Azerbaijan and IBA: A powerful partnership
In Greek mythology the Caucasus Mountains were one of the pillars of the world. It is was here that Prometheus suffered for his gift of Olympian fire to mankind, stolen from Hephaestus’ workshop. As punishment, a furious Zeus chained Prometheus to the Caucasus where a voracious eagle pecked out his liver daily, regenerated each night, over a period of some 30,000 years until Hercules slew the eagle to free him The Caucasus are a neighborhood of Olympian heights. Flanking Azerbaijan, Georgia was the site of Jason’s Golden Fleece and Europe’s highest peak, Mount Elbrus.
Here the descendants of the Tower of Babel and Noah’s great-grandson (source of the word Caucas) cascaded down into the division of humanity into different languages locked between towering Elbrus and Turkey’s Mount Ararat. In his ancient Histories, Herodotus remarked on the Caucasus’ “many peoples of all kinds” and recent archaeology has unearthed evidence of Amazonian warrior cultures once present in the region.
As the geopolitical and geological dividing line between Asia and Europe, the Southern Caucasus have witnessed and weathered successive collisions of “Olympian” interests. Powerful empires have vied for precious resources and vital trade routes on the Silk Road that criss-crossed the Caucasus connecting China and the Middle East for commerce for centuries.
The new Silk Route of oil and gas re-opens the vast landbridge of humanity that the Southern Caucasus and Central Asia represent connecting East and West. A beautiful city and rapidly growing capital, Baku sits on the spigot of new and future pipelines whose transit revenues far exceed those of pumped reserves. One hears business tycoons in Istanbul abuzz with the re-emergence of Baku as the cosmopolitan hub it was as the birthplace and playground of global elites for the oil industry in the 19th Century. Symbolically, eons later, the double-headed heraldic eagle of the Russian Empire that came to roost in the area has lifted slightly from its Soviet heir, though Turkey and Russia, particularly, and Iran, tower over these Olympian heights politically and economically, while the global community seeks new access routes to Caspian Basin resources.
Sitting on the Spigot: Baku’s Growing Caspian Community
Few would have expected that out of the chaos of post-Soviet transition, twenty years on, a young democracy would emerge and win the sought-after status of number one reforming economy in the world from the World Bank. This comes nearly a century after Baku formed the first modern parliamentary republic in the Muslim world, albeit briefly. Azerbaijan has pursued a courageous journey of internal restructuring, economic diversification and innovation, though hard work is ahead. This includes efforts to tackle long-term oil cleanup of 163 years of drilling rigs to rehabilitate Baku’s Absheron peninsula for public use and development.
With US$ 25 billion in reserves and an economy that generated US$ 7 billion in oil revenues in 2009, Baku continues to diversify and grow the non-energy sector. An impressive oil-excluded 15 percent growth of the economy in the first half of this year underlines President Aliyev’s government’s keenness to turn “black gold into white gold,” a reference to human capital development for a skilful workforce and a commitment to grow the overall economy.
As a former Vice President of the State Oil Company (SOCAR), President Ilham Aliyev has proven himself an able, articulate leader who is an expert in the energy sector. One of the few younger generation of leaders in the CIS, he has shown himself a capable successor to his father, the late President Heydar Aliyev, in driving an economic and political stability agenda appropriate to current times. His father, Azerbaijan’s third President, Heydar Aliyev, was a heavyweight Soviet Politburo member, stepped forward to stop Azerbaijan’s dramatic political and economic freefall in the early 1990s after independence that included the debilitating war with Armenia over Nagorno-Karabakh leaving 16 percent of its territory occupied, 30,000 dead and over 600,000 internally displaced.
Azerbaijan’s leadership has signed a variety of energy related treaties that build upon, and beyond, the historic “Contract of the Century” of the Baku-Tblisi-Ceyhan (BTC) pipeline signed in 1999 and operational in 2006. In June, President Aliyev and Prime Minister Erdogan resolved terms for Turkey and Azerbaijan to sign a long-awaited deal on transit fees for gas to Europe. The memorandum sets tariffs and fixes the price of gas that Azerbaijan sells to Turkey and facilitates supplies for the EU’s flagship Nabucco gas pipeline project. Another vector, Greece, Turkey and Azerbaijan signed a gas pipeline deal in November 2007 symbolic of a new era of cooperation between regional rivals and Eastern Europe. BP Azerbaijan recently announced that Turkmen oil is now flowing through the BTC pipeline.
SOCAR has financed and invested over US$ 400 million in Georgia, most of which was earmarked for the Kulevi terminal on the Black Sea, inaugurated in early 2008 and transhipping over 2 million tons of petroleum products in 2009. Earlier, SOCAR and KazMunayGaz of Kazakhstan signed an agreement for the implementation of the Trans-Caspian Transportation System, with Baku as a centerpoint.
SOCAR is among several oil companies with a stake in Kazakhstan’s massive Kashagan oilfield, one of the largest discoveries in the last 30 years, and in the US$ 4 billion transportation system that will carry oil across the Caspian Sea, where it could be exported via Azerbaijan and the 1,770 km BTC oil pipeline. The Kazakhstan–China oil pipeline will transport Kashagan resources East to China’s first direct oil import pipeline access to Central Asia, owned by the China National Petroleum Corporation (CNPC) and the Kazakh oil company KazMunayGas.
Despite remarkable progress on a 360 degree range of relationships, President Aliyev designated 2010 “The Year of Ecology” to accelerate economic diversification and investment in Azerbaijan’s abundant renewables potential in solar, wind, geothermal and renewable sources. The Ministry of Energy’s Director for Renewable and Alternative Energy Dr. Akim Badalov, a respected scientist and businessman, is working with the Cabinet to prepare the ground for greater national development. From an international perspective, Azerbaijan is actively forging ties with technologically sophisticated partners such as Germany, Japan and France to exchange experience and know-how.
The Swiss Confederation is one of the major investors in the country’s non-oil sector, contributing in this way to its diversification programme. From a Swiss perspective, Azerbaijan’s continues cooperation with Switzerland in the fields of clean-tech and waste management. SOCAR and Baku investors continue to invest in new port and transport facilities built to international environmental and safety standards are rapidly being built. What is truly remarkable is the degree to which private and public sector alike are aware of and committed to change. AzMeCo, the Methanol and petrochemicals complex being co-financed by EBRD and IBA, for over $200 million, have applied the most stringent environmental standards that can be applied to refine wastewater by-products to drinkable quality. Azerbaijan’s first gold and precious minerals development company, Anglo-Asian Mining, upholds the Extractive Minerals Transparency Initiative (EITI) precedent-setting principles to which Azerbaijan is one of the early signatories.
Emerging from the Economic Crisis with a Roar
Azerbaijan’s nominal GDP has resumed higher trajectories in 2010 of 25 percent growth, real GDP of 3.5 percent and total of US$ 28.9 billion January to July. Azerbaijan maintained 4 percent growth even at the height of the financial crisis and is moving into flusher times with oil prices and liquidity restored.
The International Bank of Azerbaijan entered 2010 with a strong balance sheet and low debt with nearly $5 billion in assets. The institution’s fiscal soundness, transparency and strong governance allowed it at the peak of the global crisis to pay off over US$ 1 billion in debt, all syndicated loans, without outside help, halving banking sector debt exposure at the time of US$ 2.5 billion. In less than six months in 2010, IBA has signed credit agreements of US$ 256 million most recently through Credit Suisse and the Islamic Finance Corporation among others. IBA plans to raise a total of US$ 300-400 by year’s end. “Perhaps in 2011, the bank can carry out an issue of Eurobonds, although, it would be more effective to do it after a sovereign issue of Eurobonds, which would give a benchmark for Azerbaijan bonds,” the Bank’s Chairman Jahangir Hajiyev noted recently.
Named among The Banker Magazine’s “Top 1000 banks” globally, the last two year’s hard work has paid off. Recent ratings upgrades have rewarded disciplined financial management. Fitch’s upgraded IBA’s long-term foreign currency Issuer Default Rating (IDR) to ‘BBB-’ from ‘BB+’ and the Outlooks on the bank is Stable. Moody’s upgraded IBA to stable with a Baa3 long-term rating and. IBA has been proud of its commitment to sustainable finance. London-based The Banker magazine included IBA among the 1,000 largest and most solid banks in the world. The magazine also bestowed the distinction of “Bank of the Year in Azerbaijan” on IBA, as has Global Finance, Euromoney, EMEA Finance and others. EMEA Finance also bestowed the distinction of Best Sustainable Deal of the Year for 2010 for IBA’s co-financing of a successful windfarm with Societe Generale.
IBA has leveraged the strengths of its role as the National Development Bank and global private sector relationships to be a market innovator and accelerator. The Bank has a tacit operating assumption of Public-Private-Partnership on many projects, such as the US$ 200 million Baku-Tblisis-Kars rail route that will link Baku and Turkey, all the way to London for the first time since the 19th Century. It brokered financing, appropriate technologies and strong management to key sectors identified for help to create new industries, sector innovations such as in agriculture and renewable energy, or structured investment. Like other National Development Banks, its infrastructure undergirds and safeguards the entire national economy. IBA is the only bank in the country able to handle global scale international transactions with “certainty and safe infrastructure”, making it a trusted clearinghouse for the region. IBA handles the country’s major corporate accounts and payrolls, thus building a reliable image for banking in Southern Caucasus, and a stable platform for major international banking and private equity players.
Even IBA’s 19 percent rate of return for long-term deposits of one year or more, are attracting international investors given increasing recognition of the low sovereign risk guaranteed by 50.2 government ownership and the healthy oil sector. At $15 a barrel, the low cost of production ensure strong profit margins.
In its commitment for a better future, the International Bank of Azerbaijan has joined forces with Richard Branson’s “Carbon War Room” and its global experts. The bank has been an active contributor to the World Economic Forum’s Global Growth Community and along with other GGC leaders has made great efforts to align its mission with those of the world’s most influential players. The bank’s investments for securing growth through sustainability showcases the scale and the progress of the economic diversification programme that the country has embarked upon. Waste processing plants, new Caspian oil and gas port facilities and energy grid efficiencies are amongst the many sustainable developments that IBA and the Azeri government are promoting across industry sectors.
IBA has received international recognition for its reliable lending practices in its home base, despite having to deal within the limitations of a still developing financial market. It has also received acclaim for its ongoing support for the economy as a whole. For 2010 alone, IBA increased lending to business and private banks by 2.4 percent, acting as provider of essential oxygen for the economy during recent challenging times.
The fact that IBA is the main business partner of the only producer of gold in Azerbaijan serves as further proof of the bank’s role as an important financing pillar of the region, strong and stable like its mountains where Prometheus, once chained has joined his brother Atlas bearing the weight of the world.
Article by John Beguin and Lyndsay Howard