Azerbaijan – EU relations are good and dynamic
Caspian Energy (CE): Mr. Ambassador, how did 2017 pass in terms of relations between EU and Azerbaijan?
Kestutis Jankauskas,Head of the European Union Delegation to the Republic of Azerbaijan: 2017 has been positive and dynamic year for EU-Azerbaijan relations. I arrived to Baku in early September, and the time I spent here has been very intensive. The good news is that EU-Azerbaijan relations are positive and dynamic. It is a pleasure to assume the office at such a moment which offers possibilities for consolidation of this positive momentum and developing our relations further. Azerbaijan is still not fully discovered to many in the European Union. We all should try to bring more Europeans to Azerbaijan, more tourists, businessmen, politicians. For many who come to Azerbaijan reality exceeds expectations. Exchanges help to understand each other better, to develop our relations. The same way bringing Erasmus+ students to Europe, bringing your businessmen, your people travelling for holidays, for meeting friends and making new friendships is important. That way we understand each other better, we learn from and about each other. This is the broad basis to developing our relations further. This is basic goal of every delegation and every mission. I will spare no effort in doing that in Azerbaijan building on the very good work done by all of my predecessors.
There is still a lot of untapped potential
CE: Which relationship spheres are developing in the most intensive manner? Where is the highest potential seen?
Kestutis Jankauskas: First of all we are currently working on the new Framework Agreement between Azerbaijan and the European Union. The Partnership and Cooperation Agreement, which was signed in 1996 and came into force in 1999, provides the basis for our today’s cooperation. Since then many things changed and today we have more ambitions. Therefore, President of Azerbaijan Ilham Aliyev was in Brussels this February and the negotiations on the new Framework Agreement started. It is going to be a comprehensive agreement and will serve as a basis for our future relations for years to come. I am very happy that Eastern Partnership Summit that took place late November has given our relations additional positive impetus. Currently, negotiations on the New Agreement are ongoing, there are rounds planned for the beginning of 2018. The talks are divided into the three chapters of political and security, sectoral cooperation and trade. I can mark a good progress in these negotiations and hope that we will be able to overcome remaining issues and to initial our agreement in 2018.
In addition, we have intensive work ongoing in variety of other areas. We support economic diversification and reforms in Azerbaijan. Azerbaijan is the champion in Twinning projects. 45 of them have been launched so far. They are all designed to bring best practices of the European Union in modern technological development, governance and reforms in many sectors of economy and public life.
We are also in the last stage in negotiating new Aviation Agreement. Last round of negotiations took place in Baku in October where our negotiators have been able to clear 99% of the text. We keep working on the remaining issue and expect the positive answer of the Azerbaijan authorities. I hope that the agreement will be ready for the initialing in January.
Signature of the new Framework Agreement and ongoing economic diversification and reform efforts would open additional possibilities for Azerbaijan-EU cooperation in many spheres.
Azerbaijan should spare no effort to support and enable SMEs and regions
CE: You mentioned diversification. What exactly will the support to diversification underlie?
Kestutis Jankauskas: Let's look at the numbers. In the European Union small and medium enterprises are the backbone of the economy. 99% of the registered companies are small and medium-sized. 67% of EU labor force is employed in SMEs and they generate almost 60% of the EU GDP. In Azerbaijan it is still under 10%, both in terms of employment and contribution to the GDP. I think this is huge untapped potential. To diversify as much as possible from hydrocarbons Azerbaijan should do everything possible to develop and enable other sectors of the economy. The EU is very happy to support that.
Secondly, there is huge difference between metropolis of the Absheron and the rest of the country. When you look into various parameters of GDP generation or investments, the difference is in 10 or 20 times. So, the regions lagging behind have to catch up. Therefore variety of EU assistance programs is directed towards support of SMEs, family enterprises, handicrafts in various regions of Azerbaijan. We have recently signed the project with UNDP for assisting ASAN and ABAD in developing family business handicrafts. We have been supporting them for family business in agriculture. We are starting a new project for agriculture development in Lenkaran. We are working a lot in education, especially on vocational educational training, supporting schools, bringing needed professions and skilled labor force to the market. We see big potential in this, and we are happy to support these developments.
European investors and local entrepreneurs would welcome the presence of the European and international banks
CE: Are there plans to open direct credit lines for Azerbaijani entrepreneurs in the European banks?
Kestutis Jankauskas: There are possibilities for Azerbaijanis to get financial support in starting small family businesses, particularly in agricultural and handicrafts. One example is the project we develop with ABAD. Within this project, the EU is providing financial assistance from manufacturing till bringing products to the market. Recently signed project will provide such support to at least 300 families in Sheki-Zagatala region. This is direct financial support to these people. We hope that it will inspire many others. We already have success stories within another project in Massaly region.
On a large scale, I think everyone here, as well as European investors and also local entrepreneurs would welcome larger presence of the European or international banks. Already two years in a row we have organized European Business Forums with participation of over 300 European companies who are working in Azerbaijan. According to a survey prepared for this Forum, these companies positively assessed changes made last year: introduction of ASAN visa system, licensing products through ASAN, changes in the customs practices and suspension of inspections related to businesses.
EU companies would like to see improvements in the field of taxation, microfinancing and legal environment
CE: Did it make easier to overcome a bureaucracy?
Kestutis Jankauskas: Definitely. ASAN has already become a good brand for Azerbaijan. It enables faster services and more transparent procedures. Businesses like that. Everybody likes that.
However, reforms need to continue. What remains to be further improved: taxation system, microfinancing for SMEs, financial services, and the legal environment. So, presence of international banks and microfinancing for SMEs is still an issue. We will organize the European Business Forum each year, possibly around May, to enable direct contacts and take stock of the progress.
The EU has Twinning programs ongoing in various areas. We keep assisting many agencies in implementation of sectorial reforms using best European practices. We hope they will bring even more transparency.
CE: How would you assess the investment climate strategically?
Kestutis Jankauskas: The fact that there are over 300 European companies working in Azerbaijan, is a good indicator. The volume of investments in Azerbaijan from the EU companies has been growing year by year. If you talk about foreign direct investments, in 2015 they were 6.7 bln. euros. 57% of the FDI to Azerbaijan is coming from the EU. But we need more of them. If economic diversification and modern reforms continue, I believe there will be more European investors coming.
CE: Is it planned to attract European investments into further development of the Baku-Tbilisi-Kars transport corridor?
Kestutis Jankauskas: First of all, EU welcomes the launch of Baku-Tbilisi-Kars corridor. This project significantly contributes to connectivity. That connectivity is one of the main priorities discussed at the Eastern Partnership Summit along with stronger economy and stronger governance. Best support to this corridor would its active use to transport cargos and passengers. Some cargos from Turkey and Kazakhstan were already transported. Let's see how it works, whether further work will be needed to increase the speed, particularly on crossing the borders. I am sure that European logistics companies will use that corridor for bringing cargos and goods from Europe to South Caucasus, to the wider region and further to Central Asia and China.
CE: Mr. Ambassador, as far as we know, the route from Turkey to EU will go through Bulgaria…
Kestutis Jankauskas: In the last Eastern partnership Summit, the maps of the Trans European Networks (TENtec) were approved. In the Orient/East Mediterranean route a transport corridor (train, port and road) linking Northern Europe to the South Eastern border of the EU has been identified. This list of projects include greenfield projects or projects in progress. When this corridor will be completed access from EU-Turkish border to Northern and Southern Europe will be much easier. For Azerbaijan this is excellent news regarding accessibility to European markets.. Furthermore, having in mind European and Asian markets, Azerbaijan may become a very important regional hub linking these two huge markets by providing variety of rail, road, air, maritime, logistical and digital services.
65% of energy consumed in Nakhchivan comes from renewables
CE: What position does the European Union uphold in regard to the development of alternative sources of Energy? Is it planned to intensify cooperation in the field of high technologies and renewable energy?
Kestutis Jankauskas: Definitely. Renewable or green energy is one of the priorities in the European Union. One of the projects EU is currently financing and providing experts will help Port of Baku to develop port operations, Free trade Zone and help it to become a "green port".
Secondly, some parts of Azerbaijan are already fairly advanced in terms of development of renewable energy. I have recently visited Nakhchivan where 65% of energy comes from renewables. That’s above European realities and even the goals. This indicator is gained mainly through hydropower but also through new solar power plant built with Belgian and Swiss investments and technologies. I was very impressed by it when visited. They have plans to develop it even further. Baku is known as the windy city. Why not to harness that power for example? You have mountains, you have rivers, there is plenty sunshine in summer. Let’s use that, there is a lot of potential.
You have mountains, you have rivers, you have Sun. Let’s use that…
CE: Is it planned to increase the presence of the European companies in this area?
Kestutis Jankauskas: This question should be rather directed to the EU member states. The European Union is helping to create best possible business environment. That's why we are negotiating new comprehensive agreement with Azerbaijan. The negotiations proceed in political and security, sectorial and trade areas. This new Agreement will provide comprehensive up-to-date basis for Azerbaijan – EU relations for the years to come. Its substance, the climate that we will be able to create will determine the numbers, speed and dynamic of our trade and mutual investments. After the Eastern Partnership Summit that took place at the end of November, I have heard about renewed effort in Azerbaijan's negotiations with WTO. That would be very welcome.
CE: What does "renewed effort" mean? Have the negotiations been stopped?
Kestutis Jankauskas: Azerbaijan has been negotiating with WTO for quite some time now. I hope that "renewed effort" means speeding up of these negotiations. Now our negotiators are transferring selected WTO provisions into our new Comprehensive Agreement, and that takes time.
CE: What other problems do you see in the negotiations on strategic partnership as the agreement should have been signed at the Summit?
Kestutis Jankauskas: It would have been too ambitious to expect new Comprehensive Agreement to be signed at the Eastern Partnership Summit. Negotiations only started in February 2017. There is good progress and good dynamic in the negotiations. But there is still work remaining. It is natural that at the beginning of the negotiations easier paragraphs are agreed while more difficult are left at the end. I don't think there are problems. Simply our negotiators are still working on some of the issues and they need more time. Even after Eastern Partnership Summit negotiations continued tete-a-tete and by the means of the video links. They will continue with an expectation that we would be ready to conclude next year.
CE: Did the Brexit impact on the draft agreement?
Kestutis Jankauskas: No, I don’t think so. It’s an agreement which Azerbaijan will be signing with the European Union and its Member States, regardless of the shape that EU is or will be at the time of signing. Currently we have parallel Brexit negotiations ongoing. European leaders have just recently met in Brussels and made progress. Thus, these are EU internal processes which will not be influencing our negotiations.
CE: Will the delay of TAP in Italy somehow impact on the EU’s position towards the SGC project?
Kestutis Jankauskas: First of all, SGC is a project of strategic importance both to Azerbaijan and to the European Union. We look forward to completing it as soon as possible. This project goes well in line with the EU policies on energy diversification. It will provide Europe with natural gas via an alternative route from an alternative energy source. There were some issues and they have been and are being addressed. My recent meetings with people in charge of the construction indicate that the project can be completed as planned.
CE: Do you mean the delay associated with the European Investment Bank’s credit postponing?
Kestutis Jankauskas: Well, the credit has not been postponed. It was simply not discussed at the most recent meeting. I hope that the decision would be taken in February next year. Construction works in Italy are ongoing and making progress.
CE: Why did not EU manage to influence Italy in order to avoid construction delay?
Kestutis Jankauskas: The European Comission is actually working hard to facilitate the construction process. There are various levels of the decision making and division of responsibilities in the EU: super national, national, regional and local. We have to respect that. The EU is a complicated union, but at the end of the day it works. We are overcoming the issues and moving forward.
There is space for EU-Azerbaijan relations to grow to a different level
CE: What could you tell about the results of the Eastern Partnership summit?
Kestutis Jankauskas: This was a very good Summit. We organize them every two years, this was the fifth. Summits present possibilities for the Heads of States and Governments to get together, to assess achievements, share concerns and set ambitions for the future. I've seen very positive assessments of the Summit in Azerbaijan, and this is very good sign.
It was a good Summit because there was good progress to mark, because our leaders had open and franc exchange of opinions. They approved the Joint Declaration and have set ambitions goals for the future.
You can clearly see growing understanding in the European Union about the priorities of Azerbaijan. We are developing our relations based on the mutual pragmatic interests. EU is interested in stable, secure, multicultural, tolerant and prosperous Azerbaijan being a regional hub and providing connectivity and energy resources through alternative routes. Azerbaijan in turn is interested in developing political relations with the EU, interested in huge stable and reliable market for its products, as well as in new technologies, modern governance and progressive reform models. Can we move beyond that pragmatic relationship? I think that the recent Summit showed growing understanding in the European Union about priorities of Azerbaijan, its territorial integrity and the conflict. The EU expects growing understanding in Azerbaijan of the EU values and principles, the importance the EU attaches to civil society, human rights and the rule of law. I believe there is space for EU-Azerbaijan relations to grow to a different level, and the Summit marked good progress in that direction. For that, we both need to contribute.
CE: What will be the next step within the framework of the Eastern partnership?
Kestutis Jankauskas: At the Summit in November our leaders welcomed "'20 deliverables for 2020" aiming to deliver concrete results and step up actions in four key priority areas: economic development and market opportunities; strengthening institutions and good governance; connectivity, energy efficiency, environment and climate change; mobility and people-to-people contacts. There is plenty of work to do in the coming two years until the next Summit in all of these areas so that our people would feel the real difference.
CE: Which other steps are envisaged in the framework of this partnership in the long run?
Kestutis Jankauskas: In a long run we are interested in peace, security and stability in our countries and in our common neighborhood. This is clearly spelled in the EU Global Strategy adopted in 2016. Eastern Partnership is a tool to achieve these objectives, a tool to focus EU attention for its Eastern neighbors. It has multilateral and bilateral platforms. On the bilateral level we are negotiating New Comprehensive agreement that will set basis for future EU-Azerbaijan relations. We are negotiating Aviation agreement which, if and when signed, would further open our markets, provide for additional routes and cheaper tickets. We are supporting economic reform and diversification in Azerbaijan through variety of instruments and helping it to build modern society.
There is also multilateral dimension. Many of the projects, particularly those related to energy, transport, connectivity and trade, require cooperation with neighbors. How to make sure that passengers and cargoes to be transported from Azerbaijan to Europe via Georgia, Turkey, or the Black Sea, Ukraine and Moldova, would reach its destination as quickly as possible with minimal delays at the borders, customs, how to make sure that tariffs and logistic infrastructure would be able to compete with other routes? For that you need to work we need to cooperate. Successful implementation of these projects would bind us more together, bring prosperity and stability.
CE: Will this format be applied at a practical level, for example, in the creation of FTAs within the framework of the Eastern Partnership, favored investment?
Kestutis Jankauskas: Let's make first a distinction between a free economic zone, which can be decided by national legislation and which aims to increase the added value of local manufacturing benefitting from special tax and customs regime and the free trade areas, which are the result of bilateral or multilateral negotiations.. The Port of Alat is already working on the creation of a new free economic zone. It is very good idea because it could boost investment and local manufacturing. However, if you want the whole region to be a free trade area connected to the European Union, there is an instrument for that. It is called Deep and Comprehensive Free Trade Area. Ukraine, Moldova and Georgia have signed exactly that with the EU.
CE: But our port does not have access to the open sea, since navigation of foreign ships in the Caspian has restrictions. Is it possible to connect the Port of Alat with the FTA in the open maritime space?
Kestutis Jankauskas: Best instrument for regulated world trade is the membership in the WTO. If you want better connections to the Black Sea that has access to open maritime space, the route goes via Georgia, which has signed and is implementing Association Agreement with the EU which has Deep and Comprehensive Free Trade Area (DCFTA) with the EU component. So has Ukraine and Moldova. It is you choice to ask for it or not. WTO and DCFTA are the best tools for the free trade.
CE: To what extent is the European Union interested in it?
Kestutis Jankauskas: We are interested. However, both WTO membership and the DCFTA come with multiple commitments to implement certain standards. It is for Azerbaijan to decide whether and when it is interested and ready. Your country is already negotiating with WTO and we are negotiating our New Comprehensive Agreement which will include some of the provisions for trade. Let's keep working on that.
CE: Does it mean that you offer standard conditions for everyone?
Kestutis Jankauskas: General set of world trade rule are provided by the WTO. The EU can offer additional trade facilitation for countries that are interested and ready to implement certain standards on top of that. Specific conditions are set during the negotiations.
Thank you for the interview
