Azerbaijan’s reputation for transparency in the balance after crushing civil society

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As Azerbaijan is scrambling for loans, international financial institutions are key to boosting energy sector accountability, experts say

Zohrab Ismayil, an exiled Azeri human rights activist, doesn’t know what would happen to him if the government found out where he lives. So he conducts his work underground. And when he travels, he posts pictures on social media to confuse the authorities.
“Even on social media the government is spying on activists and political parties,” he said. “And, personally, we guess that there is a special department under the Minister of Internal Affairs or the security services that conduct surveillance over social media and from time to time punish activists.”

These are the stakes of advocating for better governance in Azerbaijan, an energy-rich, former Soviet state that’s been ruled by the same family since 1993. In that time, the media have gone from largely independent to largely state-controlled. Civil society has flourished and contracted. When oil prices collapsed in 2014, the government went into crisis mode and lashed out at critical voices — prosecuting, imprisoning, or driving into exile prominent journalists and human rights defenders.

But that has not stopped foreign money flowing into Baku, the capital. Despite well-documented human rights violations, international financial institutions (IFIs) have invested billions of dollars in Azerbaijan and are poised to release billions more. Activists — and, more discreetly, even some World Bank employees — call these investments counterproductive. While IFIs say they want accountability and diversified, efficient economies, the reality is that they’re bankrolling an oil-reliant kleptocracy.

“This isn’t a sustainable development model,” said Elisa Peter, Executive Director of Publish What You Pay, which fights the “resource curse” by advocating for more openness in the extractive sector. The organisation’s coalition of civil society partners in Azerbaijan has been crippled by the government.

“The role of international financial institutions is to support development processes that benefit everyone,” Peter said. “Instead, they are enabling a system that allows elites to enrich themselves and to shut down independent voices in their countries.”

The TANAP Project

One of the most controversial of these investments is the Trans-Anatolian Natural Gas Pipeline (TANAP) Project. TANAP is one leg of a larger transcontinental pipeline — the Southern Gas Corridor project — that will carry Azeri gas from the Caspian Sea to Italy. It’s easy to see why human rights might take a back seat to pumping 16 billion cubic meters of gas from Russia’s backyard into the heart of Western Europe.

In December, the WBG approved a $400 million loan to Azerbaijan. Cyril Muller, a World Bank vice president, said the $8.5 billion TANAP Project will “create economic opportunities for people in Azerbaijan.” But in fact oil revenues have never been used effectively, according to Gubad Ibadoglu, a prominent Azeri economist.

“The World Bank decision was a political decision,” said Ibadoglu, whose think tank, the Economic Research Center, came under the regime’s crosshairs and no longer operates.

The European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), the Asian Infrastructure Investment Bank (AIIB), and the Asian Development Bank (ADB) are also participating. Already some of these banks have disbursed hundreds of millions of dollars to expand the gas field over the objections of international watchdogs. While these IFIs could use their leverage to push for reforms, they have largely turned a blind eye to the problems.

The government made minor concessions in 2016 — releasing some political prisoners and unfreezing bank accounts — but the laws the government uses to crush civil society are still on the books. Ibadoglu fears the WBG loan will encourage the other IFIs to follow its lead, and once the deals are signed the government will return to its old bad behavior. “The World Bank decision complicated the situation,” he said. “It opened the door.”

Indeed, the day after WBG announced the loan approval, the Beijing-based AIIB approved a $600 million loan, citing the “energy security” of Turkey and Europe.

How the government froze civil society

In 2005, a former university rector approached two associates of Azerbaijan’s top power broker, Ramiz Mehdiyev, presidential chief of staff since 1995. The rector, Elshad Abdullayev, was there to purchase a seat in parliament. As they negotiated the price ($1 million), Mehdiyev’s henchmen were unaware Abdullayev was recording the conversation on video. The video caused a scandal, but only low level officials suffered blowback.

Meanwhile, the elite have maintained power by dominating private enterprise, from the oil industry to the media. Freedom House reported in 2016 that the Aliyev family’s hotel holdings alone are worth $10 billion. On Feb. 22, Aliyev appointed his wife as vice president.

In this oligarchic context, the government has grown increasingly intolerant of dissent, particularly any criticism of its dependence on oil revenue.

That’s why, in August 2014, the government froze Ibadoglu’s bank accounts as part of an investigation into “foreign agents” donating money to Azeri organizations. Unable to receive international transfers, Ibadoglu left the country to continue his work in the United States.

So the government went after his family and friends instead, hauling them into interrogation rooms. They also published “blackmail” against him. “They claimed that I have betrayed the country and that I didn’t defend the national interest,” he said.

Since moving home last year, Ibadoglu hasn’t been arrested and his bank accounts are unblocked. But he still can’t work. New regulations require government approval of grants, and a bogus tax evasion fine against him is accumulating 0.1 percent interest daily. It’s up to about $130,000.

For Ismayil, the exiled activist, the clampdown followed a similar pattern. His Public Association for Assistance to Free Economy (PAAFE) works with Publish What You Pay and is a civil society member of the Extractive Industries Transparency Initiative (EITI), which promotes accountability and good governance in resource-rich countries.

That made Ismayil a target. The government froze his bank accounts, buried the PAAFE in bureaucracy and issued a warrant for his arrest, claiming he evaded taxes and conducted his organization illegally.

All eyes on EITI

Cases like Ismayil, Ibadoglu and scores of others have made Azerbaijan’s status in the EITI a cause célèbre for human rights defenders.

The EITI is a framework for what an accountable extractive sector should look like, with a board that assesses countries against that standard. For the 51 participating nations, gaining “compliant” status in the EITI is like earning a gold star: The international community likes to see it, and receiving investments becomes less politically fraught.

Azerbaijan was one of the early supporters of the EITI, setting themselves out as a model member. But one of the requirements of the EITI standard is to create an enabling environment for civil society organizations. After the crackdown of 2014, an international outcry led the EITI board to downgrade Azerbaijan from “compliant” to “candidate.”

When the EITI board next meets on March 8-9, it will discuss whether to suspend Azerbaijan’s membership entirely. The EBRD and EIB have not yet approved TANAP financing. It remains unclear however to what extent the outcomes of the EITI meeting will influence the EBRD and EIB financing decision. Back in September 2016, the EBRD made a link between its TANAP support and EITI status.

“Regardless of the EITI board’s decision, the international financial institutions should withhold financing until the Azeri government drops its hostility toward civil society,” said Peter. “Not only is it the right thing to do, sustainable growth and support for democratic principles are obligations of their mandate.”

Who’s paying for TANAP?

These international financial institutions are part of a consortium financing the Trans-Anatolian Natural Gas Pipeline Project.

Asian Development Bank (gas field expansion) Approved $1 billion
Asian Infrastructure Investment Bank Approved $600 million
European Bank for Reconstruction and Development Pending $500 million
European Investment Bank Pending $1.3 billion
World Bank Group Approved $400 million



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