Source: EURLEX
Language: en
Format: md

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# 52012SC0111

**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 /\* SWD/2012/0111 final \*/**

  

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, 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:

·
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 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 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.

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 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.

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 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. By October, 28 electronic
tax terminals were available to tax-payers for 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.

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 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.

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.

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,
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 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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