Azerbaijan, Turkey end Debt Quarrel

Economic cooperation between the two allies is hurt by a very public dispute.

Azerbaijan, Turkey end Debt Quarrel

Economic cooperation between the two allies is hurt by a very public dispute.

Wednesday, 3 November, 2004

The Azerbaijani government has agreed to pay back millions of dollars it owed to a Turkish company to end a dispute stretching back 12 years. But while the Turkish side says it’s a victory for the law, Azerbaijani officials claim they were forced to yield by strong-arm tactics that have hurt relations between the two traditional allies.

“We did not think the Turkish company would raise this issue at all,” the Azerbaijani finance minister Avaz Alekperov, told journalists, referring to the debt which was finally settled on October 28.

The agreement means that the Azerbaijani government will begin paying its 12-year-old debt to the Saka Korkmaz company and give up all rights of appeal. The Turks will release two aircraft belonging to the Azerbaijan’s state air company AZAL and three merchant ships of the national Caspian Steamship Line, Kaspar, all of which were impounded in Turkey. According to the local press, the seizure of these vessels has cost the companies around 75,000 US dollars a day.

The deal came after the Saka Korkmaz firm’s owner Firudin Korkmaz announced in an interview on the ANS television channel that “if [Baku] does not make a serious effort to resolve this issue, then the seizure of all Azerbaijani vessels moored in Turkish ports will continue.

“We are in a position to confiscate all vessels and aeroplanes belonging to Azerbaijani companies, but that’s not how we want to conduct our relationship,” he said.

The Azerbaijani airline and Kaspar filed a counter-claim against Saka Korkmaz for 8.4 million dollars in damages. However, the Azerbaijani government made it impossible for this claim to proceed by surrendering the right to appeal.

The dispute dates back to 1992, when Azerbaijan’s nationalist Popular Front was in power.

The agriculture ministry signed an agreement with Saka Korkmaz, which pledged to build a textile factory in the town of Ganje and supply the equipment needed to produce cotton fabric and thread. In return, the Turkish company was to receive cotton products. According to the agriculture ministry, the plan was approved by all parts of the government.

“The company agreed to construct the factory and supply the equipment in exchange for the delivery of raw cotton, cotton fabric and thread,” ministry spokesperson Murtuzali Hajiev told IWPR.

“At the time, the agriculture ministry did not have the right to sell cotton, something that required special government permission. We repeatedly asked the then prime minister Fuad Guliev to grant us permission to dispatch cotton to the company in order to pay off this debt, but [this] was not granted.”

As a result, Saka Korkmaz demanded the repayment of three million dollars in investment, a sum it re-calculated 12 years later at 9.5 million dollars, taking accumulated interest into account.

Some Azerbaijani officials have virtually accused their Turkish counterparts of blackmail.

“They presented us with inflated figures,” the Azerbaijani consul general in Istanbul, Ibragim Nabioglu, complained on television after the seizure of an Azerbaijani ship in a Turkish Black Sea port. “This problem is 12 years old … Saka-Korkmaz has kept silent up to now.”

The Azerbaijani government also suggested the production capacity of the factory built by Saka Korkmaz was lower than anticipated, and that the debt should therefore be reduced.

Abid Sharifov, Azerbaijan’s deputy prime minister and chair of the intergovernmental commission for economic cooperation between Azerbaijan and Turkey, led the negotiations for the Baku government.

Firudin Korkmaz warned there was little point in Sharifov bypassing him to approach the Turkish government. “This matter can only be decided with me, and we are prepared to [do so] amicably,” he said.

Facing threats that the impounded vessels would be sold off, the Azerbaijani government announced it was prepared to settle the debt and make a first payment of 871,000 dollars.

A major factor in this decision appears to have been the disastrous effect the quarrel has had on Azerbaijan trade.

Azerbaijani ships were unable to dock in Turkish ports because of the threat of impoundment, and clients stopped using Kaspar for shipping.

Rafig Mejidov, head of the agriculture ministry’s economics department, told IWPR that four million dollars had been transferred in order to pay off the debt, and in turn “the Turks have already begun the necessary procedures for the restitution to Azerbaijan of its ships and aircraft.”

Agriculture minister Irshad Aliev, a veteran of the government of former Azerbaijani president Ilham Aliev, has been dismissed without explanation – but almost certainly as a result of the dispute.

Turkish media have now raised another alleged debt to the treasury in Ankara: an estimated 12 million dollars for the Hotel Europa in Baku. A scandal over the construction of the hotel in 1998 ended with the resignation of the then foreign minister Hasan Hasanov.

The issue of an even larger debt to Turkey’s Export-Import Bank or Eximbank is now looming.

“The debt to Eximbank of Turkey is ten times greater than to Saka Korkmaz, and if its settlement is dragged out then the return of the 74 million dollar credit could cause an even bigger scandal,” said Gubad Ibadoglu, head of the Centre for Economic Analysis in Baku.

Alekperov is playing down the rows, saying that they will not affect Turkish-Azerbaijani economic cooperation. “Strategic foreign currency reserves are sufficient not only to repay the debt to Turkey, but to settleAzerbaijan’s entire foreign debt of 1.5 billion dollars,” he said.

However, analyst Ibadoglu is not so sanguine. “The debt scandal with the Turkish company has not only inflicted financial losses on us, it has hurt Azerbaijan’s international image, and government organisations have lost the trust of creditors,” he said.

Gulnaz Gulieva is a correspondent with Caspian Business News in Baku.

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