JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Azerbaijan Progress in 2011 and recommendations for action Accompanying the document JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Delivering on a new European Neighbourhood Policy
Date: 2012-05-15
Institutions: European Commission, High Representative of the Union
Subjects: Azerbaijan, European neighbourhood policy, administrative reform, cooperation in the field of education, democratisation, economic reform, energy transport, environmental cooperation, institutional reform, job creation, judicial cooperation, judicial reform, trade cooperation, transport infrastructure

EUROPEAN COMMISSION 

HIGH REPRESENTATIVE OF THE
EUROPEAN UNION FOR 
FOREIGN AFFAIRS AND 
SECURITY POLICY

Brussels, 15.5.2012  
SWD(2012) 111 final 

JOINT STAFF WORKING DOCUMENT 

Implementation of the European Neighbourhood Policy in Azerbaijan 
Progress in 2011 and recommendations for action 

Accompanying the document 

JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, 
THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE 
COMMITTEE OF THE REGIONS 

Delivering on a new European Neighbourhood Policy 

{JOIN(2012) 14 final} 
{SWD(2012) 110 final} 
{SWD(2012) 112 final} 
{SWD(2012) 113 final} 
{SWD(2012) 114 final} 
{SWD(2012) 115 final} 
{SWD(2012) 116 final} 
{SWD(2012) 117 final} 
{SWD(2012) 118 final} 
{SWD(2012) 119 final} 
{SWD(2012) 120 final} 
{SWD(2012) 121 final} 
{SWD(2012) 122 final} 
{SWD(2012) 123 final} 
{SWD(2012) 124 final} 

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1. 

OVERALL ASSESSMENT AND RECOMMENDATIONS 

This  document  reports  on  the  progress  made  in  implementing  the  EU-Azerbaijan 
European  Neighbourhood  Policy  Action  Plan  between  1  January  and  31  December 
2011,  although  developments  outside  this  reporting  period  are  also  taken  into 
consideration  when  deemed  relevant.  It  is  not  a  general  review  of  the  political  and 
economic situation in Azerbaijan. For information on regional and multilateral sector 
processes, please refer to the Eastern Partnership report.  

During the reporting period, negotiations on an Association Agreement progressed at 
a slow pace. Negotiations on a Deep and Comprehensive Free Trade Area (DCFTA) 
could  not  start  as  Azerbaijan  is  not  a  member  of  the  World  Trade  Organisation 
(WTO) which is a pre-condition for the start of DCFTA negotiations.  

Azerbaijan  needs  to  make  significant  further  efforts  to  meet  the  Action  Plan 
commitments  regarding  democracy,  including  electoral  processes,  the  protection  of 
human rights and fundamental freedoms and the independence of the judicial system. 

The heavy-handed suppression of a wave of protest actions in March, in particular the 
rally  in  Baku  on  2  April,  was  a  major  setback  on  the  democratisation  and  human 
rights  front  and  signalled  non-compliance  with  the  commitments  taken  towards  the 
EU and in the framework of the Council of Europe and Organisation for Security and 
Co-operation in Europe (OSCE). 

Azerbaijan  launched  a  welcome  anti-corruption  campaign  in  early  2011,  but  its 
impact  has  been  modest.  It  made  progress  in  the  fight  against  organised  crime, 
terrorism, illicit trafficking and money laundering.   

Despite the economic slowdown, Azerbaijan made further progress towards achieving 
the  economic  objectives  of  the  Action  Plan,  i.e.  it  broadly  maintained  macro-
economic  stability,  reduced  poverty  and  encouraged  the  diversification  of  the 
economy.  The  growth  in  the  non-oil  economy,  however,  was  largely  driven  by  oil-
financed  public  spending  rather  than  by  self-sustained  development  in  the  private 
sector.  In  this  context,  the  non-oil  budget  deficit  increased  further  in  2011.  Further 
vigorous  structural  reforms  are  necessary  to  boost  private  sector  development  by 
improving economic governance and opening up competition.    

The  EU  and  Azerbaijan  made  good  progress  in  enhancing  energy  cooperation 
including  work  to  develop  the  Southern  Gas  Corridor.  In  January  2011,  European 
Commission  President  Barroso  and  Azerbaijani  President  Aliyev  signed,  in  Baku,  a 
Joint Declaration confirming Azerbaijan’s commitment to ensure supplies to the EU. 
In  October,  Azerbaijan  and  Turkey  agreed  transit  and  gas  sale  terms  regarding  the 
Azerbaijani  Shah  Deniz  II  gas  field,  the  development  of  which  is  expected  to  make 
Azerbaijan a substantial contributor to – and enabler of – the Southern Gas Corridor.  
At the same time the EU launched negotiations with Azerbaijan and Turkmenistan on 
construction of the Transcaspian gas pipeline system. 

Negotiations on the Nagorno-Karabakh conflict within the Minsk Group produced no 
tangible  results  in  2011.  Amidst  increasing  tension  along  the  Line  of  Contact, 

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mediation  efforts  resulted  in  marginal  progress  on  mechanisms  to  investigate  the 
violation of the ceasefire agreement.  

On the basis of this year’s report and with a view to sustained implementation of the 
ENP Action Plan in 2012, Azerbaijan is invited to:  

• 

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Extend full cooperation to the PACE rapporteur on political prisoners. 

Swiftly implement the Human Rights Action Plan adopted in December 2011. 

Step  up  efforts  together  with  Armenia  to  reach  agreement  on  the  Madrid 
Principles  in  accordance  with  the  commitments  made  by  the  Presidents  of 
Armenia and Azerbaijan in the framework of the Minsk Group. 

Provide  unconditional  access  for  representatives  of  the  EU  to  Nagorno 
Karabakh and surrounding regions. 

Ensure  transparency  in  implementing  the  laws  governing  the  process  of 
demolitions, expropriations and forced evictions in Baku and the regions. 

Adopt the draft law on defamation which provides for the abolition of criminal 
liability for defamation and insult.  

Bring legislation on elections, freedom of assembly, freedom of association and 
media  freedom  into  line  with  international  standards  and  ensure  its  full 
implementation. 

Step  up  reform  efforts  in  all  aspects  of  the  judicial  system:  prosecution,  trial, 
sentencing, detention and appeals.   

Address  outstanding  issues  in  public  financial  management,  notably  on 
transparency and accountability in relation to the budget cycle.   

Implement  with  determination  comprehensive  measures  to  tackle  corruption 
and  to  improve  the  business  and  investment  climate,  including  reducing  the 
oligopolistic structure of the economy.  

2. 

POLITICAL DIALOGUE AND REFORM 

Towards Deep and Sustainable Democracy 

Following  the  parliamentary  elections  of  November  2010  and  the  shortcomings 
identified throughout the monitoring process, a series of proposals were presented by 
the  Office  for  Democratic  Institutions  and  Human  Rights  (ODIHR)  of  the  OSCE. 
Most of these have not been addressed and none have  been implemented (including 
revision  of  the  composition  of  election  commissions  at  all  levels).  A  draft  law  on 
political  parties,  which,  according  to  the  Venice  Commission,  makes  some 
improvements  regarding  the  financing  of  political  parties,  was  presented  to  the 
parliament. Efforts to implement ODIHR recommendations will be required in 2012 
to ensure a fair and transparent election process in 2013.  

Concerning  the  freedom  of  assembly,  demonstrations  organised  by  the  opposition 
and civil society in the spring led to hundreds of arrests of political and civil society 
activists.  Fourteen  were  convicted  on  dubious  charges  (including  causing  public 
disorder  or  damaging  property)  and  given  detention  sentences  of  twelve  months  to 

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three years as a result of politically motivated trials. Thirteen remained behind bars at 
the end of the year.  

Concerning  the  freedom  of  press  and  media,  there  was  a  gradual  tightening  of 
control on print and broadcast media. Reports throughout the year cited pressure put 
on journalists. Although one of the imprisoned journalists was released in early 2011, 
there  were  documented  reports  of  beatings,  assaults  and  abductions  of  journalists  in 
mainland Azerbaijan as well as in the Autonomous Republic of Nakhichevan. In early 
2011, images of two opposition journalists secretly filmed in the privacy of their hotel 
rooms  were  broadcast  on  television  at  a  time  when  the  opposition  was  preparing 
protest  action.  The  long  awaited  draft  law  on  defamation,  which  provides  for  the 
abolition of criminal liability for defamation and insult, has not yet been approved by 
the parliament.  

An ambitious judiciary reform programme was implemented, supported by different 
donors, including the EU, with substantial investment in new facilities, infrastructure 
and  capacity  building.  The  quality  of  the  election  process  of  judges  gradually 
improved.  However,  the  lack  of  independence  of  the  justice  system  and  its 
politicisation remain concerns.  

Concerning the right to a fair trial, legal aid in Azerbaijan was difficult to access, in 
particular  for  politically  sensitive  cases.  The  working  conditions  of  lawyers  and  in 
particular  of  defenders  of  human  rights  activists  have  deteriorated  with  threats, 
arbitrary  expulsions  from  the  Azerbaijan  Bar  association  and  criminal  cases  lodged 
against some of them.  

The  ambitious  anti-corruption  campaign  widely  publicised  at  the  beginning  of  the 
year  raised  expectations.  Internal  monitoring  groups  were  established  within  the 
justice institutions and an anti-corruption division in the Judicial Legal Council were 
established,  the  capacities  of  the  Anti-Corruption  Department  of  the  Prosecutor 
General’s office were strengthened and first steps were taken to introduce e-services. 
In  September,  the  Anti-Corruption  Department  of  Azerbaijan’s  Prosecutor  General 
Office announced that it had filed 133 criminal cases this year, 88 of which had been 
completed  and  submitted  to  court.  As  a  result  147  people  were  accused  of  bribery, 
abuses  of  position,  fraud  or  forgery.  However,  the  fight  against  corruption  lacked  a 
comprehensive and systematic approach.   

Law  enforcement  agencies,  inter  alia  internal  troops  of  the  Ministry  of  Internal 
Affairs,  police  and  penitentiary  service,  participated  in  trainings  and  seminars, 
supported by the OSCE. They aimed at increasing knowledge and capacity in the field 
of public assembly management as well as at enhancing the professional skills related 
to treatment of the suspects and accused in line with international standards. 

Conflict Prevention and confidence building 

Negotiations within the Minsk Group in 2011 have demonstrated the need for further 
efforts  to  achieve  substantial  progress.  Amidst  increasing  tension  along  the  Line  of 
Contact  and  the  Armenian-Azerbaijani  border,  mediation  efforts  continued  on  the 
elaboration  of  the  OSCE-proposed  mechanism  to  investigate  incidents  along  the 
frontlines.  The  Minsk  Group  intensified  its  activities  in  the  region,  with  regular 
crossing of the Line of Contact and the Armenian-Azerbaijani border towards the end 

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of 2011. Despite the limited progress, Armenia and Azerbaijan remained engaged in 
the process. The EU enhanced its support to the negotiation process through several 
political  declarations,  through  the  appointment  of  a  new  EU  Special  Representative 
for the South Caucasus and the crisis in Georgia, and through the implementation of 
Confidence Building Measures (CBM). The increasing number of incidents along the 
frontlines  as  well  as  infrastructure  works  in  Nagorno-Karabakh  (airport  and 
highways) continued to be sources of concern. 

Other human rights and governance-related issues 

Azerbaijan built new prison facilities and rehabilitated and refurbished older facilities 
and police detention centres. Progress was also made in the fight against tuberculosis 
in prisons. However cases of excessive use of force remained widespread, especially 
in police stations, and cases of ill treatment of prisoners continued to be reported. 

Concerning  the  freedom  of  religion,  the  amendments  adopted  to  the  national 
legislation in the course of 2011 led to a further tightening of the rules for founding a 
religious  community  and  established  mandatory  reporting  to  the  Caucasus  Board  of 
Muslims and the State Committee for working with the religious communities which 
considerably  increased  the  severity  of  possible  sanctions.  While  the  traditional 
religious  communities  did  not  face  any  major  obstacles  in  exercising  their  faith,  the 
ongoing controversy regarding the hijab (veil) in school and the imprisonment of the 
leadership  of  the  Islamic  Party  of  Azerbaijan  in  2011  may  risk  fuelling  religious 
extremism in an otherwise tolerant society. 

Registration procedures for local and international non-governmental organisations 
remained  difficult  and  subject  to  arbitrary  decisions  by  the  authorities.  A  decree  on 
rules for registering foreign NGOs introduced further restrictions in the operation of 
civil society organisations. According to the analysis of the Council of Europe Venice 
Commission, the Azerbaijani legislation would seem to be incompatible with Article 
11  (freedom  of  assembly)  of  the  European  Convention  for  Human  Rights.  Two 
prominent international NGOs were asked to suspend activities in 2011 and have been 
unable to register since.  

The  violation  of  property  rights  remains  an  issue  of  concern.  As  part  of  a  major 
reconstruction plan in Baku, dating back to 1987, Baku’s executive authorities carried 
out  a  wave  of  forced  evictions  and  demolitions  of  buildings.  There  were  reports  of 
expropriations  and  evictions  in  contradiction  with  prior  court  decisions  and  without 
fair compensation.  

In terms of gender equality the legal age for women’s marriages was increased to 18 
years and the Criminal Code was amended to provide for tougher penalties for forced 
marriages.  Nevertheless,  economic  and  political  marginalisation  of  women  persisted 
and  domestic  violence  remained  an  issue  despite  the  government’s  efforts  to 
implement the law on Domestic Violence. 

No progress was made in promoting effective local self government. Contrary to the 
European  Charter  for  Self  Government,  local  authorities  in  Azerbaijan  have  no  real 
status and no real sources of finance.  

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The government provided financial support to internally displaced persons (IDPs) in 
the form of micro-projects on social development, micro-loans and other assistance in 
order  to  improve  their  living  conditions.  However,  IDPs  continued  to  be  heavily 
dependent on government subsidies and their access to work and education remained 
limited.  

There  were  serious  shortcomings  related  to  democracy  and  fundamental  rights  and 
freedoms in the Autonomous Republic of Azerbaijan, the magnitude of which caused 
increasing concerns to the international community. 

Cooperation on CFSP issues  

Azerbaijan  continued  to  align  with  CFSP  declarations  on  a  case  by  case  basis.  In 
2011, Azerbaijan aligned with 12 out of 82 CFSP declarations to which it was invited 
to subscribe. There was intense political dialogue with the Azerbaijani government in 
2011, through Political and Security Committee Political Dialogue meetings including 
on 6th April (South Caucasus), 29th June (Azerbaijan) and a number of mutual high 
level visits. such as President Barroso's visit on 13/14 January, MD Lajčak's visit on 
6/7 June, the visit of President Aliyev to Brussels on 22 June, the new EUSR for the 
South Caucasus and the crisis in Georgia on 5 September, and HR/VP Ashton visit on 
15 November 2011. 

Efforts  in  the  international  fight  against  terrorism  are  laudable,  with  the  authorities 
cooperating closely with international partners.  

Azerbaijan has implemented the necessary legal provisions to create a comprehensive 
formal suspicious transaction report system. A law on amendments to Criminal Code 
was developed in order to introduce the provisions on corporate criminal liability of 
legal persons.   

3. 

ECONOMIC AND SOCIAL REFORM 

Macroeconomic framework and functioning market economy  

After  exceptionally  rapid  growth  in  the  pre-crisis  period  driven  by  Azerbaijan's  oil 
economy, real  GDP growth fell to 5% in 2010  and  almost stalled (+0.1%) in 2011. 
Output of oil contracted by about 10% and that of gas by 7.5% in 2011, mainly due to 
maintenance works at some wells.  

Proxy indicators suggest that private consumption and fixed investment rose in 2011, 
while the volume of exports declined. The growth of the non-oil economy (+ 9.4%) 
has  been  primarily  driven  by  public  spending  helped  by  increased  transfers  from 
SOFAZ, the State Oil Fund. A favourable harvest also supported growth in the non-oil 
economy in 2011. 

An increase in government spending and  higher  international  food prices pushed up 
inflation  to  about  8.1%  in  2011,  from  5.7%  in  2010.  Following  a  revision  of  the 
budget  in  May,  public  spending  increased  rapidly  at  around  30%  year-on-year  in 
2011,  leading  to  a  widening  of  the  budget  deficit  (excluding  SOFAZ  transfers)  to 
about 20% of GDP (up from 15% in 2010). When SOFAZ transfers are included, the 
budget  deficit  was  slightly  reduced  to  0.6%  of  GDP.  The  current  account  surplus 

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increased to an estimated 32% of GDP in 2011 from 29% of GDP in 2010, helping 
maintain the stability of the currency.  

Azerbaijan initiated further structural reforms in order to diversify its economy away 
from the oil and gas sector. Concerning the privatisation of the International Bank of 
Azerbaijan, the Government has appointed consultants but has not yet defined a clear 
timetable. Transparent privatisation would increase the stability and boost competition 
in  the  financial  sector.  The  Central  Bank  continued  to  consolidate  the  supervisory 
framework  and liberalise  the  financial  market by adopting a new law on investment 
funds. Large projects to develop the transport infrastructure – road, rail and sea – have 
progressed.  

Simplifying  tax  payment  and  initiating  reforms  to  improve  the  judicial  system  may 
improve  the  investment  climate  further.  Overall,  more  ambitious  reforms  are 
necessary  to  reduce  the  oligopolistic  structures  that  restrain  the  development  of  the 
private sector.  

Employment and social policy 

Registered unemployment remained low at about 1% of the labour force, but the real 
unemployment rate is higher (estimated at around 5.5%), as most of the unemployed 
persons do not apply for official registration of their status. On August 1st, the State 
Statistics  Committee  recorded  40,100  unemployed  persons,  of  which  42.9%  were 
women.  The  officially  declared  poverty  rate  is  7.6  %  while  independent  experts  set 
the figure above 15%.     

In  June,  Azerbaijan  adopted  an  Action  Plan  (2011-2015)  on  implementation  of  the 
State Programme on Poverty Reduction and Sustainable Development with the view 
of  further  reducing  unemployment  and  poverty.  The  Plan  sets  a  target  of  reducing 
unemployment by 3-4% and further reducing poverty. 

In February 2011, Azerbaijan established the State Labour Inspection Service (SLIS) 
under  the  Ministry  of  Labour  and  Social  Protection  of  Population.  The  SLIS  is 
understaffed and its effectiveness limited notably by the need to inform employers of 
planned  inspections  long  in  advance.  However,  during  the  first  ten  months  of  its 
operation, SLIS detected over 11,000 cases of violation of labour legislation. These 
included  the  absence  or  non-compliance  of  employment  contracts,  violations  to 
medical and social aspects of safety and health at work, non-compliance with safety 
precautions and inaccuracy in calculating and paying salaries. Azerbaijan has ratified 
some ILO standards and made efforts to develop implementation mechanisms for the 
Gender  Equality  Convention.  Draft  legislation  on  a  compulsory  unemployment 
insurance  and  amendments  to  the  Labour  Code  to  ban  the  discrimination  of  women 
were put to the Council of Ministers for consideration. 

4. 

TRADE-RELATED ISSUES, MARKET AND REGULATORY REFORM 

Bilateral trade flows continued increasing during the reporting period. Compared to 
2010, EU imports from Azerbaijan increased by 52.2%, and EU exports to Azerbaijan 
rose  by  22%.  However,  there  were  no  improvements  in  terms  of  diversification  of 
Azerbaijan's exports, as 99.5% of EU imports from Azerbaijan consisted of fuels and 
mining products. 

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Azerbaijan made only very limited progress towards accession to the WTO, which is 
the first pre-condition  for  the  EU  to  consider  starting negotiations  on a DCFTA. As 
regards bilateral negotiations in the context of WTO accession, the EU received a new 
services  offer  by  Azerbaijan  in  March  and  a  revised  industrial  goods  offer  in  April. 
No meeting of the WTO Working Party was convened in 2011 as Azerbaijan did not 
make the progress required and did not circulate sufficient information. Negotiations 
advanced  slowly  on  upgrading  the  trade-related  provisions  of  the  Partnership  and 
Cooperation Agreement, including a non-preferential trade part. 

Azerbaijan continued to benefit from the GSP+ within the EU Generalised System of 
Preferences  (GSP)  in  2011  but  needs  to  take  further  measures  to  effectively 
implement  the  GSP  Conventions  that  lay  the  basis  for  preferential  treatment.  It  also 
needs to increase the GSP+ utilisation rate. 

An  EU-funded  (now  completed)  technical  assistance  project  the  State  Customs 
Committee  contributed  to  the  preparation  the  new  Customs  Code.  The  Code  was 
adopted in September 2011 and entered into force on 1 January 2012. It incorporates 
several best practices and generally complies with the EU Modernised Customs Code. 
It  is  an  aspect  of  the  continuing  modernisation  of  customs  policy  that  will  require 
further work to ensure transparency and effectiveness. Mobile inspection teams were 
established in December. 

Azerbaijan  made  some  progress  on  the  free  movement  of  goods  and  technical 
regulations, notably by adopting international standards on energy and food products.  

Regarding  sanitary  and  phytosanitary  issues,  Azerbaijan  worked  towards  WTO 
accession  and  gradual  harmonisation  with  Codex  Alimentarius  and,  to  some  extent, 
with EU rules. Using TAIEX assistance, it improved laboratories and trained staff. 

Business  climate,  establishment  and  company  law  did  not  improve,  despite 
Azerbaijan’s ranking in the "Doing Business 2012" annual report improving from 69 
to  66  (thanks  mainly  to  an  improvement  in  the  indicator  "paying  taxes").  Despite 
efforts to increase the efficiency of the National Fund for Entrepreneurship Support, 
which grants privileged loans particularly to regions-based companies, and the 2011 
anti-corruption campaign, the business environment remained difficult.  

Azerbaijan took the first steps to implement the 'Action Plan on the re-organisation of 
education  on  accounting  and  audit  at  high  schools  and  secondary  schools,  and 
application  of  a  certification  system  verifying  the  professional  level  of  education  in 
2010-2012  in  view  of  transition  to  the  international  and  national  accounting 
standards'. The plan is the last stage of the reform launched in 2003. The Chamber of 
Accounts  endeavours  to  update  its  technical  capabilities  and  coverage  of  industries 
and organisations by carrying out analytical and auditing work.   

On financial services, the Central Bank of Azerbaijan continued work to consolidate 
the  banking  system  in  Azerbaijan  and  to  boost  competition  among  banks.  It  raised 
reserve  requirements  for  domestic  banks  and  maintained  monetary  and  financial 
stability,  against  the  background  of  an  account  surplus  of  the  country's  balance  of 
payments.  Financial  risks  in  major  banks  will  have  to  be  assessed  to  maintain  the 
stability of the financial sector. The President approved in May 2011 a programme for 
development  of  the  financial  market  from  2011-2020  aiming  to  align  with 

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international  best  practice.  The  State  Committee  on  Securities  had  its  powers  for 
regulating  investment  funds  defined  in  October  and  the  rules  on  compulsory 
disclosure of transactions in registered securities outside the Stock Exchange entered 
into force in December. 

Other key areas 

In  the  field  of  taxation,  some  improvements  were  made  regarding  taxpayer 
registration  and  electronic  services  to  facilitate  payments.  However,  very  few 
commercial operators and/or state agencies report on the payment of the Value Added 
Tax.  In  July,  the  country  brought  in  online  registration  for  individual  entrepreneurs. 
tax-payers  for 
By  October,  28  electronic 
administrative services. Azerbaijan continued to expand the number of agreements to 
avoid double taxation by the entry into force of those with Italy and Greece and the 
signing of one with Slovenia.  

terminals  were  available 

tax 

to 

Draft  amendments  to  the  Competition  Code  continued  to  be  discussed  in  the 
Parliament.  In  February  2011,  state  property  privatisation  started  under  new 
regulations,  without  privatisation  vouchers.  During  the  first  three  quarters  of  2011, 
about 600 state enterprises and other state assets were privatised. 

The Copyright Agency presented to the government in September a national strategy 
on  intellectual  property  protection,  which  will  include  methods  of  combating  the 
production  of  counterfeit  goods.  The  legal  framework  for  IPR  enforcement  was 
strengthened by new laws on Customs control and on administrative offences. Since 
October 2011, the EU is assisting the Copyright Agency with a Twinning project in 
order  to  strengthen  the  copyright  and  related  rights  protection  system.  Particular 
attention  is  paid  to  reducing  the  levels  of  piracy  and  building  the  administrative 
capacity of institutions involved in this field.  

The  State  Procurement  Agency,  supported  by  SIGMA,  continued  to  strengthen  the 
national  public  procurement  system  in  accordance  with  EU  and  international 
principles and to develop an e-procurement system.  

Azerbaijan  continued  to  strengthen  its  statistical  system  and  made  use  of  EU 
twinning assistance to the State Statistical Committee. Based on the recommendations 
from the global assessment in 2010 the statistical law was revised in order to comply 
with  European  and  international  standards  and  to  better  delineate  official  statistics. 
Several  cooperation  agreements  have  been  signed  with  the  National  Bank  and  other 
institutions to improve access to administrative data. A quality management unit has 
been  created  and  first  quality  assessments  of  statistical  processes  and  data 
implemented.  Azerbaijan  should  continue  working  on  improved  data  quality  and 
improved  access  to  statistical  data  in  an  easy-to-use  format.  On  enterprise  policy, 
implementation of the State Programme on Socio-Economic Development for 2009-
2013  continued  in  2011.  The  private  sector  continued  to  suffer  from  bureaucratic 
obstacles in registration and licensing procedures and from corruption, which affected 
small and medium-sized enterprises (SMEs) in particular.  

On  public  internal  financial  control  there  were  no  significant  developments. 
Azerbaijan lacks a comprehensive public finance management reform strategy which 
would  have  a  positive  impact  on  the  efficiency  of  public  expenditure.  Since 

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September 2011, the EU has supported the newly established Public Financial Control 
Service (PFCS) of the Ministry of Finance with a Twinning project.  

5. 

COOPERATION ON JUSTICE, FREEDOM AND SECURITY 

Azerbaijan  still  lacks  a  comprehensive  Integrated  Border  Management  Strategy.  
Border  demarcation  efforts  between  Azerbaijan  and  the  Russian  Federation  moved 
into  their  final  stages.  Negotiations  between  Azerbaijan  and  the  EU  border 
management  agency  (FRONTEX)  on  the  conclusion  of  a  Working  Arrangement 
continued. 

A draft Migration Code, aimed at providing a legal basis to regulating immigration 
flows  and  at  incorporating  in  a  single  text  all  migration-related  provisions,  was 
prepared and submitted to the Cabinet of Ministers. While further strengthening of its 
capacity  is  needed,  the  State  Migration  Service  developed  a  co-ordinated,  one-
window approach and established a migration database. No progress was registered in 
enacting legislation to grant subsidiary international protection. The issue of biometric 
passports  was  postponed  to the first half of 2013. A presidential decree  of  February 
2011  launched  the  preparations  to  introduce  new  ID  cards  based  on  biometric 
indicators.  

An EU Migration Mission to Azerbaijan took place in June 2011, which allowed for 
in-depth  exchanges  on  migration-related  issues.  In  December  2011,  the  EU  adopted 
directives for the negotiation of visa facilitation and readmission agreements with 
Azerbaijan.  The  negotiations  were  launched  in  Baku  in  March  2012.  In  May  2011, 
Azerbaijan introduced facilitations for the issuance of tourist visas.    

Progress  was  registered  in  the  fight  against  trafficking  of  human  beings,  through 
further  implementation  of  the  National  Action  Plan  2009-2013  via  the  Inter-Agency 
Commission, as well as special police training. A comprehensive response action was 
initiated  by  the  authorities  in  2011,  including  a  major  public  campaign  to  raise 
awareness,  in  cooperation  with  international  partners  and  support  of  the  EU.  The 
Council  of  Europe  Convention  on  the  Protection  of  Children  against  Sexual 
Exploitation and Sexual Abuse (signed in 2008), remained unratified. Regarding the 
fight against money laundering, Azerbaijan joined the Egmont Group in July 2011. It 
has not yet signed the Council of Europe Convention on Laundering, Search, Seizure 
and  Confiscation  of  the  Proceeds  from  Crime.  The  first  EU-Azerbaijan  Drugs 
Dialogue took place in September 2011.   

In  the  field  of  data  protection,  following  Azerbaijan’s  ratification  of  the  1981 
Council  of  Europe  Convention  for  the  Protection  of  Individuals  with  regard  to 
Automatic  Processing  of  Personal  Data,  further  progress  is  needed  in  setting  up  an 
independent data protection supervisory authority and in signing up to the Additional 
Protocol  on  supervisory  authorities  and  trans-border  data  flows.  Effective  protection 
of  personal  data  forms  a  fundamental  prerequisite  in  promoting  cooperation  with 
EUROJUST, EUROPOL and EU member states. 

Regarding  cooperation  on  criminal  and  civil  law  matters,  Azerbaijan  made  no 
progress in acceding to the Hague conventions on child abduction and protection. 

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6. 

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

In the transport sector Azerbaijan continued to focus on the improvement of the road 
infrastructure  and  the  upgrading  of  railways.  In  July  2011  an  agency  for  regulator 
oversight  in  the  road  sector  was  established.  Although  the  system  is  in  place, 
Azerbaijan  has  not  yet  issued  cards  for  digital  tachographs  as  required  under  the 
relevant road transport convention. In the rail sector, Azerbaijan took first steps to join 
the  Convention  OTIF  (Intergovernmental  Organisation  for  International  Carriage  by 
Rail). Azerbaijan plans to achieve a higher level of integration with the EU standards 
through the completion of the negotiations of a comprehensive air services agreement, 
which  are  to  start  in  2012.  Regarding  maritime  transport,  the  EU  started,  in  August 
2011,  recognising  certificates  from  Azerbaijani  sea  farers  since  the  country  fully 
implemented the relevant international convention. The Azerbaijani flag is included in 
the medium risk category of the black list of the Paris Memorandum of Understanding 
on Port State Control. 

Under their Memorandum of Understanding on a strategic partnership in the field of 
energy,  Azerbaijan  and  the  EU  intensified  cooperation,  in  particular  with  a  view  to 
developing the strategic Southern Gas Corridor. The corridor should bring additional 
gas supplies from the Caspian and the Middle East to the EU. Azerbaijani President 
Aliyev,  Commission  President  Barroso  and  Energy  Commissioner  Oettinger  met 
several times in Baku and Brussels. In January 2011, the two Presidents signed a Joint 
Declaration  on  the  establishment  of  the  Southern  Gas  Corridor.  In  October  2011, 
Azerbaijan  and  Turkey  agreed  transit  and  gas  sale  terms  regarding  the  Azerbaijani 
Shah Deniz II gas field, the development of which is expected to make Azerbaijan a 
substantial contributor to – and enabler of – the Southern Gas Corridor. Commercial 
negotiations  with  potential  buyers  of  this  gas  are  underway.  A  final  decision  on  the 
preferred transit route to export Shah Deniz II gas to Europe is expected to be taken 
by  mid  2013.  The  EU,  Azerbaijan  and  Turkmenistan  launched  negotiations  for 
developing  a  Trans-Caspian  gas  pipeline  system,  which  should  ensure  additional 
supplies  from  Turkmenistan  into  the  corridor.  Turkmenistan  shipped  oil  across  the 
Caspian to Azerbaijan for export through the Baku-Tbilisi-Ceyhan pipeline.  

In  January  2011,  Azerbaijani  and  Iranian  companies  agreed  on  future  exports  of 
Azerbaijani gas, but as yet no commercial deliveries have been made. Azerbaijan and 
Ukraine  agreed  to  cooperate  on  LNG  supplies  to  Ukraine  and  to  promote  oil 
transportation through Ukraine. Azerbaijan further developed hydrocarbon production 
fields.  In  December  2011,  Azerbaijan  participated  in  the  EU’s  Gas  Coordination 
Group. Azerbaijan confirmed its commitment to the Extractive Industry Transparency 
Initiative,  which  aims  to  bring  transparency  to  oil  and  gas  revenues.  It  continued 
developing the Black Sea Electricity Transmission Line (Azerbaijan-Georgia-Turkey) 
and  increased  the  scope  for  trading  electricity  with  Iran.  Azerbaijan  launched 
preparations  for  a  renewable  energy  strategy  for  2012-2020.  In  September  2011,  it 
inaugurated a first pilot renewable park with a training centre in the Gobustan region 
based on wind, solar and biogas power. It implemented energy efficiency projects in 
buildings.  

A  EUR  14  million  budget  support  programme  assists  the  Ministry  of  Energy  in 
developing  a  legislative  and  regulatory  framework  for  renewables  and  energy 
efficiency.  

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Regarding climate change, Azerbaijan submitted its Second National Communication 
to  the  UN  Framework  Convention  on  Climate  Change.  A  first  Clean  Development 
Mechanism project was registered at the UN level. Azerbaijan is encouraged to build 
capacity and engage in the new carbon market mechanism to be developed following 
the  17th  Conference  of  Parties  to  the  United  Nations  Framework  Convention  on 
Climate  Chance.  Azerbaijan  is  also  encouraged  to  fully  implement  the  Cancun  and 
Durban  agreement  and  in  particular  devise  a  low  carbon  development  strategy 
including update information on target or actions that it will implement.  

In  the  field  of  environment,  a  regulation  to  establish  a  Water  Authority  which  will 
also  deal  with  trans-border  water  pollution  is  being  prepared.  Azerbaijan  took 
measures to improve the sewage system as well as the quality of freshwater supply to 
the population, including through water purification. Together with the other parties to 
the  Framework  Convention  for  the  Protection  of  the  Marine  Environment  of  the 
Caspian  Sea,  Azerbaijan  signed  the  Convention’s  Protocol  concerning  region 
preparedness,  response  and  cooperation  in  combating  oil  pollution  incidents.  There 
were no significant developments as regards Azerbaijan’s ratification of, or accession 
to, relevant Conventions and protocols of the United Nations Economic Commission 
for Europe.  

The  Regional  Environmental  Centre  (REC)  for  the  Caucasus  continued  its 
activities in 2011 inter alia in the fields of information and public participation. The 
REC founders agreed in October 2011 that they want to see it enhance its role in the 
South  Caucasus  Region  in  the  years  to  come.  They  tried  to  find  a  solution  to  the 
REC's debt problem and agreed that it could be beneficial to convert the REC into an 
inter-governmental regional organisation. 

In  the  field  of  civil  protection,  Azerbaijan  intensified  the  cooperation  with  the 
countries from the region and the exchange of best practices with the EU in the field 
of disaster prevention, preparedness and response through its participation in the EU 
Programme  for  Prevention  of,  Preparedness  for,  and  Response  to  natural  and  man-
made disasters. 

In the area of information society, progress in regulatory reform, the implementation 
of  the  sector  strategy  and  upgrading  of  infrastructure  was  significant  in  2011.  
Competition  among  market  players  increased  and  the  wide  application  of  e-services 
was promoted. There is still no clear separation between the commercial activities and 
the regulatory role of the Ministry of Communications and Information Technologies 
(MCIT).  Rules  on  mobile  number  portability  were  adopted  in  2011.  A  new  “e-
government”  portal  was  launched  and  in  September  the  implementation  of  e-
signatures started. Two additional mobile operators were granted a 3G license. MCIT 
is  negotiating  the  organisation  of  4G-LTE  (Long  Term  Evolution)  network  with 
mobile operators.  

As  regards  support  to  research  and  innovation  activities,  Azerbaijan’s  research 
capacity  and  investments  continued  to  remain  modest.  Azerbaijan  continued  to 
increase participation in the 7th Framework Programme (FP7), although the number of 
applications  remained  relatively  low.  Seventeen  Azerbaijani  research  organisations 
are  involved  in  13  successful  FP7  projects,  receiving  just  over  EUR  780,000  of  EU 
funding. The highest numbers of successful projects are in the Marie Curie Actions, 
where  three  institutions  and  six  individual  researchers  from  Azerbaijan  participate, 

12

 
 
and  also  in  research  infrastructure  and  international  cooperation  actions.  There  is  a 
need  to  strengthen  the  FP7  Contact  Point  network  in  Azerbaijan.  In  particular, 
Azerbaijan is encouraged to nominate FP7 Contact Points for the People programme 
and for Legal and Financial issues. 

As  regards  Regional  Policy,  Azerbaijan  has  indicated  that  building  capacity  in  the 
field of regional development would be a useful focus of Pilot Regional Development 
Programmes, but has yet to develop a full scale policy dialogue with the EU. 

7. 

PEOPLE-TO-PEOPLE CONTACTS, EDUCATION AND HEALTH 

Azerbaijan  continued  efforts  to  improve  its  education  system.  In  2011,  Azerbaijan 
further increased its investments in the education sector, primarily aimed at improving 
the  physical  infrastructure  of  educational  establishments.  As  part  of  the  state 
information  programme  for  the  education  system  in  2008-2012,  an  electronic 
education project was launched. A draft Law on Sciences and a draft Law on Higher 
Education  were  prepared,  and  a  working  group  set  up  to  elaborate  a  draft  Law  on 
Secondary Education. In July 2011, a commission was established to prepare a new 
education development strategy until 2021.  

Higher  education  reform  continued  to  benefit  from  EU  cooperation  and  support  via 
the  Tempus  programme,  with  five  additional  projects  selected.  This  represents  a 
substantial  increase  in  comparison  with  previous  years.  Projects  include  the 
modernisation  of  medical  education;  the  promotion  of  the  Bologna  Process;  quality 
assurance  in  higher  education;  migration,  transfer  of  skills  and  capacity  building  in 
migration  studies;  and  the  establishment  of  a  master  course  in  industrial  ecology.  
Azerbaijan also continued participation in the Erasmus Mundus programme through 
the award of 42 mobility grants for students and academics. However, it did not make 
full use of the programme opportunities in relation to scholarships for master courses 
and joint doctorates. In the field of research collaboration, three institutions and one 
individual researcher from Azerbaijan participated in Marie Curie Actions.  

The development of a draft national strategy and a draft law in the area of vocational 
education and training (VET) was launched, with expert support from the European 
Training Foundation (ETF). A VET twinning project in the agriculture sector, started 
in  August  2011,  aimed  at  developing  qualifications  and  curricula  in  line  with  the 
European Qualification Framework, improving links with enterprises and supporting 
strategic developments.   

Preparations began for the participation of Azerbaijan in the eTwinning component of 
the Comenius programme, the EU programme for interconnecting schools, foreseen 
for  2012,  with  the  selection  of  the  partner  support  agency  and  an  assessment  of 
potential beneficiaries/schools. 

The  preparation  of  an  Action  Plan  for  the  implementation  of  the  UNESCO 
Convention on the protection and promotion of the diversity of cultural expressions 
was launched.   

Azerbaijan adopted in mid-2011 the State Programme on Azerbaijani Youth in 2011-
2015  and  the  creation  of  a  Youth  Fund  responsible  for  youth  projects  in  science, 
culture,  education  and  other  spheres  was  initiated.  Youth  and  youth  organisations 

13

 
 
continued  benefitting  from  the  exchange  opportunities  offered  by  the  Youth  in 
Action programme, with 59 projects targeting 156 Azerbaijani participants.  

Azerbaijan  pursued  health  sector  reform,  in  particular  by  constructing  and 
refurbishing  health  care  facilities.  The  scale  of  out  of  pocket  payments  remained 
significant.  Azerbaijan  adopted  a  national  strategy  to  address  mental  health.  The 
spread  of  multidrug  resistant  tuberculosis  and  the  incidence  of  non-communicable 
diseases  is  an  increasing  health  challenge.  The  introduction  of  a  compulsory  health 
insurance would contribute to a better financing of the Health sector in Azerbaijan. 

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