SSRN Id4152000
SSRN Id4152000
SSRN Id4152000
This report was prepared by an expert group of the Economic Research Center
under the leadership of economist-professor Gubad Ibadoglu
ACRONYMS
ASAH - Azerbaijan State Agency of Highways
CM - Cabinet of Ministers
CJSC - Closed Joint Stock Company
OJSC - Open Joint Stock Company
MoA - Ministry of Agriculture
LLC- Limited Liability Company
NGO - Non-governmental organization
SSC - State Statistics Committee
USA - United States of America
The state budget for 20211 projected 2.2 billion manats for the reconstruction and
restoration of the liberated territories, which accounted for 44% of the planned investment
expenditures and 7.7% of the total budget expenditures for that year. According to the report2
of the Cabinet of Ministers for 2021, 99% of the funds allocated from the state budget for
2021 for the reconstruction and restoration of the liberated territories have been executed, and
thus 2 billion 178.4 million manats have been spent on the restoration of the territories.
No information was found in open government sources on how the 2.2 billion manats
allocated under the name of reconstruction and restoration of the liberated territories have
been distributed. The Executive Office of the President, the Cabinet of Ministers, the
Ministry of Finance, and other relevant government agencies do not respond to information
requests without giving any reason. The purpose of this study is to determine how the
allocated funds have been distributed by districts, and projects, as well as how the contractors
and subcontractors involved in the implementation of projects have been selected, to assess
the compliance of the selection of these companies with the requirements of the Law of the
Republic of Azerbaijan on Public Procurement, and to identify the ownership of companies
and their affiliation with the political elite.
Since the report on the execution of the budget for 2021 and the opinion of the
Chamber of Accounts have not yet been made public, the study used information from the
Law3 of the Republic of Azerbaijan on Execution of the State Budget of the Republic of
Azerbaijan for 2020 and the opinion4 of the Chamber of Accounts of the Republic of
Azerbaijan on the annual report on the execution of the state budget of the Republic of
Azerbaijan for 2020.
1 Law of the Republic of Azerbaijan on the State Budget of the Republic of Azerbaijan for 2021,
http://www.e-qanun.az/framework/46590
2 Report of the Prime Minister of the Republic of Azerbaijan, Ali Asadov, on the activities of the
Cabinet of Ministers in 2021, March 15, 2022 - 20:00, Speech by Prime Minister, Ali Asadov,
https://nk.gov.az/az/article/2072/print/
3 http://www.maliyye.gov.az/scripts/pdfjs/web/viewer.html?file=/uploads/static-
pages/files/60daca9478ccb.pdf
4 https://sai.gov.az/files/2020-%C4%B0cra-R%C9%99y%20(3)-188749903.pdf
The question of where, how, how much, and by which companies the 2.2 billion
manats allocated from the state budget for 2021 for the restoration and reconstruction of the
liberated territories were spent, as well as on what basis the executive companies were
selected, still remains open. These questions were also left unanswered in the government's
report5 submitted to the spring session of the parliament on March 15 this year. Most likely,
the report on the execution of the state budget for 2021 and the opinion prepared by the
Chamber of Accounts will not answer these questions.
In this report, we try to find answers to these questions based on limited information.
First, let's look at the important points that are not taken into account in the process of
preparing the budget for the coming years and affect the budget process. First of all, it should
be noted that the funds allocated in the budget documents under the heading "Reconstruction
and restoration of the liberated territories" are included in the "urban planning and
construction" expenditures. So, by the Order6 of the Prime Minister on the preparation of the
draft state budget, as well as the concept of economic and social development of the country
and medium-term forecasts, relevant central and local executive authorities and other state
bodies of the Republic of Azerbaijan shall submit proposals to the Ministry of Economy and
the Ministry of Finance of the Republic of Azerbaijan on the funds required for the
restoration and reconstruction of sectors and areas in the liberated territories by March 1.
Thereafter, according to the Rules7 for Compilation, Execution, Monitoring, and
Evaluation of the State Investment Program of the Republic of Azerbaijan approved by the
Decree of the President of the Republic of Azerbaijan No. 239 dated March 17, 2010, the
Ministry of Finance shall submit to the Ministry of Economy the initial amount of public
investment expenditures in the state budget for each subsequent budget year and the next
three years by March 31 and the adjusted amount by July 20. The Ministry of Economy, in
turn, shall develop a State Investment Program for the next year and submit it to the Cabinet
of Ministers on the basis of the amount provided. Then, in accordance with Article 11 of the
Law8 of the Republic of Azerbaijan on Budget System entitled "Process of drafting the state
budget and budget calendar", it is submitted to the Cabinet of Ministers and the Chamber of
5 https://www.azerbaijan-news.az/az/posts/detail/milli-meclisde-nazirler-kabinetinin-2021-ci-ilde-
fealiyyetine-dair-hesabati-dinlenilib-yenilenib-1-1647345630
6 https://nk.gov.az/az/document/5912/
7 http://www.e-qanun.az/framework/19404
8 http://www.e-qanun.az/framework/1126
9 https://nk.gov.az/az/article/2072/print/
10https://president.az/az/articles/view/47738
11 https://apa.az/az/domestic-news/Isgaldan-azad-edilmis-razilrin-brpasi-il-bagli-Strateji-Faliyyt-
Plani-hazirlanib-623300
2. Analysis of the situation with the transfer of state orders for the distribution of
budget funds to the executor and identification of implementing companies
At present, the funds allocated from the budget are used for two main purposes: to
form infrastructure and ensure access to utilities. Although open and competitive tenders are
required by law in this regard, a comparison of last year's budget allocations with previous
years shows that projects transferred directly to the executor through single-source
procurement have increased in both quantity and money compared to the previous year. So,
last year, 60 percent of the total public procurement of 6,012 million manats, or 3,366 million
manats, was distributed in this way without holding open and competitive tenders; as a result,
this figure increased by 9.7 percent compared to 2020 (see Table 1). Undoubtedly, one of the
reasons for the increase in the number of projects transferred directly to the executor through
single-source procurement compared to previous years is the implementation of investment
projects for the past year, mainly in the liberated territories.
Table 1. Procurement statistics for January-December 2021
Procurement 2021, in million Change compared to Change compared to
manats 2020, in million 2020, in percent
manats
General procurement 6,012 -555.5 8.5
Competition-based 2,646 -854.4 -24.4
procurement
Single-source 3,366 298.9 9.7
procurement
Source: Government’s report for 2021
12 http://www.e-qanun.az/framework/48628
13 https://www.taxes.gov.az/az/post/1570
14 https://www.taxes.gov.az/az/post/1258
15 https://www.turan.az/ext/news/2021/10/free/Social/en/9034.htm
3.1. By regions
Although the study determined how the budget funds allocated for the reconstruction
and restoration of the liberated territories in 2020 and 2021 would be distributed by the
districts, it has not been possible to find the distribution of budget funds by projects and the
estimated cost of each project. The government's report only notes that Fuzuli International
Airport and Zafar Yolu (Victory Road), which were opened last year, Zangilan International
Airport and Lachin International Airport, which are currently under construction, and another
important road, rail, and social infrastructure projects have given a significant impetus to the
region's development. The report also states that the current year's state budget provides for
the same amount (2.2 billion manats) for these purposes.
As a result of the study, it has been found that 667 million 754 thousand manats or
34.16 percent of the 1 billion 954 million 551 thousand manats allocated for construction and
installation work in the liberated districts and villages in 2021 were spent on construction and
installation work in Fuzuli district, 284 million 487 thousand manats or 14.55 percent - in
Shusha city, 224 million 369 thousand manats or 11.57 percent - in Jabrayil district, 214
million 471 thousand manats or 10.97 percent - in Zangilan district, 192 million 808 thousand
manats or 9.86 percent - in Kalbajar district, 142 million 623 thousand manats or 7.29 percent
- in Aghdam district, 118 million 13 thousand manats or 6.03 percent - in Lachin district, 110
million 26 thousand manats or 5.62 percent - in Gubadli district. The distribution of funds
allocated for construction and installation work in the liberated districts in 2021 is presented
in Figure 1.
Kalbajar 192.808
9.86%
Zangilan
214.471 Shusha
10.97% 284.487
14.55%
Jabrayil
224.369
11.57%
As can be seen from the data above, in 2021, half of the funds allocated for
construction and installation work in the liberated districts were spent on construction and
installation work in Fuzuli district and Shusha city, and the other half on the restoration and
reconstruction of 6 other districts. Although most of the money spent in the Fuzuli district is
connected with Fuzuli International Airport and Zafar Yolu (Victory Road), it is still
unknown how much money has been spent on these two mega-projects. As for Shusha city,
the estimated cost of the projects implemented there in the direction of restoration,
landscaping, and reconstruction has not been announced.
Studies show that the reconstruction and restoration work in the liberated territories
were financed not only from the expenditure section provided for in the state budget for 2021
but also from the Reserve Fund of the President of the Republic of Azerbaijan. 98.3% or 475
million manats of the reserve fund of 585 million manats envisaged in the budget of 2021 fall
to the Reserve Fund of the President of the Republic of Azerbaijan, 6.7% or 110 million
manats - to the state budget reserve fund.
Along with the restoration, damage assessment work has also been carried out. The
State Commission was established by the Order of the President of the Republic of
Azerbaijan dated November 6, 2020, on measures to assess and eliminate the damage caused
to the civilian population, state property, including infrastructure facilities, as well as
10
16 https://nk.gov.az/az/article/1786/
17 https://m.cia.az/news-view/161020-Qarabaga-deymish-ziyanin-aradan-qaldirilmasi-uchun-
xerclenen-meblegAChIQLANDI-FOTO
18
https://president.az/az/articles/view/48975
11
19 http://e-qanun.az/framework/47397
20 https://president.az/az/articles/view/49876
21 https://qdf.gov.az/qanunvericilik/68-Qarabag-Dirchelish-Fondunun-fealiyyetinin-temin-edilmesi-
haqqinda-Azerbaycan-Respublikasi-Prezidentinin-Fermani.html
22 https://qdf.gov.az/ianechiler/?donatorType=&letter=L
12
23 https://nk.gov.az/az/article/2072/print/
24Silk Way Holding was established in 2006. The holding includes more than 20 companies, including
major airlines such as Silk Way Airlines, Silk Way West Airlines, and Silk Way Technics. The
company's fleet includes Boeing 747-400F, Boeing 747-8F, Ilyushin IL-76, and Ilyushin IL-76TD-90.
13
Zaur Akhundov is the president of Silk Way Holding LLC. According to media reports, the owners of
this holding are family members of Azerbaijani President Ilham Aliyev and the head of the AZAL
state concern, Jahangir Asgarov. https://www.azadliq.org/a/2123076.html
25 https://www.abzas.net/2022/01/fuzuli-hava-limanina-x%c9%99rcl%c9%99n%c9%99n-pullarla-bagli-
danismaq-qadagasi-arasdirma/
26 Earlier, AED Group carried out the design, logistics, and planning work on the projects of the
Heydar Aliyev Center, 28 Mall Shopping Center, SOCAR Tower, and the National Olympic
Committee. According to the company's website, its main customers are SOCAR, Pasha Construction,
Gilan Holding, and others. https://azeurodecor.com/project.php
27 Baku Cable Goknur LTD was established in 2003. Rahib Rzayev, the legal representative of the
14
28 The foundation of Azertexnolayn LLC was laid in February 2012 in the Sumgayit Chemical
Industrial Park. https://www.azertexnolayn.com/about/
29 ASG Construction is a construction company involved in the implementation of airport and airfield
infrastructure. http://asg-construction.az/index_az.html#
30 https://nk.gov.az/az/article/2072/print/
31 https://az.trend.az/business/3340190.html
32 http://www.aayda.gov.az/az/illik-hesabatlar
15
33http://www.aayda.gov.az/az/news/3504/qarabag-ve-serqi-zengezur-iqtisadi-rayonlari-erazisinde-
icra-olunan-yol-layiheleri-barede
16
34 https://president.az/az/articles/view/46989
35 Since companies included in Cengiz Holding, Limak Holding, Kalyon Group, Kolin Holding, and
Makyol Group receive most of the orders from the Turkish state, they are called the “Gang of Five”
(“Beşli Çete”) in Turkey. "Public tenders won by Cengiz, Limak, Kolyon, Kolin, and Makyol - the holdings
that are called the “Gang of Five” (“Beşli Çete”) by Kılıçdaroğlu"
36 https://president.az/az/articles/view/55780
17
37 https://president.az/az/articles/view/55780
18
38 https://toplum.tv/
39 https://e-qanun.az/framework/47842
40 https://www.abzas.net/2022/03/qarabagda-gorduyu-isl%c9%99rl%c9%99-ail%c9%99-
s%c9%99rv%c9%99tini-artiran-az%c9%99renerji-s%c9%99dri-arasdirma/
41 http://www.azerenerji.gov.az/tenderannouncements
19
42 https://www.abzas.net/2022/03/qarabagda-gorduyu-isl%c9%99rl%c9%99-ail%c9%99-
s%c9%99rv%c9%99tini-artiran-az%c9%99renerji-s%c9%99dri-arasdirma/
43 http://www.azerenerji.gov.az/tenderannouncements
44 https://azerforum.com/az/ishgaldan-azad-edilmish-erazilerde-enerji-obyektlerinin-tikintisi-ucun-
kecirilen-tenderleri-kimler-ve-nece-qazanir-arasdirma
45 https://www.abzas.net/2022/03/qarabagda-gorduyu-isl%c9%99rl%c9%99-ail%c9%99-
s%c9%99rv%c9%99tini-artiran-az%c9%99renerji-s%c9%99dri-arasdirma/
20
Table 4. Information on tenders for procurement of works for the preparation of urban
planning substantiation
Name of the settlement Winner of the tender Allocated funds
46 https://president.az/az/articles/view/55780
47 http://merkez.arxkom.gov.az/az
21
https://scwra.gov.az/az/view/news/10343/prezident-ilham-eliyev-agdam-zengilan-hadrut-dashalti-
48
mescidlerinin-temeli-qoyulub-ve-temir-ishlerine-start-
22
Conclusions
In conclusion, I would like to note that according to the restoration of the liberated
territories in 2021 and 2022, 2.2 billion manats have been allocated each year from the state
budget of Azerbaijan. Presenting the report on the activities of the Cabinet of Ministers in
2021 to the parliament, Prime Minister Ali Asadov said51 that 99.4 percent of the 2.2 billion
AZN allocated from the 2021 state budget for the restoration and reconstruction of the
liberated territories was used during the reporting period. But, according to the Rules52 for
Compilation, Execution, Monitoring, and Evaluation of the State Investment Program of the
Republic of Azerbaijan, it is impossible to comment on the quality of implementation of
these projects, as access to monitoring and evaluation reports is not provided. At the same
time, due to non-compliance with the Law on Budget System and the Law on Public
Procurement, many of these projects are distributed to foreign companies from friendly
countries and local companies belonging to the political elite through a single-source
procurement method, and even information about the estimated cost of projects submitted to
49 https://apa.az/az/sosial/susa-agdam-ve-cebrayilda-960-yerlik-mekteb-tikilecek-687414
50 https://xalqqazeti.com/mobile/az/news/95248
51 https://meclis.gov.az/news.php?id=3199&lang=az
52 http://www.e-qanun.az/framework/19404
23
24
53https://azsiyaset.com/siyaset/4075-Britaniya-Qarabagda-choxterefli-sulhmeramlilarin-olmasini-
isteyir-Sefir-Ceyms-Sharp.html
25