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EUROPEAN

COMMISSION

HIGH REPRESENTATIVE OF THE

EUROPEAN UNION FOR

FOREIGN AFFAIRS AND

SECURITY POLICY

Brussels, 25.3.2015

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JOINT STAFF WORKING DOCUMENT

Implementation of the European Neighbourhood Policy in Azerbaijan

Progress in 2014 and recommendations for actions

Accompanying the document

JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL,

THE EUROPEAN ECONOMIC ANS SOCIAL COMMITTEE AND THE

COMMITTEE OF THE REGIONS

Implementation of the European Neighbourhood Policy in 2014

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OVERALL ASSESSMENT AND RECOMMENDATIONS FOR ACTION

This document reports on the progress made between 1 January and 31 December 2014 in the

implementation of the EU-Azerbaijan European Neighbourhood Policy (ENP) Action Plan.

Developments outside this reporting period are taken into consideration where relevant. This

is not a general review of the political and economic situation in Azerbaijan. Information on

regional and multilateral sector processes is contained in the Eastern Partnership

Implementation Report.

Azerbaijan made good progress in its macroeconomic development, not least through its

efforts to further diversify the economy. The macroeconomic environment remained stable

due to growth in the non-oil economy and greater social stability. There were no relevant

developments in trade although there was some progress regarding Azerbaijan’s WTO

membership after two substantive rounds of negotiation.

There was good progress on the EU’s Strategic Energy Partnership with Azerbaijan to

improve European energy security and the diversification of energy supplies. The

commitment to implementing the Southern Gas Corridor continued to be of utmost

importance for EU-Azerbaijan dialogue.

There was tangible progress with regard to several bilateral agreements, such as the entry into

force of the Visa Facilitation Agreement and the Readmission Agreement, preparation to

implement the Mobility Partnership, and the signature of the Protocol on Azerbaijan’s

participation in EU programmes and agencies, which can help further to develop EU-

Azerbaijani relations.

Between May and November, Azerbaijan held the chairmanship of the Committee of

Ministers of the Council of Europe. At the same time, conditions for civil society

organisations in Azerbaijan (CSOs) deteriorated considerably and a more restrictive legal

framework was introduced. As a result, many CSOs suspended their activities. A number of

prominent human rights defenders were detained, travel bans were issued and bank accounts

of CSOs were frozen. Amendments to the Electoral Code to improve the composition of

electoral commissions and conditions for candidate registration, as recommended by the

Organisation for Security and Cooperation in Europe’s Office for Democratic Institutions and

Human Rights (OSCE/ODIHR), were not implemented in 2014. The municipal elections held

in December were prepared and conducted on a good technical level. However, little time

was made available for campaigning and there were some shortcomings that will need to be

addressed. No legislation was adopted to protect human rights and fundamental freedoms.

International standards were often not respected. In certain areas, such as freedom of

expression and freedom of association, even factual restrictions persisted. Only limited

progress was reached in the fight against corruption and there was a lack of coherence in

initiatives and continuing actions. There was no progress regarding actual judicial

independence.

Last year it was the 20th anniversary of the 1994 ceasefire agreement in the Nagorno-

Karabakh conflict against the background of a continued stalemate. The Presidents of

Azerbaijan and Armenia met in Sochi, at the NATO summit in Newport and in Paris,

revitalising the most important channel of communication between the two sides and

exchanges on a peaceful settlement. The security situation on the ground remained a matter

of serious concern amid incidents and casualties on a level not seen since 1994, an increase in

confrontational rhetoric and a continued arms race. The EU continued to fully support the

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OSCE Minsk Group Co-Chairs and peace-building activities. The High Representative for

Foreign Affairs and Security Policy / Vice-President of the European Commission supported

continued peace-making efforts, including through the new EU Special Representative

(EUSR) for the South Caucasus and the conflict in Georgia, Herbert Salber. He regularly

visited the region for high-level meetings and maintained frequent contacts with relevant

interlocutors.

There were welcome achievements in macroeconomic developments, the finalisation and

publication of the Public Expenditure and Financial Accountability (PEFA) review and in the

energy partnership with the EU, notably the implementation of the Southern Gas Corridor

(SGC).

Nevertheless, these achievements were overshadowed by regression in most areas of deep

and sustainable democracy, human rights and fundamental freedoms. As a result, Azerbaijan

made very limited progress overall in implementing the ENP Action Plan. The frequency of

political dialogue between the EU and Azerbaijan also decreased, and this had a knock-on

effect on the formal human rights dialogue.

Based on the assessment of its progress in 2014 on implementing the ENP, Azerbaijan should

focus its work in the coming year on:

•

respecting and implementing its commitments as a member of the Council of Europe

on fundamental rights and freedoms, the rule of law (in particular by strengthening the

independence of the judiciary and the right of defence/equality of arms); improving

democracy and human rights in the country in almost all related areas; respecting and

implementing the rulings of the European Court for Human Rights;

creating a more conducive political environment for civil society, in particular making

the related legal framework less restrictive, allowing civil society organisations to

carry out their activities;

stepping up efforts towards reaching a comprehensive peace settlement in accordance

with the commitments made in the Minsk Group; refraining from actions and

statements that could heighten tension and undermine the peace process; creating an

environment conducive to making progress in resolving the conflict and to

encouraging and supporting related peace-building activities; ensuring that EU

representatives working in support of conflict transformation activities have

unimpeded access to Nagorno-Karabakh and the surrounding regions;

reinvigorating steps to upgrade the existing partnership between the EU and

Azerbaijan in order to better reflect new realities in mutual relations;

bringing electoral legislation into line with OSCE/ODIHR recommendations and

ensuring effective implementation before the forthcoming parliamentary elections;

continuing the reform of the judiciary, adopting the 2014-20 Judiciary Reform

Programme and ensuring full independence of the judiciary. This will include the

following measures: passing a law on the role of the Judicial Legal Council; analysing

shortcomings in judicial practice, and giving full consideration to reports of alleged

shortcomings resulting in unfair trials with a view to addressing these and

•

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rehabilitating those imprisoned; improving training of the judiciary; nominating a

contact point for Eurojust to facilitate closer judicial cooperation;

•

adopting a law on defamation with the aim of decriminalising libel;

implementing the 2012-2015 National Anti-Corruption Action Plan;

continuing the policy of economic diversification and development of the regions, in

particular adopting and implementing a law on competition to create more

predictability and transparency in the market and a level playing field for investors;

aligning policy, legislative and institutional frameworks on local government in

Azerbaijan with the European Charter of Local Self-Government.

POLITICAL DIALOGUE AND REFORM

•

Deep and sustainable democracy

The

political dialogue

between the EU and Azerbaijan (including the visits by the then

European Commission President Barroso and Vice-President Šefčovič) was enhanced in light

of the strong Azerbaijani commitment to the southern gas corridor, intensive dialogue over

regional issues, including Ukraine, and security, including international terrorism. However,

political dialogue was overshadowed by Azerbaijan’s deteriorating democracy and human

rights record and the shrinking space for civil society. Azerbaijan continued to participate in

the multilateral events of the EaP (on energy security, SMEs and trade).

The

democratic and human rights environment

significantly deteriorated in 2014 while

Azerbaijan was chairing the Committee of Ministers of the Council of Europe between May

and November. On 17 October 2014 President Aliyev signed a decree amnestying 84

prisoners, including Shahin Novruzlu, Elsever Mursalli and Bakhtiyar Guliyev, three pro-

democracy youth activists associated with the N!DA Civic Movement, and Hasan Huseynli,

Head of the ‘Perfect Citizen’ non-governmental organisation after the N!DA youth activists

had sent respective petitions. In addition, 87 prisoners were pardoned in the President’s

newyear pardon on 29 December 2014. Among them were 10 civil activists, including two

other N!DA members: Zaur Gurbanli and Uzeir Mammadli, and two journalists: Avaz

Zeynalli, editor-in-chief of the ‘Khural’ newspaper and Sardar Alibeyli from the ‘Nota Bene’

newspaper and the ‘PS Nota’ news portal.

New legislation on

NGOs

entered into force at the beginning of 2014. National independent

and international NGOs working in Azerbaijan faced both administrative and judicial

problems. Administrative problems resulted in administrative fines, unclear tax claims and

problems with the use of bank accounts. Judicial problems related to criminal investigations

and arrests of NGO leaders on charges of treason, tax evasion, illegal entrepreneurship and

abuse of power. These also created obstacles to receiving EU financial assistance. Some

NGOs felt forced to leave the country, while others closed or were compelled to scale down

their operations. On 17 October 2014 the

Milli Majlis

adopted amendments to the laws on

non-governmental organisations (public associations and foundations)’ and on grants. These

were approved by President Aliyev on 19 November 2014. The absence of clear

implementing rules recreated a legal vacuum and forced some civil organisations to

temporarily scale down their activities. The Council of Europe's Venice Commission issued

an opinion on the amendments on 15 December 2014 and in an overall assessment found that

the amendments ‘further

restrict the operations of NGOs in Azerbaijan’.

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The actions by the Azerbaijani authorities particularly focused on NGOs/civil society

activists who deal with

fundamental freedoms.

Some of their leading proponents were

arrested on charges of high treason, espionage, illegal entrepreneurship, tax evasion and

illegal business. A number of human rights defenders and civic activists were given harsh

prison sentences. Activists working on projects to complement the internationally mediated

Nagorno-Karabakh peace process were also subject to particular attention by the authorities.

Activities in this context were significant in 2014 and included freezing the bank accounts of

NGOs. The EU remains convinced that civil society has a vital role to play in defending

fundamental freedoms, safeguarding security and stability and in promoting peace-building,

especially during times of conflict.

In 2014 the EU completed procedures to support civil society through grants of more than

EUR 3 million to 14 projects. The projects on democracy and human rights were mostly

implemented by foreign NGOs in partnership with local organisations. As was the case for all

new NGO grants awarded in the second half of 2014, registration of these new EU-funded

grants was deferred by the Ministry of Justice in anticipation of a new legislative framework.

This prevented most EU-funded NGOs from starting their activities.

The EU issued 17 statements in 2014 (including those in OSCE Permanent Council meetings)

and in September the European Parliament passed a resolution calling for strict observation

by Azerbaijan of its international commitments and obligations.

Regarding

prisoners

of conscience, Azerbaijan’s human rights defenders issued several,

sometimes conflicting, lists of prisoners in 2014, varying from 30 to 129 cases. The state of

health of some detainees and prisoners gave reasons for concern.

The

2011 national human rights action plan

was implemented in some areas, particularly

for internally displaced persons/refugees, entrepreneurs and in connection with HIV

awareness. The joint working group on

human rights

was re-established between the

Government of Azerbaijan and civil society representatives, with the Council of Europe

acting as a mediator and observer. Meetings were held starting from October, leading also to

the amnesty of some prisoners.

NGOs active on issues relating to lesbian, gay, bisexual, transgender and intersex (LGBTI)

people also encountered difficulties over registration and receiving grants and there were

some reports of harassment. However, the main problem remained the lack of a legislative

framework protecting LGBTI people and the resulting inaction by law enforcement bodies to

prevent homophobia. In general, LGBTI issues do not have broad support from the

government or from the opposition or civil society. This has to be seen against the

background of rather dominant conservative cultural mainstream and religious values.

The

Electoral Code

was not amended in 2014 to improve the composition of electoral

commissions and candidate registration, as recommended by the OSCE ODIHR. 2 837 sites

were identified for free gatherings with regard to the 2014 municipal elections, including

1436 previously closed sites. The municipal elections on 23 December 2014 were conducted

at a very good technical level, in the presence of local observers and web cameras. However,

the time allowed for campaigning was short, and there were some reported shortcomings that

will need to be addressed. Azerbaijani authorities reached out to opposition parties, but the

major opposition parties did not participate.

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Freedom of expression

for the media remained limited other than on the internet.

Azadliq,

one of the two main opposition media outlets, continued to incur high court fines under the

current defamation legislation. Despite previous announcements by the Azerbaijani

authorities that the legislation would be softened, no improvements took place in 2014.

Instead, in response to the growing use of social media among the Azerbaijani population,

social media were added to the list of spaces where defamation may be punished. Television

remained under government control, with only a few internet or foreign-based broadcasts

impinging on the government’s airtime information monopoly. The internet remained the

freest channel of information and the number of users was rising. According to the latest

statistics, 73 % of the population have access to the internet. In December, the Azerbaijani

Parliament approved amendments to the law on mass media that ban any mass media outlet

funded by any foreign individuals or legal entities. Also under the new amendments, any

media outlet found by court decision to be responsible for disseminating incorrect

information twice within a year (instead of the previous three times) may be closed down.

Restrictions of

freedom of assembly

continued, along with the de facto interpretation of the

requirement for prior notification as a request for authorisation. However, the authorities did

grant permits, including to the opposition Popular Front Party to hold a public rally on the

occasion of its 25th anniversary, to the opposition

Musavat

Party in commemoration of

International Human Rights Day and to two demonstrations by the opposition National

Council for Democratic Forces. According to many civil society activists, unofficial, but

mandatory prior authorisation from the central and local authorities is needed to hold any

event in any region of the country.

freedom of religion or belief,

new restrictions were introduced and were strictly

implemented. These were intended mainly to reduce the number of persons allowed to pray

in mosques and the import of religious literature.

Limited progress was achieved in the

fight against corruption

but there continued to be a

lack of coherence in how this was implemented e.g. in the number of high ranking officials

charged and sentenced on the basis of corruption charges. The National Action Plan for 2012-

2015 on Combating Corruption lays down measures to improve the work of the Anti-

corruption Department under the Prosecutor-General’s Office. In 2014 the Anti-corruption

Department was upgraded to a directorate-general the Prosecutor-General’s Office and its

staff and responsibilities were expanded. Azerbaijan was ranked 126 out of 175 countries on

the Transparency International Corruption Perceptions Index in 2014.

At the end of 2014, 382

e-services

were available from 45 state institutions and agencies and

were actively used by about one million citizens. The Certification Centre has already issued

approximately 30 000 e-signatures, in addition to 60 000 certificates for mobile e-signatures.

The internet penetration rate in Azerbaijan was 70 %. Broadband internet penetration among

the population stands was 50 %, while the mobile phone penetration was 110 %. The ‘Fibre to

the home’ project for national broadband internet development will bring high-speed internet

even to rural areas. The successful operation of the

e-governance

service assessment network

institution (ASAN) continued with the opening of a fourth centre in Baku in May and a third

regional centre in December in Sabirabad, following those in Ganja and Sumgait. These

offered up to 30 services in a ‘cash-free one stop-shop’ for 0.5 million people regularly, while

serving daily up to 1 000 people across all regions of Azerbaijan. The services provided by

ASAN service centres in the country remained at the core of the Government’s anti-

corruption efforts in 2014. An EU-funded project has supported ASAN since August 2013

with the aim of developing corporate ISO and human resource management standards.

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There was no tangible development with regard to

judicial independence in 2014.

Access to

legal counsel continued to be impeded, and on several occasions courts ruled in the absence

of lawyers or defendants. In some cases, individuals were allegedly kept in pre-trial detention

in the Ministry of National Security penitentiary facility and were not transferred to the

Ministry of Interior within 48 hours, as required by law.

The EU conducted

trial monitoring

of some cases relating to civil society activists. These

revealed severe procedural and judicial shortcomings. One of the main obstacles to fair trials

was the shortage of defence lawyers, particularly those willing to represent

activists/journalists who have been critical of the Government. The ‘Bar Association

Azerbaijan’ (BAA) actively pursued disciplinary measures against BAA members acting on

behalf of certain journalists.

A draft law on

public participation

providing for the creation of public councils under

central and local executive authorities was ratified by the President of Azerbaijan in January

2014 after consultation with local civil society and international experts. The law entered into

force in July 2014.

With respect to the promotion of

local democracy,

an EU-funded project ‘to build capacity

for increased participation by citizens and increased accountability of elected bodies’

managed to establish advisory councils in a number of local communities, but encountered

obstacles, pressure and interference by authorities in several regions. The local government

system in Azerbaijan did not improve as regards municipalities’ compliance with the

principles of good local governance such as transparency, a focus on citizens’ needs, citizen

participation and accountability.

Other human rights and fundamental freedoms

Azerbaijan continued to neglect European Court of Human Rights (ECHR) rulings that

required adjustment of previous court decisions. There were also new reports of

torture and

ill-treatment

of young political activists during pre-trial detention. No secondary legislation

to implement the 2012 law on the rights of individuals kept in detention facilities was

adopted.

In September the State Committee for Family, Women and Children’s Affairs (SCFWCA)

and the Ministry of Labour and Social Protection of the Population signed a joint national

action plan to prevent

child

labour exploitation, supported by an EU Twinning project. Draft

rules on gender equality and domestic and inter-country adoption were developed and

approved by the SCFWCA. Despite these positive measures and steps taken, a national action

plan still needs to be drawn up to further safeguard women’s rights, including combating

violence against women, improving gender equality through appropriate administrative and

legal measures. Action is also needed to adopt and implement laws on child protection and to

prohibit physical punishment of children.

The office of the

Human Rights Commissioner (Ombudsman)

improved its outreach,

especially to detainees with a political background, but its capacities still need to be

reinforced to be able to influence the course of the legal proceedings.

The protection of fundamental rights and freedoms continues to be a concern in the

Nakhchivan Autonomous Republic of Azerbaijan. A thorough assessment of the situation

remains difficult due to the lack of access and information.

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The government continued to improve conditions for internally displaced persons and

refugees, in particular by providing new housing and education facilities. Poverty levels

among internally displaced persons are still three times higher than the national average.

Cooperation on foreign and security policy, regional and international issues, conflict

prevention and crisis management

Azerbaijan held the chairmanship of the Committee of Ministers of the Council of Europe

between May and November.

In 2014 Azerbaijan did not align itself with any of the EU’s Common Foreign and Security

Policy (CFSP) declarations. In 2013, Azerbaijan aligned with seven out of the 32 EU CFSP

declarations (22 %) it had been invited to support.

Azerbaijan continued to provide financial assistance through the Azerbaijan International

Development Agency (AIDA) as a donor country to other countries and international

organisations in the fight against global threats. In the past three years, the total amount of

such aid amounted to USD 16 million. In 2014 alone, Azerbaijan provided USD 1 million for

the UN Global Fund to fight Ebola, about USD 640 000 to address the humanitarian crisis in

Gaza, about USD 535 000 to assist refugees and internally displaced persons in Serbia and

around USD 1 million to different countries for humanitarian purposes and to address the

consequences of natural disasters (USD 200 000 for the Philippines and for the humanitarian

and food aid campaign in Pakistan).

On Nagorno-Karabakh, against the background of persisting stalemate in the Minsk Process,

the meetings in Sochi, Wales and Paris revitalised communication at the highest level

between the sides and the exchanges on the road towards a peaceful settlement. The flare-up

of violence on the line of contact and the international border in the summer of 2014 and the

downing of a helicopter on 12 November were unprecedented since the signing of the

ceasefire agreement in 1994. The number of OSCE-reported casualties on both sides in 2014

sharply rose to 57 servicemen and one civilian killed, and 57 servicemen and 13 civilians

wounded, compared to 14 servicemen killed, 32 servicemen and five civilians wounded in

2013. Confrontational rhetoric, continued arms race as well as humanitarian issues further

impacted on the conflict settlement process. The lack of progress continued to have a serious

effect on the population that was displaced as a result of the conflict.

The EU called on parties to refrain from actions and statements that could heighten tensions

and undermine the peace process, and promote an environment conducive to help settling the

conflict, while encouraging and supporting peace-building actions. The EU continued to

provide full support to the OSCE Minsk Group co-chairs. The HR/VP supported continued

efforts towards peace. The new EUSR for the South Caucasus and the conflict in Georgia,

Herbert Salber, made regular visits the region for high-level meetings and maintained

frequent contacts with relevant interlocutors. The EU continued to financially support the

‘European Partnership for the Peaceful Settlement of the Conflict in Nagorno-Karabakh’

project, bringing together stakeholders across the conflict divide in peace-building activities.

The EU continued to call for unimpeded access for EU representatives to Nagorno-Karabakh

and the surrounding regions as an important means of supporting conflict transformation

activities and to complement the efforts of the Minsk Group.

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The EU maintained its support for activities that promote confidence and people-to-people

contacts, promote cultural and educational activities and facilitate the dissemination of

balanced information in both Azerbaijan and Armenia.

No tangible development was noted in Azerbaijan’s accession to the

Mine Ban Treaty,

the

Convention on Conventional Weapons

or the

Convention on Cluster Munitions.

Since January 2014 the

local OSCE Office in Baku

has been working in the downgraded

format of project coordinator’s office. Since then, the number of new projects has slowly

increased. These focus on human trafficking, domestic violence, tolerance/non-discrimination

and providing support to ASAN. In September 2014, Azerbaijan and OSCE signed a

memorandum of understanding on the OSCE Project Coordinator in Baku.

Azerbaijan participated in the

Fourth Caspian Summit

in Astrakhan in September 2014

where the delimitation of the Caspian Sea was discussed at the level of heads of state.

Although no final status agreement was reached, agreements were concluded on the

definition of the exclusive national economic and fishing zones and on the absence of any

military presence by third countries.

ECONOMIC REFORM AND SOCIAL REFORM AND DEVELOPMENT

Azerbaijan’s economic growth slowed to 2.8 %

in 2014 (from 5.8 % in 2013), due mostly to

falling oil prices and a decline in oil production, which had started in the last quarter of 2013.

Production from a new platform began in early 2014 but this only partly offset declining

production elsewhere. The non-oil sector grew by 7 % in 2014, down from 10.3 % in the

previous year, due to lower public investment, while the oil sector contracted by 2.9%. At the

same time, domestic consumption remained robust and turned out to be the main factor

behind the overall growth for the year.

Officially the unemployment rate was around 5 % in 2014. However, there was a risk that

unemployment would rise due to the over-dependency and concentration of employment in

certain sectors and due to youth unemployment remaining disproportionately high. The

proportion of employed people also continued to decline among the employable population

due to increased inactivity. The employment situation is partially distorted because of the

high share of informal employment and the way employment is measured. Under the 2011-15

Employment

Strategy, employment services registered 13 742 placements during the first

half of 2014. The number of the families eligible for targeted

social assistance

fell by 17 %.

In November 2014 the President approved pension reforms. Social spending was estimated to

have risen to 22 % of total public expenditure, up from 20 % in 2013.

The agricultural sector reform strategy provides for the restructuring of the Ministry of

Agriculture, a development plan for agricultural cooperatives, the establishment of

slaughterhouses and meat sale centres that comply with food safety standards, higher

agricultural production, support for cold chains in transport of foodstuffs, and the

development of food safety and food quality control standards. An initial draft strategy on the

development of the food and agricultural industry was prepared and submitted to state bodies

and international organisations (FAO, World Bank, EU).

For sources and detailed figures, see Statistical Annex accompanying the reports; figures without sources are

forecasts by Commission services.

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TRADE-RELATED ISSUES, MARKET AND REGULATORY REFORM

In 2014 EU-Azerbaijan bilateral

trade

amounted to EUR 16.7 billion Euro (EU imports:

EUR 13.2 billion; EU exports: EUR 3.5 billion; EU trade deficit: EUR 9.7 billion). The EU

remained Azerbaijan’s main trading partner.

Azerbaijan made some progress on

WTO

accession at a multilateral meeting held in

February 2014 and in market access negotiations held in February and July. It also joined the

WTO Information Technology Agreement. Negotiations took place with 19 countries, and

protocols were signed with five (United Arab Emirates, Oman, Turkey, Georgia and

Kyrgyzstan). As Azerbaijan was reclassified by the World Bank as an ‘upper-middle income’

country, in February 2014 it had to exit the EU’s reformed generalised scheme of preferences

(GSP). From then on, Azerbaijan’s exports to the EU were subject to the ‘most-favoured

nation’ trade rules.

imports and exports,

the government changed the rules for importing cars and imposed

other non-trade barriers to hinder the purchase of used cars. This had a negative impact on

EU car exports. Following the entry into force of the new Customs Code, Azerbaijan

continued its implementation of the 2012-15 State Customs Office action plan. Waiting times

for customs procedures fell significantly at all border checkpoints.

An EU Twinning project to provide support for the development of a modern

system of

standardisation and technical regulations

is being carried out. Azerbaijan started to apply

Euro 4 standards in April 2014, and from that time banned the import of used cars which did

not comply with the new requirements.

In the

sanitary

and

phytosanitary

area, in January 2014, institutional reforms started with a

presidential decree on streamlining of food safety control systems. The reform process was

accompanied by the EU via a technical assistance project.

Azerbaijan became one of the top 20 countries on the ease of starting a

business

in the annual

ranking of the World Bank 2015 Doing Business Report. Nevertheless, foreign direct

investment remained largely limited to the energy sector, where activities soared in 2014 after

the conclusion of the Shah Deniz II Final Investment Decision and the formal launch of the

southern gas corridor in September.

statistics,

the State Statistical Committee started modernising its organisational structure

and introducing modern quality management systems at central and regional levels.

On the

movement of workers,

the influx of skilled international labour was further boosted

by the advancing Shah Deniz II and southern gas corridor projects. At the same time,

Azerbaijan’s policy of helping the national workforce to find employment was reflected in an

increasing proportion of skilled Azerbaijani labour in international projects and companies.

Problems continued to be reported in the field of

property registration.

In January 2014, the

Urban Planning and Building Codes entered into force. These stipulate that citizens no longer

need permission to build a house, and instead need only to inform the relevant authorities.

Overall tax revenues remained low by international standards, at 12 % of GDP. The amended

Tax Code, which had been developed with support of an EU Twinning project, introduced

measures to stimulate increased use of cashless payment operations, imposed new

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requirements for electronic reporting and established a legal basis for e-auditing. A new

Twinning project was launched in September 2014 to support the Ministry of Taxes through

training and institutional capacity building.

competition policy,

a draft Competition Law was examined by parliament but has not yet

been adopted. In December 2014, the World Bank, the Swiss

State Secretariat for Economic

Affairs (SECO) and the EU published a final report on the

public expenditure financial

accountability (PEFA) assessment.

The final report was prepared on the basis of an

assessment of public finances in 2011-13. According to the report, Azerbaijan made

significant achievements on 17 out of 31 indices, in particular through increasing

comprehensiveness of the documents included in the budget package, through strict

adherence to the schedule for preparing the draft budget, and by improving budget

classifications and increased participation by legislative bodies in the budget process. On

government procurement,

Azerbaijan scored ‘B’ (relatively good) for performance

indicator 19 ‘Transparency, competition and complaint mechanisms in procurement’ in the

2014 PEFA assessment’. Indicator 26 "Scope, nature and follow-up of

external audit"

scored 'D+', indicating the need for further progress in the supreme audit institution's

performance.

As regards

SME policy,

the President adopted a 'Decree on Additional Measures for

Entrepreneurship Development' which has the aim to improve the operating environment for

local business by reducing procedures and delays during the e-registration of legal entities

and individuals engaged in entrepreneurship in line with the one-stop-shop principle.

COOPERATION ON JUSTICE, FREEDOM AND SECURITY

In December 2013 Azerbaijan signed a joint declaration with the EU Commission and with

eight EU Member States establishing a

mobility partnership.

This followed the earlier

initialling of the readmission agreement and signature of the visa facilitation agreements. The

EU is preparing financial support for the mobility partnership.

The EU-Azerbaijan

readmission and visa facilitation agreements

entered into force on 1

September 2014. A new decree improving the visa-issuing process entered into force in

November. Amendments to the

Migration

Code are being prepared following the Decision

of Azerbaijan’s parliament to extend the period for obligatory registration of foreigners to a

maximum ten days. The amendments will also cover provisions of the draft ‘Law on placing

foreigners and stateless persons into detention centres for irregular migrants and on the rules

of their custody’. The number of Schengen visa applications in Azerbaijan reached 71 889

over a period of 12 months; the average rate of refusal is around 3.86 %. In 2014 consulates

started to issue multiannual visas with a validity of up to 5 years.

Azerbaijan’s law enforcement authorities participated in the bilateral workshop held by the

Czech Police Academy on the fight against cross-border

organised crime

and also in the

Technical Assistance and Information Exchange (TAIEX) forum for public prosecutors. In

July 2014, Azerbaijan approved the 2014-18 national action plan on combating

human

trafficking.

Azerbaijan remained an important transit country for

drugs

produced in Afghanistan. Drugs

are transported through Iran via Azerbaijan, using the so called ‘northern route’, to markets in

Russian and Western Europe. The number of officially registered drug addicted people is

growing. A new programme to tackle drugs and psychotropic substances was adopted to help

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combating the growing use of amphetamines. The programme covers the period until 2018.

Azerbaijan expanded its cooperation with Georgia and created a joint working group on

cyber security

with the OSCE.

As regards

counterterrorism,

Azerbaijan was active in the fight against radicalisation and

the recruitment of fighters. 26 people suspected of collaboration with Da'esh were arrested in

September 2014. Changes were introduced to the Criminal Code to punish participation by

civilians in armed conflicts in third countries.

No major development took place on

data protection

legislation.

TRANSPORT,

ENERGY,

ENVIRONMENT,

CLIMATE

CHANGE,

INFORMATION SOCIETY, RESEARCH AND DEVLOPMENT AND

INNOVATION

Azerbaijan made little progress on

transport

policy reforms. A ‘Law on Sea Ports’ was

adopted in May 2014 following support under an EU Twinning project. The Civil Aviation

Administration of Azerbaijan stated in its 2013 annual report that Azerbaijan was not ready to

continue harmonisation with the EU’s Common Aviation Area. No progress was therefore

reached in this area in 2014.

The restructuring of the Ministry of

Energy

was finalised in May 2014 and a new Energy

Efficiency and Alternative Energy Sources Department was established. In June the Ministry

created an energy efficiency fund and energy efficiency action plan. In July the State Agency

on Alternative and Renewable Energy Resources opened the Surakhany solar power station

in Baku, with a generation capacity of 4 million kWh per year. Several other similar stations

were under construction elsewhere in the country. A national ‘inventory’ of potential solar

power was compiled, following similar work on wind power during 2013. Production from

these two types of renewable energy was projected to overtake hydroelectric power by 2020.

Work was also undertaken to develop new production from hydroelectric power, biomass and

possibly geothermal sources.

Oil production was slightly lower than in 2013, and was expected to remain at around

40 million tonnes per year in 2015-16. Gas production rose by 5% compared to 2013,

reaching 18.7 bcm of marketable gas. Proven gas reserves were reported to have risen to 2.3

trillion cubic metres. BP announced that the Shah Deniz II project would begin production in

2018. Initially it will export to Georgia and Turkey, with deliveries to the EU expected from

2020. The Shah Deniz consortium awarded contracts valued at some USD 9.6 billion and

work already started in most construction areas across Azerbaijan and Georgia.

The EU and Azerbaijan agreed in February 2014 to review the action plan under the

memorandum of understanding on energy cooperation prioritising activities of joint interest.

In September 2014, Azerbaijan hosted an Eastern Partnership (EaP) informal ministerial

meeting on energy, which was also attended by Georgia, Moldova, Ukraine and Belarus.

Participants stressed the importance of diversifying energy supply sources in order to

strengthen energy security, and ministers underlined their commitment to enhanced

cooperation to achieve this objective. Also in September 2014 the southern gas corridor was

officially launched. From 2020, an estimated 10 billion cubic metres per year of Azerbaijani

gas will be supplied to Europe along this corridor.

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Azerbaijan continued to support the negotiation process on the Trans-Caspian gas pipeline

project and contributed to the environmental scoping study on the pipeline.

There was still no comprehensive policy to prevent and mitigate

climate change

Azerbaijan. An EU funded regional project is assisting in this area. In June 2014, the Prime

Minister’s office commissioned sectoral analyses that focus on energy efficiency in buildings,

waste, transport, forestry and agriculture.

There was limited progress on the

environment

and environmental governance. Adoption

was still pending for the 2014-20 national environment action plan and the draft law on

environmental impact assessment.

In April 2014 a national strategy for the development of the

information society

was

approved by the President. In May a regulation on high technology parks was adopted. The

number of e-services provided by the government portal www.e-gov.az (launched in 2013)

increased considerably, offering citizens 291 e-services provided by 46 state agencies and

enterprises.

A national nuclear

research

centre was created under the Ministry of Communications and

High Technologies in May. The purpose of the centre is to make greater use of nuclear

technology for peaceful purposes.

PEOPLE-TO-PEOPLE CONTACTS, EDUCATION AND HEALTH

A draft action plan on implementing the approved 2013 state strategy for the development of

education

was submitted to the Cabinet of Ministers for formal adoption. The action plan

foresees a number of state programmes and the development of an Azerbaijani qualification

framework (AzQF). The administration was restructured, with departments for licensing,

quality control, internal control, student exchanges and educational development programmes

being established. In addition, 15 regional education departments were established, covering

62 departments at district level. Additional incentives were developed to stimulate the

employment of young teachers in rural areas. The government established a unified system of

educational credit allocations based on

the

European Credit Transfer and Accumulation

System (ECTS), and these are efficiently used in universities. The State Students’

Admissions Commission started to conduct centralised school completion examinations for

all students graduating from secondary general education institutions. The Ministry of

Education launched ‘SABAH’ (knowledgeable-competent-skilled) groups in

higher

education.

These involved 738 students in 34 universities.

Staff numbers in

vocational education and training

increased and a professional training

and support centre was established to provide capacity building to vocational education and

training structures. In the 2014-15 academic year, the admission of students to vocational

education schools was for the first time based on a labour market study. Azerbaijan started a

pilot project to establish vocational education complexes in cooperation with industries.

Azerbaijan participated in the

Tempus

programme with 22 on-going projects out of which 5

are coordinated by an Azerbaijani higher education institution. 226 students and staff from

Azerbaijan were selected for mobility within partnerships supported by Erasmus Mundus and

one student was selected for a joint master’s degree. One organisation and 34 staff members

took part in

Marie Curie actions

(MCA) and three applications were selected for funding

under 'Horizon 2020'. Azerbaijan also participated in the

eTwinning plus

action with 44

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schools. The Erasmus + programme helped

young people

and youth organisations, with 877

participants in mobility projects and 27 in the action for young people and decision-makers in

the field of youth.

The ‘Culture Concept of the Republic of Azerbaijan’ was adopted in February 2014.

Azerbaijan also participated as a partner in three regional projects under the EaP Culture

programme.

public health,

Azerbaijan adopted a national strategy for communicable diseases,

including the implementation of the international health regulations. In October 2014 the

government approved a resolution requiring all medical facilities in Azerbaijan to apply live

and still birth criteria in accordance with WHO recommendations from 2015. In most other

respects, the healthcare system in Azerbaijan remained unreformed. According to official

statistics, there were 28 489 doctors, 56 842 mid-level medical staff, 750 hospitals, 1 670

healthcare clinics, and around 70 000 hospital beds. The average admission and occupancy

rates were 4.7 % and 25.6 % respectively. The average length of stay of 12.2 days was high.

Azerbaijan appointed a national correspondent for relations with the European Centre for

Disease Prevention and Control (ECDC) and participated in the National ECDC

Correspondents’ meeting in May.

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