# EUR-Lex - 52015SC0064 - EN

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# 52015SC0064

**JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Azerbaijan Progress in 2014 and recommendations for actions Accompanying the document JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC ANS SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Implementation of the European Neighbourhood Policy in 2014 /* SWD/2015/0064 final */**

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1.         OVERALL ASSESSMENT AND RECOMMENDATIONS FOR ACTION

This document reports on the progress
made between 1 January and 31 December 2014 in the implementation of the
EU-Azerbaijan European Neighbourhood Policy (ENP) Action Plan. Developments
outside this reporting period are taken into consideration where relevant. This
is not a general review of the political and economic situation in Azerbaijan.
Information on regional and multilateral sector processes is contained in the
Eastern Partnership Implementation Report.

Azerbaijan made
good progress in its macroeconomic development, not least through its efforts
to further diversify the economy. The macroeconomic environment remained stable
due to growth in the non-oil economy and greater social stability. There were
no relevant developments in trade although there was some progress regarding
Azerbaijan’s WTO membership after two substantive rounds of negotiation.

There was good
progress on the EU’s Strategic Energy Partnership with Azerbaijan to improve
European energy security and the diversification of energy supplies. The
commitment to implementing the Southern Gas Corridor continued to be of utmost
importance for EU-Azerbaijan dialogue.

There was
tangible progress with regard to several bilateral agreements, such as the
entry into force of the Visa Facilitation Agreement and the Readmission
Agreement, preparation to implement the Mobility Partnership, and the signature
of the Protocol on Azerbaijan’s participation in EU programmes and agencies,
which can help further to develop EU-Azerbaijani relations.

Between May and
November, Azerbaijan held the chairmanship of the Committee of Ministers of the
Council of Europe. At the same time, conditions for civil society organisations
in Azerbaijan (CSOs) deteriorated considerably and a more restrictive legal
framework was introduced. As a result, many CSOs suspended their activities. A
number of prominent human rights defenders were detained, travel bans were
issued and bank accounts of CSOs were frozen. Amendments to the Electoral Code
to improve the composition of electoral commissions and conditions for
candidate registration, as recommended by the Organisation for Security and
Cooperation in Europe’s Office for Democratic Institutions and Human Rights
(OSCE/ODIHR), were not implemented in 2014. The municipal elections held in
December were prepared and conducted on a good technical level. However, little
time was made available for campaigning and there were some shortcomings that
will need to be addressed. No legislation was adopted to protect human rights
and fundamental freedoms. International standards were often not respected. In
certain areas, such as freedom of expression and freedom of association, even
factual restrictions persisted. Only limited progress was reached in the fight
against corruption and there was a lack of coherence in initiatives and
continuing actions. There was no progress regarding actual judicial
independence.

Last year it was
the 20th anniversary of the 1994 ceasefire agreement in the Nagorno-Karabakh
conflict against the background of a continued stalemate. The Presidents of
Azerbaijan and Armenia met in Sochi, at the NATO summit in Newport and in
Paris, revitalising the most important channel of communication between the two
sides and exchanges on a peaceful settlement. The security situation on the
ground remained a matter of serious concern amid incidents and casualties on a
level not seen since 1994, an increase in confrontational rhetoric and a
continued arms race. The EU continued to fully support the OSCE Minsk Group
Co-Chairs and peace-building activities. The High Representative for Foreign
Affairs and Security Policy / Vice-President of the European Commission
supported continued peace-making efforts, including through the new EU Special
Representative (EUSR) for the South Caucasus and the conflict in Georgia,
Herbert Salber. He regularly visited the region for high-level meetings and
maintained frequent contacts with relevant interlocutors.

There were welcome achievements in
macroeconomic developments, the finalisation and publication of the Public Expenditure and Financial Accountability (PEFA) review and in the energy partnership with the EU,
notably the implementation of the Southern Gas Corridor (SGC).

Nevertheless, these achievements were
overshadowed by regression in most areas of deep and sustainable democracy,
human rights and fundamental freedoms. As a result, Azerbaijan made very
limited progress overall in implementing the ENP Action Plan. The frequency of
political dialogue between the EU and Azerbaijan also decreased, and this had a
knock-on effect on the formal human rights dialogue.

Based on the assessment of its progress
in 2014 on implementing the ENP, Azerbaijan should focus its work in the coming
year on:

· 
respecting
and implementing its commitments as a member of the Council of Europe on
fundamental rights and freedoms, the rule of law (in particular by
strengthening the independence of the judiciary and the right of
defence/equality of arms); improving democracy and human rights in the country
in almost all related areas; respecting and implementing the rulings of the
European Court for Human Rights;

· 
creating
a more conducive political environment for civil society, in particular making
the related legal framework less restrictive, allowing civil society
organisations to carry out their activities;

stepping up efforts towards
  reaching a comprehensive peace settlement in accordance with the
  commitments made in the Minsk Group; refraining from actions and
  statements that could heighten tension and undermine the peace process;
  creating an environment conducive to making progress in resolving the
  conflict and to encouraging and supporting related peace-building
  activities; ensuring that EU representatives working in support of
  conflict transformation activities have unimpeded access to
  Nagorno-Karabakh and the surrounding regions;

· 
reinvigorating
steps to upgrade the existing partnership between the EU and Azerbaijan in
order to better reflect new realities in mutual relations;

· 
bringing
electoral legislation into line with OSCE/ODIHR recommendations and ensuring
effective implementation before the forthcoming parliamentary elections;

· 
continuing the reform
of the judiciary, adopting the 2014-20 Judiciary Reform Programme and ensuring
full independence of the judiciary. This will include the following measures:
passing a law on the role of the Judicial Legal Council; analysing shortcomings
in judicial practice, and giving full consideration to reports of alleged
shortcomings resulting in unfair trials with a view to addressing these and
rehabilitating those imprisoned; improving training of the judiciary;
nominating a contact point for Eurojust to facilitate closer judicial
cooperation;

· 
adopting
a law on defamation with the aim of decriminalising libel;

· 
implementing
the 2012-2015 National Anti-Corruption Action Plan;

continuing the policy of economic
  diversification and development of the regions, in particular adopting and
  implementing a law on competition to create more predictability and
  transparency in the market and a level playing field for investors;

· 
aligning
policy, legislative and institutional frameworks on local government in
Azerbaijan with the European Charter of Local Self-Government.

2.
        POLITICAL DIALOGUE AND REFORM

Deep
and sustainable democracy

The political
dialogue between the EU and Azerbaijan (including the visits by the then
European Commission President Barroso and Vice-President Šefčovič)
was enhanced in light of the strong Azerbaijani commitment to the southern gas
corridor, intensive dialogue over regional issues, including Ukraine, and
security, including international terrorism. However, political dialogue was
overshadowed by Azerbaijan’s deteriorating democracy and human rights record
and the shrinking space for civil society. Azerbaijan
continued to participate in the multilateral events of the EaP (on energy
security, SMEs and trade).

The democratic and human rights environment significantly
deteriorated in 2014 while Azerbaijan was chairing the Committee of
Ministers of the Council of Europe between May and November. On 17 October 2014 President Aliyev signed a decree amnestying 84
prisoners, including Shahin Novruzlu, Elsever Mursalli and Bakhtiyar Guliyev,
three pro-democracy youth activists associated with the N!DA Civic Movement,
and Hasan Huseynli, Head of the ‘Perfect Citizen’ non-governmental organisation
after the N!DA youth activists had sent respective petitions. In addition, 87
prisoners were pardoned in the President’s newyear pardon on 29 December 2014.
Among them were 10 civil activists, including two other N!DA members: Zaur
Gurbanli and Uzeir Mammadli, and two journalists: Avaz Zeynalli, editor-in-chief
of the ‘Khural’ newspaper and Sardar Alibeyli from the ‘Nota Bene’ newspaper
and the ‘PS Nota’ news portal.

New legislation on NGOs entered
into force at the beginning of 2014. National independent and international
NGOs working in Azerbaijan faced both administrative and judicial problems.
Administrative problems resulted in administrative fines, unclear tax claims
and problems with the use of bank accounts. Judicial problems related to
criminal investigations and arrests of NGO leaders on charges of treason, tax
evasion, illegal entrepreneurship and abuse of power. These also created
obstacles to receiving EU financial assistance. Some NGOs felt forced to leave
the country, while others closed or were compelled to scale down their operations.
On
17 October 2014 the Milli Majlis adopted amendments to the laws on
non-governmental organisations (public associations and foundations)’ and on
grants. These were approved by President Aliyev on 19 November 2014. The
absence of clear implementing rules recreated a legal vacuum and forced some
civil organisations to temporarily scale down their activities. The Council of
Europe's Venice Commission issued an opinion on the amendments on 15 December
2014 and in an overall assessment found that the amendments ‘further
restrict the operations of NGOs in Azerbaijan’.

The actions by
the Azerbaijani authorities particularly focused on NGOs/civil society
activists who deal with fundamental freedoms. Some of their leading
proponents were arrested on charges of high treason, espionage, illegal
entrepreneurship, tax evasion and illegal business. A number of human rights
defenders and civic activists were given harsh prison sentences. Activists
working on projects to complement the internationally mediated Nagorno-Karabakh
peace process were also subject to particular attention by the authorities.
Activities in this context were significant in 2014 and included freezing the
bank accounts of NGOs. The EU remains convinced that civil society has a vital
role to play in defending fundamental freedoms, safeguarding security and
stability and in promoting peace-building, especially during times of conflict.

In 2014 the EU completed procedures to
support civil society through grants of more than EUR 3 million to 14 projects.
The projects on democracy and human rights were mostly implemented by foreign
NGOs in partnership with local organisations. As was the case for all new NGO
grants awarded in the second half of 2014, registration of these new EU-funded
grants was deferred by the Ministry of Justice in anticipation of a new
legislative framework. This prevented most EU-funded NGOs from starting their
activities.

The EU issued 17
statements in 2014 (including those in OSCE Permanent Council meetings) and in
September the European Parliament passed a resolution calling for strict
observation by Azerbaijan of its international commitments and obligations.

Regarding prisoners of conscience, Azerbaijan’s human rights
defenders issued several, sometimes conflicting, lists of prisoners in 2014,
varying from 30 to 129 cases. The state of health of some detainees and
prisoners gave reasons for concern.

The 2011 national human rights action plan was implemented in
some areas, particularly for internally displaced persons/refugees, entrepreneurs
and in connection with HIV awareness. The joint
working group on human rights was re-established
between the Government of Azerbaijan and civil society representatives, with
the Council of Europe acting as a mediator and observer. Meetings were held
starting from October, leading also to the amnesty of some prisoners.

NGOs active on issues relating to
lesbian, gay, bisexual, transgender and intersex (LGBTI) people also
encountered difficulties over registration and receiving grants and there were
some reports of harassment. However, the main problem remained the lack of a
legislative framework protecting LGBTI people and the resulting inaction by law
enforcement bodies to prevent homophobia. In general, LGBTI issues do not have
broad support from the government or from the opposition or civil society. This
has to be seen against the background of rather dominant conservative cultural
mainstream and religious values.

The Electoral Code was not
amended in 2014 to improve the composition of electoral commissions and
candidate registration, as recommended by the OSCE ODIHR. 2 837
sites were identified for free gatherings with regard to the 2014 municipal
elections, including 1436 previously closed sites. The municipal elections on
23 December 2014 were conducted at a very good technical level, in the presence
of local observers and web cameras. However, the time allowed for campaigning
was short, and there were some reported shortcomings that will need to be
addressed. Azerbaijani authorities reached out to opposition parties, but the
major opposition parties did not participate.

Freedom of
expression
for the media remained limited other than on the internet. Azadliq, one
of the two main opposition media outlets, continued to incur high court fines under
the current defamation legislation. Despite previous announcements by the
Azerbaijani authorities that the legislation would be softened, no improvements
took place in 2014. Instead, in response to the growing use of social media
among the Azerbaijani population, social media were added to the list of spaces
where defamation may be punished. Television remained under government control,
with only a few internet or foreign-based broadcasts impinging on the
government’s airtime information monopoly. The internet remained the freest
channel of information and the number of users was rising. According to the
latest statistics, 73 % of the population have access to the internet. In
December, the Azerbaijani Parliament approved amendments to the law on mass media
that ban any
mass media outlet funded by any foreign individuals or legal entities. Also
under the new amendments, any media outlet found by court decision to be
responsible for disseminating incorrect information twice within a year
(instead of the previous three times) may be closed down.

Restrictions of freedom of assembly
continued, along with the de facto interpretation of the requirement for prior
notification as a request for authorisation. However, the authorities did grant
permits, including to the opposition Popular Front Party to hold a public rally
on the occasion of its 25th anniversary, to the opposition Musavat Party
in commemoration of International Human Rights Day and to two demonstrations by
the opposition National Council for Democratic Forces. According to many civil
society activists, unofficial, but mandatory prior authorisation from the
central and local authorities is needed to hold any event in any region of the
country.

On freedom of
religion or belief, new restrictions were introduced and were strictly
implemented. These were intended mainly to reduce the number of persons allowed
to pray in mosques and the import of religious literature.

Limited progress
was achieved in the fight against corruption but there continued to be a
lack of coherence in how this was implemented e.g. in the number of high
ranking officials charged and sentenced on the basis of corruption charges. The
National Action Plan for 2012-2015 on Combating Corruption lays down measures
to improve the work of the Anti-corruption Department under the
Prosecutor-General’s Office. In 2014 the Anti-corruption Department was
upgraded to a directorate-general the Prosecutor-General’s Office and its staff
and responsibilities were expanded. Azerbaijan was ranked 126 out of 175
countries on the Transparency International Corruption Perceptions Index in
2014.

At the end of 2014, 382 e-services
were available from 45 state institutions and agencies and were actively used
by about one million citizens. The Certification Centre has already issued
approximately 30 000 e-signatures, in addition to 60 000 certificates
for mobile e-signatures. The internet penetration rate in Azerbaijan was 70 %.
Broadband internet penetration among the population stands was 50 %, while
the mobile phone penetration was 110 %. The ‘Fibre to the home’ project
for national broadband internet development will bring high-speed internet even
to rural areas. The successful operation of the e-governance service
assessment network institution (ASAN) continued with the opening of a fourth
centre in Baku in May and a third regional centre in December in
Sabirabad, following those in Ganja and Sumgait. These offered up to 30
services in a ‘cash-free one stop-shop’ for 0.5 million people regularly, while
serving daily up to 1 000 people across all regions of Azerbaijan. The
services provided by ASAN service centres in the country remained at the core
of the Government’s anti-corruption efforts in 2014. An EU-funded project has
supported ASAN since August 2013 with the aim of developing corporate ISO and
human resource management standards.

There was no tangible development with
regard to judicial independence in 2014. Access to legal counsel
continued to be impeded, and on several occasions courts ruled in the absence
of lawyers or defendants. In some cases, individuals were allegedly kept in
pre-trial detention in the Ministry of National Security penitentiary facility
and were not transferred to the Ministry of Interior within 48 hours, as
required by law.

The EU conducted trial monitoring
of some cases relating to civil society activists. These revealed severe
procedural and judicial shortcomings. One of the main obstacles to fair trials
was the shortage
of defence lawyers, particularly those willing to represent
activists/journalists who have been critical of the Government. The ‘Bar
Association Azerbaijan’ (BAA) actively pursued disciplinary measures against
BAA members acting on behalf of certain journalists.

A draft law on public
participation providing for the creation of public councils under central
and local executive authorities was ratified by the President of Azerbaijan in
January 2014 after consultation with local civil society and international
experts. The law entered into force in July 2014.

With respect to the promotion of local
democracy, an EU-funded project ‘to build capacity for increased
participation by citizens and increased accountability of elected bodies’
managed to establish advisory councils in a number of local communities, but
encountered obstacles, pressure and interference by authorities in several
regions.
The local government system in Azerbaijan did not improve as regards
municipalities’ compliance with the principles of good local governance such as
transparency, a focus on citizens’ needs, citizen participation and
accountability.

Other human rights and fundamental
freedoms

Azerbaijan
continued to neglect European Court of Human Rights (ECHR) rulings that
required adjustment of previous court decisions. There were also new reports of
torture and ill-treatment of young political activists during pre-trial
detention. No secondary legislation to implement the 2012 law on the rights of
individuals kept in detention facilities was adopted.

In September the State Committee for Family, Women and
Children’s Affairs (SCFWCA) and the Ministry of Labour and Social Protection of
the Population signed a joint national action plan to prevent child
labour exploitation, supported by an EU Twinning project. Draft rules on gender
equality and domestic and inter-country adoption were developed and approved by
the SCFWCA. Despite these positive measures and steps taken, a national action
plan still needs to be drawn up to further safeguard women’s rights, including
combating violence against women, improving gender equality through appropriate
administrative and legal measures. Action is also needed to adopt and implement
laws on child protection and to prohibit physical punishment of children.

The office of
the Human Rights Commissioner (Ombudsman) improved its outreach,
especially to detainees with a political background, but its capacities still
need to be reinforced to be able to influence the course of the legal
proceedings.

The protection
of fundamental rights and freedoms continues to be a concern in the Nakhchivan
Autonomous Republic of Azerbaijan. A thorough assessment of the situation
remains difficult due to the lack of access and information.

The government
continued to improve conditions for internally displaced persons and refugees,
in particular by providing new housing and education facilities. Poverty levels
among internally displaced persons are still three times higher than the
national average.

Cooperation on
foreign and security policy, regional and international issues, conflict
prevention and crisis management

Azerbaijan held
the chairmanship of the Committee of Ministers of the Council of Europe between
May and November.

In 2014
Azerbaijan did not align itself with any of the EU’s Common
Foreign and Security Policy (CFSP) declarations. In 2013, Azerbaijan aligned
with seven out of the 32 EU CFSP declarations (22 %) it had been invited
to support.

Azerbaijan
continued to provide financial assistance through the Azerbaijan International
Development Agency (AIDA) as a donor country to other countries and
international organisations in the fight against global threats. In the past
three years, the total amount of such aid amounted to USD 16 million. In 2014
alone, Azerbaijan provided USD 1 million for the UN Global Fund to fight Ebola,
about USD 640 000 to address the humanitarian crisis in Gaza, about USD 535 000
to assist refugees and internally displaced persons in Serbia and around USD 1
million to different countries for humanitarian purposes and to address the consequences
of natural disasters (USD 200 000 for the Philippines and for the humanitarian
and food aid campaign in Pakistan).

On Nagorno-Karabakh, against the
background of persisting stalemate in the Minsk Process, the meetings in Sochi,
Wales and Paris revitalised communication at the highest level between the
sides and the exchanges on the road towards a peaceful settlement. The flare-up
of violence on the line of contact and the international border in the summer
of 2014 and the downing of a helicopter on 12 November were unprecedented since
the signing of the ceasefire agreement in 1994. The number of OSCE-reported
casualties on both sides in 2014 sharply rose to 57 servicemen and one civilian
killed, and 57 servicemen and 13 civilians wounded, compared to 14 servicemen
killed, 32 servicemen and five civilians wounded in 2013. Confrontational
rhetoric, continued arms race as well as humanitarian issues further impacted
on the conflict settlement process. The lack of progress continued to have a
serious effect on the population that was displaced as a result of the
conflict.

The EU called on parties to refrain from
actions and statements that could heighten tensions and undermine the peace
process, and promote an environment conducive to help settling the conflict,
while encouraging and supporting peace-building actions. The EU continued to
provide full support to the OSCE Minsk Group co-chairs. The HR/VP supported
continued efforts towards peace. The new EUSR for the South Caucasus and the
conflict in Georgia, Herbert Salber, made regular visits the region for
high-level meetings and maintained frequent contacts with relevant
interlocutors. The EU continued to financially support the ‘European
Partnership for the Peaceful Settlement of the Conflict in Nagorno-Karabakh’
project, bringing together stakeholders across the conflict divide in
peace-building activities. The EU continued to call for unimpeded access for EU
representatives to Nagorno-Karabakh and the surrounding regions as an important
means of supporting conflict transformation activities and to complement the
efforts of the Minsk Group.

The EU maintained its support for
activities that promote confidence and people-to-people contacts, promote
cultural and educational activities and facilitate the dissemination of
balanced information in both Azerbaijan and Armenia.

No tangible
development was noted in Azerbaijan’s accession to the Mine Ban Treaty,
the Convention on Conventional Weapons or the Convention on Cluster
Munitions.

Since January
2014 the local OSCE Office in Baku has been working in the downgraded
format of project coordinator’s office. Since then, the number of new projects
has slowly increased. These focus on human trafficking, domestic violence,
tolerance/non-discrimination and providing support to ASAN. In September 2014,
Azerbaijan and OSCE signed a memorandum of understanding on the OSCE Project
Coordinator in Baku.

Azerbaijan
participated in the Fourth Caspian Summit in Astrakhan in September 2014
where the delimitation of the Caspian Sea was discussed at the level of heads
of state. Although no final status agreement was reached, agreements were
concluded on the definition of the exclusive national economic and fishing
zones and on the absence of any military presence by third countries.

3.         ECONOMIC
REFORM AND SOCIAL REFORM AND DEVELOPMENT

Azerbaijan’s economic growth slowed to
2.8 %[1] in
2014 (from 5.8 % in 2013), due mostly to falling oil prices and a decline
in oil production, which had started in the last quarter of 2013. Production
from a new platform began in early 2014 but this only partly offset declining
production elsewhere. The non-oil sector grew by 7 % in 2014, down from
10.3 % in the previous year, due to lower public investment, while the oil
sector contracted by 2.9%. At the same time, domestic consumption remained
robust and turned out to be the main factor behind the overall growth for the
year.

Officially the unemployment rate was
around 5 % in 2014. However, there was a risk that unemployment would rise
due to the over-dependency and concentration of employment in certain sectors
and due to youth unemployment remaining disproportionately high. The
proportion of employed people also continued to decline among the employable
population due to increased inactivity. The employment situation is partially
distorted because of the high share of informal employment and the way
employment is measured. Under the 2011-15 Employment
Strategy, employment services registered 13 742 placements during the
first half of 2014. The
number of the families eligible for targeted social assistance fell by
17 %. In
November 2014 the President approved pension reforms. Social spending was
estimated to have risen to 22 % of total public expenditure, up from 20 %
in 2013.

The agricultural sector reform strategy
provides for the restructuring of the Ministry of Agriculture, a development
plan for agricultural cooperatives, the establishment of slaughterhouses and
meat sale centres that comply with food safety standards, higher agricultural production,
support for cold chains in transport of foodstuffs, and the development of food
safety and food quality control standards. An initial
draft strategy on the development of the food and agricultural industry was
prepared and submitted to state bodies and international organisations (FAO,
World Bank, EU).

4.         TRADE-RELATED
ISSUES, MARKET AND REGULATORY REFORM

In 2014
EU-Azerbaijan bilateral trade amounted to EUR 16.7 billion Euro (EU
imports: EUR 13.2 billion; EU exports: EUR 3.5 billion; EU trade deficit: EUR
9.7 billion). The EU remained Azerbaijan’s main trading partner.

Azerbaijan made
some progress on WTO accession at a multilateral meeting held in
February 2014 and in market access negotiations held in February and July. It
also joined the WTO Information Technology Agreement. Negotiations took
place with 19 countries, and protocols were signed with five (United Arab
Emirates, Oman, Turkey, Georgia and Kyrgyzstan). As Azerbaijan
was reclassified by the World Bank as an ‘upper-middle income’ country, in
February 2014 it had to exit the EU’s reformed generalised scheme of
preferences (GSP). From then on, Azerbaijan’s exports to the EU were subject to
the ‘most-favoured nation’ trade rules.

On imports and exports, the
government changed the rules for importing cars and imposed other non-trade
barriers to hinder the purchase of used cars. This had a negative impact on EU
car exports. Following the entry into force of the new Customs Code, Azerbaijan
continued its implementation of the 2012-15 State Customs Office action plan.
Waiting times for customs procedures fell significantly at all border
checkpoints.

An EU Twinning project to provide
support for the development of a modern system of standardisation and
technical regulations is being carried out. Azerbaijan started to apply
Euro 4 standards in April 2014, and from that time banned the import of used
cars which did not comply with the new requirements.

In the sanitary
and phytosanitary area, in January 2014, institutional reforms
started with a presidential decree on streamlining of food safety control
systems. The reform process was accompanied by the EU via a technical
assistance project.

Azerbaijan became one of the top 20
countries on the ease of starting a business in the annual ranking of
the World Bank 2015 Doing Business Report. Nevertheless, foreign direct
investment remained largely limited to the energy sector, where activities
soared in 2014 after the conclusion of the Shah Deniz II Final Investment
Decision and the formal launch of the southern gas corridor in September.

On statistics, the State
Statistical Committee started modernising its organisational structure and
introducing modern quality management systems at central and regional levels.

On the
movement of workers, the influx of skilled international labour was further
boosted by the advancing Shah Deniz II and southern gas corridor projects. At
the same time, Azerbaijan’s policy of helping the national workforce to find
employment was reflected in an increasing proportion of skilled Azerbaijani
labour in international projects and companies.

Problems
continued to be reported in the field of property registration. In
January 2014, the Urban Planning and Building Codes entered into force. These
stipulate that citizens no longer need permission to build a house, and instead
need only to inform the relevant authorities.

Overall tax
revenues remained low by international standards, at 12 % of GDP. The
amended Tax Code, which had been developed with support of an EU Twinning project,
introduced measures to stimulate increased use of cashless payment operations,
imposed new requirements for electronic reporting and established a legal basis
for e-auditing. A new Twinning project was launched in September 2014 to
support the Ministry of Taxes through training and institutional capacity
building.

On competition policy, a draft
Competition Law was examined by parliament but has not yet been adopted. In
December 2014, the World Bank, the Swiss State
Secretariat for Economic Affairs (SECO) and the EU published a final report on
the public expenditure financial accountability (PEFA) assessment.
The final report was prepared on the basis of an assessment of public finances
in 2011-13. According to the report, Azerbaijan made significant achievements
on 17 out of 31 indices, in particular through increasing comprehensiveness of
the documents included in the budget package, through strict adherence to the
schedule for preparing the draft budget, and by improving budget
classifications and increased participation by legislative bodies in the budget
process.
On government procurement, Azerbaijan scored ‘B’ (relatively
good) for performance indicator 19 ‘Transparency, competition and complaint
mechanisms in procurement’ in the 2014 PEFA assessment’. Indicator 26
"Scope, nature and follow-up of external audit" scored 'D+',
indicating the need for further progress in the supreme audit institution's
performance.

As regards SME policy, the
President adopted a 'Decree on Additional Measures for Entrepreneurship
Development' which has the aim to improve the operating environment for local
business by reducing procedures and delays during the e-registration of legal
entities and individuals engaged in entrepreneurship in line with the
one-stop-shop principle.

5.         COOPERATION ON JUSTICE,
FREEDOM AND SECURITY

In December 2013 Azerbaijan signed a
joint declaration with the EU Commission and with eight EU Member States
establishing a mobility partnership. This followed the earlier
initialling of the readmission agreement and signature of the visa facilitation
agreements. The EU is preparing financial support for the mobility partnership.

The EU-Azerbaijan readmission and
visa facilitation agreements entered into force on 1 September 2014. A
new decree improving the visa-issuing process entered into force in November. Amendments
to the Migration Code are being prepared following the Decision of
Azerbaijan’s parliament to extend the period for obligatory registration of
foreigners to a maximum ten days. The amendments will also cover provisions of
the draft ‘Law on placing foreigners and stateless persons into detention
centres for irregular migrants and on the rules of their custody’. The
number of Schengen visa applications in Azerbaijan reached 71 889
over
a period of
12 months; the average rate of refusal is around 3.86 %. In 2014
consulates started to issue multiannual visas with a validity of up to 5 years.

Azerbaijan’s law enforcement authorities
participated
in the bilateral
workshop held by the Czech Police Academy on the fight against cross-border organised
crime and also in the Technical Assistance and Information Exchange (TAIEX)
forum for public prosecutors. In July 2014, Azerbaijan approved the
2014-18 national action plan on combating human trafficking.

Azerbaijan remained an
important transit country for drugs produced in Afghanistan. Drugs are transported
through Iran via Azerbaijan, using the so called ‘northern route’, to markets
in Russian and Western Europe. The number of officially registered drug
addicted people is growing. A new programme to tackle drugs and
psychotropic substances was adopted to help combating the growing use of
amphetamines. The programme covers the period until 2018. Azerbaijan
expanded its cooperation with Georgia and created a joint working group on cyber
security with the OSCE.

As regards counterterrorism,
Azerbaijan was active in the fight against radicalisation and the recruitment
of fighters. 26 people suspected of collaboration with Da'esh were arrested in
September 2014. Changes were introduced to the Criminal Code to punish
participation by civilians in armed conflicts in third countries.

No major development took place on data
protection legislation.

6.         TRANSPORT, ENERGY, ENVIRONMENT, CLIMATE
CHANGE, INFORMATION SOCIETY, RESEARCH AND DEVLOPMENT AND INNOVATION

Azerbaijan made little progress on transport
policy reforms. A ‘Law on Sea Ports’ was adopted in May 2014 following support
under an EU Twinning project. The Civil Aviation Administration of Azerbaijan
stated in its 2013 annual report that Azerbaijan was not ready to continue
harmonisation with the EU’s Common Aviation Area. No progress was
therefore reached in this area in 2014.

The restructuring of the Ministry of Energy
was finalised in May 2014 and a new Energy Efficiency and Alternative Energy
Sources Department was established. In June the Ministry created an energy
efficiency fund and energy efficiency action plan. In July the State Agency on
Alternative and Renewable Energy Resources opened the Surakhany solar power
station in Baku, with a generation capacity of 4 million kWh per year. Several
other similar stations were under construction elsewhere in the country. A
national ‘inventory’ of potential solar power was compiled, following similar
work on wind power during 2013. Production from these two types of renewable
energy was projected to overtake hydroelectric power by 2020. Work was also
undertaken to develop new production from hydroelectric power, biomass and
possibly geothermal sources.

Oil production was slightly lower than
in 2013, and was expected to remain at around 40 million tonnes per year
in 2015-16. Gas production rose by 5% compared to 2013, reaching 18.7 bcm of
marketable gas. Proven gas reserves were reported to have risen to 2.3 trillion
cubic metres. BP announced that the Shah Deniz II project would begin
production in 2018. Initially it will export to Georgia and Turkey, with
deliveries to the EU expected from 2020. The Shah Deniz consortium awarded
contracts valued at some USD 9.6 billion and work already started in most
construction areas across Azerbaijan and Georgia.

The EU and Azerbaijan agreed in February
2014 to review the action plan under the memorandum of understanding on energy
cooperation prioritising activities of joint interest. In September 2014,
Azerbaijan hosted an Eastern Partnership (EaP) informal ministerial meeting on
energy, which was also attended by Georgia, Moldova, Ukraine and Belarus.
Participants stressed the importance of diversifying energy supply sources in
order to strengthen energy security, and ministers underlined their commitment
to enhanced cooperation to achieve this objective. Also in September 2014 the
southern gas corridor was officially launched. From 2020, an estimated 10 billion
cubic metres per year of Azerbaijani gas will be supplied to Europe along this
corridor.

Azerbaijan
continued to support the negotiation process on the Trans-Caspian gas pipeline
project and contributed to the environmental scoping study on the pipeline.

There was still no comprehensive policy
to prevent and mitigate climate change in Azerbaijan. An EU funded
regional project is assisting in this area. In June 2014, the Prime Minister’s
office commissioned sectoral analyses that focus on energy efficiency in
buildings, waste, transport, forestry and agriculture.

There was limited progress on the environment
and environmental governance. Adoption was still pending for the 2014-20
national environment action plan and the draft law on environmental impact assessment.

In April 2014 a national strategy for
the development of the information society was approved by the
President. In May a regulation on high technology parks was adopted. The number
of e-services provided by the government portal www.e-gov.az (launched
in 2013) increased considerably, offering citizens 291 e-services provided by
46 state agencies and enterprises.

A national nuclear research
centre was created under the Ministry of Communications and High Technologies
in May. The purpose of the centre is to make greater use of nuclear technology
for peaceful purposes.

7.         PEOPLE-TO-PEOPLE CONTACTS,
EDUCATION AND HEALTH

A draft action plan on implementing the
approved 2013 state strategy for the development of education was
submitted to the Cabinet of Ministers for formal adoption. The action plan
foresees a number of state programmes and the development of an Azerbaijani
qualification framework (AzQF). The administration was restructured, with
departments for licensing, quality control, internal control, student exchanges
and educational development programmes being established. In addition, 15
regional education departments were established, covering 62 departments at
district level. Additional incentives were developed to stimulate the
employment of young teachers in rural areas. The government established a
unified system of educational credit allocations based on the European Credit Transfer and Accumulation System
(ECTS), and these are efficiently used in universities. The State Students’
Admissions Commission started to conduct centralised school completion
examinations for all students graduating from secondary general education
institutions. The Ministry of Education launched ‘SABAH’ (knowledgeable-competent-skilled)
groups in higher education. These involved 738 students in 34
universities.

Staff numbers in vocational education
and training increased and a professional training and support centre was
established to provide capacity building to vocational education and training
structures. In the 2014-15 academic year, the admission of students to
vocational education schools was for the first time based on a labour market
study. Azerbaijan started a pilot project to establish vocational education complexes
in cooperation with industries.

Azerbaijan participated in the Tempus
programme with 22 on-going projects out of which 5 are coordinated by an
Azerbaijani higher education institution. 226 students and staff from
Azerbaijan were selected for mobility within partnerships supported by Erasmus
Mundus and one student was selected for a joint master’s degree. One
organisation and 34 staff members took part in Marie Curie actions (MCA)
and three applications were selected for funding under 'Horizon 2020'. Azerbaijan
also participated in the eTwinning plus action with 44 schools. The
Erasmus + programme helped young people and youth organisations, with
877 participants in mobility projects and 27 in the action for young people and
decision-makers in the field of youth.

The ‘Culture Concept of the
Republic of Azerbaijan’ was adopted in February 2014. Azerbaijan also
participated as a partner in three regional projects under the EaP Culture
programme.

On public health, Azerbaijan
adopted a national strategy for communicable diseases, including the
implementation of the international health regulations. In October 2014 the
government approved a resolution requiring all medical facilities in
Azerbaijan to apply live and still birth criteria in accordance with WHO
recommendations from 2015. In most other respects, the healthcare
system in Azerbaijan remained unreformed. According to official statistics,
there were 28 489 doctors, 56 842 mid-level medical staff, 750
hospitals, 1 670 healthcare clinics, and around 70 000 hospital beds.
The average admission and occupancy rates were 4.7 % and 25.6 %
respectively. The average length of stay of 12.2 days was high. Azerbaijan
appointed a national correspondent for relations with the European Centre for
Disease Prevention and Control (ECDC) and participated in the National ECDC
Correspondents’ meeting in May.

______________________________

[1] For
sources and detailed figures, see Statistical Annex accompanying the reports;
figures without sources are forecasts by Commission services.