Azerbaijan must make legislative changes within four months that expand rights for local civil society organizations, or risk losing billions of dollars in loans it needs to build a key gas pipeline.
The demand, made by an international watchdog group, marks a potential source of humiliation for the Azerbaijani government, which prefers to present itself as a strong, independent state capable of withstanding foreign pressure.
On October 26, the board of the Extractive Industries Transparency Initiative (EITI) announced that Azerbaijan could have its membership in the organization suspended unless it improved its reform record. It demanded a number of reforms over the next four months, and several more to be carried out by July 2017.
“Failure to take corrective actions to the satisfaction of the Board will result in suspension,” EITI's statement said.
Suspension from EITI would jeopardize loans that Azerbaijan needs to build the Southern Gas Corridor, a multibillion-dollar project by which natural gas would be shipped to Europe. The corridor project is considered a linchpin of Azerbaijan's long-term economic strategy.
The EITI is a coalition of states, oil companies, and non-governmental organizations aimed at improving the transparency of oil and gas revenues around the world. While its proscriptions are non-binding, international financial organizations like the World Bank and European Bank for Reconstruction and Development have pledged to take into consideration Azerbaijan's EITI status in determining whether or not to grant it loans.
“The EITI is a bellwether mark that we look at very closely,” Riccardo Puliti, managing director of energy at the EBRD, told the Financial Times in August. “Our message to Azerbaijan is very clear: we do expect material and significant progress.”
Last year, the EITI demoted Azerbaijan from a full member to a candidate. At its October 26 meeting, the EITI board told Azerbaijan that it needed to remove a number of restrictions against civil society organizations, including the need to confirm their registration every two years, the need to register grants at the Ministry of Justice, and the need for foreign donors to register grants with the authorities. Those reforms have to be carried out by the next EITI board meeting, in four months.
In addition, the EITI board demanded a further eight reforms by July 2017, including the implementation of measures to “ensure that civil society are able to engage in public debate related to the EITI process and express opinions about the EITI process without restraint, coercion or reprisal.”
The government has not commented on the EITI announcement, and the local EITI chapter's press release on the board meeting mentioned only that Azerbaijan “retained its candidate status.” The Ministry of Foreign Affairs and the State Oil Company of Azerbaijan Republic did not respond to requests for comment.
In recent years, Baku has relied on a wide array of repressive tactics to stifle dissent, as well as limit the work of independent journalists and non-governmental activists. Experts believe that the EITI board’s reform demands are destined to make Azerbaijani leaders bristle with resentment.
In an interview with Russian television on October 18, Azerbaijan President Ilham Aliyev complained that the West wanted Azerbaijan only to “carry out its instructions.”
He continued: “But that role doesn't suit us. We can't even imagine that role for ourselves; we are a dignified state, self-sufficient: we ask nothing of anyone, we have a very low external debt, we have no obligations to any country.”
Aliyev’s comments may be technically accurate, but Azerbaijan’s economy has taken a beating in recent years due to the plunge in global energy prices. As a result, Baku’s ability to say ‘no’ to EITI is more limited now than previously, some observers believe.
“I think official Baku will meet the requirements for continued membership because they are trying to increase the investment attractiveness of the country,” said Gubad Ibadoghlu, an Azerbaijani economist and a member of the EITI board, in an email interview with EurasiaNet.
“Therefore, EITI implementation is important for the EBRD, World Bank and other investors, who are especially interested in investing money into the [Southern Gas Corridor] project,” Ibadoghlu added.
Azerbaijan had acted to meet some of the EITI's conditions in the days leading up to the board meeting, including a change to the foreign grant registration process, indicating a desire to comply with the organization's demands, according to a Western diplomatic official in Baku who spoke to EurasiaNet on condition of anonymity.
The official cautioned, however, that there appeared to be a faction in Azerbaijan's ruling circle that seeks to spoil relations with the West by cracking down on civil society groups.
“There is a group of people in the government who are always against any compromises on civil society because they know these [compromises] would help relations with the West,” the official said. That group may have been responsible for the slow progress on EITI reforms, the official said.
Joshua Kucera is the Turkey/Caucasus editor at EurasiaNet, and author of The Bug Pit. He is based in Istanbul.