Azerbaijan: Caspian gas and civil society crackdowns

In international relations, Malta is a price-taker.

Lawrence Gonzi hugged Muammar Gaddafi. Before him, Gaddafi left both Eddie Fenech Adami and Dom Mintoff waiting before the tardy start of convivial talks. Nobody gets to pick their neighbours. And in energy matters, the capricious geography of fossil fuels means human rights often come in second to energy needs: most of the fuels we buy outside the EU will hail from a country dominated by political strongmen, oligarchs and dictators.

The new 200MW gas plant nearing completion in Delimara will be run by a consortium that includes SOCAR, the Azerbaijan state oil company, as an equal partner. Its vice-president Elshad Nassirov visited Malta this week together with foreign minister Elmar Mammadyarov; before him, CEO Rovnag Abdullayev paid Joseph Muscat a visit in his role as president of the Azeri FA, during a match his national team played against Malta. SOCAR sponsors the national team of Azerbaijan.

Azerbaijan is a nation built on the riches of its Caspian Sea resources, and gas and oil are a mainstay of an economy that is over-dependent on fossil fuels and not diversified enough to foster a competitive environment that benefits all – and not just the rent-seeking elite that controls the energy industry.

But Azerbaijan’s gas is especially important to the European Union member states who want to reduce dependency on Russian resources. The key to this is the Southern Gas Corridor, a $45 billion project that will transport gas from Shah Deniz 2, through three pipelines to Georgia (South Caucasus Pipeline), Turkey (Trans Anatolian Pipeline) and into Greece and Italy (Trans Adriatic Pipeline). The potential for Malta is that the Italian gas transmission network expands to the island itself, with further connection to gas networks into Western Europe.

While this project would provide Europe with up to 10% of its energy needs, at home Azerbaijan president Ilham Aliyev uses oil and gas to keep the country’s economy exclusively dependant on these resources and nothing else.

“Aliyev has been trying to present the SGC as his generous gift to the west so that governments will not talk about human rights and democracy in Azerbaijan,” wrote Ilgar Mammadov in a public January 2017 letter. Mammadow is an Azerbaijani leader of the opposition Republican Alternative (REAL) movement who has been arrested since March 2013 on trumped-up charges before the presidential elections. In his letter he called himself “an inmate of the Southern Gas Corridor.”

The European Court of Human Rights (ECHR) has already established that Mammadov’s arrest was the wish of the authorities  “to silence him” for criticising the government; a European Parliament resolution has called for his immediate and unconditional release; and since December 2014, the Committee of Ministers of the Council of Europe adopted nine resolutions and decisions specifically on his case, insisting on his urgent release in line with the ECHR judgment. 

“Since 2013, Aliyev has instigated an unprecedented wave of attacks on civil society, which he used to illustrate the seriousness of his ambition for energy cooperation with the west,” Mammadli says.

When falling oil prices hit Azerbaijan hard, the Caspian nation found itself unable to fund its share in the TANAP and TAP pipelines without loans from the European Bank for Reconstruction and Development, European Investment Bank, World Bank and Asian Development Bank.

But in 2016, these institutions said their backing was subject to Azerbaijan’s compliance with the Extractive Industry Transparency Initiative (EITI) – a collection of 51 states that tie energy transparency to good governance. In September 2016, Riccardo Puliti, director on energy and natural resources at the EBRD, cited the resumption of the suspended EITI membership of Azerbaijan as “the main factor” for the prospect of approval of funds for TANAP/TAP.

Quitting the EITI

The EITI is a global government initiative that also includes international civil society organisations, which verify the amount of natural resources extracted by corporations and how much of the latters’ revenue is shared with host states: “Its purpose is to safeguard transnational businesses from future claims that they have ransacked a developing nation – for instance, by sponsoring a political regime unfriendly to civil society and principle freedoms,” Mammadov says.

Amid Aliyev’s crackdown on civil society after the 2013 presidential elections, the EITI board lowered the status of Azerbaijan from “member” to “candidate” in 2015, further complicating funding for the Southern Gas Corridor.

Mammadli, a member of the EITI’s civil society segment before his 2013 arrest, was allowed to make an appeal to the EITI board as it convened to discuss the country’s status. The onslaught by civil society partners during the 25 October debate saw the EITI Board refusing to return Azerbaijan its “member” status.

In March, in assessing the validation of Azerbaijan, the EITI board said the country had not made “satisfactory progress” on civil society engagement, and corrective actions it had proposed had not been fully completed.

So Azerbaijan withdrew from the EITI. But still, it does not appear any time soon that the exigencies of Europe’s energy security will come second to governance issues, as the important pipelines are likely to get development bank funding anyway.

As Thomas de Waal, senior fellow of Carnegie Endowment for International Peace writes, the idea that drove the founders of the EITI in 2003 was a pledge to make their transactions and sources of wealth transparent.

With the Caspian petrostate now quitting the EITI just as the groundwork for the gas corridor starts, it is clear that Aliyev prefers total political control in the face of a falling currency and rising prices. In February, he announced that his wife, Mehriban Aliyeva would become first vice president, “a move that eliminated any lingering illusions that the country was an electoral democracy rather than a family dynasty,” De Waal said in his analysis.

Azerbaijani opposition leader and political prisoner Ilgar Mammadov: his arrest and detention has been slammed by the Council of Europe, the European Parliament and the European Court of Human Rights

“Shutting down all public debate evidently appeared more attractive to Baku than EITI membership. The Azerbaijani government seems to believe it can avoid getting hurt by EITI suspension. This is chiefly because almost all of the international financing for its first two gas pipeline projects – expansion of the South Caucasus Pipeline and of the Trans-Anatolian Natural Gas Pipeline in Turkey – is almost complete. The Greece-Italy Trans-Adriatic Pipeline (TAP) project also looks fairly secure, as long as a deal is made to guarantee the future of some ancient olive groves in southern Italy.”

Additionally, in February the Trump administration repealed the Cardin-Lugar amendment, which required oil, gas, and mining companies to disclose payments above $100,000 to foreign governments, essentially preventing energy companies from doing dubious business with foreign petro-elites.

“It is a heavy blow to the effort of building an international culture of transparency, as envisaged by the EITI. The Azerbaijanis will have noted this U.S. move with approval and may believe that in this new context, the reputational damage they suffer from pulling out of the EITI will not be so severe,” De Waal said.

European pressure

Without the EITI reining in Azerbaijan’s excesses through the power of diplomacy, it will be up to the EU – with its interest in obtaining Caspian gas by 2020 – to demand transparency and urgent reforms in democracy and governance.

Malta’s demand for gas is miniscule in the framework of Europe’s energy needs, with policy decisions here hardly registered on the radar of Azerbaijani policy let alone strong enough to influence its human rights record.

In Malta, foreign minister Elmar Mammadyarov conveyed Azerbaijan’s interest to further cement ties of cooperation with Malta, with bilateral cooperation already seeing steady progress in the energy sector.

Azerbaijan seeks to consolidate relations with the EU, with Mammadyarov probably hoping he can leverage his country’s relationship with Malta to support Azerbaijan’s aspirations during upcoming negotiations on the new EU-Azerbaijan Framework Agreement, which will be held in Baku next week. 

“Issues concerning stability and security were discussed at length between the two ministers, with exchanges focusing mainly on pressing regional issues, particularly the Nagorno-Karabakh conflict,” a government spokesperson said. “Minister Vella underlined the decisive role that the OSCE has to play, and reiterated Malta’s support for the work of the Minsk Co-Chairs. Reference was also made to the latest developments in Syria, Libya and Ukraine. Global cooperation within international organisations was also discussed.”

Foreign minister George Vella underlined Malta’s commitment, also as the current Presidency of the Council of the European Union, to continue to build upon the momentum registered at the Riga Summit.

Caviar diplomacy

The Southern Gas Corridor: the passage of gas from Shah Deniz 2 across Turkey and into Greece and Italy is a billion-dollar three-pipeline project which the EU wants so that it reduces dependence on Russian gas

Not even EU parliamentarians are immune to the effects of Azerbaijan’s ‘caviar diplomacy’.

An upcoming trial in Milan of Luca Volonte, an Italian member of the Parliamentary Assembly of the Council of Europe (PACE), will show how investigators uncovered  €2.39 million in payments to Volonte through British and offshore companies. Most of the funding came through the British company Hilux Services LLP and its account in an Estonian bank from Baktelekom MMC, a limited liability corporation in Azerbaijan. 

The payments, prosecutors allege, were made in exchange for Volonte’s efforts to mute the European body’s criticism of Azerbaijan’s human rights record: the Strässer Report was penned by German MP Christoph Strässer, who was however denied a visa to visit Azerbaijan three times. With the help of civil society activist Anar Mammadli, who provided information for the report, PACE endorsed the report 125-79 with 20 abstentions.

In the process, as much as €1 billion was funnelled into the account of British Hilux Services LLP between December 2013 and December 2014, leading to suspicions that the corruption scheme could be much bigger than the Volonte case.

The journalist Khadija Ismayilova, imprisoned for her role in uncovering the interests of the kleptocratic Aliyev family, says that Baktelekom MMC – not to be confused with the state-owned telecoms company Baktelecom – is linked to Azerbaijani businessman Rasim Asadov, who has a business partnership in another venture with Mir Jalal Pashayev, a cousin of Azerbaijan’s First Lady Mehriban Aliyeva.

The money transferred to Volonte came from accounts in the Estonia branch of Danske Bank and originated from Baktelekom MMC. 

“Soon after the vote, the government arrested eight members of the NIDA Civic Union, an independent youth movement that was organizing protests against alleged corruption within the country’s armed forces. One of them, Ilkin Rustamzade, is still in prison,” Ismayilova writes.

“Ilgar Mammadov, the chairman of the opposition Republican Alternative movement who had announced his candidacy for presidency in the 2013 elections, was also arrested and remains in custody. The European Court of Human Rights has called his arrest politically motivated. Anar Mammadli, the activist who worked on the report, was arrested in December 2013 and released in March 2016. High-profile arrests of activists and journalists have continued, and activists say that the authorities now hold 145 political prisoners.”