Commission staff working document accompanying the Communication from the Commission to the European Parliament and the Council - Implementation of the European Neighbourhood Policy in 2008 - Progress Report Azerbaijan {COM(2009) 188 final} {SEC(2009) 511} {SEC(2009) 513} {SEC(2009) 514} {SEC(2009) 515} {SEC(2009) 516} {SEC(2009) 517} {SEC(2009) 518} {SEC(2009) 519} {SEC(2009) 520} {SEC(2009) 521} {SEC(2009) 522} {SEC(2009) 523}
Date: 2009-04-23
Institutions: European Commission
Subjects: Azerbaijan, European neighbourhood policy, impact study, the EU's international role

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.4.2009 
SEC(2009) 512 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying the 

COMMUNICATION FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

Implementation of the European Neighbourhood Policy in 2008 

Progress Report Azerbaijan 

{COM(2009) 188 final} 
{SEC(2009) 511} 
{SEC(2009) 513} 
{SEC(2009) 514} 
{SEC(2009) 515} 
{SEC(2009) 516} 
{SEC(2009) 517} 
{SEC(2009) 518} 
{SEC(2009) 519} 
{SEC(2009) 520} 
{SEC(2009) 521} 
{SEC(2009) 522} 
{SEC(2009) 523} 

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1. 

BACKGROUND AND OVERALL ASSESSMENT 

Azerbaijan  and  the  EU  first  established  contractual  relations  in  1996  through  a  Partnership 
and  Cooperation  Agreement  which  entered  into  force  in  1999.  On  this  basis,  the  EU-
Azerbaijan ENP Action Plan was adopted in November 2006, for a period of five years. Since 
then,  the  Commission  has  been  closely  monitoring  developments  in  the  country,  including 
through  a  first  Progress  Report  on  the  implementation  of  the  ENP  Action  Plan,  adopted  in 
April 2008. 

Institutional  cooperation  through  the  EU–Azerbaijan  Cooperation  Council,  the  EU–
Azerbaijan Cooperation Committee and two subcommittees, on Trade, Economic and Related 
Legal Issues; and on Energy, Transport and Environment, enabled both sides to move forward 
and follow the implementation of the ENP Action Plan closely. The opening of the Delegation 
of  the  European  Commission  in  Baku  in  February  2008  further  contributed  to  the 
strengthening of the EU-Azerbaijani bilateral relations.  

This  document  reports  on  the  overall  progress  made  on  the  implementation  of  the  EU  -
Azerbaijan  ENP  Action  Plan  between  1  January  and  31  December  2008,  although 
developments outside this period are also considered when deemed relevant. It is not a general 
review of the political and economic situation in Azerbaijan.  

Like  last  year,  overall,  there  was  no  or  limited  progress  in  the  implementation  of  the  ENP 
Action Plan, particularly in the areas of political dialogue and reform, including protection of 
human  rights  and  fundamental  freedoms,  many  areas  of  cooperation  in  justice,  security  and 
freedom, a number of aspects of market and regulatory issues, as well as sectoral issues.  

Achievements  during  the  reporting  period  included  progress  made  in  the  area  of  economic 
development and business environment, notably the establishment of a ‘one-stop shop’ for the 
registration of business, and the adoption of the legislation on the “Single Window” concept 
of  customs  clearance.  Azerbaijan  received  international  recognition  as  “Top  Reformer”  in  a 
World  Bank  survey  on  the  ease  of  doing  business.  The  macroeconomic  environment  was 
favourable  with  high  economic  growth  mainly  due  to  the  high  prices  of  hydrocarbons, 
particularly  in  the  first  half  of  2008.  Good  progress  was  made  in  the  context  of  the  2006 
Memorandum  of  Understanding  on  a  strategic  partnership  in  the  field  of  energy  and  in 
strengthening  Azerbaijan's  role  as  energy  producer.  Some  progress  was  made  in  the  area  of 
the judiciary, notably in the recruitment and training of judges. However, the independence of 
judiciary remains of concern.  

Limited progress was made on democratic governance. The presidential elections in October 
2008  demonstrated  progress  towards  meeting  OSCE  commitments  and  other  international 
standards but there were shortcomings in the free and fair electoral process including in the 
process  leading  up  to  the  elections.  Amendments  to  the  legislation  on  freedom  of  assembly 
improved  the  legal  framework  but  have  been  implemented  in  a  restrictive  manner,  thus  de 
facto limiting the freedom of assembly.  

There were negative developments on protection of human rights and fundamental freedoms. 
Freedom  of  media  and  expression  in  particular  remain  causes  for  serious  concern.  Media 
pluralism  has  been  limited  even  more  since  the  decision  of  the  National  TV  and  Radio 
Council of December 2008 not to extend the licences of foreign broadcasters to broadcast on 
local frequencies. Corruption remains a pervasive problem. Implementation of human rights 
and  fundamental  freedoms,  further  work  in  the  area  of  justice,  freedom  and  security, 
diversification of the economy and regulatory reform will be key reform challenges in 2009. 

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A  positive  step  on  the  Nagorno-Karabakh  conflict  was  taken,  despite  the  prevailing  high 
tensions, with the first document jointly signed by the Presidents of Azerbaijan and Armenia 
since  1994.  Furthermore,  Azerbaijan  improved  its  participation  in  regional  cooperation 
initiatives.  

Outside the reporting period, the ratification of the Optional Protocol to the UN Convention 
against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment in January 
2009, the withdrawal of the libel charges against a human rights defender in March 2009, and 
significant increase of funding for civil society from the Council for State Support to NGOs, 
are  encouraging  signs  for  the  area  of  human  rights  and  fundamental  freedoms  during  2009. 
However, some of the amendments to the Constitution of Azerbaijan, adopted at a National 
Referendum in March 2009, may constitute a reason for concern.  

2. 

POLITICAL DIALOGUE AND REFORM 

Objectives  in  this  area  include:  strengthening  the  stability  and  effectiveness  of  institutions 
guaranteeing democracy and the rule of law; strengthening democratic institutions ensuring 
respect  for  human  rights  and  fundamental  freedoms;  reform  of  the  judicial  system;  civil 
service reform; and ensuring the effectiveness of the fight against corruption. 

Democracy and rule of law 

The  presidential  elections  in  October  2008  showed  progress  towards  meeting  OSCE 
commitments  and  other  international  standards,  in  particular  with  regard  to  some  technical 
aspects  of  the  election  administration.  However,  the  election  process  failed  to  meet  other 
OSCE  standards,  including  freedom  of  assembly,  candidates'  access  to  media,  correct  vote 
counting  and  tabulation  of  results.  Some  opposition  candidates  decided  not  to  participate  in 
the election, citing longstanding obstacles to equal treatment and equal opportunities. Overall, 
the pre-election process was characterised by a worsened political climate, not conducive to 
real pluralism.  

The  amendments  to  the  Election  Code  adopted  in  June  2008  addressed  some  of  the 
recommendations  by  the  OSCE/ODIHR  and  the  Council  of  Europe  (CoE)  Venice 
Commission  but  remain  insufficient,  notably  regarding  the  nomination  of  members  and 
composition  of  the  election  commissions1  as  well  as  the  complaints  and  appeals  procedure. 
Other causes for concern include amendments limiting equal access to public media. 

Some progress was made in the field of judiciary reform, notably in the area of selection and 
training of judges. 102 new judges were recruited and the Academy of Justice was established 
to  improve  training  for  judges  and  other  lawyers.  However,  the  proper  application  of  the 
legislative  framework  and  particularly  the  independence  of  judges  remains  a  problem: 
corruption  of  judges  and  political  interference  in  the  activities  of  the  judiciary  remain 
common.  A  number  of  cases  of  deprival  of  property  without  court  charges  have  been 
reported. Access to legal aid remains limited. A draft law on juvenile justice was prepared in 
2008 but still needs to be adopted.  

Corruption  remains  pervasive  and  continues  to  affect  all  levels  of  society,  threatening  the 
economic growth as well as the social and political development of the country. A backsliding 
in corruption was reported by international surveys. Appropriate anti-corruption legislation is 
in place and some strengthening of administrative capacity to deal with corruption cases has 

1 

This applies to Central Election commission as well as lower level commissions.  

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taken  place,  including  the  preparation  of  a  twinning  project  to  enhance  the  capacity  of  the 
Anti-Corruption  Department  of  the  Prosecutor  General’s  office.  However,  serious  efforts  to 
improve implementation and enforcement including through the on-going implementation of 
the Anticorruption Strategy for 2007-2011, as well as to achieve a gradual change of culture 
and mentality, still remain to be seen.  

No major developments took place regarding the strengthening of local democracy, whether 
in relation to the legal framework or the division of powers between municipalities and local 
branches  of  the  executive  power.  However,  the  legislation  was  amended  in  April  2008  to 
simplify the procedure for mergers of municipalities.  

Human rights and fundamental freedoms 

The human rights situation in Azerbaijan has declined. A number of persons are detained for 
their political views or activities, including several opposition journalists detained on charges 
unrelated  to  their  professional  activities  (hooliganism,  drugs,  bribery  and  terrorism).  The 
President’s  pardon  decrees  in  March  and  August  2008  did  not  benefit  them.  PACE  (the 
Parliamentary Assembly of Council of Europe) reiterated its call to settle the problem and to 
consider the release of a number of prisoners on humanitarian grounds. It also condemned the 
lack  of  transparency  and  fairness  in  relevant  investigations  and  court  proceedings  and 
demanded  the  immediate  release  of  the  imprisoned  journalists.  Cases  of  harassment  and 
alleged  charges  against  human  rights  defenders,  often  related  to  defamation  and  libel, 
continue  to  be  reported.  However,  some  positive  developments  regarding  the  protection  of 
human  rights  in  prisons  took  place,  with  the  first  ever  temporary  release  of  a  prisoner  in 
November 2008, and with a transfer of one prisoner to receive medical treatment. Outside the 
reporting  period,  libel  charges  against  a  human  rights  defender  were  withdrawn  in  March 
2009.  

The  Ombudsman  institution  is  playing  an  active  role  in  social  issues,  inter-religious 
dialogue, protection of national minorities and the rights of children but avoids confrontation 
on questions with political repercussions. 

Azerbaijan is party to a number of international and regional human rights instruments and 
submits  most  of  the  relevant  implementation  reports  to  the  United  Nations  treaty  bodies  in 
due time. By  the end  of  the  reporting  period, Azerbaijan had not  extended invitations to all 
UN  Special  Procedures.  However,  such  an  invitation  was  announced  after  the  reporting 
period, in February 2009. 

Azerbaijan  has  not  acceded  to  Protocol  n°  13  to  the  ECHR  on  the  abolition  of  the  death 
penalty but has abolished the death penalty for all crimes in its legislation.  

Numerous  cases  of  ill-treatment  and  allegations  of  torture,  especially  during  pre-trial 
detention and in the army, continue to be reported. The majority of allegations are related to 
the time of questioning by police officers, with a view to extracting confessions or gathering 
other  information.  The  Government  has  made  efforts  to  train  law  enforcement  officials  on 
human  rights  but  effective  investigation  of  allegations  of  torture  and  ill-treatment  remains 
minimal.  However,  full  transparency  and  good  cooperation  are  reported  by  external 
organisations, monitoring places of detention, such as the CoE Committee for the Prevention 
of Torture (CPT) and the authorities show a willingness to improve the situation in places of 
detention.  However,  the  CPT  reports  have  still  not  been  made  public.  Outside  the  reporting 
period,  in  January  2009,  Azerbaijan  ratified  the  Optional  Protocol  to  the  UN  Convention 

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against  Torture  and  Other  Cruel,  Inhuman  or  Degrading  Treatment  or  Punishment,  thus 
fulfilling an important Action Plan commitment.  

Efforts  have  been  made  to  reform  the  penitentiary  system  through  improvement  of  the 
conditions  of  detention  including  substantial  construction  and  renovation  works  in  prisons, 
training of prison staff and improving health care in prisons. A project of prison reform is on-
going  with  the  Council  of  Europe.  However,  Azerbaijan's  prison  conditions  remain  harsh, 
especially for those serving long-term or life sentences. The majority of prisoners still depend 
on their families for basic needs. 

Freedom  of  expression  and  media  still  raises  serious  concerns.  Cases  of  harassment  and 
intimidation  of  opposition  journalists  through  defamation  court  proceedings,  imprisonment, 
physical  attacks  and  threats,  and  conviction  on  often  very  unclear  charges  continue  to  be 
reported.  There  are  concerns  of  growing  pressure  on  opposition  and  independent  media 
outlets,  reported  cases  of  limited  access  to  printing  houses  and  distribution  facilities, 
defamation suits and restrictive access to broadcasting licenses. Media pluralism became even 
more limited, with television and Internet widely under State control, and a narrowing space 
for alternative information via radio. In December 2008, the National TV and Radio Council 
banned the broadcasting of foreign radio stations on national FM frequencies, thus depriving 
the public of alternative sources of information. In July 2008, the “Concept for State support 
for  the  development  of  media  in  Azerbaijan”  was  adopted,  aimed  at  providing  increased 
support for media programmes.  

The continued criminalising of defamation and libel remains an obstacle to the freedom of the 
media. No developments have taken place to revise the relevant civil law provisions to ensure 
respect for the principle of proportionality.  

The  legislation  on  freedom  of  assembly,  amended  in  May  2008,  meets  most  of  the 
international  standards  in  relation  to  freedom  of  assembly  and  thus  constitutes  a  significant 
improvement of the legislative framework. However, the law is interpreted and implemented 
in a restrictive manner by the municipalities, limiting freedom of assembly in practice. There 
is  a  de  facto  approval  procedure  for  assembly  and  the  prohibition  or  restrictions  of 
demonstrations  occur  on  a  regular  basis.  Political  forces  are  prevented  from  organising 
meetings and rallies freely in places easily accessible to the public, including in the centre of 
larger cities such as Baku.  

The  Council  for  State  Support  for  NGOs  became  fully  operational  in  2008  and  allocated 
competitively AZM 1.5 million for the support of 193 project proposals by NGOs. A decision 
to increase significantly the State funding for NGOs was taken, which will be applied as of 
2009.  

The legislative and institutional framework for the protection of national minorities remains 
insufficient.  Issues  of  concern  include  the  lack  of  comprehensive  anti-discriminatory 
legislation and limited possibilities for national minorities to effectively channel their views 
and concerns to the authorities, as well as reported cases of intolerance faced by persons or 
organisations  advocating  minority  rights.  Some  national  minorities  continue  to  face 
discrimination. Like last year, there was no progress towards ratification of the Protocol n° 12 
of  the  ECHR  on  the  general  prohibition  of  discrimination  or  of  the  European  Charter  on 
Minority Languages.  

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Freedom  of  religion  is  largely  secured.  Azerbaijan  remains  rather  tolerant  towards 
mainstream  religions.  However,  some  cases  of  burdensome  registration  requirements, 
selective harassment and marred application of the law were reported.  

On  gender  equality,  two  women’s  crisis  centres  in  operation.  The  draft  law  on  preventing 
domestic violence is awaiting parliamentary approval while the national action plan on family 
and  gender  equality  is  awaiting  Cabinet  approval.  In  September  2008,  the  Congress  of 
Women of Azerbaijan adopted a programme to promote gender equality in the newly adopted 
state  programme  for  poverty  reduction  and  sustainable  development,  see  below.  As  regards 
women’s participation in economic and political life, 14 out of the 125 MPs are women. The 
2006-2009  Decent  Work  Country  programme,  elaborated  with  the  International  Labour 
Organisation (ILO), aims at promoting female work. 

As  regards  trade  unions  and  rights  at  work,  Azerbaijan  has  ratified  all  the  main  ILO 
conventions and now qualifies for the EU special incentive for sustainable development and 
good  governance  (GSP+)  for 
its 
implementation  record  remains  poor.  Azerbaijan  continued  to  promote  tripartite  dialogue 
through the signature of a tripartite collective agreement for 2008-2009. The labour code was 
amended in May 2008 to better address termination of labour contracts. Before the reporting 
period,  in  December  2007,  Azerbaijan  submitted  its report  on  the  application  of  the  revised 
European Social Charter to Council of Europe, on issues dealing with employment, training 
and equal opportunities. A second report was submitted in November 2008.  

the  period  2009-2011,  see  section  4.  However, 

Cooperation on foreign and security policy, conflict prevention and crisis management 

Objectives in this area include: strengthening political dialogue and cooperation on foreign 
and  security  matters;  addressing  common  security  threats,  including  non-proliferation  of 
weapons  of  mass  destruction  and  illegal  arms  exports;  and  strengthening  efforts  and 
cooperation in the fight against terrorism 

Since June 2007, Azerbaijan has been invited to align with CFSP declarations on a case-by-
case basis. During 2008, Azerbaijan aligned with less than half of the declarations.2  

No  developments  took  place  towards  accession  to  the  Rome  Statute  of  the  International 
Criminal Court (ICC).  

With regard to cooperation on addressing common security threats, no further steps have been 
reported towards Azerbaijan’s accession to the Ottawa Convention on the Prohibition of the 
Use, Stockpiling, Production and Transfer of Anti-Personnel Mines and on their Destruction.  

Strengthening regional cooperation 

Azerbaijan participated in a programme on integrated border management in the Southern 
Caucasus (SCIBM), see section 5. 

Azerbaijan is participating in the South Caucasus Anti-Drugs programme (SCAD V) with 
the  overall  objective  "to  encourage  the  gradual  approximation  of  drug  policy  legislation, 
norms and standards between Azerbaijan, Armenia and Georgia and between these countries 
and the EU”, see section 5. 

2 

Azerbaijan aligned with 65 CFSP cases out of 164 in 2008. This is significantly lower than for other 
South Caucasus countries.  

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The  Regional  Environmental  Centre  for  the  Caucasus  (REC-Caucasus)  became  fully 
operational  under  its  new  charter  with  the  approval  of  national  representatives  of  the  three 
Caucasus countries for the new executive body in December 2008. Azerbaijan supported the 
establishment  of  its  new  management  structure.  The  REC  is  an  important  tool  to  promote 
regional cooperation and stability for the future of South Caucasus.3 

Azerbaijan participates in the Black Sea Synergy regional cooperation initiative. It hosted the 
Tenth Anniversary conference of the TRACECA multilateral agreement in December 2008. 
Azerbaijan  performed  a  leading  role  in  the  framework  of  the  Baku  Process  on  Energy  and 
Transport, and organised an Energy Summit in November 2008. However, Azerbaijan is the 
only  country  in  the  region  which  has  not  joined  the  Black  Sea  Cross-Border  Cooperation 
(CBC) Programme.  

Azerbaijan maintained a neutral and constructive attitude towards the conflict in Georgia in 
August 2008.  

Regional youth cooperation in the South Caucasus was carried out with the assistance of the 
Helsinki  Citizens’  Assembly  within  the  framework  of  the  South  Caucasus  Youth  Network. 
Azerbaijani-Armenian  youth  peace  brigades  were  set  up  in  October  2008  to  organize  a 
peacekeeping process in South Caucasus. 

Contribute to a peaceful solution of the Nagorno-Karabakh conflict 

Tensions are still high, however some progress was made in the context of the resolution of 
the  Nagorno-Karabakh  conflict.  The  Presidents  of  Azerbaijan  and  Armenia  held  two 
meetings to negotiate a solution to the Nagorno-Karabakh conflict,  in St Petersburg in June 
and  in  Moscow  in  November  2008.  The  two  Foreign  Ministers  also  met,  including  in  the 
margins of the OSCE Ministerial in Helsinki in December 2008. 

The  meeting  in  Moscow  in  November  resulted  in  the  signing  of  a  joint  declaration  on 
contributing  ‘to  the  improvement  of  the  situation  in  the  South  Caucasus  by  means  of  the 
political  settlement  of  the  Nagorno-Karabakh  conflict’,  ‘agreeing  that  the  peace  settlement 
should  be  accompanied  by  legally  binding  international  guarantees  of  all  its  aspects  and 
stages’  and  “considering  important  encouraging  the  establishment  of  conditions  to  realize 
measures  on  consolidating  trust  in  the  context  of  efforts  on  settlement”.  This  is  the  first 
jointly-signed  document  between  the  two  countries  since  1994.  These  developments 
complement the on-going efforts of the peaceful resolution of the Nagorno- Karabakh conflict 
in the context of the OSCE Minsk Group.  

3. 

ECONOMIC AND SOCIAL REFORM 

Macroeconomic framework and functioning market economy  

Macroeconomic development  

The  economy  of  Azerbaijan  continued  growing  strongly  in  2008,  with  overall  growth 
reaching  approximately  11%.  The  oil  sector  grew  by  around  10%,  notwithstanding  some 

3 

The  REC  charter,  adopted  in  2006,  is  one  of  very  few  documents  signed  jointly  by  government 
representatives of Armenia and Azerbaijan. 

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slowdown  in  August  due  to  external  events  and  technical  disruptions.  The  non-oil  sector 
responded  to  the  strong  fiscal  stimulus  and  grew  by  15%,  led  by  a  robust  expansion  in 
construction,  services  and  agriculture.  Attempts  to  diversify  the  economy  have  made  little 
progress so far and economic activity is still heavily dependent on the hydrocarbon industry 
and related sectors.  

Average  inflation  was  around  21%  in  2008,  driven  by  an  expansionary  fiscal  policy, 
accommodative monetary  stance  and  domestic supply constraints, in the context of globally 
high commodity prices. The tightening of monetary policy by the Azerbaijan National Bank 
and the decline of international commodity prices had a positive impact on inflation; however, 
the  presence  of  monopolist  importers  may  prevent  further  price  reductions  from  being  fully 
passed through to the consumers. The decision of the Azerbaijan National Bank to reduce its 
policy rates by 7% the last months of 2008, in order to support non-oil economic growth with 
inflation being still in high double digits, could put the downward trend of inflation to risk.  

Fiscal  revenues  rose  significantly,  led  by  a  surge  in  revenue  from  value-added  tax  and 
corporate profit tax which benefited in 2008 from booming domestic demand linked to high 
oil  prices.  Hence,  despite  the  heavy  spending  on  infrastructure  projects,  the  central 
Government  balance  recorded  a  surplus  of  0.2%  of  GDP.  Nevertheless,  the  state  budget 
heavily relies on oil revenues. Legislation concerning the execution, monitoring and auditing 
of  public  investments  has  been  passed,  though  the  quality,  efficiency  and  control  of  public 
spending should be further strengthened.  

Although Azerbaijan has linked the exchange rate of the Manat to a USD-Euro basket since 
March  2008,  it  decided  to  suspend  this  regime  temporarily  due  to  an  excessive  volatility  of 
the US dollar, with the aim of avoiding panic and re-dollarization. The combination of falling 
oil prices and stronger USD poses risks for the future exchange rate of the Manat. 

The  surge  in  oil  and  gas  export  revenues  and  the  contractual  transfers  from  profit-sharing 
clauses  in  the  agreements  with  the  oil  consortia  have  contributed  to  a  large  current  account 
surplus  of  approximately  40%  of  GDP,  despite  the  rise  in  imports  of  machinery  and 
equipment. As a result, at the end of September 2008, Azerbaijan's gross official reserves and 
state oil fund assets jointly reached USD 16 billion, around six times the size of the external 
debt.  However,  the  downside  risks  in  the  external  position  due  to  the  fall  of  oil  prices  are 
considerable. Efforts for export diversification should continue.  

Azerbaijan entered the period of financial turmoil and uncertainty in a relatively solid position 
and  the  consequences  during  2008  were  limited.  This  was  because  of  the  underdeveloped 
financial  market,  the  low  exposure  of  the  banking  system  to  foreign  banks  and  the  strong 
international  reserve  position.  Nevertheless,  the  Azerbaijan  National  Bank  tightened  credit 
growth and strengthened prudential regulations and supervision. 

Employment and social policy 

Azerbaijan  adopted  in  September  2008  the  State  Programme  for  Poverty  Reduction  and 
Sustainable  Development  for  the  years  2008-2015,  which  aims  at  reducing  the  level  of 
poverty  from  13%  to  10%  by  the  end  of  2015.  The  comprehensive  programme  will  be 
implemented by an action plan, initially covering a timeframe of three years.  

Unemployment  decreased  over  the  reporting  period.  In  December  2008,  the  official 
unemployment  rate  was  6.1%.  Implementation  of  the  Employment  Strategy  (2006-2015), 

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which covers legislation, institutional capacity and human resources development, continued 
and working groups were established during the reporting period. Azerbaijan also worked on 
amending its unemployment legislation to match market needs and labour skills better. 

As  regards  social  inclusion  and  protection,  Azerbaijan  continued  cooperation  with  the 
World  Bank  with  a  view  to  improving  effectiveness  and  transparency  in  the  provision  of 
public pensions and social assistance. The law on targeted social assistance was amended in 
June  2008  to  extend  social  assistance  coverage  to  foreigners  residing  in  Azerbaijan.  The 
implementation  of  the  targeted  social  assistance  scheme  is  supported  by  an  automated 
management  information  system  covering  the  entire  country.  The  eligibility  criteria  and 
grounds for refusal were refined in June and July 2008. The management information system 
for the pension funds covers 70% of Azerbaijan. A new State programme on the development 
of an insurance-based pension system was adopted in December 2008. 

4. 

TRADE-RELATED ISSUES, MARKET AND REGULATORY REFORM 

EU-Azerbaijan bilateral trade has been growing rapidly in the last five years and the EU has 
progressively  become  Azerbaijan's  main  trade  partner  (55.0%  share  in  Azerbaijan's  overall 
external trade in 2007, before the US with 9.2% and Russia with a 8.2% share). Nevertheless 
Azerbaijan’s  share  in  the  EU's  overall  external  trade  remains  low:  only  0.4%  in  2008,  i.e. 
42nd  place  among  the  EU  trading  partners).  In  2008,  the  total  turnover  of  bilateral  trade 
reached EUR 12.61 billion, with Azerbaijani exports to the EU at EUR 10.55 billion and EU 
exports  EUR  2.06  billion.  The  EU  exports  to  Azerbaijan  concern  mainly  machinery  and 
transport  equipment  (approximately  half  of  the  EU  total  exports  to  Azerbaijan  in  2008),  as 
well  as  chemicals  (7.4%)  and  base  metals  and  products  made  from  them  (7.2%)  and 
chemicals (8%). Azerbaijan's export structure remains heavily unbalanced: it consists almost 
exclusively of mineral fuels (oil and gas accounted for 99 % of Azerbaijani exports to the EU 
in 2008), while the share of other products is practically negligible. 

During  the  reporting  period  Azerbaijan  did  not  increase  its  use  of  the  tariff  concessions 
stemming from the participation in the general arrangement under the EU Generalised System 
of  Preferences  (GSP).  In  December  2008,  Azerbaijan  qualified  for  the  special  incentive 
arrangement for sustainable development and good governance, the GSP+, under the new EU 
GSP Regulation for 2009-2011. 

Azerbaijan has so far achieved only limited progress in its negotiations on the accession to the 
World  Trade  Organisation  (WTO).  However,  the  last  Working  Party  meeting  in  Geneva,  as 
well as bilateral technical discussions with the European Commission's services in December 
2008,  were  rather  fruitful  and  could  signal  a  positive  change  in  Azerbaijan's  engagement  in 
the accession process.  

The  revised  customs  code  aiming  at  harmonising  the  customs  legislation  with  the  EU  and 
international provisions and standards, remains to be adopted. Work on the use of risk based 
customs  controls  is  continuing,  and  the  State  Customs  Committee  created  a  Department  of 
Audit and Risk Analysis in June 2008. Work is also proceeding in the area of security of the 
supply  chain  for  the  implementation  of  the  “WCO  framework  of  standards  to  facilitate  and 
global trade”. The State Customs Committee set up a working group on the possible use of the 
Single Administrative Document (SAD) for customs declarations. With a view to improving 
cooperation with the business community, a “Regulation on Cooperation between the customs 
service  and  business  operators”  entered  into  force  during  the  reporting  period.  The  “Single 

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Window” concept for customs clearance was adopted in November 2008, with the application 
of the new procedure starting on 1 January 2009.  

Azerbaijan made some progress on the free movement of goods and technical regulations. 
A new law on technical regulations was submitted to the Cabinet of Ministers but has yet to 
be  adopted.  Several  by-laws  were  also  prepared.  Furthermore,  preparations  for  a  state 
programme on the development of the standardisation sector are on-going. As regards quality 
infrastructure,  the  State  Committee  on  Standardization,  Metrology  and  Patents  was 
established in November 2008. 

Azerbaijan and the EU strengthened cooperation in the field of sanitary and phytosanitary 
(SPS) issues by launching a food safety twinning project in September 2008. Azerbaijan also 
pursued  gradual  approximation  with  EU  rules. Azerbaijan  prepared  amendments  to  laws  on 
veterinary  issues,  on  sanitary-epidemiological  well-being  and  on  food  products.  It  further 
prepared its future accession to the Codex Alimentarius. 

Regarding  establishment  and  company  law,  Azerbaijan  attaches  great  importance  to 
attracting foreign investments. Azerbaijan continued to simplify the registration of companies 
by reducing the number of licensed activities from 240 to 50, and by decreasing State duties. 
The introduction in January 2008, of a “one-stop shop”, reported last year, contributed to the 
increase in the number of companies registered. Azerbaijan continued working on corporate 
governance by setting up a dedicated working with the task of drafting a code.  

Concerning  financial  services,  the  National  Bank  of  Azerbaijan  continued  to  take  steps  to 
improve bank supervision, to tighten prudential regulations and to raise capital requirements. 
The new capital framework law, which follows the Basel II principles for effective banking 
supervision, is still before Parliament, awaiting adoption. The Law on insurance activities was 
adopted in March 2008. Further, a draft law on non-banking credit institutions was submitted 
to  the  Parliament.  The  new  law  contributes  to  the  development  of  micro-finance  in 
Azerbaijan. Notwithstanding these generally positive developments, further efforts are needed 
to continue development of Azerbaijan’s financial services.  

Other key areas 

The implementation of the Automated Tax Information System (AVIS) is continuing and in 
2008 more than 1100,000 taxpayers received access to the e-service, and thus over 660 000 
tax  returns  were  submitted  electronically  to  the  tax  authorities.  A  system  of  VAT  bank 
accounts became effective from January 2008. In order to provide services to the taxpayers in 
regions  without  tax  authority  offices,  the  Ministry  of  Taxes  installed  several  computer 
terminals allowing taxpayers to submit tax returns and to receive information on tax issues. In 
order  to  strengthen  cooperation  with  taxpayers,  an  Experts  Commission,  comprising  the 
representatives  of  taxpayers  and  other  stakeholders,  was  established  in  2008  to  discuss  tax 
issues, including draft legislation. There is still scope for improving the possibility to appeal 
to  an  independent  authority,  raising  the  number  of  tax  audits,  and  reducing  the  amount  of 
uncollected tax arrears. A new version of the “Ethical Behaviour Code of Tax Employee” was 
approved by Ministerial order in 2008. The training of tax officers was also reinforced by the 
use of an online education system as well as through external assistance. In 2008 agreements 
on the avoidance of double taxation were signed with the Netherlands and Hungary. 

In the field of competition law, the State Anti-monopoly Service (SAS), under the Ministry 
of Economic Development, is in place, but there are  some  concerns about corruption in the 
service  and  its  management  has  been  changed.  An  investigation  of  SAS  activities  was 

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initiated in August 2008. In December 2008, a presidential decree increased the authority of 
the  SAS  to  take  more  independent  decisions  and  to  hold  on-site  inspections.  The  draft 
competition law from 2007 is in the Parliament, not yet adopted. The draft law has provisions 
on control of state support.  

In the area of intellectual property rights, a long-term strategy covering all priority areas as 
well as a number of legislative acts on the protection of broadcasting copyrights and patents 
were  submitted  to  the  Cabinet  of  Ministers  in  December  2008.  The  amended  Law  on 
copyrights  and  related  rights  was  adopted  in  April  and  entered  into  force  in  May  2008.  As 
regards  enforcement,  Azerbaijan  is  working  on  amending  its  penal  code  with  a  view  to 
introducing more stringent penalties for IPR-related crimes. A database on statistics of court 
trials  on  infringements  is  under  development  at  the  Copyrights  Agency.  A  draft  law  on 
securing intellectual property rights and combating piracy is awaiting Cabinet approval. There 
is no coordinating body to supervise enforcement activities which remain weak. A law on IP 
enforcement and fight against piracy is urgently needed. 

In the area of public procurement, the implementation of the e-Commerce Law continued. 
All  tenderers  have  the  right  to  appeal  tender  procedures at three levels: the public authority 
announcing  the  tender,  the  State  Committee  on State  Property  Management,  and  the  courts. 
There  are  still  concerns  as  regards  the  provisions  of  equal  opportunities  for  foreign  and 
domestic suppliers. 

Azerbaijan  prepared  a  twinning  proposal  for  cooperation  in  specific  statistical  domains 
including price statistics and national accounts. In February 2008, Azerbaijan also amended 
its Law on official statistics as far as operations of enterprises are concerned. 

As stated in the last Progress Report, use of international financing reporting standards (IFRS) 
in the field of accounting has been compulsory since January 2008 for sizeable companies, 
and since January 2009 for commercial entities. 

to  public  finance  management, 

the  Ministry  of  Finance  continued 
With  regard 
implementation  of  a  three  year  programme  for  the  translation  of  International  Financial 
Reporting Standards (IFRS) and International Public Sector Accounting Standards (IPSAS) to 
public  bodies.  Developments  in  2008  included  the  approval  by  the  latter  of  27  national 
accounting standards for commercial organisations and the approval of the translation of IFRS 
into  Azerbaijani,  as  required  by  the  Law  on  Accounting.  Work  is  also  on-going  on 
development of national accounting standards for the non-governmental sector. The Ministry 
of Finance established a working group to oversee and supervise the gradual extension of an 
online treasury management system to all treasury management centres, as part of the above 
reform programme. Training courses on the application of international standards for public 
financial  managers  were  provided  in  this  respect.  In  addition,  the  Ministry  of  Finance  has 
made  efforts  in  order  to  provide  a  legal  basis  for  inspection.  In  the  areas  of  managerial 
accountability and independent decentralised internal audit, preparations are still at very early 
stages.  

(2008-2013)  provides  a 

On  enterprise  policy,  the  newly  adopted  state  programme  on  support  to  development  of 
entrepreneurship 
innovative 
entrepreneurship.  It  envisages  establishing  business  incubators.  The  first  conference  to 
support 
the  Ministry  of  Economic 
Development and Azerbaijan National Academy of Sciences in July 2008. The State Fund for 
Entrepreneurial Development continued to provide privilege loans. 

innovative  entrepreneurship  was  organised  by 

for  supporting 

framework 

to 

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5. 

COOPERATION ON JUSTICE, FREEDOM AND SECURITY 

Azerbaijan participates in the Southern Caucasus Integrated Border Management (SCIBM) 
regional  programme,  agreed  between  Georgia,  Armenia  and  Azerbaijan  already  in  October 
2007.  The  programme  aims  to  enhance  inter-agency  cooperation  while  strengthening  the 
capacity of customs and border guard services in line with agreed regional standards and EU 
norms.  The  implementing  consortium,  led  by  United  Nations  Development  Programme 
(UNDP) was selected by year end to start implementation in early 2009. Despite the regional 
character  of  the  programme,  Azerbaijan  chooses  to  pursue  cooperation  only  under  the 
bilateral component with Georgia.  

Work on the delimitation of borders with both Georgia and the Russian Federation are near 
completion.  Cooperation  agreements  were  signed  between  the  State  Border  Service  and  the 
relevant border guard services of Latvia and Lithuania.  

The  Migration  Service  became  fully  operational  in  August  2008.  In  October  2008,  two 
regional  branches  were  opened.  In  June  2008,  migration  legislation  was  amended  to  clarify 
the length of stay of foreign citizens and stateless persons in Azerbaijan; the grounds for their 
temporary  and  permanent  residence  in  the  country;  foreigners'  registration  system  and  the 
criteria  for  granting  Azerbaijan  citizenship.  In  addition,  a  draft  readmission  strategy  was 
prepared and submitted to the Government in October 2008. The number of migrants, notably 
labour migrants mainly working in the construction sector, increased considerably. 

Cooperation on the fight against organised crime continued with international organisations 
as well as with neighbouring CIS countries, Iran, Turkey and Bulgaria on the basis of earlier 
mutual  legal  assistance  agreements.  Some  success  was  achieved  on  curbing  smuggling  of 
migrants from Iran. 

To  combat  trafficking  in  human  beings,  the  Ministry  of  the  Interior  organized  awareness-
raising seminars and training sessions for local authorities, district police bodies and the wider 
public,  including  a  dialogue  with  civil  society  representatives  in  April  2008.  In  addition, 
government agencies developed national protection mechanisms for the protection of victims 
of  trafficking,  in  close  cooperation  with  local  and  international  NGOs,  in  order  to  enhance 
implementation of the National Action Plan on Combating Trafficking in Human Beings. The 
Ministry  of  Labour  and  Social  Protection  established  a  support  centre  for  victims  of 
trafficking  to  assist  their  rehabilitation.  However,  Azerbaijan  has  yet  to  sign  and  ratify  the 
2005 Council of Europe Convention on Action against Trafficking in Human Beings. 

With regard to the fight against drugs, the five-year action programme (2007-12) to combat 
drug addiction is being implemented in line with the national strategy. Cooperation with the 
regional  Interpol  bureau  in  Baku  continues  on  the  fight  against  illegal  narcotics  and  drug 
smuggling and with the country’s neighbours under the regional SCAD V programme as well 
through  earlier  bilateral  agreements.  In  this  context,  Azerbaijani  officials  benefited  from  a 
study tour to Sweden in September 2008. 

An  adequate  framework  to  combat  money-laundering  is  lacking.  Azerbaijan  is  the  only 
Council  of  Europe  country  without  a  financial  intelligence  unit.  A  draft  law  on  money 
laundering  and  combating  the  financing  of  terrorism  was  proposed  in  October  2008  but  in 
December,  the  Council  of  Europe’s  Moneyval  committee  judged  it  non-compliant  with  key 
international standards. Azerbaijan was requested to prepare comprehensive legislation in its 
place.  In  February  2009,  the  Parliament  adopted an  anti-money laundering  and financing of 
terrorism law whose deficiencies were subsequently commented upon by Moneyval during its 

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29th  plenary  meeting  in  March.  In  this  regard,  cooperation  with  relevant  experts  and 
international financial institutions requires immediate consideration.  

With  regard  to  police  and  judicial  cooperation,  Azerbaijan  neither  acceded  to  the  1980 
Hague Convention on the Civil Aspects of International Child Abduction nor signed the 1981 
Council  of  Europe  Convention  for  the  Protection  of  Individuals  with  regard  to  Automatic 
Processing  of  Personal  Data.  Moreover,  it  has  not  signed  nor  ratified  the  1983  Council  of 
Europe Convention on the Transfer of Sentenced Persons. A Law on Biometric Information 
was adopted in June 2008, while in August the Ministry of the Interior established a working 
group  to  accelerate  international  cooperation  including  implementation  of  the  ENP  Action 
Plan.  Azerbaijan  cooperates  with  CIS  countries  within  the  framework  of  the  1993  Minsk 
Convention  on  Legal  Assistance  and  Legal  Relations  in  Civil,  Family  and  Criminal  matters 
and  has  an  observer  status  in  the  South-East  Cooperation  Initiative  (SECI)  for  regional 
cooperation with Black and Caspian Sea countries. No progress was registered with regard to 
the  development  of  a  network  for  enhanced  cooperation  with  EU  judicial  and  law 
enforcement authorities. 

6. 

TRANSPORT,  ENERGY,  THE  ENVIRONMENT,  THE  INFORMATION  SOCIETY, 
RESEARCH AND DEVELOPMENT 

The Ministry of Transport drafted a national transport policy in 2008 (in consultation with 
the various transport agencies) that is now awaiting official approval.  The Government also 
allocated  significant  funding  for  the  development  of  transport  infrastructure  in  the  period 
2004-2008. 

In the road sector, Azerbaijan is continuing the upgrading of its highway network. There are 
plans to strengthen the administrative capacity of the Ministry of Transport and of the national 
road  administration  (Azeryolservice),  supporting  them  in  developing  of  a  traffic  safety 
strategy  as  well  as  a  road  development  master  plan.  Azerbaijan  has  regulated  professional 
passenger and freight transport operations. 

In  the  rail  sector,  Azerbaijan  is  negotiating  with  the  Intergovernmental  Organisation  for 
International  Carriage  by  Rail  (OTIF)  on  the  accession  to  the  Convention  concerning 
International Carriage by Rail (COTIF). Azerbaijan has drafted a strategy covering the period 
2008-2011 for the reform of its railway sector, focusing on the institutional strengthening of 
railway  management,  the  modernization  of  railway  infrastructure  and  renewal  of  the  rolling 
stock.  The  railways  will  be  transformed  into  a  joint-stock  company,  in  the  short  term  fully 
owned by the state.  

In  the  aviation  sector,  Azerbaijan  has  yet  to  sign  the  horizontal  air  transport  agreement, 
negotiated with the European Commission in 2004, in order to provide for legal certainty for 
air operations. Azerbaijan is the last country in the Southern Caucasus not to have signed such 
an agreement with the European Community. Azerbaijan needs to further strengthen its newly 
created Civil Aviation Authority including in the field of air safety oversight.  

In the maritime sector, the maritime administration has been strengthened; amendments to the 
“Statute  of  the  State  Maritime  Administration”  were  approved  in  November  2008.  The 
Administration was given new tasks and its relationship with the Ministry of Transport was 
clarified:  the  Ministry  is  responsible  for  the  development  and  supervision  of  the 
implementation  of  the  overall  transport  policy  for  the  country,  while  the  Maritime 
Administration participates in development of maritime policy. 

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Azerbaijan  remains  a  rapidly  growing  energy  producer  and  transit  country  for  Caspian 
resources  including  for  the  EU’s  energy  security.  Cooperation  continued,  inter  alia,  on  the 
basis  of  the  2006  Memorandum  of  Understanding  on  a  strategic  partnership  in  the  field  of 
energy.  The  European  Community  is  supporting  its  implementation  through  budget  support 
and a twinning project. The country further implemented the state programme on fuel-energy 
complex  development  2005-2015,  inter  alia  by  preparing  draft  laws  on  electricity,  gas  and 
energy  security.  Azerbaijan  also  significantly  improved  its  infrastructure  for  the  production 
and distribution of electricity in 2004-2008. 

Azerbaijan consolidated oil and gas exports notably via the Baku-Tbilisi-Ceyhan (Turkey) oil 
pipeline  and  the  Baku-Tbilisi-Erzurum  (Turkey)  gas  pipeline.  They  were  filled  in  particular 
from  the  Azerbaijani-Chirag-Guneshli  oil  field  and  the  Shah  Deniz  gas  field.  Oil  supplies 
from  the  Kazakh  Tengiz  field  were  also  channelled  into  the  main  oil  pipeline.  The  Baku-
Supsa  (Georgia)  export  oil  pipeline  was  rehabilitated.  In  2008  a  feasibility  study  for  the 
extension  of  the  Baku-Tbilisi-Ceyhan  pipeline  was  completed.  Azerbaijan  continued 
participation  in  the  “Baku  Initiative”  for  EU-Black  Sea/Caspian  energy  cooperation.  It 
actively  participated  in  the  completed  EC’s  study  regarding  the  feasibility  of  a  Trans-
Caspian/Black  Sea  energy  corridor.  Azerbaijan  launched,  together  with  companies  from 
Georgia, Lithuania, Poland and Ukraine, a new study on the extension of the Odessa-Brody 
oil  pipeline  to  Gdansk  in  Poland.  Azerbaijan  increased  the  security  of  oil  and  gas  pipelines 
including  by  drafting  an  action  plan  in  this  area.  Azerbaijan  pursued,  with  a  view  to  the 
transparency  of  oil  and  gas  revenues,  participation  in  the  Extractive  Industry  Transparency 
Initiative (EITI).  

The Tariff Council, which aims at eliminating price distortions, adjusted electricity tariffs. A 
new  electricity  tariff  methodology  is  in  preparation.  Increased  bill  collection  rates  further 
improved  the  financial  performance  of  the  electricity  and  gas  companies  Azerenergy  and 
Azerigas. Azerbaijan continued the rehabilitation of electricity and gas infrastructure and the 
construction  of  new  power  plants.  The  Government  adopted  a  programme  on  the  use  of 
compressed  natural  gas  in  transport  for  2008-2018.  It  separated  the  electricity  distribution 
sector into three joint stock companies. Azerbaijan, Georgia and Turkey worked on their plan 
to  strengthen  electricity  interconnections  among  them.  Azerbaijan  is  constructing  additional 
electricity  interconnections  with  Georgia  and  Iran.  It  also  announced  its  interest  to  build  a 
nuclear research reactor. The International Atomic Energy Agency will conduct a feasibility 
study on this issue. In April 2008, the President ordered establishment of a State Agency on 
Control of Nuclear and Radiation Activities under the Ministry of Emergency Situations.  

The  country  continued  to  implement  the  state  programme  on  the  use  of  alternative  and 
renewable energy 2005-2013, inter alia by developing investments in wind power and small 
hydro.  Azerbaijan  prepared  plans  to  establish  a  state  agency  on  alternative  and  renewable 
energy resources.  

In  the  field  of  climate  change,  Azerbaijan  continued  preparing  its  second  national 
communication, which will also include a greenhouse gas inventory and adaptation measures. 
Azerbaijan took steps to prepare and approve further Clean Development Mechanism (CDM) 
projects. None of the 21 Azerbaijani CDM projects has, however, yet been registered at the 
UN  level.  The  European  Commission  continued  to  support  Azerbaijan  to  implement  the 
Kyoto Protocol. Azerbaijan has not yet adopted a formal position on the post-2012 regime. 

Azerbaijan continued to implement its 2006-2010 environment state programme. It considers 
the  possibility  to  update  its  1998  environment  action  plan  or  to  prepare  a  new  planning 

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document on environment. The 2008 – 2015 poverty reduction strategy puts forward priority 
directions in various environment subsectors. The legislative framework continues to require 
further  development,  in  particular  as  regards  implementing  legislation.  Legislation  on 
vibration  and  noise  and  on  environmental  fines  was  adopted.  A  national  action  plan  on  the 
Caspian Sea, an action plan on improvement of drinking water supplies and a hazardous waste 
management strategy were adopted. Work is on-going to develop a waste strategy for Greater 
Baku,  as  well  as  to  implement  existing  strategies  and  plans,  but  continued  attention  is 
required. Efforts are also needed to enhance monitoring and enforcement.  

Certain  steps  were  undertaken  with  regard  to  training  of  staff  and  further  strengthening  of 
environmental monitoring capacities. However, strengthening of administrative capacity at all 
levels  of  the  country  remains  major  challenge.  Coordination  between  authorities  requires 
attention. Some activities took place to integrate environment considerations into other policy 
sectors such as energy. Azerbaijan has not published comprehensive state-of-the-environment 
reports  since  2002  but  carries  out  some  activities  to  inform  and  involve  the  public. 
Concerning  access  to  information  and  public  participation,  the  capacities  of  the  three 
operational Aarhus Centres were strengthened and steps were taken to consider establishing 
further  centres  throughout  the  country.  Procedures  and  consultation  with  the  public  in  the 
context  of  environmental  impact  assessment  continue  to  require  particular  attention.  Some 
steps were undertaken to promote implementation of strategic environmental assessment. For 
the  Regional  Environmental  Centre  for  the  Caucasus,  please  see  the  section  on  regional 
cooperation. 

Azerbaijan  made  no  significant  progress  towards  signing  the  Protocol  on  Strategic 
Environmental Assessment to the UNECE Convention on Environmental Impact Assessment 
in  a  Transboundary  Context.  Furthermore,  the  implementation  of  several  already  ratified 
agreements requires particular attention. Azerbaijan participated in regional cooperation under 
the Framework Convention for the Protection of the Marine Environment of the Caspian Sea 
and the Caspian Environment Programme. It is also considering requesting a national policy 
dialogue  under  the  EU  Water  Initiative.  Cooperation  and  information  exchange  took  place 
between  the  European  Commission  and  Azerbaijan,  including  on  water,  forestry,  waste 
management  and  environmental  data.  Other  topics,  such  as  air  quality  and  civil  protection, 
were identified for possible closer cooperation. The mandate of the subcommittee on Energy 
and  Transport  was  expanded  to  cover  environmental  issues,  with  the  first  meeting  in  this 
format taking place in April 2008. 

In the area of information society, Azerbaijan has not yet created an independent authority 
for  electronic  communications,  and  regulatory  functions  are  still  being  carried  out  by  the 
Ministry of Communications and Information Technology. The tariffs for local, long-distance 
and  international  fixed  telephony  were  rebalanced  and  internet  tariffs  were  reduced  during 
2008.  The  government  started  the  privatisation  programme  by  selling  a  3.5%  stake  in  the 
leading mobile operator and intends to sell public ownership in two mobile operators and one 
fixed telephony operator. Fixed Broadband Internet access has been introduced in Baku and a 
wireless broadband network (WIMAX) is being rolled out for the provision of voice-over-IP 
and Internet services.  

Research  and  Innovation  (R&I)  activities  remained  very  modest.  Azerbaijan  has  still  not 
adopted a national research strategy. In April 2008 the President set up a State Commission 
for Reforms in Science, which is drafting a national strategy for the development of science in 
2009-2015,  as  well  as  a  state  programme  to  implement  it.  Although  the  participation  of 
Azerbaijan  in  the  7th  Research  Framework  Programme  (FP7)  slightly  increased  in 

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comparison  to  the  FP6,  the  overall  number  of  applications  is  still  comparatively  low. 
Encouraging  success  was  made  in  the  fields  of  international  cooperation,  research 
infrastructures, environmental protection and ICT. 

As a result of the first INCO-NET  call,  IncoNet  EECA  (the S&T  International  Cooperation 
Network for Eastern European and Central Asian countries) was launched in January 2008 for 
four  years.  The  total  budget  is  approximately  EUR  3.5  million.  To  ensure  the  international 
character of this project a large consortium of 23 institutes from 21 EU and EECA countries, 
including Azerbaijan, was formed. 

7. 

PEOPLE-TO-PEOPLE CONTACTS, EDUCATION AND HEALTH 

Azerbaijan pursued modernization of education in 2008 through fourteen state programmes 
with an allocation of 1 billion USD (more or less EUR 773 million) from the state budget. A 
draft  State  Programme  for  Higher  Education  Development,  focusing  on  the  legal  and 
methodological aspects of teaching, the quality of research and delivery as well as resource 
and financing challenges, was submitted for approval of the government. In addition, work is 
on-going  on  other  support  programmes  for  teacher  development,  re-skilling,  and  retraining. 
Significant improvements were noted with regard to educational infrastructure, renovation of 
old facilities and the construction of 1600 new schools. The Ministry of Education advanced 
towards mainstreaming of Active Learning into the teaching and learning processes through 
pre-service and in-service teacher training as well as the development of relevant guides and 
workbooks.  Additional  reform  steps  included  aligning  the  education  system  to  European 
practices through the introduction of a new school curriculum, the adoption of final secondary 
school examinations and the appraisal of textbooks. 

Despite  achievements  in  raising  teacher  salaries,  additional  attention  would  be  required  to 
improve the quality of education through effective and transparent licensing and appraisal in 
line  with  best  European  practice.  In  addition,  equal  access,  structural  independence, 
transparency and public oversight of the education system would need to be ensured.  

Azerbaijan remains committed to alignment of its higher education system to the principles 
of  the  Bologna  process.  The  new  draft  law  on  education,  approximating  relevant  Bologna 
provisions,  passed  the  second  reading  in  the  Parliament  in  December  2008.  However,  its 
participation in relevant events remains consistently weak. 

Higher  education  reform  in  Azerbaijan  continued  to  benefit  from  cooperation  under  the 
Tempus programme, with 3 projects selected under the first Call for Proposals of Tempus IV. 
Five Azeri students received scholarships under Erasmus Mundus while academic and student 
mobility  was  further  facilitated  through  participation  in  Erasmus  Mundus  External 
Cooperation  Window.  A  further  five  Azeri  students  received  scholarships  in  European 
integration  studies  at  masters  level  for  students  from  the  ENPI  region  under  a  special  pilot 
project  for  the  academic  year  2008-9.  In  2008,  Azerbaijan  State  budget  funds  provided  for 
1.130  students  to  study  abroad,  of  which  360  chose  to  study  in  European  universities. 
Currently  the  Ministry  of  Education  of  Azerbaijan  has  signed  agreements  on  bilateral  co-
operation with nearly 20 countries, including several European countries. 

In  the  case  of  vocational  training,  the  introduction  of  competence-based  vocational 
education  and  training  was  facilitated  by  specific  EC  assistance  under  the  earlier  TACIS 
programme  in  support  of  Azerbaijan’s  modernization  strategy  for  this  sector.  The 

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establishment of a vocational education and training development centre is planned in order to 
provide methodological support to the transformation of training provision. 

In addition, the Ministry of Labour submitted a policy document to the Cabinet of Ministers 
on developing occupational and qualification standards, teacher training and certification, in 
line with the best European practice, with the support of the European Training Foundation. 
More  public  effort  is  required,  however,  in  terms  of  development  of  adult  education  policy 
and provision including the development of a legal basis in the context of lifelong learning. 
The development of facilitating social partnership mechanisms would also be welcome. 

The Ministry of Youth and Sport continued to implement the Youth State Programme 2005-
2009, aimed at engaging young people in political, cultural and social life, in cooperation with 
UNICEF and the Youth Parliament of Azerbaijan. A National Strategy on Youth Participation 
and  Development,  ensuring  participation  and  equal  opportunities  for  children  and  young 
people,  particularly  the  disadvantaged,  is  under  consideration.  Azeri  youth  organizations 
participated actively in the Youth in Action programme. In November 2008, the Ministry of 
Youth and Sport co-organised a conference with the Council of Europe on ‘Beyond Religious 
Differences’,  examining  how  discrimination  based  on  religion  or  belief  can  be  overcome 
through youth work and engagement with young people (see Sectoral Report).  

In the area of culture, a national cultural policy is being developed in conjunction with the 
existing  tourism  and  cultural  tourism  development  strategies.  State  programmes  for  the 
development  of  tourism,  2007-16,  library  information  systems  2008-13  and  for  the 
development  of  cinema  2008-18,  are  being  implemented  by  the  Ministry  of  Culture  and 
Tourism. The latter prepared a draft "Culture Concept of the Republic of Azerbaijan" as well 
as  a  draft  law  on  the  creative  worker.  The  establishment  of  a  Coordinating  Council  on 
Cultural Diversity to preserve and develop existing traditions of ethnic cultural communities 
is  also  planned.  However,  culture  remains  under  the  control  of  State  authorities  with  no 
formal  provision  for  non-governmental  action  with  existing  voluntary  organizations 
dependent on state support and funding. Transparency is absent on allocation of funding for 
cultural  purposes,  with  no  means  of  participation  by  the  cultural  industry  or  the  public  in 
decision-making. Moreover, existing resources are expended in the capital to the detriment of 
the development of cultural activities in the regions. Azerbaijan has yet to ratify the UNESCO 
Convention for the Protection and Promotion of the Diversity of Cultural Expressions.  

In January 2008 the Azerbaijani President endorsed a concept for reforming health financing 
and  compulsory  medical  insurance.  In  August  the  Government  adopted  an  action  plan  to 
implement  the  concept.  Azerbaijan’s  reform  objectives  include  the  strengthening  of 
governance and regulation; the improvement of financing through the enhanced introduction 
of  medical  insurance;  a  better  matching  between  human  resources  and  patient  needs;  and 
increasing the effectiveness of health services. Azerbaijan endorsed a strategy on reproductive 
health for 2008-2015 as well as a strategy and an action plan on the integrated management of 
childhood  diseases.  In  2008,  the  European  Commission  invited  Azerbaijan  to  participate  in 
the  EU  Network  of  competent  authorities 
information  and  knowledge. 
Communicable diseases such as HIV/AIDS and tuberculosis remain challenges.  

in  health 

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8. 

FINANCIAL COOPERATION – 2008 KEY FACTS AND FIGURES 

The ENPI financial envelope for Azerbaijan under the National Indicative Programme 2007-
2010 is EUR 92 million. The programme is geared towards supporting the achievement of key 
policy objectives as outlined in the ENP Action Plan and pursues three priorities: Support for 
Democratic  Development  and  Good  Governance,  Support  for  Socio-economic  Reform,  and 
Support  for  Legislative  and  Economic  Reforms  in  the  Transport,  Energy  and  Environment 
sectors.  

In  2008,  the  European  Commission  continued  to  support  national  reform  efforts  and 
programmed assistance for a total amount of EUR 22 million under the ENPI. The 2008 Annual 
Action  programme,  adopted  by  the  Commission  in  December  2008,  focuses  on  support  for 
justice reform and on twinning operations in support of the implementation of the ENP Action 
Plan.  

Twinning  projects  on  Food  Quality  and  Safety  Assurance  and  Certification  Requirements, 
Fishery  Products,  Legal  Approximation  and  Structural  Reform  in  the  Energy  Sector,  and 
Strengthening  of  Standardisation,  Metrology,  Conformity  Assessment  and  Accreditation, 
were launched. A number of other twinning projects are under preparation.  

Azerbaijan also benefits from cooperation activities financed under the ENPI multi-country, 
(including  the  Neighbourhood  Investment  Facility)  and  regional  programmes,  as  well  as 
horizontal  thematic  programmes,  including  the  European  Instrument  for  Democracy  and 
Human Rights and the programme “Non State Actors and Local Authorities in Development”. 
Azerbaijan is eligible under the ENPI Black Sea Cross Border Cooperation programme, but 
has not yet signed its programming document and for the time being is not participating in it.  

Azerbaijan  has  not  signed  the  Memorandum  of  Understanding  with  EIB  that  is  an  essential 
pre-condition for receiving EIB loans.  

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