1

Dear Members and Friends,

I hope this issue of IMPACT will reach you as you are returning from your winter holidays, rested, relaxed and looking forward to the challenges of the new year.

In this edition of IMPACT Azerbaijan, we will be looking closely at the issues surrounding Electronic Governance, collectively known as “e-Government”. Experts from the ICT sector together with colleagues from banks and investment

companies have kindly shared their views.

As many of you may know, AmCham Azerbaijan organized a well-attended "Towards the Future" ICT conference last November. Several companies, in themselves global and regional leaders in the field of electronic information and communication technologies, joined together to discuss their experiences of developing and implementing various e-Strategies in the 21st century.

We have also been active in pursuing a wider range of activities since the summer edition of IMPACT Azerbaijan. You can read about all the events of the past quarter in this issue.

Enjoy!

Nargiz Nasrullayeva-Muduroglu

Dear Readers,

This issue of IMPACT presents an assessment of the role of the ICT sector in enhancing public service delivery and improving the efficiency and productivity of government processes and systems. This issue will cover the “Art-of-Real-time” – the concept of e-Government and the supporting mechanisms.

We are proud that members of AmCham are playing an essential role in this process, adding impetus to the implementation of e-Government through their various

areas of expertise, and contributing to the further development of the ICT sector in cooperation with different institutions and state agencies.

The current issue has been compiled to encompass the wide variety of interests among our readership, under the general theme of e-Government mechanisms in Azerbaijan. We hope you enjoy the articles we have selected for this issue and that they may provide inspiration for you in your work and day to day activities.

Until the spring,

Jeyhun Atayev

A Word from the ExecutiveDirector of AmCham

Editor’s Comment

CreditsAmCham Executive Director:Nargiz Nasrullayeva-Muduroglu

Editor:Jeyhun Atayev

Design & layout:Quadro M Media Agency

Photographer:Huseyn Azimzade

Articles contributed by:Elmir HabibullayevZulfiya Aghakishiyeva Elshan MusayevKent BabinMais YusifovAnar KarimovNihad Azizli and Turgay Teymurov Advertisers:UnibankBakcellGlobus PlazaPANALPINAITECAMozaik LLCPasha ConstructionPasha InsuranceSINAMSAZZ Azqtel The Landmark Hotel

Cover artwork:Quadro M

Printing:Nurlar

Publisher:American Chamber of Commerce in AzerbaijanTel: (+994 12) 497 13 33Fax: (+994 12) 497 10 91www.amchamaz.org

Advertising opportunities:Please contact the EditorJeyhun Atayeveditor@amchamaz.orgTel: (+994 12) 497 13 33

The articles in IMPACT AZERBAIJAN express the opinions of the authors and do not necessarily reflect the position of the American Chamber of Commerce in Azerbaijan.

Autumn / Issue 13

2 Autumn / Issue 13

contents

6

10

23

12

18Interview: Minister of Communications and Information Technologies

Electronic governance and cloud computing

Baku becomes part of the world’s leading mobile community

First steps towards Electronic government

Azerbaijan is close to establishing e-government

Ali Abbasov, Minister of Communications and Information Technologies, speaks to IMPACT on establishing of e –Government in Azerbaijan

One Monday of each month, more than 100 cities worldwide bring together mobile experts with new and exciting ideas for the mobile industry, including mobile communications services.

With the gathering pace of the information revolution, many developing countries have looked at IT as a potential tool to solve the endemic problems of poverty, bad governance, and poor economic growth.

“E-government” is a term, that combines the vital elements of transparency and modern public administration.

21

16

Electronic services offered by banking system in Azerbaijan

E-Government in Azerbaijan: What Lies Ahead

The rapid growth of electronic banking products in recent years is becoming an important driver of the future development of the banking system.

Definitions of e-Government vary depending on who you ask. It involves a government using the Internet and other forms of communication to provide information and services to citizens. e-Government also aims to assist the sharing of information amongst government agencies and institutions.

IN FOCUS

3

As another season of industry exhibitions draws to a close, we invited Mr. Farid Mamedov, Executive Director of ITECA Caspian to reflect upon the group’s experiences and achievements over the past year.

contents

34 Azerbaijan’s exhibitions have drawn attention from around the world

38

39

About us

Government Relations

30 Islamic Insurance: Emerging Concept in AzerbaijanA look at the concept of Islamic insurance – Takaful - vis-a-vis conventional insurance.

MEMBER CONTRIBUTION AMCHAM AZERBAIJAN26 The top 10 risks for oil & gas companies

Recent global multi-sector survey, which included 82 oil and gas executives in 15 countries.

40 Business Events : Monthly Member Luncheons

4 Autumn / Issue 13

42 Business Events : Towards the Future” ICT Conference

46

50

52

AmCham Legal update

Members’ News and Events

Corporate Social Responsibility

AMCHAM AZERBAIJANAMCHAM AZERBAIJAN

43 56

57

59

60

Committee Highlights Projects

New Members

(M2M) Discount Program

AmCham Calendar of Activities

contents

54 Social Events : 7th Annual B&W Ball

Autumn / Issue 136

Interview: Mr. Ali Abbasov, Minister of Communications & Information Technologies

The Minister of Communications and Information Technology, Ali Abbasov, has been leading sustainable reform in Azerbaijan’s ITC sector over the past seven years. He shared his insights on e–Government with IMPACT.

“I believe that people are ready for electronic services”

Thank you for joining us, Mr. Minister.

At the moment, the concept of e-government includes approximately twenty different services, of which twelve are for private citizens and 8 for businesses. What activities have been implemented in Azerbaijan to support the establishment of e-government? How will these concepts be realized? What are the characteristics of e-communication and data exchange tools as used by state bodies?

As you know, the development of e-government is an integral part of Azerbaijan’s strategy for information and communication technology. There is tremendous interest in the implementation of e-governance, which enables the transition to an information society, the implementation of effective and transparent public administration, the active participation of citizens in decision making processes – including strengthening anti-corruption initiatives – amongst many other important issues.

A range of actions towards establishing the infrastructure and legislative framework of e-government and the implementation of e-government solutions, including the application of electronic services across all spheres of government administration and public life are already underway. Key legislation on “e-signatures and electronic documents”, e-commerce, “the State register of the population of the Republic of Azerbaijan”, “the acquisition of information”, and personal data has been adopted, along with an Action Plan for organizational, legal and technical reform.

There now exists a unified network infrastructure encompassing all state bodies, an e-governance gateway that enables data exchange between various information systems and the National Certification Services Center, supported by the e-signature system. In order to ensure that the electronic services of state bodies are delivered as a “one-stop-shop”, the newly established e-government portal will provide a platform for the integration of all relevant state services. Implementation of this unified electronic document circulation system is currently being refined, with the goal of effective data exchange between state bodies.

It should be noted that some Ministries – notably taxation, customs, education, health, culture, justice, internal affairs, social protection and others - are actively applying e-government solutions. The data search systems, registers and other information resources already established in these spheres have streamlined the relationship between state, citizen, and corporate entity, via the provision of modern electronic services. Today, the bulk of the most common e-services available to citizens and business sectors in EU countries, including issuance of documentation, electronic submission of tax and customs declarations and statistics reports, employment searches via recruitment agencies,

electronic applications for university and public service jobs, are also being offered in Azerbaijan. President Aliyev’s May 23rd 2011 decree on the provision of electronic services by state bodies provided a major impetus for extending the scope of this process.

Azerbaijan’s e-government strategy has moreover attracted the attention of international organizations. Azerbaijan’s ranking in the UN’s “e-Government survey 2010” was 83rd among 192 states, which is up six places from 2008. In the same UN report, Azerbaijan’s ranking in the “e-participation index” was 68th among 157 states.

The implementation of e-signatures is one of the key components of the “E-government” concept. What is the advantage of using e-signatures, and what is the current status of this particular strategy in Azerbaijan?

Public Key infrastructure and the National Certification Services Center, both of which focus on the implementation of a secure and efficient e-signature system, are working to ensure the delivery of high quality electronic services and their public use. As of September of this year, the Center is ready to provide e-signature services to state bodies, citizens and businesses.

Special discounted prices are being offered to encourage the use of e-signatures. Currently, the processing of applications for these services and the issuance of e-signature cards is being implemented in dedicated registration centers established in post offices. Using e-signatures will make it easier for people to use the electronic services of state bodies, as well as ensuring improved convenience and quality in terms of service delivery. At a national level, the e-signature system will bring e-commerce and the development of information technologies to a new level.

Mr. Minister, in your mind, what will be the economic impact of e-government in Azerbaijan? For local businesses, for investors?

Broadly speaking, e-government will save both time and money. Furthermore, it will increase efficiency and transparency, reduce corruption and bureaucracy, streamline and improve the operation of state bodies, reduce of the service delivery period provided by state bodies, and decrease expenditures at all levels of public administration. As for the opportunities that e-government opens up for businesses and potential investors, representatives of this sector will more easily be able to establish contacts with state bodies. Using services such as e-license, e-declaration, e-procurement and e-auction will increase their economic activity and competitiveness.

What about the issue of information security? Can users of e-government services rest assured

7

in focus

in focus

that their data is protected and that conditions of confidentiality are properly safeguarded? Which countries have been used as models for data protection and information security?

The provision of information security, including the protection of individual data, is a very important issue in e-government. Particular focus has been given to the development of legislative, regulatory and methodological structures.

The law of the Republic of Azerbaijan on “Individual Data”, as well as the regulatory articles that stem from the same law, have been developed to ensure that the compilation, processing and protection of individual data in information systems is fully regulated. In order to increase the level of information security, ten national standards and relevant regulations have been drafted, approved and implemented based on the standards of International Standardization Organization (ISO). An additional six standards are being negotiated with the relevant organizations.

In answer to the second part of your question, let me say that international experience other countries in this field is widely used to provide for the security of e-government solutions.

The digital document circulation system of e-government gives rise to a need for data analysis and processing centers as part of state bodies. Do such centers exist, and are they prepared to process large volumes of data?

Yes, there are data centers available at some state bodies, which are run in line with modern technological standards and enable high-volume data processing. In parallel, the Ministry of Communications and Information Technologies (MCIT) has submitted proposals for the establishment of a unified e-government data center, in accordance with the “Action Program for the development of e-government”.

This centralized data center will support the secure and reliable storage of information resources, the provision of sustainable communications, simultaneously reducing costs and maximizing the effective use and capacity of human resources.

How is the problem of the “digital divide” between the capital city and regions being resolved?

The entire country has access to a telephone network, and a stable telephone network has been digitized. This means that all residential areas in Azerbaijan have internet access. In order to bridge the “digital divide” between the Baku and the regions, the countrywide AZDATACOM network was established by the MCIT together with UN

Development Program (UNDP). First of all, this network enables the provision of rapid connections between Baku and the regions, and supports the development of internet capacity in the regions. In order to eliminate the “digital divide”, particular attention is paid to the expansion internet service providers and internet cafes in the regions. Regional information and computer centers are being established to increase availability and accessibility of ICT to the regional population, including people with disabilities and IDPs.

As part of the MCIT’s socially oriented strategy, the “People’s Computers” project is being realized to ensure that different levels of the population can obtain computers at discounted prices. These kind of measures will continue in the future.

How do you assess the readiness of the population to use e-government services ?

I believe that people are ready for electronic services. In line with the development of Azerbaijan’s internet sector, reductions of internet tariffs, and the arrival of modern internet connections, including high-bandwidth, wireless and mobile connections, approximately 65% of population are internet users, with half of that number being high-bandwidth internet users.

The use of mobile telephones to access internet is also at a very high level. In order to increase the accessibility of e-government infrastructure and services, we are developing high-bandwidth network infrastructure and setting up internet stations to provide access to electronic services.

Mr. Minister, thank you very much for this detailed information on e-government. And the last question: what is being planned for the near future? Will the new e-government services be implemented? Will the relevant legislation be drafted?

First of all, the e-government portal will be commissioned in the next three months, and new electronic services will be put into operation based on the list of the types of electronic services approved by the Cabinet of Ministers. These services offer valuable opportunities that will be of immediate and pressing interest for citizens and businesses. With regard to the new legislative acts, the draft law of the Republic of Azerbaijan on e-government and a number of other associated documents are under consideration by MCIT specialists, who are consulting with international experts.

Mr. Minister, thank you for the interview.

Autumn / Issue 138

Electronic Governance and Cloud ComputingThe worldwide revolution in Internet is changing our lives in terms of the way we work, learn and interact. These changes naturally should reflect the way government functions in terms of the organization of the government, its relationship with its citizens, institutions and businesses and cooperation with other governments.

Also, the increasing generalization of technology access by citizen and organizations brings expectations and demands on government. At the same time, governments are also proactive in this domain and are planning new ways of interacting, improving services, optimizing processes and revitalizing democracy by spending amount on IT. It aims to deliver more interactive services to citizens and businesses through E-Governance. For this, cloud computing may lead to significant cost savings. It entails use over the Internet of computing hardware and software infrastructure and applications that are remotely hosted.

The question is: What is cloud computing and how this newly emerged paradigm of cloud computing can be helpful for E-Governance?

Here it would be appropriate to mention some definitions of cloud computing put forwarded with famous worldwide IT companies:

GARTNER definition:

A style of computing where massively scalable IT-related capabilities are provided “as a service” using Internet technologies to connect multiple external customers

NIST (National Institute of Standards and Technology) definition:

Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction

Sales Force definition:

Cloud computing is a better way to run business processes. Instead of running the applications in a local

computer (server), they run on a shared data center. In case of using an application that runs in the cloud, a user just logs in, customizes it, and starts using it. That’s the power of cloud computing.

Efficiency of E-governance could be increased with using Cloud Computing. E-governance requirements may be driven by economic, political, technical and cultural reasons. E-governance requires applications to be secure and protect the privacy of end users.

Cloud Computing for E-governance can:

• Reduce IT labor cost by 50%

• Improve capital utilization by 75%, significantly reducing license costs

• Provides much needed scalability - E-Governance applications face dataoutburst, cloud computing can scale better

• Offers unlimited supply of CPU, storage and bandwidth

• Provides efficient management and disaster recovery

• Helps government to go green, by centralizing all resources and efficient utilization

• Helps to increase the number of resources dynamically to maintain quality of service intact even at the times of high load, which generally happens in E-Governance

• E-Governance applications can manage the policies well by providing security and adoptability

• Various E-Governance applications can be integrated easily.

Cloud Computing architecture requirements:

• Cloud architecture is build with SOA principles

• Cloud architecture is highly flexible and modular and can integrate with other systems

Cloud provides a solid foundation for the introduction of widespread provision of services to various stakeholders.

in focus

Autumn / Issue 1310

11

Applications designed using the principles of Service Oriented Architecture and deployed in cloud architectures will benefit the government in reducing operating costs and increasing the governance. SOA and cloud architectures when properly applied to developing E-Governance applications have the capability to transform the nation into an Information Society. Service Level Agreements

in focus

ISO 9001:2008

are keys for the government to measure how well the services are being performed and provided by the government. Cloud helps enabling E-Governing services faster and cheaper thereby accelerating the adoption and use of Information Technology for e-services. Cloud architectures allow rapid deployment of turnkey test environments with little or no customization.

Autumn / Issue 1312

in focus

First steps towards Electronic government

Zulfiya Aghakishiyeva LawyerSmart Systems Technology

With the gathering pace of the information revolution, many developing countries have looked at IT as a potential tool to solve the endemic problems of poverty, bad governance, and poor economic growth.

While developed countries have benefited enormously from the wide-ranging uses of IT, many developing countries are still thinking about how best to use IT to address development issues. This trend also applies to e-Governance. In Azerbaijan, e-Governance has been discussed for a long time, and some government offices have even taken innovative steps towards specific e-Government projects. Since this is a new concept for government officials, the majority of whom have spent their careers working within the same infrastructural framework, the prospect of e-Governance is often met with resistance and fear. But the good news is that in Azerbaijan, e-Governance is being taken very seriously, and the process of creating an e-government has begun. On 23 May, the President of Azerbaijan, Ilham Aliyev, signed a decree “On Certain Actions in the Field of Organization of Rendering Electronic Services by the Government Agencies”. This decree holds great importance not only for the development of electronic government but also in the continuing fight against corruption. According to the decree, within three months, the website of every government agency will include a specific electronic service section. This section will include the title of the service to be provided, a detailed list of the required documents for providing the service, and any electronic documents that the applicant needs to complete.

What exactly is e-government? E-Government (short for electronic government) is digital interaction between a government and its citizens, government and businesses/Commerce, government and employees, and also between government and governmental agencies. Essentially, the e-Government delivery models can be briefly summed up as: 1. government to citizens;

2. government to businesses; 3. government to employees; 4. government to governments; 5. citizens to governments. E-Government should enable anyone visiting a state website to communicate and interact with city employees via the Internet (via a graphical user interface), instant-communication, audio/video messaging. These mechanisms provide more interactive and more sophisticated alternatives to a simple email to the address provided on the site, supporting “the use of technology to enhance the access to and delivery of government services to benefit citizens, business partners and employees”. The focus should be on: 1. The use of Information and communication technologies, and particularly the Internet, as a tool to achieve better government; 2. The use of information and communication technologies in all facets of the operations of a government organization; 3. The continuous optimization of service delivery, constituency participation and governance by transforming internal and external relationships through technology, the Internet and new media.

The main disadvantages concerning e-government are the lack of equality in public access to the internet, reliability of information on the web, and hidden agendas of online groups that could influence public opinion. There are numerous considerations and potential implications in implementing and designing e-government, including disintermediation of government and citizens, possible impacts on economic, social, and political issues, vulnerability to cyber attacks, and disturbances to the status quo in these areas.

13

in focus

Nonetheless, there are more advantages than disadvantages to e-government. The ultimate goal of the E-Government is to offer an increased portfolio of public services to citizens in an efficient and cost effective manner. E-government enables improved government transparency. Government transparency is important because it enables the public to be informed about government actions and policies. Simple tasks may be easier to perform via electronic methods, for example registering changes to marital status or home addresses can be a lengthy process that requires a great deal of paper work. E-government allows these tasks to be performed efficiently and more conveniently. Furthermore, e-government is an easy way for the public to be more involved in political campaigns. It could increase voter awareness, which could lead to an increase in citizen participation in elections. It is convenient and cost-effective for businesses, and the public benefits from easy access to the most current information available, without having to spend any extra time, energy or money.

E-government streamlines bureacratic processes and improves access to government information for public sector agencies and citizens. For example, the Indiana Bureau of Motor Vehicles in the US simplified the process of certifying driver records for county court proceedings. Indiana became the first state to allow government records to be digitally signed, legally certified and delivered electronically by using Electronic Postmark technology. In addition to its simplicity, e-democracy services can reduce costs. The Alabama Department

of Conservation & Natural Resources, Wal-Mart and NIC together developed an online hunting and fishing license service utilizing an existing computer network to automate the licensing process. More than 140,000 licenses were purchased at Wal-Mart stores during the first hunting season.

One of the main goals of e-government is “the paperless office”. Proponents of e-government argue that online government services would lessen the need for hard copy forms. Due to recent pressures from environmentalist groups, the media, and the public, and some governments and organizations have turned to the Internet to reduce paper use. For example, the US government supports online “internal government forms for federal employees”, thereby significantly reducing paper usage.

E-government allows citizens to interact with computers to achieve their needs at any time and any location, and eliminates the necessity for physical presence in front of government employees sitting behind desks and windows. Improved accounting and record keeping can be noted through computerization, and information and forms can be easily accessed, meaning quicker processing time. On the administrative side, access to help find or retrieve files and linked information can now be stored in databases, versus hardcopies stored in multiple locations. Individuals with disabilities or health conditions no longer need to be physically mobile to be active in government- they can participate in government processes from the comfort of their own homes.

14 Summer / Issue 12

in focus

Every country that has established e-government has encountered numerous obstacles. Almost all early e-government initiatives were too expensive, and delivered too little; this remains the case. The reasons for this are many, but they boil down the three basic failures: 1. Bad strategy; 2. Poor delivery; 3. No management of benefits. The UK government commissioned research in to the issues affecting the project life cycle of e-government projects. In 2005, it published a paper on “The Common Causes of Project Failure”, defining and analyzing the 7 classic causes of failure:

1) Lack of strategic clarity: Many projects fail because the project team and its key stakeholders do not have a common view of what the project is trying to achieve, and how its success should be measured.

2) Lack of sustained leadership at political and senior management level.

3) Poor understanding and fragmentation of user needs.

4) Lack of effective engagement with stakeholders. Most ICT-enabled projects in the public sector involve complex sets of stakeholders – users, suppliers, delivery partners elsewhere in the public, private and voluntary sector, politicians and the media.

5) Lack of skills: in addition to standard IT delivery and program/project management skills, transformative e-Government programs require a mix of broader skills: for example, change management, process mapping and redesign, channel management, marketing, and communications.

6) Poor supplier management: strong partnerships with suppliers are essential.

7) “Big Bang” implementation.

In less developed countries, for example India, the majority of the population is very poor and basic infrastructure is inadequate.

Under such conditions it is very difficult to provide government services to the people, for a number of reasons:

1. Poverty:

Internet access is too expensive, and installing the necessary telephone lines for internet or email access is equally problematic in most poor countries.

2. Technical illiteracy:

There is general lack of technical literacy as well as traditional literacy in countries like India. The correlation between education and ability to use ICT methods are quite significant.

3. Language Dominance:

The dominance of English on the Internet limits the access of the non-English-speaking population. Of all the webpages in the world, about 84 percent are in English, followed by 4.5 percent in German, 3.1 percent in Japanese, 1.8 percent in French, 1.2 percent in Spanish, 1.1 percent in Swedish, 1 percent in Italian and less than 1 percent in all other languages.

4 Lack of awareness:

There is general lack of awareness regarding the benefits of e-governance as well as the process involved in implementing successful G-C, G-G and G-B projects. The administrative structure is not geared towards maintaining, storing and retrieving information electronically.

5. Lack of Participation from Social, Public and Private sectors:

designing any application requires close interaction between the government department and the agency developing the solutions. At present the users in the government departments are not contributing significantly to the design of the problem-solving architecture. Consequently the solutions that are developed and implemented do not meet the requirements of an e-governance project and hence are not implemented.

6. Inequality:

Inequality in access to public sector services between various demographics- particularly the divides between urban and rural communities, the educated and illiterate, and the rich and poor.

15

in focus

7. Infrastructure:

A lack of necessary infrastructure like electricity, internet, technology and communications will delay implementation.

8 Impediments to the re-engineering process:

Implementation of e-governance projects require significant restructuring to administrative processes, as

well as the redefining of administrative procedures and formats which finds resistance in almost all departments at all levels.

9. Operational Reluctance:

The psychology of civil servants is quite different to that of private sector employees. Traditionally, civil servants have been important repositories of government data. Thus any effort to implement document management and workflow technologies, or to change the system is met with resistance.

Azerbaijan is assimilating and applying European expertise to avoid such difficulties. There are many existing frameworks and models for the assessment of e-governance projects once they have been implemented. Using these frameworks, one can determine the success and impact of the project. However, this amounts to a post mortem exercise. What is needed is a tool or framework that will enable the decision makers to determine what is most required and what is most likely to succeed. The anticipated benefits of e-government in Azerbaijan include efficiency, improved services, better access to public services, and increased transparency and accountability.

in focus

16 Summer / Issue 12

E-Government in Azerbaijan: What Lies Ahead

Kent Babin Director of Software Development GoldenPay LLC

Definitions of e-Government vary depending on who you ask. For the purposes of this article, it involves a government (at the federal, regional, or municipal level) using the Internet and other modern forms of communication to provide information and services to its citizens. It can also be stated that e-Government aims to assist the sharing of information amongst government agencies and institutions.

The first definition can be broken down into two parts: one-way interaction and two-way interaction. In the case of the former, a government would simply provide information on a website that the citizen would consume. This information would be updated frequently and would act mainly as a reference. The latter case sees a government providing a means for the citizen to both interact and receive a response. Through this interaction, a government wants to achieve three things: a) providing better and timelier services to citizens, b) cutting costs associated with older communication methods, and c) getting the citizens to be more actively involved in the governing of the country. A good example at the municipal level would be a government that offers it citizens the ability to participate in discussions about what to do with a budget surplus.

E-Government in Azerbaijan today consists mainly of one-way interaction. Almost all agencies and institutions have functioning websites that provide information. Other services offer a slightly more complex layer of interaction. The Ministry of Taxes and the State Migration Service have implemented a short-code hotline that aids in the dissemination of information. AZPROMO employs Facebook and Twitter to keep the business community informed about events and import/export opportunities. The Ministry of Economic Development (MoED) has partnered with the International Finance Corporation (IFC) to create biznesinfo.az—a business information site. Perhaps the best example right now is GoMap.az—an interactive map of Azerbaijan setup by the Ministry of Culture and Tourism. You can find detailed geographical information about all major cities in the country. What is missing overall, however, is a large-scale effort that provides online

solutions that allow citizens and businesses to complete tasks like business registration and permit renewals.

The Ministry of Information and Communication Technology recently announced that the country’s first e-Government portal would be launched during the BakuTel exhibition at the end of November. So far, a handful of agencies and institutions have connected, with more expected in the coming weeks. This would appear to be the country’s first major step in providing a consistent set of services to its citizens. In many ways the country is ready. Most citizens have access to the Internet, television, or a mobile phone, so the reaching citizens will not be a problem. As well, payment gateways have already been established that can facilitate financial transactions made on e-Government websites.

South Korea, the United States, and Canada have taken a lead role in e-Government implementation over the last ten years. This is to be expected as all three countries are considered developed and connected. But there are also many successful examples of e-Government in developing countries. In Rwanda, the government has setup an “eRegulations” website that provides information on everything from registering a patent to getting a work permit. Each process is broken down into steps describing where you need to go, what you need to submit, and what you should expect to receive. Most impressive is the ability to create an e-signature and register a business online. Within minutes, you can have an electronic copy of your business license. In Egypt, the city of Alexandria has implemented a solution for accepting and issuing license

17

in focus

and permit applications online. This has saved the city a significant amount of money and streamlined a previously complicated process. As a citizen, you know that you will not have to go from window to window trying to get your paperwork submitted. Instead, you can submit everything online and receive a response much faster. Chile has also seen successful e-Government implementation in many areas. Specifically, taxes can be paid and most forms can be submitted online. There is even an online portal for businesses and the government to buy and sell with each other.

The fact that Azerbaijan has its entire e-Government future ahead of it can be seen as good news. It has the luxury of learning from the mistakes of other countries and emulating the successful ones. The process will be a long one, though. As we are witnessing with e-Commerce, it will take quite a while for people to develop trust in online services. It is, therefore, imperative for the government to not assume the “build it and they will come” attitude. Instead, active engagement and education will be paramount in getting citizens and businesses to switch from the status quo. One service that will certainly help the transition process is currently being installed at bus stops around Baku. Commuters will soon be able to see up-to-the-minute bus schedule information. This will likely

be available online as well, which means you can find out when your bus is coming regardless of where you are. There is another project underway, also between the MoED and IFC, regarding the issuance of licenses and permits. It will also help create e-Government habits amongst the population.

What does this mean for citizens and businesses? To start with, more sophisticated e-Government will hopefully mean the simplification of arduous tasks. This will make everyone’s life easier and more efficient. In addition, there will be better access to government information. Things like transit schedules, procurement tenders, and traffic reports will be easy to find and displayed in a user-friendly manner. Most importantly, the gap between government and governed will narrow considerably. We will see communication channels with the government that did not previously exist. And we should have a better overall understanding of each other’s requirements—something that is necessary in order for a government to be more efficient. Of course, this is only possible if the government remains committed to a successful e-Government implementation. In turn, the citizens and businesses of the country need to actively embrace this new reality and engage the government to make the implemented services better.

18 Summer / Issue 12

in focus

Azerbaijan is close to establishing e-government

Mais Yusifov, Director AtaTechnology LLC

“E-government” is a new term, one that combines the vital elements of transparency and modern public administration. This concept is a consolidation of assignments and responsibilities in a digital format. E-government is an information exchange between government bodies and citizens which enables any citizen to obtain the information he or she needs, without having to be physically present at the government body in question. Citizens can apply quickly receive responses accordingly.

The following issues should be the main targets for establishing and improving the “e-government” system:

• Transparency of the state management system;

• Fast and effective operation of public administration mechanisms;

• Ensuring citizen participation at all levels;

• Preventing the replication of information and work according to newly established information exchanges between structures;

• Speeding up the decision making process and application processing;

• To improve the living standards of all citizens

The following benefits can be derived from the establishment of “e-government”:

• Improved efficiency in terms of saving both time and money;

• Improved confidence in the government;

• Improved living standards of citizens;

• Reduced use of paper;

As one of the key sectors in Azerbaijan’s economy, ICT is developing rapidly in this globalized world. The establishment and development of the “e-government” project is an important issue, crucial to bringing Azerbaijan up to international standards in the fields of public administration and ICT.

When looking through the history of “e-government” across the world, it is clear that this is a recent concept. One key example might be the ‘Access America” e-government project, launched in the USA in 1993. This initiative planned to implement all government services via a single portal by 2003. On the basis of this project, the “firstgov” portal was established and launched in 2001.

Here, the story of e-government began with the “National strategy (2003-2012) for the development of information and communication technologies in the Republic of Azerbaijan”. This single portal should be operational by the end of this year.

• Creation of the necessary legal basis – this is one of the main requirements. Currently, the experience of other countries is being studied in order to implement a law on e-government in Azerbaijan.

• Establishing of technical infrastructure – Different technical strategies must be organized and implemented in a short period of time. There are significant investment projects being carried out by the Ministry of Information and Communication

20 Summer / Issue 12

in focus

Technologies, as well as by private companies. The increase in the number of internet users and resources compared to the past years in Azerbaijan must be taken into account.

• Financing the e-government project – sufficient state financial resources have already been allocated.

• The human factor – trainings should be provided for citizens and government.

• The establishment of the service system – appropriate service technologies must be selected and applied in order to achieve efficient usage practices.

• Protection of security and privacy– User information must be protected and users must be assured of the privacy of their information in the e-government system.

The “e-signature” project, launched in 2011, is one of the key components of the e-government project. Azerbaijan has

taken a major step in this field. It is now time to expand the application of e-signatures and to educate people. Developing e-commerce and educating people in this field are two crucial factors. The banking and IT sectors should be prioritized in this process, as they can offer a complete solution via electronic services for their customers.

The State Authorities should prepare a single classification of the public services being provided, and submit the full list of the services to the Government. Government bodies should inform people of these services via diverse means. In recent years, a number of government bodies in Azerbaijan have carried out a series of successful projects in this field, such as “e-tax”, “e-health”, “e-duty”. This means that citizens can solve their problems without leaving their homes or workplaces. If this system could be implemented across all the government bodies via a single portal in a related information exchange format, it could be said that e-government has already been achieved in Azerbaijan. There is no doubt that this project will be realized successfully, given Azerbaijan’s existing financial and human resources.

21

in focus

Electronic services offered by banking system in Azerbaijan

Elmir HabibullayevDirector, Retail Banking DepartmentThe International Bank of Azerbaijan

Retail business enables banks to diversify their customer and funding bases, as well as to increase their profitability and efficiency. The rapid growth of electronic banking products in recent years is becoming an important driver of the future development of the banking system. The expansion of e-banking from retail to the corporate segment would ensure sustainable development of comprehensive banking services. Given the numerous challenges to their operation along with the increasing competition, banks are becoming more careful about introducing new products and services. As a result, a great deal of time and efforts is spent on the development of the whole chain from financial engineering to marketing and assessment. However, the development of internet technologies makes the electronic banking segment extremely capacious. Therefore, in the short term, we can expect overall growth in this market, and an increase in the number of users. With the increasing understanding of internet banking among clients, the range of products will also be gradually increasing and enhanced with new features.

It has been many years since IBA first started to provide its clients with a broad range of electronic banking services, and it has achieved notable success. IBA was the first Bank in the domestic market to offer electronic banking products such as internet banking and “MobilBank”.

Internet banking is, as a rule, an alternative channel of customer service, the essence of which lies in the client’s ability to safely exchange with bank information and perform transactions from anywhere in the world, as long as they have an internet connection. This service allows customers to carry out fundamental banking transactions such as the transfer of funds, card transactions, bill payments, foreign currency exchange, in addition to being able to receive information on bank products, submit applications for new products and subscribe to various services. The key advantages of internet banking include the reduced expenditute of time, effort, and money. This is a convenient service that bypasses the need to queue or to use paper. It is a personal bank at home, which opens and closes according to your needs, and where you are the most

important client.

“MobilBank” is also becoming increasingly important - modern mobile banking channels allow clients to easily and comfortably manage their finances via personal mobile devices.

IBA’s internet banking and “MobilBank” products allow our clients to manage their accounts, use all kinds of payments and receive detailed information about transactions. The depth, flexibility and the range of internet banking services has been constantly increasing. Until recently, clients could only make payments for international and mobile telephone calls (Azercell, Bakcell, Narmobile), utility bills (electricity) and insurance, but now it is also possible to pay for the internet (Azeronline, Adanet, Connect, Elcell etc), and travel services with SW Travel. Moreover, it is also possible to perform “KartTransfer” operations, which allows the transfer of funds from the client’s card to any other card issued by IBA, as well cards issued by a number of other local banks. With IBA’s increasing number of bilateral agreements, it is not possible to use the “KartTransfer” service with the country’s leading banks, which makes this type of electronic banking very appealing.

The range of electronic services is constantly expanding. Today, IBA offers its customers such essential electronic

in focus

services as e-commerce (online purchase and sale of products and services), electronic depositing (an opportunity for customers with banking cards to make deposits under a fixed period for a bill of credit) and to receive cash instantly via ATMs even if the receiver does not have a bank card. We would like to emphasize that these services are also possible at the International Bank of Azerbaijan-Moscow, our subsidiary bank, which creates additional opportunities for the rapid and effective implementation of remittances for IBA and IBA-Moscow clients. The launch of IBA-Georgia is also planned for the near future.

I would like to note that in line with the active work on developing existing products as well as new ones, all necessary measures are taken to ensure safety and security of any transaction. However, even the most advanced protection system will not be absolutely safe if clients forget basic security rules regarding the storage of personal data (login/password, PIN, etc.).

In order to prevent fraudulent transactions with banking cards, IBA offers the “SMS Notification” service, whereby an SMS is immediately sent following account activity.

Thus, the customer will instantly be informed of any account. The account will be monitored 7 days a week, day and night, regardless of the time and place. The customer will also receive notifications of unsuccessful transactions, i.e. notification of any attempt to conduct a transaction with insufficent funds, expiry of the card, and so on.

Electronic banking is become more and more popular. Customers prefer to carry out their daily transactions (payment mobile bills, internet, utilities, etc.) at their personal convenience – at home or at work. Every daily transaction is characterized by comfort and convenience, and customers receive the same high quality, whether it is a card, loan or deposit transaction. As electronic banking becomes an increasingly active channel for the same of bank products, the face of the Bank and its branding is increasingly “electronic”.

Our future plans consist of developing internet banking as the most advanced instantiation of electronic banking, along with remote home banking services, and “Telebanking”. As our client base and customer requests increase, we will expand our functionality accordingly.

22 Summer / Issue 12

in focus

Baku becomes part of the world’s leading mobile community

Elshan MusayevPresident Caspian Investment Center

As of October 2011, Baku hosts Mobile Monday events When mobile phones were first introduced, people accepted them only as a mobile form of the standard telephone service, providing person-to-person communications on a daily basis.

Today mobile phones have become a critical component of our everyday lives, as well as part of the fabric of international popular culture. Nowadays, people use phones not only for person-to-person communication, but also for business. One Monday of each month, more than 100 cities worldwide bring together mobile experts with new and exciting ideas for the mobile industry, including mobile communications services. Now there is one Monday industry developers in Azerbaijan can look forward to!

Community-based practices and social platforms have introduced new elements of interactivity and transparency to our daily lives. Since 2000, Mobile Monday chapters have been meeting at monthly events around the world to explore the vast number of new opportunities in this rapidly growing industry. This platform enables members to connect with developments in the community, which spans over 100 locations worldwide.

Baku – 123rd city joining Mobile Monday

Baku is the 123rd city to join Mobile Monday (MoMo). MoMo in Azerbaijan is aiming to foster innovation within the mobile sector of Azerbaijan by presenting technological innovations from the local and world mobile marketplace, and implementing new projects and applications of modern technologies.

The official inauguration ceremony of Baku MoMo was held on October 24. MoMo Baku was established by the Caspian Investment Center (CIC) in partnership with Bakcell, Azerbaijan’s the first mobile operator. The project is also supported by the Ministry of Youth and Sport of

Azerbaijan and the World Bank’s InfoDev project.

Bakcell is the principal partner of MoMo Baku

Bakcell is interested in creating and developing mobile social networking in Azerbaijan. The mobile services market requires innovation. As a key player in the Azerbaijan telecoms sector, Bakcell understands its obligation to help develop this rapidly growing industry.

The CEO of Bakcell Mr. Richard Shearer emphasizes the importance of launching an innovative mobile platform in Azerbaijan for the future development of the national mobile sector: “The mobile industry plays a key role in shaping any society. MoMo has been proven to be a successful tool in helping this highly dynamic industry achieve benefits by spreading knowledge and engaging everyone - especially young people - to act on their ideas. Innovation is the foundation for Bakcell operations and we take pride in becoming the principal business supporting MoMo in Azerbaijan. We are strongly committed to responding to the rapidly changing market conditions through investigating the latest technology innovations, and bringing to life new projects that offer the greatest benefits to our valued customers. I expect MoMo to become a fascinating platform within the mobile sector that will lead to new technology projects in the Azerbaijan market”.

About MoMo

MobileMonday is a global mobile entrepreneur community that originated in Finland in 2000. For over ten years, MobileMonday has been attracting mobile professionals to events to exchange ideas on developments and news of in mobile business. It has been an open community for all those working in the mobile field and with an interest in the sector, seeking to bring together developers, policy

23

24 Autumn / Issue 13

in focus

makers, researchers and sponsors through monthly events, international summits, web communities and news services.

MoMo is a tool to help the worldwide industry achieve wide-reaching benefits by spreading knowledge and encouraging people with good ideas to take action. One Monday of every month an informal meeting of the represetatives of mobile operators, ICT companies and young specialists on mobile technologies is held, to share ideas and discuss innovative visions, trends, studies and forecasts from the mobile marketplace and the potential for new projects using mobile technologies.

In 2011, more than 1000 MobileMonday events in more than 130 cities worldwide were organized. These events were attended by some 200 000 visitors. These figures make MobileMonday a global leader in organizing mobile industry events.

History of MoMo

In 2000, a couple of well-known Finnish visionaries met at a pub for an informal get-together. The only suitable time for them was Monday evening. After meeting many new faces and discussing the latest in mobile technologies, the group decided to continue meeting on the first Monday of each month. This is how MobileMonday was

born. Towards the end of 2004, the movement started to spread to other areas of the world, and new MoMo chapters were started in Tokyo, Japan, Silicon Valley, USA, as well as Rome and Milan, Italy. Since then, the number of Mobile Monday chapters and members has dramatically increased, making Mobile Monday the world’s leading mobile community.

MoMo worldwide

It is remarkable to note that various international cities, in Germany, Finland, Norway, Ukraine, Russia, Hungary, Romania, Switzerland, Canada, Ireland, New Zealand, Denmark, and Turkey, for example, are already members of the MoMo platform.

What will MoMo bring to Azerbaijan?

"MoMo will be a very important project in the Azerbaijani business sector. This mobile social network will bring new technologies to Azerbaijan and support the establishment of new business through mobile technologies", says Elshan Musayev, the President of Caspian Investment Center and founder of MoMo Baku.

Today many areas of Azerbaijan economy are developing. The oil and gas sector is still the leading

25

in focus

area, but the government of Azerbaijan is interested in the diversification of the economy, and so attention is also being paid to the development of other sectors. ICT is one of Azerbaijan’s most innovative and fast growing sectors. New technologies are being constantly introduced to the market, and so innovations are critical in remaining competitive in this rapidly developing market. MoMo Azerbaijan can provide a foundation for a new business culture in Azerbaijan.

New mobile business fields are being established using mobile technologies. Day by day the the number of these technologies are expanding and increasing the mobile sector’s share in the national economy. Although it was only three years ago that IStore was set up, the number of people who have made significant amounts of money – even become millionaires – is relatively high. MoMo is also interested in establishing developer groups in Azerbaijan. These groups are being recruited by creating different games, entertainment and business apps.

There are programs seeking to involve young people in the business. MoMO will be especially interesting for the youth. One way to understand MoMo is as a social

network that brings together people with a shared interest and passion.

MoMo will also serve as a “school”. People who are interested in mobile technologies can join and learn a huge amount through this platform. Different seminars and trainings will be organized as part of MoMo Baku. The applications, which have already gained international success, will also be be introduced via MoMo Baku. MoMo is creating cross-generational services that appeal to all ages.

“Smile, it is Monday!”: that is MoMo’s slogan, playing on the common dislike of Monday as the first day back to work following the weekend. But as the slogan suggests, at MoMo, Monday is a day of new acquaintances and new information; it is the way to innovation.

When Baku joined MoMo and was confirmed as the 123rd MoMo city, people joked that 123 was a lucky number. We believe that establishment of MoMo Baku will make a tremendous contribution to the Azerbaijan economy.

We invite all mobile people to get involved in Mobile Monday! Now there is a Monday you can look forward to!

Autumn / Issue 1326

member contribution

The top 10 risks for Oil & Gas companies

Political constraints in North Africa and the Middle East and competition for proven reserves is the #1 risk for oil and gas companies, according to a recent study published by Ernst & Young (EY). The ranking is based on interviews with oil and gas commentators and EY's global multi-sector survey, which included 82 oil and gas executives in 15 countries.

This article identifies and examines the top 10 risks for the industry today:

1. Access to reserves (political constraints and competition for proven reserves)

The survey indicates that a combination of political unrest in North Africa and the Middle East, high oil prices and the growth of new government-backed rivals have pushed this risk to the top of the list.

In many new market opportunities, companies are confronted with either very strong local markets or ownership provisions (such as Brazil where companies must partner with a local organization), or situations whereby the government does not allow companies to participate in the market on an equity basis, in effect limiting participation to service contracts. The trend of increasing competition from government-owned and government-backed companies shows no sign of diminishing. High commodity prices encourage governments to establish or expand National Oil Companies ("NOCs"). Today, Chinese companies are gaining the headlines, but the oil and gas sector is also likely to see the internationalization of NOCs from other emerging economies including Brazil, Russia, India and Korea.

2. Uncertain energy policy

Uncertainty over the future energy policy of both consuming and producing countries remains a high-level

risk for the oil and gas industry. Lack of progress on policy debates, including US energy policy, greenhouse gas reduction measures to replace the Kyoto protocol, deepwater drilling and environmental standards are causes for serious concerns within the industry.

3. Cost containment

Companies are facing increasing pressure on their cost containment efforts as a result of a number of factors. Firstly, operating environments for oil and gas companies have become more complex, posing both physical challenges (resulting from, for instance, deepwater drilling or Arctic exploration and production) and political challenges. Secondly, increased and constantly changing safety and environmental reporting requirements are causing substantial increases in compliance costs.

4. Worsening fiscal terms

The fiscal and contractual terms offered by host countries change over time and depend on a multitude of factors, including the size and complexity of the resource, current levels of investment, the degree of competition and national experience. However, governments tend to take a more assertive stance when prices rise. Under uncertain market conditions, governments often make regulatory changes to their benefit. This has previously been the case in the petroleum industry, and we are starting to see this again.

Domestic supply obligations and changes to fiscal regimes are re-emerging, which will affect upstream investment.

5. Health, safety and environmental ("HSE") risks

HSE issues have risen on the oil and gas industry's agenda over recent years. This reflects an increased desire on the part of oil and gas companies to achieve a more sustainable and robust operating model, coupled withthe fact that the industry is facing more complex operational challenges than ever before.

A stronger emphasis on HSE issues may affect the ability of companies to explore and produce oil and gas in certain regions, particularly ecologically sensitive

Nihad AzizliAssurance Senior, Ernst & Young

Turgay TeymurovAssurance Partner,Ernst & Young

27

areas. Specifically, there are growing public and political concerns over the environmental impact of unconventional oil and gas exploitation (for example, shale gas).

In the aftermath of the Gulf of Mexico spill, both the industry and the regulatory bodies are evaluating the suitability of the different regulations and the effectiveness of safety management practices among operators and suppliers.

6. Human capital deficit

While the oil and gas sector is by no means in crisis in terms of available talent, a serious situation could arise if insufficient action is taken to develop the next generation of skilled workers. "An aging workforce and a shortage of new recruits will remain critical factors in an era where fossil fuels are seen by many as a 'dirty' or ‘sunset’ industry," noted one industry expert.

Almost 45% of workers are currently over 45. A significant

proportion of the industry's workforce will retire in the next 5 to 10 years, and there does not appear to be an adequate labor force to replace this knowledge and expertise.

Another contributing factor here is the deteriorating brand image of the oil and gas industry. It has long been a target for environmental activism, and periodically suffers high-profile environmental incidents. This could amplify the flight of talent to more "fashionable" sectors, such as renewables.

7. New operational challenges, including, unfamiliar environments

There is a shared recognition in the industry that the time of "easy" oil and gas is over for most International Oil Companies ("IOCs"), and many NOCs too. For this reason, the challenge of unfamiliar operational environments has been included into the risk ranking. Because oil and

Autumn / Issue 1328

member contribution

gas reserves are getting harder to access as supplies are being consumed and political barriers increase, the industry is being pushed toward the pursuit of less accessible sources. Companies face both physically challenging environments, such as ultra deep water and the Arctic, as well as politically testing environments, such as insecure regions and areas governed by unstable regimes.

Operating in new environments requires the management of several challenges. These include technological developments; changes to the way companies can execute and operate across the value chain; the need for wider ranging and new skill sets from future employees; and the need for different organizational models between the host country, operator, partners and suppliers.

8. Climate change concerns

Despite the slow progress of international climate talks, oil and gas companies face pressure from many stakeholders to address climate change concerns. Though the Copenhagen summit of 2009 failed to achieve a breakthrough, pressure on companies can come from other stakeholders. Given that intergovernmental negotiations over climate change have failed to produce legislation with binding targets to replace the Kyoto Protocol (which will expire in 2012), civil society groups may turn directly to companies to address climate change. Oil and gas companies will increasingly be evaluated by public opinion on their climate change policies.

9. Price volatility

Price volatility tends to be caused by geopolitical or macroeconomic shocks. While capital-intensive oil and gas projects will benefit from sustained high oil prices, the global economy is likely to be impacted negatively, and the problems created may be persistent.

Small to mid-cap companies and large independents are particularly exposed to price volatility, while major IOCs or NOCs are at an advantage. As Marcela Donadio, Ernst & Young Americas Oil & Gas Leader, pointed out: "Companies cannot be in this business and ignore the volatility of pricing, because investment decisions are very long term and the volatility of the price curve is very extreme."

10. Competition from new technologies

The survey found that some 14% of oil and gas respondents reported difficulty in managing emerging technology risks. The most commonly reported driver of the risk is the failure to develop a culture of innovation culture and the attendant processes.

In addition to new technologies for exploration and production, the sector is impacted by broader technological advancements. For instance, the cost of alternative power generation is expected to fall, which in the long term could threaten the market share of the oil and gas companies that fail to adapt.

Turgay Teymurov’s short biography

Mr. Teymurov joined Ernst & Young in 2000 and is currently an Assurance Partner, leading EY Baku Energy, Chemicals and Utilities group, and additionally serves banks and other financial institutions. He has an outstanding track record of serving largest foreign and local companies operating in Azerbaijan, Kazakhstan, Georgia and Turkey.

Turgay Teymurov has extensive experience in audits of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), accounting principles generally accepted in the United States of America (“USGAAP”) and in the United Kingdom (“UKGAAP”), as well as PSA accounting

Turgay Teymurov graduated with honor from the Azerbaijan State Economic University, major of Finance and Credit (1992-1997).

He is a US Certified Public Accountant and a Licensed Auditor of the Azerbaijan Republic. He is fluent in Azerbaijani, Russian, and English

Nihad Azizli’s short biography

Mr. Azizli joined Ernst & Young in 2008 and is currently an Assurance Senior. He focuses on Oil & Gas sector and provides assurance services to the largest foreign Oil and Gas Companies operating in Azerbaijan, Georgia and Turkey.

He’s experienced in Oil and Gas Accounting, PSA Accounting, IFRS Reporting, SOX 404 Reporting, Azeri statutory audits and UK GAAP Reporting.

He also had experience of co-teaching Intermediate Accounting course at Azerbaijan State Economic University, Special Talents Group.

Nihad Azizli graduated with honor from Azerbaijan State Economic University, Faculty of International Economic Relations (B.A., Special Talents Group, 2008; M.A., 2010).

He also holds Certificate from Georgetown University for attending American Institute on Political and Economic Systems. He is fluent in Azerbaijani, Russian, and English.

Autumn / Issue 13

member contribution

Introduction

In the light of a unique project recently launched by Islamic Corporation for Development of Private Sector, a multinational member of Islamic Development Bank Group, together with a local bank to establish Azerbaijan’s first Islamic insurance company, it is good moment to take a look at the concept of Islamic insurance – Takaful - particularly vis-a-vis conventional insurance.

Human endeavors obviously include elements of risk and uncertainty. The instruments developed over time do not entirely eliminate risk and uncertainty; they aim to reduce them in order to increase the possibilities for certainty. A conventional definition of the term “insurance” is a form of risk management primarily used to hedge the risk of a contingent, uncertain loss. Another common approach defines insurance as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.

The concept of insurance is one of the instruments adopted by society to cope with risk and uncertainty which may result in financial and physical loss from unexpected events. Nowadays, insurance is a vital and integral part of most financial, trade and industrial transactions.

Islam is a religion complete with various business rules, and in addition to providing spiritual and moral guidance, it presents its own insurance regulations. Insurance practices were known before the time of Prophet Muhammad (s.a.w.) and had developed by the early 19th century, when Islamic scholars defined it through the conceptual and legal basis of an insurance contract.

Insurance regulations in national legislation where Islamic law comprises a part of local jurisprudence determine Takaful similarly to non-Islamic insurance. For example, the Malaysian Takaful Act 1984 defines Takaful as “a scheme based on brotherhood, solidarity and mutual assistance which provides for mutual financial aid to the

30

Islamic Insurance: Emerging Concept in Azerbaijan

Anar KarimovPartnerEKVITA Law Firm

participants in case of need, whereby the participants mutually undertake to contribute solely for that purpose”.

Features

Takaful resembles conventional insurance in the sense that it is a financial remedy to aid those who encounter loss. But Islamic insurance is based on the concept of social solidarity: mutual assistance, trusteeship and cooperation, inspired by the teachings of Islam in the conduct of daily affairs. Indeed, Takaful is literally translated as “guaranteeing each other”.

The cooperation aspect of Takaful is derived from the fact that the participants are simultaneously the insured and the insurers. In contrast to conventional insurance, there is no transfer of risk, as all the losses are distributed by the participants themselves. Consequently, there should be a legitimate relationship between the policy buyer and the beneficiaries.

In insurance practice, such a relationship is known as an insurable interest. Therefore, the policy shall not be

member contribution

31

held valid unless there is an insurable interest between the policy buyer and the expected beneficiary. This is because having a policy without ensuring an insurable interest is like a policy for gain, which is not compatible with Sharia law. In addition, in the case of Islamic life insurance, if the policy-holder wishes to surrender his policy before the maturity date, all the premiums he has paid within the policy term will be returned to him, together with the profit earned on any investment of the premium paid.

Differences

Takaful differs from the conventional insurance due to absence of the following elements:

• Uncertainty (Gharar) – Uncertainty is forbidden in contractual relations according to Islamic jurisprudence. It is an integral part of the service provided by conventional insurance companies, since they transfer losses arising from unforeseeable future occurrences associated with risk, in return for pre-agreed payment.

• Interest (Riba) – This is another important difference between conventional insurance and Takaful. In conventional insurance, the insured receives an amount far greater that the premiums paid. Further to that, conventional insurance is based on interest, and the money collected by the insurance companies may be, and often is, invested in interest bearing accounts and other non-Sharia compliant operations;

• Gambling (Maisir) arising out of Gharar – This element also emerges in conventional insurance contracts as an inevitable result of Gharar since any person engaged in contractual relations, which include uncertainty, actually participates in a form of gambling. In such gambling, the parties have interest in the stake to be won or lost by the determination of the event.

• Other differences - (i) In contrast to conventional insurance, there is no agency relationship in Takaful between insurers and the insured parties. (ii) The concept of Tabarru (donate or contribute) – participants agree to relinquish as a donation a part of their instalments to a common pool of compensation.

Conditions

Islamic insurance relies upon cooperation, since policy-holders cooperate amongst themselves for mutual

benefit and safe-guarding, and every policy-holder pays his subscription in order to assist those who need assistance. It is considered as a donation contract, which aims to reduces losses and evenly share responsibility among participants. A Takaful contract, which represents the concept of cooperation and mutual assistance, should therefore include the following conditions:

(i) Speciality condition;(ii) Partnership condition;(iii) Investment condition;(iv) Management condition.

The speciality condition ensures compliance with Islamic cooperative principles and serves to ensure that the company functions according to such principles. The partnership condition imposes upon the policyholders the right to entitlement of surplus profits, but at the same time render them liable to pay in additional amounts if the initial subscriptions made during a particular year are insufficient to cover all the losses. The investment condition requires the company to invest its funds in Sharia-compliant sources and which do not indulge in forbidden practices. Lastly, the management condition stipulates that the policy-holders are to have adequate representation on the board of directors of the company and confers on them a right to scrutinize its accounts.

Legal paperwork

Legal paperwork used in Takaful is similar to that which is used in conventional insurance. A subscription form is filled out and a premium is to be paid according to the package. Upon verification of the participant, a cover note or a statement of the account describing the details of the Takaful is issued. Further, the policy containing the terms and conditions of the insurance will be provided to the participant. The general law governing Takaful rests on the general principles of the contract, wherein there must be an offer (Ijab) and acceptance (Qabul). As an insurance contract, there must be consideration,

Autumn / Issue 1332

member contribution

which is constituted by the payment of the premium for the insurer and indemnity by the insurer for the insured. Other elements include the legal capacity to contract, insurable interest, specification of the insurance policy period, and the absence of non-Sharia complaints, such as Riba, Gharar and Maisir.

Takaful in Azerbaijan: challenges

The insurance industry in Azerbaijan is primarily regulated by the Insurance Activity Law, the Civil Code and other insurance and licensing related laws, presidential and ministerial decrees, regulations of the Ministry of Finance, etc. Since there is no specific regulatory framework for Islamic insurance, Takaful is subject to the general insurance laws and regulations.

These regulations seem to be compatible with regard to the standard requirements relating to the incorporation of the Takaful company, founders, and establishment process. For example, according to the Insurance Activity Law, the insurance company may only be incorporated in the form of an open joint stock company. The law allows local citizens, local legal entities, international financial organizations to which Azerbaijan is a member, and foreign insurers to act as founder(s) of an insurance company. The establishment process of the Takaful Company in Azerbaijan consists of the following steps: initial document screening (the Ministry of Finance); State registration (Tax Ministry); final license application (the Ministry of Finance); and registration of shares (State Securities Committee).

However, with respect to the operation of the Takaful company and the implementation of Islamic insurance products under the current legislation, a range of challenges are anticipated. Respective insurance rules (terms of the product) must be agreed with the regulator along with obtaining the license. Because Takaful is a new insurance concept in Azerbaijan, the issuance of the license and granting of approval for the product would be at the discretion of the regulator. Another aspect to be taken into account is that in Azerbaijan an insurance company may undertake insurance activities either in life insurance or non-life type (general) insurance, i.e., the insurance company may not simultaneously engage in life insurance and property insurance. The next challenge is that the Insurance Activity Law prescribes specific name requirements for insurance companies, i.e. the name should be defined in the Azerbaijani language; it may not contain non-translated words or capital letter; the word “insurance” should appear in the full name of the company, etc. A question arises regarding that issue on whether and how the term “Takaful” or “Islamic insurance” would appear in the Takaful company name.

Concluding remarks

The biggest difference between Takaful and conventional insurance is that with Takaful, the company is not the insurer insuring the participants or members. The people participating in the scheme mutually insure one another, which explains why Islamic insurance is cooperative insurance and is based on mutual assistance, unlike conventional insurance which is based on common law principles and their operations are based on the principles of interest. The Takaful company merely handles the matters of investment and business and administration, and as such it is a facilitator of the risk mitigation process.

The values of solidarity and cooperation are embraced by Islam, and these principles can be seen clearly in the operation of Islamic insurance. This concept is further strengthened by the fact that the Takaful scheme is not driven by self-enrichment. Therefore, specific regulatory amendments should be discussed and addressed in order to support the implementation of Takaful in Azerbaijan, so that people can benefit from its insurance products, which seek to apply trusteeship in line with elements of cooperation, mutual assistance and shared responsibility.

34 Autumn / Issue 13

member contribution

Azerbaijan’s exhibitions draw attention from around the worldInterview with Mr Farid Mamedov, Executive Director of ITECA Caspian

As another season of Iteca Caspian industry exhibitions draws to a close, we invited Company Director Mr Farid Mamedov to reflect upon the group’s experiences and achievements over the past year.

1. Mr Mamedov, we know that despite the unstable situation in the global markets, all of last year’s exhibitions in Azerbaijan were successful. How would you rate the exhibition season this year?

This year, we held exhibitions covering 23 trade sectors. Obviously, these included our best-known exhibitions: AutoShow, Azerbaijan’s international automotive exhibition; AITF, the international travel and tourism exhibition; WorldFood, the international food industry exhibition; the Caspian Oil and Gas Exhibition; TransCaspian, Azerbaijan’s international transport and logistics exhibition; BIHE, the international healthcare exhibition; Education and Career; BakuBuild, the international construction exhibition; and BakuTel, the telecommunications and information technologies exhibition.

This year has also seen a number of new launches: Plastex Caspian, the Caspian international plastics and rubber exhibition; Caspian Power, the Caspian international power and alternative energy exhibition; and Road & Traffic, the Caspian international road infrastructure and public transport exhibition. This November, we held the first international environmental exhibition – Caspian: Technologies for the Environment (CTE 2011), supported by the Ministry of Ecology and Natural Resources of Azerbaijan Republic. These new shows proved very successful, and given the pace of development within these sectors, we are confident that they will continue to grow in size and popularity.

In general, we are very pleased with this year’s exhibition season. Almost all of the events have grown by over 20%, and some even more than that – BakuTel, for example, has more than doubled in size. BakuBuild, the biggest exhibition in the Caspian region, occupied all three of the Baku Expo Center’s available Exhibition halls in the as well as the outside area, making the October 2011 event one of the most successful to date. One of the key factors in our success has been the stable financial and economic

situation in Azerbaijan, along with healthy predictions for growth and development over the coming years.

2. Traditionally, Azerbaijan’s exhibitions have drawn attention from around the world and regularly attract influential visitors. Is there anyone you would point out this year?

Definitely! We were honoured by the presence of the President of Azerbaijan, H.E. Mr Ilham Aliyev, at a number of our exhibitions this year. The Caspian Oil & Gas Exhibition and Conference welcomed a large party of VIPs, including His Royal Highness Haakon, Crown Prince of Norway; Gunther Oettinger, EU Commissioner for Energy; Richard Morningstar, the Special Envoy of the United States Secretary of State for Eurasian Energy; and Alexander Khetaguri, Minister for Energy of Georgia. The leaders of the USA, Great Britain, Turkey and the EU sent welcome letters to be read at the opening ceremony. We were also joined by Mr Igor Levitin, Minister for Transport of the Russian Federation, at the TransCaspian Conference, and Mr Lino Baranyao, Minister for Science, Technology and Product Innovation of Argentina, at CTE 2011.

35

member contribution

This year’s BakuTel exhibition featured 18 international stands, many of which were supported by their relevant ministers, including representatives from Jordan, Senegal, Israel and Turkey. In addition, Jan Kubis, Chairman of the Committee of Ministers of the Council of Europe; Hamadoun Toure, Secretary General of the International Telecommunication Union (ITU); Ambassador Abdul Mois Bukhari, Deputy Secretary General of the Organization of Islamic Cooperation (OIC); Prof. Dr. Atta-ur-Rahman, Coordinator General of the OIC Ministerial Standing Committee on Scientific and Technological Cooperation (COMSTECH) and many others flew into Baku for the event.

3. Baku Expo Center has now been open for more than a year. How has the availability of a purpose-built space impacted the exhibitions?

The availability of a modern exhibition complex that meets our customers’ expectations is significant both for the exhibition industry and the economy as a whole. It is a huge step towards establishing Baku as a regional business hub. We have now hosted two seasons at the Baku Expo Center and feedback from our exhibitors and visitors has been extremely positive, reaffirming the importance of having a venue that meets international standards. Although the complex is located outside of the city center, transportation was not a problem – visitors made use of a free shuttle service to and from central Baku. And, in fact, its proximity to the airport, the rapid growth of the city and the protection from city-center traffic will secure its popularity.

The new venue also offers opportunities for developing the exhibitions, both in terms of size and quality, as it has the capacity to host larger events, and offers exhibitors more flexibility with regard to the individual design of their stands. We look forward to strengthening and consolidating out relationship with the Baku Expo Center over the coming years.

4. Are you worried that the development of the exhibition industry will see increased competition?

Increased competition is certainly something we anticipate. However, we have a number of advantages over our competitors. first is our strong partnership with ITE Group PLC and with its international brands. Iteca Caspian” with “ITE Group PLC are well known outside of Azerbaijan, and leading international companies trust us to deliver. Our regular participants support our initiatives and join us in entering new markets.

ITE Group PLC also has a wide network of international offices and agents, with offices located in our clients’ key markets: UK, Germany, Dubai, China, Poland, Turkey, Russia and throughout Central Asia.

Furthermore, we have a professional local team. Our employees undergo international training, taking advantage of the experience of our partners and attending the world's leading exhibition schools.

member contribution

36 Autumn / Issue 13

Another important factor in the success of our exhibitions is the level of state support we receive in Azerbaijan. The status and credibility of our exhibitions is enhanced by the regular attendance of Azerbaijani President H.E. Mr Ilham Aliyev at the opening ceremonies of exhibitions – for example, Caspian Oil and Gas, BakuTel and AITF. The events organized by Iteca Caspian are also officially supported by government bodies such as the Ministry of Health, the Ministry of Culture and Tourism, the Ministry of Emergency Situations, the Ministry of Industry and Energy, the Ministry of Ecology and Natural Resources, the Ministry of Communications and Information Technologies, the Ministry of Transport, the State Oil Company of Azerbaijan Republic (SOCAR), the Main State Traffic Police Department, the State Committee on Urban Planning and Architecture, the Azerbaijan Export and Investment Promotion Foundation (AZPROMO) and the National Confederation of Entrepreneurs’ (Employers’) Organizations of the Republic of Azerbaijan.

Some of the exhibitions are also supported at an international level by organizations such as the UN, the International Telecommunication Union (ITU), the UN World Tourism Organization (UNWTO), the Permanent Secretariat of the IGC TRACECA, the UN-established Global Alliance for ICT and Development (GAID), the Regional Commonwealth in the field of Communications and the Association of Tourism Exhibitions Organizers.

Naturally, we are extremely grateful for continued support from these various bodies.

5. 2011 has been declared the Year of Tourism in Azerbaijan. What contribution have your exhibitions made towards the development of tourism?

Answering that question is easy! This year’s exhibitions have brought over 1,600 exhibiting companies to Baku, as well as over 50,000 visitors. Around 20% of the visitors and 40% of exhibitors were from abroad and, for many, this was their first visit to Azerbaijan. I believe they left with a strong impression of Azerbaijan’s economic successes, the scale of construction that is going on, the level of local production and, of course, the country’s resource wealth .

Additionally, every year, Iteca Caspian, supported by the Ministry of Culture and Tourism of Azerbaijan Republic, organizes the country’s international travel and tourism exhibition (AITF). This event promotes local tourism, as well as providing information on travel opportunities available to Azerbaijani tourists - both domestic and international. Every year, the number of companies exhibiting at AITF increases, with more and more countries choosing to participate.

I feel that speak for Iteca Caspian to say that we are proud of the role we have played in developing tourism in Azerbaijan.

6. Can you share your plans for the future with us?

Our agenda for the next few years is not a little daunting! Our focus remains the same – the development of our exhibition business, both in terms of quality and quantity. At each show, we conduct market research, which enables us to understand the needs and expectations of producers and consumers, and track future market developments. We are always seeking to add new sectors to our portfolio in order to attract exhibitors from adjacent industries. Exhibitions covering 25 trade sectors have been scheduled for 2012, including the first ‘IPACK Caspian’ – the Caspian International Packaging, Packing, Label and Printing Exhibition. In the past, this sector was part of the WorldFood Azerbaijan exhibition, but in response to the growing demand for these products, we are now offering it as a stand alone event under the IPACK brand, whose events cover Russia, Turkey, Kazakhstan, Uzbekistan and Ukraine. We are confident that this event will prove a success in Azerbaijan. In other news, in response to feedback from participants, the Education and Career Exhibition will now be a biannual event, held in spring and in autumn.

7. Mr Mammadov, Iteca Caspian has been a member of AMCHAM for several years. How would you assess this co-operation?

We are very proud that Iteca Caspian has been a member of AMCHAM for eight years. AMCHAM has 230 members covering a wide range of industries. Many of the member companies and associations are regular participants in our exhibitions. Regular meetings within the framework of the Chamber, as well as activities that gather the members together undoubtedly help to establish new contacts and build relationships. Actually, this year, AMCHAM celebrates its fifteenth anniversary – I would like to congratulate them on this achievement and wish AMCHAM and IMPACT every success in the future.

Farid Mamedov, Director of Iteca Caspian LLC, was born in 1974 in Baku. He attended secondary school from 1981 to 1991. In 1992, he entered the State Economic Regulation Faculty at Azerbaijan State Economic University (ASEU).

In April 1992, he was employed by the Ministry of Material Resources. From 1992 to 1994, Mr Mamedov undertook military service.

On his return from military service in 1994, Mr Mamedov continued his education whilst working at the Ministry of Material Resources until 2000. He graduated from ASEU in 1998. He has worked for Iteca Caspian LLC since 2000.

In 2007 he completed an UFI course on the Organisation and Management of Exhibitions.

Established in 1996, AmCham is com-posed of over 220 members and asso-ciates active in every sector of the Azer-baijani economy. We represent 80% of all foreign investment, as well as a significant portion of local investment which allows us to promote American, Azerbaijani and multinational corpora-tions. This includes leading companies in Energy, Banking, ICT, Legislative/ Financial Consulting, Professional Ser-vices, Education, Real Estate Develop-ment, Health, Transportation, Travel and Production fields.

An active and positive influence in Azerbaijan, we conduct our mission with integrity and respect for the country, observing all local laws and insisting on the highest ethical standards in all relationships and transactions.

Why join?Key member benefit – best networking opportunities in Azerbaijan!

As a member of AmCham, your company has access to a vast network of business information and contacts in Azerbaijan and in the US government, as well as valuable information on US businesses across Europe through ECACC (European Council of American Chambers of Commerce) and US Chamber of Commerce.

Additional Member Benefits include:

Annual Employee Salary SurveyQuarterly Inflation SurveyAmCham Membership DirectoryAmCham Resource Library

For more detailed information please visit our website www.amchamaz.org

To applyTo apply for affiliation with AmCham, a candidate must submit a written application in the form adopted by the Board of Directors. Membership applications are available at the AmCham office or on our website at www.amchamaz.org. The application form should be completed and sent to our office with the company registration certificate issued by the Ministry of Justice of Azerbaijan.

A candidate meeting the objective and subjective requirements for affiliation with AmCham is accepted as either a Member or Associate upon receiving an affirmative majority vote of the Board of Directors and paying the first year’s fee for the candidate’s category of affiliation.

To maintain affiliation with AmCham, Members and Associates must continue to meet our eligibility requirements, be in good standing in the community, and be current with all financial obligations to AmCham.

About usThe American Chamber of Commerce in Azerbaijan is a private, non-profit business association supporting and promoting the interests of business in Azerbaijan.

MembershipThere are two types of affiliation with AmCham: Member and Associate.

Member status includes voting privileges and eligibility for Board and committee chairmanships in addition to the privileges granted to Associates. For affiliation as a Member, a candidate must be a legal entity, registered and doing business in Azerbaijan and be in good standing in the community, as determined by the Board of Directors.

A legal entity, branch or representative office of a legal entity is eligible to be affiliated with AmCham as an Associate, subject to the Board of Directors’ determination of good standing in the community.

Associates are eligible to participate in various activities; receive our regular publications, including the Membership Directory, Annual National Employee Salary Survey and Quarterly Inflation Survey. Associates, however, are not entitled to vote or serve on our Board of Directors.

AmCham Azerbaijan

38 Summer / Issue 1238

AmCham Azerbaijan

39

Government relations: September – December 2011During the reporting period, AmCham sustained an intensive and direct dialogue with the Government of Azerbaijan to discuss sector-specific issues.

On September 13, we met with Mr. Shahmar Movsumov, the Executive Director of the State Oil Fund and Head of the Working Group on the National Education Strategy, in order to discuss Azerbaijan’s 2011-2021 Education Strategy, which is currently under preparation.

We also met Mr Ali Huseynli, Head of the State Building and Legal Policy Committee of the Parliament, on November 25 to discuss national legislative processes and the possibility of cooperation with the body chaired by Mr Husenyli.

Throughout this period AmCham maintained a dialogue with the State Migration Service (SMS), and on 29 November, we met with the Head of the SMS Mr. Arzu Rahimov, to discuss and clarify new requirements concerning medical certificates effective from November 1. Following the meeting, Mr Rahimov clarified number of questions that had arisen with the introduction of these new guidelines. Moreover, Mr Rahimov agreed to AmCham’s proposal to answer questions from AmCham Members on migration issues in the form of a ‘Frequently Asked Questions’ piece.

As part of the follow up on the AmCham White Paper, on 1 December 2011 we had a meeting with Mr Adil Aliyev. The meeting addressed AmCham proposals for improvement to legislation across different fields, in addition to AmCham position papers on different legislative acts. A number of issues surrounding legislative practices in Azerbaijan were also clarified.

On 29 September AmCham hosted Deputy Minister of Taxes Mr. Sahib Alakbarov as the guest speaker at the Monthly Members’ Luncheon. He was accompanied by the Head of the Tax Policy and Analytical Department of the Ministry of Taxes, Mr. Akif Musayev.

On December 8 AmCham hosted Mr. Kamaladdin Heydarov, Minister of Emergency Situations, as a guest speaker at the Monthly Members’ Luncheon. Mr. Heydarov updated members on the developments following the establishment of the Ministry of Emergency Situations, and touched upon improvements in the local economic climate.

AmCham also prepared two position papers: “The Higher Education System of Azerbaijan” and “The Action Plan for the Year of Tourism approved by President of Azerbaijan on 20 July 2011”, which were sent to the relevant state bodies. AmCham plans to take further measures to follow up on these position papers, and members will be duly informed such action.

On a working level, representatives of Ministry of Tourism, Ministry of Economic Development and State Customs Committee participated in various AmCham Committee meetings. AmCham hosted the Deputy Chief of the Tourism Department of the Ministry of Taxes along with representatives of AZAL at the Tourism Committee’s October meeting. In November, AmCham hosted the Chief of the Legal Department of the State Customs Committee to discuss new the Customs Code, which will come into effect on 1 January 2012. AmCham also hosted a Leading Advisor of the Ministry of Economic Development, who spoke about the status of the Azerbaijan’s WTO accession process.

In addition to initiating dialogues, AmCham was also on the receiving end of invitations from government officials. Various state bodies invited us to participate in their events. AmCham took part in a seminar devoted to “Increasing the role of public associations of entrepreneurs in informing, teaching and promoting services provided to tax payers”, organized by the Ministry of Taxes (19-20 October). The Deputy Minister of Labor and Social Protection invited AmCham to the Ministry’s conference on “The role of the State Employment Service in providing decent jobs: modern approaches and priorities” on 26 October.

AmCham is continuing to pursue a number of other projects involving different state agencies and institutions. We will keep you updated on all our activities for the establishment, maintenance and promotion of our policy dialogue with the Government of Azerbaijan.

Summer / Issue 1240

AmCham Azerbaijan

Business Events

29 September 2011Mr. Sahib Alakparov, the Deputy Tax Minister of Azerbaijan, was invited as our Special Guest Speaker at the first Monthly Members’ Luncheon after the summer break. Mr. Alakparov spoke on the topic of tax reform, both in terms of policy and administration, including the application of international best practices and modern technologies.

The luncheon also featured a presentation by AmCham’s Member Relations & PR Manager, Mrs. Aysel Suleymanova, who introduced the exciting new features and benefits available for our Full Members within the Member-to-Member (M2M) discount program.

The director of the American Chamber of Commerce, Ms. Nargiz Nasrullayeva-Muduroglu, welcomed Hilton Baku and Ekvita Law firm as new members of AmCham. Following the speeches, we heard presentations from Eldar Alimuradov of Hilton Baku and Huseyn Huseynzade from the UNDP Office in Azerbaijan.

27 October 2011In October we were delighted to welcome US Ambassador to Azerbaijan Matthew Bryza, the Honorary President of the American Chamber of Commerce in Azerbaijan, and to hear his insights on "Perceptions and Partnership on Economic Reform in Azerbaijan", following his 10 month tenure in the country.

Director of Amcham Ms. Nargiz Nasrullayeva-Muduroglu and Legislative Liaison and Policy Coordinator Shahid Shukurov updated guests on the Chamber’s cooperation with the State Migration Service and recent legal developments in the country.

Monthly Member Luncheons

AmCham Azerbaijan

41

We also had presentations from Elshan Musayev of Caspian Investment Centre and Zaur Abdullazade of Expert SM – two new members of the Chamber, who were introduced by the Director.

8 December 2011Our Special Guest Speaker this month was the Minister of Emergency Situations Mr. Kamaladdin Heydarov. On the 5th anniversary of his Ministry, Mr. Heydarov briefed guests on the Ministry’s activities and achievements. In his capacity as a member of Cabinet of Ministers of Azerbaijan, he also shared his vision for Azerbaijan’s economic development.

Following their official introduction, the Kempinski Hotel Badamdar Baku and Norm LLC gave presentations.

The luncheon also featured a presentation on the outcomes of AmCham Azerbaijan’s 13th Annual National Employee Salary Survey, which covers the latest trends in the national labor market, based on the participation of a record number of 120 of the largest foreign and local companies operating in Azerbaijan.

AmCham Azerbaijan

42 Summer / Issue 1242

The Ministry of Communication and Information Technologies of the Republic of Azerbaijan and the American Chamber of Commerce in Azerbaijan hosted "Towards the Future" ICT Conference within the framework of "Bakutel" International Exhibition organized by Iteca Caspian.

The conference took place on Thursday, 24 November 2011. The program of the conference featured leading ICT technologies, innovations as well as positive and negative impact of their possible implementation in Azerbaijan. Cloud Computing and Mobile Broadband topics covered two panel discussions by leading professionals from HP, Microsoft, PwC, Azerfon-Vodafone, Nokia Siemens and Sazz.

The event was carried out in an interactive Davos format and provided an excellent opportunity for guests to get the latest trends in ICT from the invited industry leaders and get involved in discussion with key stakeholders. The program consisted of two panels and followed by a networking lunch.

“TOWARDS THE FUTURE” ICT CONFERENCE

AmCham Azerbaijan

43

HR Committee27 September 2011AmCham has been requested by the World Bank to prepare a list of ten key areas for reform in the education system of Azerbaijan, from the perspective of employers. These issues will be raised at the next World Bank Experts Forum with the Government of Azerbaijan on economic diversification. The Committee appointed its September session to discuss recommendations for the improvement of the education systems, to be developed by members for further discussion with the Government during the Forum.

Later on, representatives of the International Labor Organization (ILO) delivered a presentation on their projects and activities in Azerbaijan, and discussed the Multinational Enterprises Declaration with Committee Members.

At the end, Nargiz Nasrullayeva-Muduroglu updated members on the current status of the 2011 Salary Survey Review, and encouraged all HR professionals within the group to participate in the project.

28 November 2011The meeting discussed the Preliminary Review of Salary Survey 2012. Olga Romanova of the US Embassy gave a presentation on the Women Entrepreneurship Project, initiated by AmCham and the U.S. Embassy in Azerbaijan. The program’s objective is to empower the next generation of female business leaders and to develop the business skills of young women.

ICT Committee8 September 2011The September meeting of the Committee was called to discuss the upcoming ICT Conference, scheduled for November 2011. Mrs. Nasrullayeva-Muduroglu shared AmCham’s best practice model – seen in the recent Tax Conference - and suggested that the ICT conference have a similar interactive format, involving government officials and representatives of various youth organizations. The Committee agreed that the conference would be held as a one-day event, exploring the following topics: (a) Social networking, (b) Cloud computing and (c) Mobile broadband. The second part of the meeting was dedicated to the next edition of IMPACT Magazine, which would cover the issues surrounding the development of Electronic Governance in Azerbaijan.

Committee Highlights

AmCham Azerbaijan

44 Summer / Issue 1244

Travel, Hospitality and Tourism Committee20 September 2011Mr. Mahir Qahramanov, the Deputy Chief of the Tourism Department of the Ministry of Culture and Tourism, updated the Committee on the Action Plan currently being implemented by the Ministry. This plan covers social and economic development in the regions; creation of infrastructure for further development of tourism; preservation of national cultural heritage, promoting Azerbaijan as a tourist destination, development of human resources, visa procedures, legislative framework, etc. Following this, the Executive Director of AmCham updated members on the recently released position paper on tourism, and asked members for their feedback.

Mr. Elnur Huseynov of AIT – HRG Azerbaijan has been elected the Chairman of AmCham Travel, Hospitality and Tourism Committee for the years 2001-2012. At the end of the Meeting, the Committee decided to send an official letter to the Ministry of Culture and Tourism request them to delegate an official contact person for AmCham.

2 November 2011The November meeting of the Committee started with a presentation form Mr. Jamil Manizade, Deputy Executive Director of Silk Way Travel, which covered the company’s current activities and new initiatives. The presentation was followed by a Q&A session and a discussion of improvements in the tourism sector and problems experienced by members at Heydar Aliyev International airport - including poor choice and quality of food and beverages, as well as long queues at passport control and check-in.

As a result of discussion, the Committee decided to send letter to the appropriate state and private bodies regarding improvement of the quality of airport services.

13 December 2011During the final Tourism Committee meeting of 2011, we discussed this year’s main industry news and updates. The "International Buyer Program" was presented by US Embassy representatives.

Banking, Finance and Insurance Committee26 September 2011Mr. Murad Alizadeh, Founder & Chairman of the Executive Board of the Azerbaijan Corporate Directors and Management Association (AKDMA) was invited as a Guest Speaker for the September meeting of the Committee to discuss the issues

faced by Directors and Managers in Azerbaijan, and how AKDMA can help them to resolve these problems.

Mr. Shahid Shukurov, Legislative Liaison and Policy Coordinator of AmCham Azerbaijan, briefed committee members on the New Law on Compulsory Insurance, signed by the President on 15 September 2011. The law covers the following types of insurance: (a) Real Estate, (b) Civil Liabilities and (c) Passengers and Vehicle Owners. Mr. Shukurov also talked about the follow-up process and the ‘Review of the BFI’ section of the AmCham White Paper, which was shared with President Ilham Aliyev in June 2011.

Mr. Chingiz Mekhtiyev of AzRe provided members with a general overview of the insurance market. Mr. Daniel Fitzpatrick of Sibley International briefed committee members on the upcoming joint USAID / IFC conference on secured transactions legislation, and encouraged experts from the banking sector to participate.

30 November 2011Two speakers were invited to the last committee meeting of 2011. First, Mr. Rashad Abbasov, First Deputy Chairman of the Executive Board of AXA MBASK, who talked about AXA’s entry into the Azerbaijani insurance market and its role in the future development of the market. Mr. Henning Seemann, Team Leader at SBFIC, followed with his views on how to improve financial literacy in Azerbaijan and tackling over-reliance on credit.

Tax and Customs Committee6 October 2011The meeting opened with a briefing on the current stage of what has so far been a very promising dialogue between AmCham and the Ministry of Taxes, and on two recent meetings with the

AmCham Azerbaijan

45

Deputy Ministers - Mr. Natig Amirov and Mr. Sahib Alekberov. This was followed by a presentation on the status of customs code by Mr. Shahid Shukurov, Legislative Liaison and Policy Coordinator of AmCham Azerbaijan.

3 November 2011The New Customs Code of the Republic of Azerbaijan was introduced by Mr. Sanan Mukhtarov, the Head of the Legal Department of the State Customs Committee.

2 December 2011In the final meeting of 2011, Committee Members shared perspectives on the current status of Azerbaijan’s accession to WTO with Mr Mirze Aliyev, the lead consultant from the Ministry of Economic Development.

CSR Committee11 OctoberOver the past couple of years, AmCham HSE Committee has successfully implemented a number of important social initiatives, including amongst others the Tree Planting Campaign (2011), a New Year’s Eve Visit to the Orphanage (2011), Trainings on Ecology in city schools (2011), Trainings on Office Safety (2007), Trainings on Stress Management (2007), Trainings on Road Safety for kids (2006).

The primary focus of this committee has been to target corporate social activity. This work has generated a strong initiative for the restructuring of the current body into a brand new Corporate Social Responsibility (CSR) Committee. We believe that this entity will become an integral and strategically important part of your operations. As a natural platform for sharing information among AmCham members, this committee will aim to raise the level of awareness on CSR issues, share best practices, and implement joint projects.

The first meeting discussed the Concept Paper, along with the mission, vision goal and key directions of activities under the newly established Committee. Attendees introduced various CSR projects implemented by their companies. At the end of a meeting, it was proposed to develop CSR Awards for the most socially responsible members of AmCham.

1 NovemberFollowing online voting and the final resolution by AmCham’s Board of Directors, Leyla Seyidzadehof P&G was elected as Committee Chairman, and Samir Mammadov of Save the Children as Vice-Chairman. The concept paper was approved, taking into consideration a few comments on wording suggested by Agil Gurbanov, PwC. Dr. Israil Iskenderov from “Umid” NGO gave a presentation on the Position Paper compiled in cooperation with AmCham. As a part of their CSR activities, AmCham and P&G agreed to implement a joint Donor Project before end of 2011.

46

AmCham Azerbaijan

Summer / Issue 1246

AmCham Legal UpdateLAW ON MANDATORY INSURANCES The Law will come into force on October 15, 2011. It will replace the law On mandatory insurance of the civil liability of vehicle owners, the law On mandatory ecological insurance, the law On mandatory insurance of passengers’, and the law On mandatory fire insurance. To regulate issues relating to mandatory insurance, the Ministry of Finance is tasked with establishing an Insurance Bureau within two months from September 15, 2011. The Insurance Bureau will be responsible for protecting the interests of insurers; making proposals for improvements to the legislation and practice relating to mandatory insurance; preparing guidance for the investigation of claims; payment of compensation to third parties for damage to health (in the event that the insurer is insolvent, personal injury is caused by an unknown vehicle, if the damage is caused by a driver whose civil liability is not insured and where the claim against the driver has been turned down)]. In order to provide insurance cover of the type specified in the law, an insurance company must be approved by the Bureau and should pay the appropriate fee. The Ministry of Finance is tasked with defining additional requirements for issuing permits to insurance companies, to introduce a new form of insurance certificate etc. within two months. The Ministry of Finance should define the amount of the fee by November 15, 2011. The new law regulates four types of mandatory insurance: insurance of real estate insurance of civil liability related to the use of real estate (a form of occupiers' liability), insurance of the civil liability of vehicle owners, and insurance with respect to air, water, rail and automobile passengers. Insurance of real estate: The main difference between the new law and the repealed law On Mandatory Fire Insurance is its extension to events beyond fire e.g. natural disasters (earthquakes, volcanoes, storms, floods, overflow, etc.) as well as to damage by motor vehicles (Art 36.1). Real estate insurance is also applicable in the case of lightning; gas explosions; electrical short circuits; explosions of machinery, devices, gas pipelines, gas depots, steam boilers; accidents on water, heating, canalization pipelines and at fire-extinguishing systems as well as flooding as the result of the water escaping from other apartments, buildings, rooms, neighboring buildings, residential or non-residential areas; and influence as the result of the dropping, throwing, spilling, floating of any object (Art 36.1). Compulsory insurance is not required for structures ordered to be demolished by the decision of state or local government institutions; real estate that is under

construction; real estate that is in a dangerous condition, illegally built real estate (Art. 35). The insurable amount for buildings and building under construction that are not for residential purposes buildings and buildings under construction is the reconstruction cost, for non-residential areas it is the average market value (Art 39.1). The insurable amount for residential property is AZN 25,000 (twenty-five thousand) for real estate in Baku (Art 39.3.1) and AZN 20,000 (twenty thousand) in Ganja, Sumgait and Nakhchivan (Art 39. 3.2), AZN 15,000 (fifteen thousand) for the rest of the country. The insurance premium for residential property is not to exceed 0.2 % of the insurable amount, i.e. AZN 50 in Baku. Insurance of civil liability related to the use of a real estate: This relates to insurance by an ‘owner’ of property against damage to the health and property of third parties that might occur during renovation, construction, reconstruction and other works on real estate. The ‘owner’ of property, for the purposes of this insurance, is any person who has ownership or actual possession of the property, including a lessee of the property or one managing the property based on a power of attorney or persons using the property on any other legal basis (Art 43.1). The insurable amount for physical injury caused by an accident to third parties is AZN 50,000 (fifty thousand), (not exceeding AZN 5,000 (five thousand) for person) and AZN 50,000 (fifty thousand) for damage to property (Art 47). It is the responsibility of the 'owner' to take out the insurance. Since both lessor and lessee can be deemed the owner under the wording of Art 43.1 it can be either lessor or lessee. Art 45.2 says that regardless of the person on whose behalf the insurance certificate is issued, the person legally using or present on the premises is deemed to be insured. Thus, civil liability can be insured only by one person] Mandatory insurance of the civil liability of motor vehicle owners:

The purpose of this insurance is to insure the civil liability of motor vehicle ‘owners’ for compensation for physical injury of the physical persons as well as for damage to the property of physical and legal persons (Art 50.1). The law provides the categories of motor vehicles (by engine size etc.) civil liability with respect to which should be insured (Art 50.2). The insurance covers third parties, including passengers in the motor vehicle (Art 54). Insurance accident under the new law is the fact creating the civil liability for the compensation of the damage to the health and/or to the property of third persons resulted from the use of the motor vehicle. Unlike law on insuring civil liability of vehicle owners (that new law will be replacing) new law defines what the use of the vehicle is and what is not the use of the vehicle (Art 52). In doing so, the new law does not list instances that will not be reckoned as insurance accident for the purposes of law. An ‘owner’ of a motor vehicle, for the purpose of this insurance, is any person who owns the vehicle or who exercises actual control over the vehicle as well as any person hiring the vehicle or driving

4747

AmCham Azerbaijan

the vehicle on the basis of a power of attorney or any person using the vehicle on any other legal basis (Art 53.1). The insurable amount will be AZN 5,000 per person (not exceeding AZN 50,000 for each event) and AZN 5,000 for damage to property (Art 56). The new law also provides for the creation of a single electronic information database including relevant information on this type of insurance (Art. 59, 60, 61).If the vehicle is a hire car, the law does not exactly say who is responsible for taking out the insurance. But if the vehicle is subject of a leasing agreement, it is the owner who should take care of the insurance. The party paying the insurance and being party to an insurance agreement is deemed to be the insured. And as in case of property, regardless of the person on whose behalf the insurance certificate is issued, any person using the vehicle on a legal basis is deemed insured. Mandatory Personal Accident Insurance of the Passengers: Insurance cover with respect to injury to passengers of air, water, rail and automobile services must be purchased by the owners of the relevant transport (Art 64, 65). However, this requirement does not apply to owners of urban transport (Art 65.3). The insurable amount is AZN 5,000 per passenger in accordance with the maximum passenger capacity of the vehicle (Art 68.1.1). The amount of the premium has still to be defined by the Ministry of Finance (Art 69).

CUSTOMS CODE A new Customs Code has been signed by the President and will take effect from the January 1, 2012. It introduces new concepts and practices to the customs regime of the Republic. Unlike the previous Customs Code, it provides for binding rulings, pre-arrival declarations, risk assessment and risk management, (post-clearance) customs audits, and the establishment of authorized economic operators. The new Customs Code also promotes the application of information technologies. Binding Ruling (Art 50): A person may apply in writing to a customs office for an advance determination of the classification of goods, customs value, country of origin and the amount of customs duties. The decision of the customs authorities in this regard is binding on all parties. Binding decisions take effect from the date the respective notification is submitted to the person applying (Art 50.2). Summary import declarations (Pre-arrival declaration) (Art 113): The general purpose of a summary import declaration is to provide better risk assessment. A summary import declaration can be submitted electronically prior to arrival of the goods. Having been informed in advance, the customs authorities should be able to

process the goods faster. Authorized economic operators (Chapter 5 / Art 31 -32): Under the new Code, an Authorized Economic Operator is defined as a legal person which has been authorized to use simplified forms and methods of customs control for the purposes of delivering goods in a safe and secure manner and facilitating the foreign trade (Art 31.1). To providing services as an Authorized Economic Operator, the AEO should be licensed by the Customs Committee (Art 31.2). The status of an AEO issued by foreign countries may be recognized by the Customs Committee on the basis of international agreement (Art 31.6). (Post-clearance) Customs Audit (Art 98): The new Code enables customs officers to examine the commercial records on operations and international trade transactions of entrepreneurs and legal persons. A Customs Audit can be conducted within 3 years after the goods have been released from customs control. Thus, records must be maintained for at least 3 years (Art 70.2)

Cabinet of Ministers Resolutions: On making amendments to the CoM Resolution No 14 of January 25 2008 On ‘Norms of Business Trip Expenses’ Paragraph 1.1.1 of the Resolution was redacted. Thus, under new redaction costs of one day business trip increased to 65 AZN for Baku (formerly 35 AZN), 50 AZN for Ganja, Sumgait and Nakhchivan (instead of 25 AZN), and 45 AZN for other cities, districts, settlements and villages (formerly 20 AZN /15 AZN). 80% of these costs should cover hotel expenditures. The Resolution was also amended to provide that if the necessary validating documents for hotel expenses are not submitted, only 50% of the costs determined for hotels should be paid (Par1-1). For employees whose work is of a nature that requires constant travelling etc., the supplement to their salaries is increased to 10 AZN per day, instead of 5 AZN. On making amendments to CoM Resolution No 214 of 6 December 2000 on ‘Rules on issuing personal (work) permits to foreign persons for paid work on the territory of Azerbaijan and on approving a sample thereof’ The State Migration Service is now made responsible for issuing work permits. Previously the responsibility for this lay with the Ministry of Labor and Social Protection. There is now also a fixed term for processing work permit applications at the State Migration Service of 20 days, which includes the

48

AmCham Azerbaijan

Summer / Issue 1248

processing period of 5 days allotted to the Ministry of Labour and Social Protection (Par. 2.2). Previously, no period for processing work permits was stipulated. On making amendments to CoM Resolution No 86 of 4 June 2009 on “Rules to determine quotas for labor migration” In future, the State Migration Services will be responsible for providing the commission determining labour quotas with information on (a) the number of the foreign workers in the country, including the country of origin and profession and expected number of prolongations; (b) the status of use of the quotas during the previous year; (c) cases of breach of the rules for attracting foreign labour; (d) general prognosis on the need of companies to attract foreign labour. Before the amendments this information was provided by Ministry of Labour and Social Protection.

Decrees and Orders of PresidentDecree on certain issues of system of license and permits in order to engage in certain entrepreneurial fields President of Azerbaijan tasked the Cabinet of Ministers to prepare a draft of the “Law on Licenses and Permits” within 3 month. Within three month Ministry of Economic Development should launch an internet portal with information on all permits and licenses provided by local and central executive authorities. In this context, local and central executive authorities should cooperate with the Ministry of Economic Development and provide it with all necessary information.

Court Decisions and Resolutions: Constitutional Court: Decision on Interpretation of Art 82 of the Law on Administrative Proceeding and Art 52 and 90.1 of the Tax Code The tax authorities took an inventory of a taxpayer’s property under Art 52 and sold the property of a taxpayer in a specialized open auction as the result of which a case was brought in the Sumgait Administrative-Economic Court. The Sumgait Court referred a question to the Constitutional Court asking for an interpretation of Article 82 of the Law on Execution of Administrative Orders (LEAO) and Articles 52 and 90.1 of the Tax Code.

Art 82 of the LEAO states “an administrative organ taking an administrative decision is entitled to take a decision to implement the claims stipulated in the administrative act”. Art 52 of the Tax Code “tax authorities can seek collection of financial sanctions imposed on a tax payer as the result of its decision through courts or under Art 65 of the Tax Code. According to Art 90.1 of the Tax Code if the

taxpayer fails to fulfill with tax obligations within 30 days upon the inventory of taxpayers property, tax (as a mean to secure execution of a tax obligation) authority may appeal to the court for sale of the inventoried property in necessary quantities on a specialized open auction. According to Sumgayit Court there is an ambiguity in legislation concerning requirements of mentioned Articles: ambiguity on claiming financial sanctions through courts and on claims of the tax authorities brought to the courts for the sale of tax payer’s inventoried property (who is in breach of the tax obligation) in a specialized open auction or implementing decisions of the tax authorities, that are considered to be administrative acts, in accordance with the Law on Administrative Procedures. In this sense Sumgayit Court requested the Constitutional Court to interpret mentioned articles in order to clarify the ambiguities. Constitutional Court noted that property rights are constitutional right of person. Therefore, seizure of property under Tax Code is regulated with a special procedure. Implementation of administrative fines lacks such procedure. Moreover, under the rules of Art 90.1 of the Tax Code sale of a taxpayer’s inventoried property in auctions is within the competence of courts. Thus, Art 82.2 of the Law on Administrative Proceeding is not applicable to a sale of taxpayer’s property in auctions. In this context, Constitutional Court ruled that property of a taxpayer can be sold in the specialized open auctions only after a court decision.

Baku Appeals Court Economic-Administrative Board:Tax disputes Resolution: Case No. 2-1(103)-467/11, M.I.C. Ltd vs. Ministry of Taxes Baku Tax Department

As the result of an offsite tax audit, the Baku Tax Department (BTD) deemed a number of invoices issued by the taxpayer illegal and imposed a tax liability on the taxpayer. The taxpayer challenged the decision of BTD. Baku Administrative-Economic Court No. 1 (Court of First Instance (CFI) ) granted the claim of the taxpayer against BTD and ruled that invoices are legal and imposed sanctions should be deleted. BTD appealed the decision of CFI. Court of Appeal did not grant the appeal and left the decision of CFI in force.

Court of Appeal noted that ‘centralized ordering, sale and registering of invoices’ and ‘preparation and implementation of strict reporting blanks of enterprises and organizations as well as of physical persons engaged in commercial activity’ is regulated under Cabinet of Ministers (CoM) Resolutions No. 71 and No. 118, respectively. Under the Part II of the CoM Resolution No 118 it is the responsibility of the Ministry of Finance to prepare such blanks and responsibility of the tax payer to fill them out. Court of Appeal also noted that Ministry of Finance adopted the Rules of application and registration of the strict reporting blanks on 14.11.2007. Section 3 of this Rules is on filling the strict reporting blanks. It states that ‘in strict reporting

4949

AmCham Azerbaijan

blanks filled with hand all requisites should be written clearly, numbers and words should be clearly readable, rough copies and corrections are not allowed. Strict reporting blanks with corrections, strikes, in an unfit condition are deemed invalid’. In the context of the last provision (section 3.2) Court of Appeal mentioned that invalidity of partially filled invoices is not stated in the rules. In light of above mentioned, Court of Appeals ruled that under the current wording of the Art 176.4 of the Tax Code in it is unclear who the address of the requirement to comply with the procedure of composing the invoices in accordance with determined rules is. Under Art 3.11 of the Tax Code in case of ambiguity Tax Code should be interpreted in favor of a taxpayer. Therefore, the decision of Baku Administrative-Economic Court No. 1 remained in force.

Decision: Case No. 2-1inz(103)-168/2011, L.D. Ltd vs. Ministry of Taxes Baku Tax Department

As the result of cameral tax audit Baku Tax Department (BTD) adopted an act imposing tax liability on a tax payer for falsification of labor contracts with its employees. BTD argued that due to enough sufficient controversies between the information of tax authority and those on submitted declarations about the average monthly salaries of employees, it can impose additional taxes in a cameral way on taxpayer. Tax payer claimed against the act at Court of First Instance (CFI - Baku Administrative-Economic Court No. 2). CFI granted the claim of L.D. Ltd to annul tax debts imposed on it on the bases that labor contracts are falsified and did not meet costs of employees with high education. BTD appealed the decision of CFI. Court of Appeal did not grant the appeal and left the decision of the CFI in force.

Baku Court of Appeal stated that under Art 67.5 of the Tax Code tax authority calculates the amount of the income tax on the basis of average monthly salary in two cases: if it is impossible to calculate the income tax for the contract-based-employee on the basis of related information and if the employment of physical person is not documented. Since, none of these conditions were present in this case, Court of Appeal did not recognize right of the BTD to calculate the taxes on the basis of an average monthly salary in the country. It also did not establish any evidence that labor contracts are falsified.

Court also considered BTD’s evidences on application of Articles 18.2.2 (interdependent persons) and 14.3.2 (calculation of taxes with consideration of market price) of the Tax Code to this case. Referring to Art 13.2.11 (Article introduces an exclusion of contract-based-employment from services) of the Tax Code and explaining what the service (work) for the purposes of Code is, the Appeals Court stated that for the purposes of the Code (labor) contract-based-employment is an exception to services. Therefore, Art 14 of the Code is not applicable to this case. In the light of mentioned, Court of Appeal left the decision of Baku Administrative-Economic Court No. 2 in force and did not grant the appeal of Baku Tax Department.

Decision: Case No. 2-1 inz (103) – 196/11, A.A.A. (physical person) vs. Ministry of Taxes Tax Audit Department

As the result of an operative tax control, TAD adopted an act on

‘state of the obedience with the rules of the cash transactions’ for not registering 5.20 AZN in cash-control-device and imposed fine of 1200 AZN on taxpayer. Taxpayer c challenged the decision of TAD in the Baku Administrative-Economic Court No. 1 (Court of First Instance (CFI)). CFI granted the request of the claimant to annul the act adopted by the Tax Audit Department (TAD). TAD appealed the decision. However, Court of Appeal left the decision of the CFI in force and did not grant the appeal of the TAD.

Thus, Court of Appeal found that in its decision TAD did not bring sufficient reasons as provided in Art 50.2 (basis for operative tax control) of the Tax Code for conducting operative tax control. Also tax official did not collected evidences about the breach of law. Prepared act did not include the information on person breaching the law. Explanation on the case was not taken and information on what was delivered to client was not stated in the act. The act itself in contradiction to requirements of laws was not submitted to the taxpayer. Stating that under Art 53.3 taxpayer is not obliged to prove its innocence and it is tax authorities obligation to prove the guilt of the taxpayer, Court of Appeal did not grant the appeal of the TAD.

Decision: Case No. 2-1 inz (103)-209/2011, I.R.A (physical person) vs. Ministry of Taxes Tax Audit Department

As the result of an irregular tax audit, Tax Audit Department (TAD) adopted an act imposing financial sanctions and calculated additional taxes on an entrepreneur for deliberate decrease of the rental price of the premises he owned. Entrepreneur disputed the act and requested the Court of First Instance (CFI) to deem the act of TAD invalid. CFI granted the request. TAD appealed the decision of CFI at the Court of Appeal. However, Court of Appeal did not grant the appeal of the TAD.

Court of Appeal did not find any legal basis in the Tax Code for calculation of additional taxes on the ground that rental prices were lower than the market price. It found that current case lacks conditions mentioned in Art 14 of the Tax Code. Moreover, Court of Appeal found that the claim of the respondent that rental price is lower than market price is contradicting with the Civil Law principles of contractual freedom, free will of the subjects of civil law and independence of the participants of civil relationship with respect to their property (Art 6 of Civil Code). Court also ruled that as observed under Cabinet of Ministers Resolution 191 from 29.11.2007 (on minimum rental price for the lease of state property) rental prices for private properties cannot be regulated through administrative means. Therefore, tax authority is not empowered to determine rental price of the private property and price of such property is owners will. In addition to these, Court of Appeal doubted authenticity of expert opinion and responsibility of expert involved by TAD to give the market price of the premises subject to the case. Court of Appeal also found that the act adopted by TAD was improperly prepared.

Resolution: Case No. 2-1 (103) – 572/11, M.L.F. Ltd vs. Ministry of Taxes Tax Audit Department

As the result of the irregular tax audit, Tax Audit Department (TAD) adopted an act to impose financial sanctions and additional taxes on

50 Autumn / Issue 13

taxpayer for decrease of the construction materials to evade taxes. Taxpayer disputed TAD’s act at Court of First Instance (CFI) and requested its annulment. CFI granted the request. TAD appealed the decision of CFI. However, Court of Appeal did not grant the appeal of the TAD and left the decision of CFI in force.

Court of Appeal (Court) found that Tax authorities did not state in their act on the basis of which exact condition named in Art 14.3 (conditions for calculating taxes on the basis of market price) of Tax Code they decided to calculate additional taxes and financial sanction on the ground of market price. In the current case, Court could not establish any condition named in Art 14.3. Therefore, Court ruled that without conditions stated in Art 14.3 calculation of additional taxes and sanctions under Art 14.6.6 on the basis of market prices is contradicting requirements of this article.

Labor Disputes

Decision: Case No. 2-1 inz (103)-170/2011, A.V.F (citizen) vs. State Social Protection Fund Branch in Baku Xatai district

Social Protection Fund Khatai branch rejected to appoint

a labor pension for the appellant on a preferential term (receiving labor pension from the age of 51 for having 20 years of general seniority at least 10 of which is in specifically harmful and hard works) on the basis that under current legislation appellant has no right to such pension from the age of 51. Appellant sued the State Social Protection Fund ( SPF Khatai d. branch) at the Court of First Instance (CFI) requesting the CFI to appoint a labor pension for him on a preferential terms from the age of 51. CFI granted the request of appellant. SPF Khatai branch appealed the decision of CFI. However, Court of Appeal did not grant the appeal and left the decision of CFI in force.

Court of Appeal grounded its decision with the possibility of appointing the pension on preferential terms from the age of 51. Thus, Court of Appeal found that under Art 9.8 of the current ‘Law on Labor Pensions’ for the works specified in Art 9 of that law, pension on preferential terms is appointed on the basis of previous legislation (that was in force). Under previous legislation (in force until 01/08/1997 and reformed until 01/08/2000) the claimant had right to pensions with preferential terms.

KPMG reopened its Azerbaijan practice and Vugar Farman Aliyev is appointed as Managing Partner of KPMG in Azerbaijan.

Vugar Aliyev has over fifteen years of experience in professional services providing audit and advisory services to companies operating in financial services, telecommunication, consumer, hotel and energy industries in Azerbaijan,

Russia, Turkey, Romania, Kazakhstan and other countries. Vugar was previously an Audit Partner in the Azerbaijan office of PricewaterhouseCoopers (PwC), leading the Financial Services practice of PwC in Azerbaijan and Georgia.

Andrew Cranston, Senior Partner of KPMG in the CIS stated that “We are excited about the opportunity to re-establish our presence in Azerbaijan. We look forward to becoming an integral part of the business community and to contribute to the ongoing development of the capital markets in Azerbaijan. We are especially pleased that Vugar has agreed to lead our practice. His experience, local knowledge and commitment to delivering quality services to clients makes him ideal to take on

this role.”

KPMG will be providing a full range of audit, tax and advisory services to its local and multinational clients in Azerbaijan. Besides Vugar, KPMG Azerbaijan has a strong team of local professionals represented by Sanan Mammadov, Senior Manager and Head of Audit, Samir Gurbanov, Manager and Head of Tax and Legal Group, and Ramin Hasanov, Manager and Head of Financial Services Group.

About KPMG in the CIS

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries with 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.KPMG has been operating in Russia for twenty years. In the CIS, KPMG now has offices in Moscow, St. Petersburg, Yekaterinburg, Kazan, Nizhny Novgorod, Novosibirsk, Rostov-on-Don, Krasnoyarsk, Kazan, Almaty, Astana, Atyrau, Baku, Bishkek, Kiev, Donetsk, Lviv, Tbilisi and other cities, employing together over 3,500 people.

Members’ News and EventsKPMG reopened its Azerbaijan practice

AmCham Azerbaijan

51

Fascinating experiments on chemistry for children (BASF Kids’ Lab) have been opened in several elementary schools of Azerbaijan for the first time.

Project BASF Kids’ Labs, an in-house development of BASF, is being realized in many countries of the world. Amazing experiments, bright paraphernalia, and fantastic images of virtual assistants - children in 24 countries of BASF presence enjoy visiting gaming chemical classes, thereby obtaining a basic knowledge of chemistry. The program preparation involved teachers, psychologists, specialists on work with children, and experts. The experiments focus on studying the properties of water, which is the valuable but finite resource on the Earth. According to the UN, already today shortage of water, including agricultural and industrial needs, is estimated at 230 bn cu m a year.

"Interactive lessons teach children the careful attitude to

Members’ News and EventsBASF Kids’ labs

the most important natural resource – water," said Umit Bashdash, CEO of BASF Caspian.

Kid’s Lab project was supported by the Ministry of Education of Azerbaijan. "We applaud these initiatives from BASF and are grateful for the experiments in our schools. Chemical experiments are great catalysts, when through the positive emotions one can find his way to a genuine interest in children and instill in them a love for this branch of knowledge. Children express joy, admiration, and surprise when obtain chemical reactions obtained as a result of experiments. "How so?" they ask, when they become participants in something seen for the first time in their life,” said head of the Department of Education & Work with Extracurricular Institutions Agababa Ibrahimov.

The total number of children who participated in the Kid’s Lab experiments in Azerbaijan reached 350 people. The project covered elementary classes of secondary schools, experiments were conducted in schools #24 and #31 Sumgait, in lyceum #43, British School in Baku, Baku Turkish Primary School and in Sumgait–based boarding school #1 as well. "You can judge how easy chemistry has won today the hearts of pupils on their warm invitations: “Come again!",” said Kamalya Badalova, head teacher of lyceum #43, joining the wishes of children.

AmCham Azerbaijan

AmCham Azerbaijan

52 Summer / Issue 1252

Corporate social responsibilityBlood donation is a key issue in Azerbaijan, as there are over 1500 children who suffer from thalassemia – a genetic blood disease unique to Azerbaijan in the Caucasus region. Patients require blood transfusions every two weeks.

On 25 and 26 November, P&G, American Chamber of Commerce in Azerbaijan and The Landmark Hotel organized a blood donation drive in Baku. A total of 140 people expressed an interest in donating blood, and 100 were able to do so following a medical checkup.

25 liters of blood were collected with the support of the National Blood Bank and the Azerbaijan Association of Thalassemia. Each donor was able to track his/her personal donation and to access information on the child who received the particular donation.

The program was conducted in compliance with all national

regulations on blood donation procedures.

“Donate blood. Save 3 lives”

AmCham Azerbaijan

53

Impact Azerbaijan is the official publication of the American Chamber of Commerce in Azerbaijan. The first issue was published in November 2007 and it has grown from 36 to 60 pages over the last four years, a testament of the increasing interest and contributions from the business community. Our magazine is widely recognized as one of the best publications in Azerbaijan, with a consistently high quality of content and production values.

Impact Azerbaijan is published quarterly, with issues in Spring, Summer, Autumn and Winter. The magazine is distributed free of charge to all of our members. We also distribute to all major hotels, agencies of the government, international organizations and the business class of the airlines. The print run is 1500 to 2000 copies.

Every issue of the magazine devoted to the special topic and is divided into four sections:

In FocusThis section features articles relating to the chosen theme of the magazine. Past themes have included Energy Security, the World Bank Doing Business Report, Banking and Finance, the Global Economic Crisis and Travel and Tourism. It includes interviews with officials of the government and AmCham members active in the sector.

Member contributionThis section features articles written by member companies on various aspects of doing business in Azerbaijan, tax and legal updates and overviews of draft legislation. All members are welcome to write for our magazine. The articles are published three of charge. This is an opportunity for our members to share best practices and draw attention to their knowledge and expertise, thus increasing their desirability as business partners.

AmCham AzerbaijanThis section reports on AmCham’s cooperation with various organizations and governmental agencies ,business and social events, the important work done by various AmCham committees, and projects undertaken by AmCham, such as the Salary Survey, Consumer Price Index and Membership Surveys aimed at increasing the effectiveness of the work of the Chamber. The Member to Member Discount Programme is also included in this section.

Members NewsMembers’ News Section publicizes members’ achievements and milestones such as awards and anniversaries. It introduces new personnel to the business community and highlights our members’ valuable contributions to the community through CSR and CSI programs.

Additionally, Impact Azerbaijan offers advertising opportunities to both members and non-members to enhance the visibility and networking of your companies.

Advertising in Impact Azerbaijan brings benefit to your business in Azerbaijan and also provides valuable financial support for the continued publication of our magazine.

For all queries about advertising or publishing an article, please contact editor@amchamaz.org

Impact Azerbaijan

54

AmCham Azerbaijan

Summer / Issue 1254

On Saturday October 15th 2011, AmCham hosted its 7th Annual Black& White Ball. This year, with an unprecedented number of guests and top quality entertainment, we exceeded our own expectations. The spectacular ballroom of the brand new Hilton Hotel provided a perfect setting for a truly exceptional experience.

As always, this event gave Chamber members and guests an opportunity to entertain friends, clients, colleagues and business associates in a unique and glamorous environment. The AmCham Black & White Ball was an unforgettable evening of elegance, music and dancing.As well as a four-course gourmet dinner prepared by the Hilton's Executive Chef, our guests enjoyed a champagne cocktail reception, a professional DJ, a surprise prize draw, a live band, and dancing till dawn.

Every year, this black tie functions is one of Baku’s most prestigious social events, where companies can achieve high levels of visibility. We were pleased to be able to provide a number of sponsorship opportunities, in order to showcase Baku’s business landscape to a distinguished audience of the city’s leading decision makers.

We would like to say a huge thank you to our lead sponsor Pasha Bank, our main sponsors Bakcell, Austrian Airlines, BMI, Lufthansa, and SAZZ, all of our other donors, and our members, partners, colleagues and friends for their continued involvement and valuable support.

Social Events7th Annual Black & White Ball October 2011

5555

AmCham Azerbaijan

Summer / Issue 1256

AmCham Azerbaijan

ProjectsWith 120 companies participating, AmCham Azerbaijan completed its 13th Annual National Employee Salary Survey and released the Final Report to members in December 2011.

Salary Survey-Sep-Dec 2011

BREAKDOWN OF EMPLOYEES BY BUSINESS SECTOR

1. Oil & Gas Exploration, Development, Production 14.30%2. Industrial, Engineering, Const & Energy Support Services 14.25%3. Hospitality, Hotel, Restaurant, Travel & Tourism 5.54%4. IT/Communications 12.60%5. Transportation & Logistics 1.45%6. Legal, Finance, Banking, Tax/ Audit, Insurance & Professional Services 41.25%

AmCham wishes to thank all members who participated in the Salary Survey

7. Social Services (Diplomatic Missions, Education, Health & Medical, NGO & Other) 2.67%8. Production & Manufacturing 4.47%9. Pharmacy 0.39%10. Other 3.08%

Inflation survey Oct 2011Over the last year (the base is 100 at 30 September 2010) the AAIP rose by 7.56 percent for Azerbaijani consumers and 8.11 for Expatriate consumers. In the 3rd quarter of 2011 the AAIP rose by 1.41 percent for Azerbaijani consumers and

Breakdown of AAIP changes (the base is 100 at 31 March 2009)III Q/2009 IV Q/2009

IV Q/2010 I Q/2010 II Q/2010 I Q/2011 II Q/2011

II Q/2010

1.02 for Expatriate consumers. The largest upward effects on the AAIP rate came from Meats, poultry, fish & meat products and Fruits and Vegetables where Index of Prices rose by 2.55 and 1.31 percent respectively.

57

AmCham Azerbaijan

New Members

MCCANN ERICKSON

Abbott Products GmbH

Fairmont Baku

Baku Consulting Group

SGS Azeri Ltd.

Pasha Life Insurance

JW Marriot Baku

AZENCO

Genercon

Kempinsky Hotel

Delta Group

Gulf drilling Azerbaijan

KMPGEKVITA

Schering-Plough Central East AG

Jumeirah Bilgah Beach Hotel

B&B TV

Four Seasons Hotel

Sheraton Baku

Hilton Baku

CIFAL Group

Intertek

Ritz Veblens

ABB

MINIMAX

RW Armstrong

Baku Oil Services Protective&Marine Coatings-Caspian Sea

AmCham Azerbaijan

59

How to join the Program: Members willing to join the Program and offer their products/services at special discount to AmCham Regular Members have to inform the AmCham office in writing. A discount provider has to indicate the product(s) or service(s) and discount rate(s).

How to obtain discounts:All Regular Members, no matter whether they provide discounts as part of the Program or not, can obtain discounts. Members can find information about the discounts in the M2M Section of our website www.amchamaz.orgHow is M2M advertised?

The program will only be advertised internally through the AmCham communications channels: AmCham Website and AmCham Quarterly Magazine – “IMPACT Azerbaijan”. Note: The cards are for personal use only. A card holder is committed to return the card to AmCham in case he/she leaves a Member establishment.

(M2M) Discount Program

TRAVEL, HOSPITALITY AND LEISURE

HYATT

-15% on all restaurants and bar- 15% on laundry and dry cleaning

EXCELSIOR

-10% on all catering contracted with rentals and on F&B in Belvedere restaurant-15% on rentals of conference rooms and Duke and Heritage rooms-20% on Aura Spa

PARK INN

-10% on all F&B outlets

RADISSON

-10% on all published Retail Room rates

AIRPORT HOTEL

-10% on all F&B outlets

CRESCENT BEACH HOTEL

-10% on accommodation-10% on F&B

CROWN HOTEL

-10% on all Conference Rooms-15% on Fitness & Leisure Center-10% on all F&B restaurants

LUFTHANSA

-up to 7% on ticketslounge in H. Aliyev Airport is included

PHILOSOPHY TRAVEL

-5% on any travel arrangements

FORMAG BAKU (PATRICK HELLMANN)

-20% discount on Patrick Hellmann collection

CITIMART

-5 discount on all groceries and entire purchase

PRODUCTS AND SERVICES

AZEL

-up to 10%

3M

- 10% on following 3M products:VisualsConstructionStationary

OFFICE SYSTEMS

-20% on hard furniture-15% on all office chairs

PROFESSIONAL SERVICES

WICKLOW CORPORATE SERVICES

-5% discount on hourly fee rates

PURPLE CREATIVE AGENCY

-20% on all creative services

MOZAIK

-10% on all products

BAKER & PARTNERS

-up to 25% on various services

SEABAK

-up to 10% on onsite helpdesk-up to 15% on remote administration

LANGUAGE SERVICES DIRECT

-5 % on all services

BANKING, FINANCE AND INSURANCE

AG BANK

-50% on AG Club Premium Package-20% on AG Club Gold Package

ATA HOLDING

-15% on all types of insurance

A GROUP INSURANCE

-15% on all types of insurance

INDIAN CLINIC

-15% on medical services

CONSTRUCTION

ALTES GROUP

-5% on all apartments

������������������������������AmCham Calendar of ActivitiesSeptember- December 2011

27 September26 September 8 September ICT Committee

MeetingBanking, Finance

and Insurance Committee

meeting

20 September Travel, Hospitality

and Tourism Committee

Meeting

Human Resource Committee

Meeting

29 September 6 OctoberAmCham Monthly

Members’ Luncheon

Tax and Customs Committee

Meeting

1 November27 October 11 October Corporate and

Social Respon-sibility Com-

mittee meeting

AmCham Monthly Mem-bers’ Luncheon

15 October 7th Annual

Black & White Ball

Corporate and Social Respon-sibility Com-

mittee meeting

2 November 3 NovemberTravel, Hospitality

and Tourism Committee

Meeting

Tax and Customs Committee

Meeting

2 December30 November24 November"TOWARDS THE

FUTURE" ICT Conference

Banking, Finance and Insurance

Committee meeting

28 NovemberHuman

ResourceCommittee

Meeting

Tax and Customs

Committee Meeting

8 December 13 DecemberAmCham Monthly

Members’ Luncheon

Travel, Hospitality and Tourism Committee

Meeting

Summer / Issue 1260

AmCham Azerbaijan