specifically designated land use to preserve the “character” of a given community. Each zone is regulated as to density (from low-density single-family homes to high-density high-rise apartment buildings), height, location, size, and type of buildings permitted.

While Azerbaijani law provides generally for zoning, no particular zoning requirements have yet been established. This will hopefully change with the adoption of the Construction Code.12 That said, however, land may only be developed for the purpose

4Cooperative-based development was typical during the boom period. 5Cooperative-based and residential certificate-based development is typical during the post-boom period (issued by a number of construction companies, including Azinko Holding, Azimport LLC and Incom LLC). 6In most jurisdictions where residential certificates are used, special licensing, registration, and disclosure requirements exist. 7These include (1) Full Moon Rising and Crescent Tower (Full Moon Bay Hotel and the Caspian Plus, including the Crescent Place Hotel, on the Baku Bay area on opposite extremes of the same bay acting as gateway markers), (2) Hilton Hotel being developed by ISR Holding on the site of the old Azerbaijan Hotel, (3) Marriott being developed by Pasha Inshaat on the site of the old Absheron Hotel, and (4) Four Seasons Hotel being developed by Pasha Inshaat across from the Heydar Aliyev Foundation. 8These include (i) the recently completed Shuvelan Park Shopping Center outside Baku and (ii) the Park Bulvar shopping mall on Nefchilar Avenue tar-geted for completion by October 2009. 9These include (i) Sky Park, a complex of four skyscrapers next to the Heydar Aliyev Sport Arena; (ii) Baku Flame Towers being developed by DIA Holding on the site of the old Moscow Hotel; (iii) the Heydar Aliyev Center on Heydar Aliyev Avenue in Baku (housing conference facilities, a library, museum, and food outlets); and (iv) Dream Island, a 300-hectare residential complex with educational, medical and recreational facilities near the airport in Baku.

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specified in a land allocation order. Land, in turn, may only be allocated for a purpose that corresponds to its classification, i.e., land classified for agricultural or recreational use cannot be allocated for the development of a manufacturing facility. While Azerbaijani law allows for land reclassification (by Cabinet of Ministers resolution), no specific reclassification rules have been adopted so far.

A land allocation order specifies a permitted development on the allocated land by stating exactly what type of building may be constructed on it – residential, office, shopping, warehousing, etc. Due to the lack of specific zoning requirements, however, land (mostly outside the City of Baku) is allocated with an allocation order not specifying the type of development. This leads to a potential inconsistency between the development of the land and the land’s underlying classification, i.e., where land use is classified as residential, a generic reference to “any commercial purpose” in the land allocation order permits development of multi-use complexes with hotels and business offices.

Single Register of Immovable Property and Land Cadastre The Service of the State Register of Immovable Property (the “Registration Service”) is the single register of immovable

property in Azerbaijan (including state property) which issues title and other documents (in the form of extracts) certifying rights to immovable property. Nevertheless, state property (including land and other property subject to privatization) largely remains on the “books” of the previous registration authorities and, as such, is not in the register maintained by the Registration Service. With state property not completely registered, real estate development financing is less available to local developers as the legal issues arising from mandatory registration relating to the enforceability of security interests deter potential lenders.

The transfer of the land cadastre system from the State Land and Cartography Committee to the Registration Service is also necessary to enhance the ability of the Registration Service to operate efficiently as a single, unified register of immovable property.

Release of Mortgage

If undeveloped land is subject to a mortgage, any structure later developed on that land is also subject to the same mortgage by operation of law. While the application of this rule does not prevent financing of commercial development (as this only protects lenders), it hinders financing of residential development as the residential units that are sold or pre-sold are not automatically released from the mortgage. In contrast, this rule does not apply if the land is fully or partially developed as the structures (whether unfinished or not) on the land are treated as separate property. To ensure the success of multi-use projects, Azerbaijani law should be amended to specifically provide for the partial release of mortgages for completed units sold to third parties and the removal of existing encumbrances.

Property Taxation The 2001 Tax Code is the principal act governing taxation in Azerbaijan, including taxation of transactions involving property. Taxation rules differ depending on whether the Tax Code, a double tax treaty, or a special tax regime under oil and gas and main export pipeline agreements (enacted as law) applies. Under the generally applicable tax regime, in a direct asset deal (i.e., where real estate, without regard to whether it is fully developed, is transferred), capital gains (i.e., the difference between the cost of the asset, presumably without regard to the depreciation taken, and the proceeds from the sale) are taxed at the rate of 22 percent. The result, however, is different in an indirect (share acquisition) deal (i.e., where a company holding the asset is acquired). A share

10These include (i) the Baku Bus Station, (ii) the Baki Soveti Subway station, and (iii) Port Baku. 11The proposed model for urban development is Seven Peaks of Azerbaijan, a multi-billion residential and resort development on Boyuk Zire (formerly Nargin) Island, a re-creation of seven famous mountains in Azerbaijan.12A resolution of the Cabinet of Ministers dated January 8, 2009, requires the Ministry of Justice, Ministry of Emergencies, State Committee for City Construction and Architecture, State Agency for Standardization, Metrology and Patents to jointly prepare a draft Construction Code by July 2009.

deal involving a joint stock company in which more than 50 percent of the company’s assets, directly or indirectly, consist of immovable property located in Azerbaijan is not subject to capital gains (profits) taxation. The transfer of a participatory interest in a limited liability company, without regard to whether such transfer is in part or in whole, is subject to capital gains tax.

Additionally, given that transactions with securities are treated as financial services exempt from VAT, the sale of shares in a joint stock company is VAT-exempt. The analysis for a transaction with a limited liability company is not straightforward. Under the Tax Code, the transfer of property in Azerbaijan is generally subject to VAT. While “property” under the Civil Code includes tangible and intangible assets, intangible assets, cash, and land are not considered “property” for VAT purposes. The Tax Code defines “intangible assets” as including intellectual property rights and any other proprietary rights recognized by law. While the Tax Code does not specifically list a participatory interest in a limited liability company as an intangible asset, it is a proprietary right under Azerbaijani law. Additionally, the Civil Code provides that all rights and claims that may be transferred or pledged are intangible rights. As such, a participatory interest is an intangible asset, the sale of which should not be subject to VAT. This, however, is inconsistently enforced in practice.

Clean Energy ConcernsTo promote environment friendly development, many states and local governments are developing green building programs and practices in new construction and remodeling projects.13 As part of a clean energy economy, Azerbaijan should also consider adopting and implementing green building programs to reduce the overall impact of residential, commercial, and infrastructure development on health and the natural environment by efficiently using energy, water, material, and other resources, and reducing waste, pollution, and environmental degradation to create a sustainable living and working environment. As a starting point, the development of the property market in Azerbaijan should be counter-balanced with the need for a clean natural environment. 14

Conclusion The Azerbaijani real estate market, practice and legal framework continue to evolve, with increasing sophistication in terms of products offered and legal structuring. While the market continues to improve, new laws will be necessary to create a more fully developed property market. Even in the absence of new laws, however, the Azerbaijani real estate market presents considerable opportunity.

member contribution

13These programs vary from a 30% or greater improvement in energy efficiency to a net-zero energy performance or offset their energy con-sumption with on-site renewables. 14Azerbaijani President Ilham Aliyev has recently banned tree cutting in the City of Baku to release areas for residential development.

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member contribution

Summer / Issue 6

Business Leaders Join Efforts to Advance Reform through WTO

A growing number of business associations are joining forces to take part in Azerbaijan’s process towards membership in the World Trade Organization (WTO). Recognizing the Government of Azerbaijan’s renewed efforts to expedite WTO accession as an opportunity for the business community to engage in critical issues affecting economic reform, a coalition of business leaders and NGOs recently initiated an advocacy and public awareness campaign directed at business leaders and policy makers.

The Coalition for Increasing Awareness about the Benefits of WTO Accession, formed by the Azerbaijani Marketing Association and Praxis, is engaging business leaders through a two-pronged approach: i) increasing awareness and understanding of the processes of WTO accession, including required economic reforms; and ii) facilitating dialogue, and recommendations for policy reform, that sustains Azerbaijan’s economic transition and creates business opportunities for entrepreneurs.

Regional Forums Highlight Opportunities & ChallengesOver 100 regional leaders are engaging in dialogue on economic reform and WTO issues through a series of nation-wide business forums in Sumgait, Gusar, Mingechiveir, Zagatala, and Masally. The business forums are bringing together the private sector, government, and business associations in robust dialogue covering an introduction to WTO, reforms and potential benefits to Azerbaijan, as well as the process and status of WTO accession. Experts with Azerbaijani and international expertise in WTO accession lead the sessions.

As a result of these meetings, involvement in the advocacy and public awareness campaign has grown to include leaders of key regional enterprises and business association branches from the Entrepreneurs Confederation and Entrepreneurs

By Michael Kunz,Country Representative of Counterpart International Azerbaijan and Chief of Party for USAID’s Civil Society Project.

Union. In response to the positive response from the business community, talks are underway to hold a national conference in Baku in order to refine and strengthen the economic reform agenda.

Through discussions at the business forums, leaders are building an understanding and consensus on how to help move the economic reform agenda forward vis a vis WTO. Business leaders participating in Coalition activities recognize that WTO-related reforms can significantly improve the business environment by reducing non-tariff and regulatory barriers, ensuring greater transparency and stability in the legal regime, and strengthening the rule of law. Business leaders feel they can constructively engage in policy dialogue to achieve these reforms – and that their investment can pay off in terms of reducing the cost of doing business and protecting their rights, as well as the rights of their investors.

Engagement in the Economic Reform DialogueThe economic reform campaign is taking initial action with a package of policy recommendations in the areas of competitiveness and customs reform. To support the strengthening of Azerbaijan’s institutional base for economic development and enforcement of WTO related laws, the coalition is making recommendations on restructuring the

Ministry of Economic Development and considering issues such as sound public investment expenditure programs and elimination of non-tariff barriers to trade.

The coalition’s efforts are aimed at supporting the development of world class products and services through greater transparency in the legal regime that would allow businesses to constructively engage in a number of ways, including setting standards and non-trade distorting subsidies. For example, business forum participants identified an opportunity to involve industry experts in setting standards and technical requirements that promote quality in a way that does not subject entrepreneurs to burdensome and unjustifiable regulations. Additionally, business leaders see a more transparent system as a means to provide input into the design and implementation of non-trade distorting subsidies (or Green Box in WTO terminology), such as regional development and environmental programs.

The coalition’s advocacy and public awareness work marks notable progress in establishing a platform for the business community to support meaningful reforms. There is now a groundswell of interest among businesses and NGOs to support the Government’s goal of WTO accession in a manner that helps to maintain a high level of commitment to timely, market-oriented reforms.

As a result of the coalition’s initiative and initial accomplishments, the private sector in Azerbaijan is becoming better acquainted with the opportunities for private sector growth under the WTO

regime. Due to the efforts of business leaders from around the country, the private sector is a better position to support the Government’s ambitious goal of WTO accession in the near term.

Michael Kunz is the Country Representative for Counterpart International and Chief of Party for USAID’s Civil Society Project in Azerbaijan. Mr. Kunz has over 17 years' experience designing and managing multi-faceted economic development programs in the transitional economies of Central and Eastern Europe, Caucasus, Central and South-East Asia. During his career, Mr. Kunz has consulted national governments, multinationals, foundations, private firms and NGOs in the design and implementation of policy and programs supporting a range of economic development strategies, including foreign direct investment, agribusiness, water management and community development.

The Civil Society Project is a United States Agency for International Development (USAID) initiative, implemented by Counterpart International in partnership with the International Center for Not-for-Profit Law. The goal of USAID’s Civil Society Project is to assist the citizens of Azerbaijan and the Government of Azerbaijan to institutionalize pluralistic, representative approaches to shaping and implementing economic and social reform.

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AmCham Azerbaijan

Established in 1996, AmCham is com-posed of over 200 members and associ-ates 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 Serv-ices, 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.

Summer / Issue 6

AmCham StructureBoard of Directors

Executive Committee

Dan MatthewsPresident

Baker & McKenzie

Fatima IbrahimovaMember 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

Seymur KhalilovBoard Member

BP

Bob DastmalchiBoard Member

Chevron

Wayne WalzBoard Member

Nobel Oil

Maksud MirzoyevBoard Member

McDonald’s

Stanley EscuderoBoard MemberShieldbearer

Bakhtiyar MammadovBoard Member

Halliburton

Alum BatiBoard Member

Wicklow CorporateServices

Staff

AmCham Azerbaijan

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AmCham at home

Once again, AmCham provided its members with a unique opportunity to meet and be addressed by a high ranking visitor to Azerbaijan- Ambassador Richard Morningstar. Ambassador Morningstar, Secretary of State and Hillary Clinton’s Special Envoy for Eurasian Energy, led the U.S. delegation to

the Caspian Oil and Gas Show. Apart from the COGS events, Ambassador Morningstar met with senior government and business leaders during a five-day trip, May 30-June 3.

On Monday, June 1, he delivered an address outlining U.S. positions on energy security matters to the American Chamber of Commerce.

In the course of his remarks, Ambassador Morningstar said, “I’m pleased to have been invited to address the members of the American Chamber of Commerce in Baku. My focus today, of course, will be on energy issues, but let me say from the outset how important foreign investment in all sectors of the economy is to economic development here and to continuing prosperity back in the United States. Openness to foreign investment and a welcoming investment climate, including transparency and respect for the rule of law, are hallmarks of a modern society.”

Following his speech, Ambassador Morningstar fielded questions from members of AmCham and members of the press.

Photographs courtesy of Elkahn, Turan News Agency.

AmCham Azerbaijan

32 Summer / Issue 6

Visit of Ambassador Richard Morningstar 1 June, 2009

“...let me say from the outset how important foreign investment in all sectors of the economy is to economic development...”

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AmCham Azerbaijan

AmCham at the 16th Caspian Oil and Gas ExhibitionThe 17th Caspian Oil and Gas Exhibition was held in Baku from 2-5 June at the Heydar Aliyev Sport Complex. Information and brochures describing AmCham’s role and activities were distributed at our tastefully decorated stand in Pavilion 3, where we were ably represented by Executive Director Nargiz Nasrullayeva-Muduroglu and Chairman of the Board of Directors Daniel Matthews.

We were honored to receive a visit from President Ilham Aliyev and First Lady Mehriban Khanum, who graciously posed for photographs with the representatives of the Chamber. Other distinguished visitors of note were Ambassador Richard Morningstar, U.S. Special Envoy for Eurasian Energy, U.S. Ambassador Anne Derse and Mukhtar Gurbanov, Chief of Marketing Department of the Ministry

of Communication and Information Technology. It was encouraging to see so many of our members represented at the exhibition. To them we extend the hope that it was a profitable and worthwhile undertaking.A word of thanks and recognition is extended to our AmCham Staff, whose efforts and hard work were rewarded by numerous visitors and substantial interest in the work of AmCham in Azerbaijan.

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AmCham Azerbaijan

Summer / Issue 634

AmCham abroad

Executive Director of AmCham Ms. Nargiz Nasrullayeva-Muduroglu attended the annual meeting of the European Council of American Chambers of Commerce (ECACC) in Washington D.C. from 3rd to 10th June, 2009.

Founded in 1963, the EUROPEAN COUNCIL OF AMERICAN CHAMBERS OF COMMERCE (ECACC) today represents the corporate interests of more than 17.000 American and European companies, based in 39 countries and employing more than 20 million people. ECACC is a network of chambers across Europe for the exchange of best practices and mutual member company benefits. ECACC functions as a forum for discussion, debate and, where necessary, representation on issues relevant to the European business climate.

From its inception, ECACC has been the voice of international business in Europe. It is recognized both in Europe and the United States as an influential opinion-forming body actively engaged in fostering better trade and investment relations between its chambers' host countries and the United States.

ECACC's member companies account for more than $ 1.1 trillion in investment on both sides of the Atlantic.

The two- day Transatlantic Business Conference at ECACC featured a full program of receptions, briefings, speeches and meetings on Capitol Hill.

Ms. Nasrullayeva met with Thomas J. Donahue, President and CEO of the U.S. Chamber of Commerce, who has built the Chamber into a lobbying and political force with expanded influence across the globe. Also of note is the meeting between Ms. Nasrullayeva and Senator Charles Grassley, Ranking Member of the Senate Finance Committee. Senator Grassley spoke on tax deferral issues at the conference.

ECACC Transatlantic Business ConferenceMs. Nasrullayeva also had the privilege of meeting US Secretary of Commerce Gary Locke and participating in a Roundtable discussion with him. Locke is charged with implementing President Obama’s ambitious agenda to turn the economy around and put people back to work.

Ms. Nasrullayeva raised the very pertinent issue of the reopening of the Foreign Commercial Office to serve the interests of American companies operating in Azerbaijan. AmCham Azerbaijan together with the U.S. Embassy in Baku have been lobbying for this, and although the reopening of the FCO was announced late last year, this has not yet happened.

This conference was a valuable opportunity to network with 40 directors of American Chambers of Commerce based in Europe, share information, keep abreast of “hot topics” on the Hill, identify proposals impacting on Chambers of Commerce, and explore challenges and opportunities in the leadership and function of AmChams around the world.

AmCham Azerbaijan

35

Business EventsMeet the Candidates Cocktail2 March 2009The Baku Jazz Centre was the venue for AmCham’s Meet the Candidates Cocktail on 2 March. Campaign statements were displayed on billboards and read with interest by the attendees.

The candidates standing for election to the board of directors were introduced by Executive Director Nargiz Nasrullayeva-Muduroglu, and spoke eloquently despite the 3- minute limit, making the choice a difficult one for voting members. Drinks, a buffet, and mellow jazz vocals provided the background to an evening of successful networking and socializing. Judging by the volume of conversation and the relaxed smiles, the event was enjoyed by all.

Summer / Issue 636

AmCham Azerbaijan

Business EventsWe would like to announce the results of the Annual General Meeting of AmCham Azerbaijan which took place on March 5th 2009.

Mr. Daniel Matthews, Managing Partner of Baker & McKenzie Baku office has been elected as the President of the American Chamber of Commerce for the period of 2009-2011. Mr. Matthews will be joined on the Board by the following newly elected members:

Mr. Bakhtiyar Mamedov, Government Relations Manager, Halliburton Eurasia Limited; Mr. Bob Dastmalchi, Country Manager, Chevron Corporation (US citizen); Mr. Seymour Khalilov, Vice President, Communication & External Affairs, BP; Mr. Wayne Walz, General Manager, Nobel Oil (US citizen). Re-elected Board Members: Mr. Ilgar Veliyev, Country Managing Partner, Ernst & Young Holdings (CIS) B.V. Mr. Stanley Escudero, President, Shieldbearer LLC (US citizen). Continuing Board Members: Mr. Maksud Mirzoyev, President, McDonald’s Azerbaijan. Mr. Alum Bati, Partner, Wicklow Corporate Services.Mr. Movlan Pashayev, Director Tax and Legal, PricewaterhouseCoopers Azerbaijan. Our congratulations to all the above and our thanks to all nominees who ran. The officers of the Board will be elected at the first meeting later this month. Thank you for attending the Annual General Meeting and taking part in the elections. We appreciate your support and interest in the leadership of the Chamber.

New member Business Insight International Research Group made a presentation and was presented with a plaque.

Annual General Meeting5 March 2009

AmCham Azerbaijan

37

Our Special Guest Speaker this month was Mr Shahmar Movsumov, Executive Director of State Oil Fund of Azerbaijan. On May 15, 2006 Shahmar Movsumov was appointed Executive Director of the State Oil Fund of the Republic of Azerbaijan by the decision of the President of Azerbaijan Ilham Aliyev. Mr Movsumov chairs the National Committee on EITI.

At the Monthly Members' Luncheon of AmCham Azerbaijan Mr Movsumov spoke about the current status of State Oil Fund being Azerbaijan's Sovereign Wealth Fund.

Members’ Luncheon31 March 2009

Some 130 guests and friends attended our Business after Hours event, jointly hosted by BMI and the American Chamber of Commerce in Azerbaijan. The venue for the function, held on April 7th, was The Old Forester pub. Live music performed by the Suleymanbeyli trio welcomed the guests. Everybody enjoyed the opportunity to relax and have fun. Later in the evening the guests participated in a raffle organized by BMI. Leyli Alekperova, a representative of the company, announced the lucky winners of the raffles: Alinaghi Asghari, Standard Oilfield Services and Farid Ismayilzada, Silverkey.

Business After Hours7 April 2009

Summer / Issue 638

AmCham Azerbaijan

On the 1st of May, the American Chamber of Commerce in Azerbaijan invited members and guests to the Monthly Luncheon to discuss the current situation with regard to legislation and health issues.

Mr Ali Asghari, Standard Oilfield Services, Chairman of AmCham Tax and Customs Committee, gave an update of the recent changes to tax and customs related legislation and made a number of other important announcements. Dilara Hasanova from SOS International presented a brief overview of AH1N1 flu and answered frequently asked questions.

Dirck Stryker, USAID, also made a presentation on Azerbaijan DRC Analysis, followed by a Q&A session where members expressed interest in several aspects of the presentation.

At this luncheon, new members Caspian Investment Centre, Oriflame, Starcom MediaVest and Caspian Freight Services were introduced. Presentations were made by CIC and CFS, after which they were presented with plaques by Executive Director Nargiz Nasrullayeva Muduroglu.

Our guest speaker on this occasion was Mr. Arzu Rahmov, Chief of State Migration Service. This body was called into existence by Presidential Decree in 2007, to regulate the procedures for obtaining residence visas and work permits in Azerbaijan.

In his speech, Mr. Rahimov outlined the function and responsibilities of the SMS, as well as correct procedures governing application for these documents. He then took questions from the members, elaborating on procedural issues.Of especial note is Mr. Rahimov’s response to a question on corruption. He was unequivocal in his stand against corruption. He stated that all transactions would be conducted by bank transfer, and requested members to inform him immediately of any attempt by an official to solicit bribes. According to Mr. Rahimov, corruption is not to be tolerated and will be prosecuted. AmCham wishes to commend Mr. Rahimov and the SMS for this strong commitment to transparency, which sends such a clear and positive signal to our membership.

This luncheon marked an important step forward in AmCham’s efforts to establish a working relationship with agencies of the government of Azerbaijan. We thank Mr. Rahimov for his participation at our luncheon, and assure him of our support and cooperation. We look forward to strengthening this relationship in future.

Members’ Luncheon Members’ Luncheon1 May 2009 27 May 2009

Travel and Tourism Committee

HR Committee

4 May 2009

24 April 2009

The Travel, Hospitality and Tourism Committee of the American Chamber of Commerce in Azerbaijan held its first Spring meeting on the 4th of May.

The main issue covered was the night closure of Heydar Aliyev airport from midnight to 7 a.m. starting July 02, 2009.

Committee members, chairman and guests discussed the disadvantages and negative outcomes of these changes, how it will affect the travel agencies and tourism industry, as well as the possibility of AmCham involvement.

Committee HighlightsICT committee meeting 5 May 2009

The AmCham ICT Committee meeting on the 5th of May opened with a speech by the chairman of the Committee, Igor Yakovenko, Azel Electronics. The topic to be discussed was ‘Solutions for Crisis- Move Your Business onto the Web’. Kent Babin and Farid Ismayilzada, Silverkey, made a presentation that offered the following solutions:

• Websites: what you need to get the right website.• e-Shops: start selling online fast.• Web Applications: offer your product or service online

exactly the way you want it.• Online Sales Techniques: generate interest and get

people buying

We also invited a special guest to the ICT Committee meeting - Mr. Larry Marchese from Chemonics International. After the presentation Kent Babin and Farid Ismayilzada, deputy chairman of the ICT Committee, fielded questions from Larry Marchese and attending members.

This meeting under the able leadership of Ms. Ulduz Taghiyeva, Chair of the HR Committee, was called to elicit member questions, feedback and suggestions to present to the representatives of the Labor Ministry and the State Migration Service through interviews in Impact, AmCham’s newsletter.

Heads of HR and International Relations from approximately 25 member companies attended. Questions were raised and documented in a lively discussion of these very current issues.

Impact wishes to thank Ms. Taghiyeva and the HR Committee and all participating members for their cooperation and assistance.

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AmCham Azerbaijan

40 Summer / Issue 6

AmCham Azerbaijan

Tax and Customs Committee

HSE Committee

6 May 2009

12 May 2009

The Tax and Customs Committee Meeting took place on the 6th of May in the Landmark building. The meeting was opened by Executive Director of AmCham Nargiz Nasrullayeva and President of the Board of Directors Dan Matthews. The committee chairman Alinaghi Asghari gave a brief summary of tax and customs updates. Delloitte and Touche LLC expert Nuran Kerimov gave a presentation on ‘Profit and Tax’. This was followed by a Q&A session. Members discussed related concerns and shared their experiences, reviewing recent tax and customs issues.

In our Health, Safety and Environment committee meeting on May 12, Anvar Zalibekov, Schneider Electric, chairman of the committee, made a presentation about Reducing Risk of Electrical Risk Hazard. The presentation described a device which reduces the risk of electrical risk hazard.

Committee members suggested possible ways to distribute this information to all companies in Azerbaijan. Schneider also requested our members to make additions to the presentation. Committee chairman and members set the date and agenda for the next meeting which will take place on 21 May.

The AmCham ICT Committee had its meeting on the 13th of May in the AZEL offices. Committee Chairman Igor Yakovenko began the meeting by greeting the members. Vadim Yakovlev, certified ERP/CRM specialist of AZEL (Azerbaijan Electronics) company made a presentation on “How to increase your company’s competitiveness by the use of ERP (Enterprise Resource Planning) systems”.

ICT committee meeting13 May 2009

Today, business growth and competitiveness are determined by the efficiency level of enterprise resource management. These resources include, among others, human, financial and industrial resources. Efficient management of these resources becomes possible only if appropriate tools are used.

ERP, or comprehensive information systems, are the basic mechanism for modern enterprise resource management. ERP systems permit cohesion of all business processes, information and external relations of the enterprise into a unified system. The ERP system supports all management functions, from determining of objectives to supervision of implementation.

During our meeting Vadim Yakovlev discussed the following topics:

1. Understanding of the ERP system.

2. How to develop a company’s business and increase competitiveness by use of the ERP system.

3. Examples of ERP tools and their usage in various situations.

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AmCham Azerbaijan

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 the American Chamber of Commerce in Azerbaijan is committed to supporting our members in working together to build a strong future for business in Azerbaijan.

The latest companies to join AmCham are Hill International, Caspian Investment Center, Nexans Turkey Azerbaijan, Azfinansbank OSJC, Caspian Freight Services LLC, Starcom MediaVest LLC and Oriflame.

New Members

Summer / Issue 642

AmCham Azerbaijan

Mr. Sukhostavskiy arrived in Baku at the end of March and has been guiding the digital print center in Baku. In addition, he is overseeing the construction of the new offset print facility that is slated for completion in the fall of this year. Once completed, Mr. Sukhostavskiy will manage both facilities.

Born in Kiev, Ukraine, Mr. Sukhostavskiy received a BSc in Mechanical Engineering from Kiev Polytechnic Institute before emigrating to the United States.

Attended Business School of the Owens College and the University of Toledo. Received certification from American Management Association and Carnegie University in NY.

Mr. Sukhostavskiy has an extensive background in print material management for private businesses and non-profit organizations. He spent 15 years working for Cenveo, Inc. in the United States, starting his career as a press operator and working his way to management eight years ago.

Teaming Mr. Sukhostavskiy’s talents and background with a skilled team of local professionals gives Mozaik’s customers an opportunity to work with a print production company providing a western style of quality and service.

He adds, “We want to position ourselves as the company that exceeds clients' expectations and contributes to their success.”

Cristina Coscodan was born in Chisinau.

In 2000, Ms. Coscodan obtained a BSc. degree as Manager of International Economic Relations at the International Economic Relations Faculty of the Academy of Economic Studies of Moldova.

She began her career with Joint Venture Moldcell S.A - provider of mobile telephone services in Moldova as Marketing Director in 2000.

Cristina Coscodan joined Azercell LLC on November, 2008.

Cristina Coscodan is a Marketing Director with extensive experience in strategic planning and project management. She is versatile with market analysis, product and service development, marketing communications, financial planning and tracking. She has the ability to meet tight deadlines and challenging budgets. She has good organizational and negotiator skills. She is a team builder and team member who enjoys new challenges.

Members’ News and Events

announces General Manager

welcomes Cristina Coscodan

Cristina Coscodan,Marketing Director, Azercell, Azerbaijan

Yuriy Sukhostavskiy, General Manager, Mozaik Design & Printing

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AmCham Azerbaijan

Members in the Community

Charity Run at Mozaik LLC

Building the Network with Business21 May 2009

6 June 2009

On Thursday, May 21 a group of MBA students from the School of Economics and Management of Khazar University met with Maksud Mirzoyev, the General Manager of McDonald’s in Azerbaijan. As part of their team assignment for the HR management class the students had to choose an organization and analyze its competitive strategy and HR system. Mr. Mirzoyev invited the whole group to his sleek office in Genjilik and spent over two hours answering questions. Using this first-hand information about the business in Azerbaijan and the findings of their research on McDonald’s in other countries, the team prepared a three-page report and power point presentation. While the project was designed to help students develop their analytical skills and critical thinking, they were also encouraged to provide suggestions to Mr. Mirzoyev on how to achieve a better fit between the company’s strategy and HR system. The results of this student consulting project were shared with McDonald’s and presented at Khazar University on June 11.

The Rotary Club of Baku International (RCBI) hosted their 3rd Annual Rotary Run on June 6th. Mozaik LLC provided their premises which marked the finishing line of the run, and with other members of the Rotary Club, sponsored the food and cold drinks served to the participants. About 40 members, guests and friends participated, raising over 3,000 AZN which will be used to fund several RCBI projects for welfare of orphans, Internally Displaced People and development of youth in rural areas including a children’s educational book and a kitchen at Saray Orphanage.

Mozaik has also completed a campaign for blood donors, and has commenced on a project for the Peace Corps, printing a book for the Writing Olympics, an essay-writing contest for talented young students 12-14 years of age. Within the framework of a Rotary Club Project, Mozaik has also printed, free of charge, a book of children’s stories written by Azerbaijani authors in Azeri language, to be distributed to sponsors who will then order more books for distribution to children at schools, orphanages and other organizations.

Yuriy Sukhostavskiy, General Manager of Mozaik LLC, says, “Mozaik is always delighted to participate in charity projects and help the community. Giving is always going to be our privilege and I thank Rotary for this wonderful opportunity.”

Whether encouraging promising young people or helping the underprivileged, AmCham members are actively involved in the local community, giving generously of their time and resources to many worthy causes.

Summer / Issue 644

AmCham Azerbaijan

Members in the CommunityThe finals of the FameLab-2009 Contest held with the organizational support and co-funding of The British Council, Caucasus University and Azercell Telecom LLC were held at Park Inn Hotel, Baku on May 13, 2009. The names of the winners were announced and they were presented with prizes generously donated by Azercell LLC.

The objective in organizing this contest is to support and encourage young science scholars. Ms. Ulviya Hasanzade, Head of Corporate Relations and Social Responsibility Department of Azercell Telecom LLC said, “Our misssion is to maintain and share existing values and create new ones. In this respect, it is very important for Azercell to support our talented youth”.

The winner of the competition, Mr. Elchin Ibrahimov of Caucasus University, will participate in the Cheltenham Science Festival to be held in the United Kingdom this June. Thanks to Azercell Telecom LLC none of the participants left empty handed. Azercell presented special gifts and memory cards to all 30 participants who successfully completed the first stage of the contest. iPods were presented to the 10 finalists. In the category “Azercell’s Sympathy”, Azercell Telecom nominated Mr. Elchin Ibrahimov from Caucasus University for his work on Newton Laws and presented him with a mobile phone.

For more than a decade, freight forwarding experts ACE Forwarding Caspian, have worked jointly with the Irish Society of Baku to improve conditions at local orphanages. ACE and the Irish Society have not only helped the orphans, and indeed the staff of the orphanages, but also extended charitable assistance to many other underprivileged citizens in Azerbaijan. In the last eleven years the donations made in cash, construction work and refurbishment undertaken amount to a value exceeding $500,000.00.

ACE Forwarding Caspian employees also actively get involved in the work itself and ensure each dollar is spent wisely for the projects we help raise money to fund. Some of the projects that have benefited from this:-

• Total sanitation refurbishment (toilets/wash rooms) of three separate children’s orphanages

• Employment of Occupational Therapists to train orphanages staff in western methods

• Building a clinic for a local leprosarium

• Organizing summer camps for orphans and refugee children

• Refurbishment of a hospital wing for up to 100 underprivileged children

As the headline says, everyone can do something. ACE Caspian is a company actively doing as much as they can outside their normal business activities to help raise funds and awareness of needy causes within Azerbaijan. ACE

Forwarding Caspian has been involved in many other worthwhile projects. They are committed to the long term future of Azerbaijan orphanages and will continue to help assist wherever possible to make whatever difference they can.

If you would like details of further projects or wish to help by making a donation of time, materials or finance, you can do so by contacting office@acecaspian.com

FameLab Contest for talented youngsters

“Nobody can do everything, but everyone can do something”

All of the Contest participants received valuable gifts from Azercell

13 May 2009

ProjectsConsumer Price Index Report

New features on the AmCham website

The Consumer Price Index (CPI) is designed to measure the change in the average level of prices paid for consumer goods and services by private households. AmCham members will find it useful in setting pay increases, product prices etc. The CPI can also be used to determine the current value of a sum of money, comparing past and present values. Over the last year (the base is 100 at 31 March 2008) the AAIP rose by 14.15 percent for Azerbaijani consumers and 13.74 for Expatriate consumers. As always we hope you will find the report interesting and useful and look forward to your comments on how to improve its content and layout.

We have recently added two new features to our software system for the benefit of our members. These features are added to the current list that already includes a detailed membership directory, company profile, list of company employees, list of committee meeting minutes, repository of inflation surveys, and the ability to accept/reject event invitations.

The first new feature is a list of all AmCham member representatives filtered by membership type (Regular/Associate). This should allow easier access to other members of AmCham.

The second feature is a list of all AmCham committee members filtered by committee. Members can now easily access contact information for every person in the AmCham committees.

Go to the e-AmCham software system to check out these new features! If you forget your password, please use the forget password feature provided on the login screen. If you still can’t login, please contact the AmCham office. We will be happy to help!

And remember, you have to be a member to take advantage of this system.

AmCham Azerbaijan

Dear Members, you may now take advantage of the new AmCham Website and AmCham Membership Directory. For non-members: You are currently viewing our website as a guest which gives you limited access to most discussions and to our other features. By joining our chamber you will have access to the latest news, network with other members, participate in committee meetings, upload content and receive special information and updates. Registration is fast and simple, so please join AmCham today! If you have any problems with the registration process or your account login, please contact us at chamber@amchamaz.org

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Discount Providers

Member to Member (M2M) Discount Program

-15% in all F&B outlets -15% on laundry and dry cleaning services

ATA INSURANCE

1. Insurance

- Property insurance – up to 15%- Motor insurance – up to 10%- Cargo insurance – up to 15%- Personal accident – up to 15% - Machinery breakdown – up to 10%- Travel insurance – up to 15%

2. Free legal advice (during an insur-ance accident or during the process of choosing the most appropriate insur-ance package)

3. Next insurance year the clients are eligible to benefit from 5% to 7% dis-counts (in case an insurance accident hasn’t happened during the past year)

4. Additional bonuses aimed to en-courage potential clients

ATA BANKSpecial M2M Discount Package is available at Ata Bank and AmCham offices upon request.

- From 5% to 10% for all type of equipment

Shop Addresses:1. Nizami str., 68 –SONY-AZEL2. “28”, May street, 20 (corner of Azad-lyg ave) - AZEL shop3. Azadlyg ave., 97 – AZEL shop4. “Nargiz” shopping center at the Foun-tains Square – Toshiba-AZEL show-room

-7% for tickets (provided they are bought in our office) and access to the business class lounge in Heydar Aliyev Airport

5% discount on all the agency works (excluding the 3rd party costs)

- 15% on our Duke and Heritage rooms - 15% for all rentals of conference rooms - 10% for all catering contracted with the rentals of these conference rooms: cocktails, coffee - breaks, dinners, luncheons, etc - 10% in our Belvedere Restaurant on all food and beverage items. - 20% on the 1 year membership for our Aura Spa

- From 5% to 10% for onsite helpdesk support by junior IT technician- From 10% to 15% for remote admin-istration by senior IT engineer

5% discounts on hourly fee rates

HYATT AZEL

ATA HOLDING

PUBLIC RELATIONS & PRO-MOTION GROUP (PRP)

EXCELSIOR

WICKLOW CORPORATE SERVICES

20% off the basic website price (up to 20 pages in 1 language, CMS, 1 year free hosting)

SILVERKEY

SEABAK

LUFTHANSA

AmCham Azerbaijan

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Wicklow Corporate Services Ltd.8/15 Sheikh Shamil StreetBaku AZ1001Azerbaijan

48 Summer / Issue 6

AmCham Azerbaijan

- 10% for Accommodation- 10% Food & Beverage

- 5% for all Altes Group apartments portfolio

- 25% on all Baker & Partners ser-vices including:

- brand analysis and audit- brand strategy development- brand management

- 10% on advertisement in Online Business Journal CEO-Azerbaijan

- 10% in All F&B Outlets.

- 10% on all Published Retail Room Rates

- 5% on any travel arrangements

CRESCENT BEACH HOTEL

ALTES GROUP BAKER & PARTNERS

PARK INN

RADISSON

PHILOSOPHY TRAVEL

- 10% on all office chairs- 15% on office furniture (excluding metal)

- 10% in all F&B outlets

OFFICE SYSTEMS

HOLIDAY INN

10% on the following 3M products:

- Visuals (Digital Projectors, Digital Boards, Vikuiti Rear Projection Film) Distributors: AZEL, Integral, Meridian

- Building&Construction (Window Films) Distributors: Times Consulting

- Medical products (microbiology) Distributors: Vitta Medical Production, ARASH

3M

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 pro-vider 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 dis-counts 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 Am-Cham communications channels: AmCham Website and Am-Cham 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.