The Malta Independent 22 October 2016, Saturday

Malta’s shady deal with Azerbaijan raises questions

John Cordina Sunday, 21 December 2014, 14:00 Last update: about 3 years ago

An agreement on strategic cooperation in the field of energy appears to have been the main aim of an official visit to Azerbaijan by Prime Minister Joseph Muscat.

But in the absence of details being made public, the implications of this agreement remain very much unclear.

The visit was unusual in many respects, ignoring the procedures that are usually followed when the Prime Minister embarks on an official trip.

In typical cases, the visit is announced well in advance - save for urgent trips - and press organisations are invited to send representatives to accompany the official delegation to report on the purpose of the visit. The delegation itself would include diplomats, including Malta's ambassador to the country where applicable, and civil servants.

But the Azerbaijan visit was a secret until just hours before Dr Muscat's departure: it was only revealed by The Sunday Times of Malta that same day. The government then issued a very brief statement, stating that "Prime Minister Joseph Muscat and Minister for Energy and Health Konrad Mizzi left Malta today afternoon for an official visit to Azerbaijan. They are expected to hold official talks on energy and commerce, as well as discussions on diplomatic relations between the two countries."

No journalists were invited to accompany the delegation and, unusually, the delegation consisted of just four people: Dr Muscat, his chief of staff Keith Schembri, head of government communications Kurt Farrugia and Dr Mizzi.

This unusual arrangement has led Opposition leader Simon Busuttil to express concern: he said that the absence of civil servants - who retain their posts irrespective of who is in government - raised suspicions on what actually went on during the visits.


What the agreement could mean

The only information that has surfaced so far is made up of a few brief statements issued by the Maltese government and reports which appeared on Azerbaijani media.

A 127-word statement issued on Monday suggests that the key event was the signing of a Memorandum of Understanding between Dr Mizzi and his Azerbaijani counterpart Natiq Aliyev on strategic cooperation in the field of energy. Dr Mizzi also signed another Memorandum of Understanding with the State Oil Company of Azerbaijan Republic (SOCAR) to plan and implement the agreement.

According to the government statement, the two countries agreed on "collaboration in the exploration and production of oil and gas, the trading and distribution of petroleum, the trading of energy commodities in the Mediterranean, the possibility of new infrastructure and innovative services of LNG among others.

"This agreement will lead to our country cooperating with one of the greatest energy centres to continue developing the foundations of a regional energy hub," the government announced.

SOCAR is one of the members of the ElectroGas consortium, which is set to build a new power station in Delimara and supply both gas and electricity to Enemalta for a minimum of 18 years. According to Dr Mizzi, SOCAR will be responsible for trading and hedging gas and coordinating gas shipments. However, it is not set to use its own gas reserves: the company will buy the fuel from Shell, and gas will not be shipped from Azerbaijan.

But the project, which was meant to be completed by next March, has been delayed until at least June 2016. According to the government, selling 33 per cent of Enemalta - and 90 per cent of its BWSC-built power plant - to Chinese state-owned company Shanghai Electric was responsible for the delay, as the government needed to ensure that these investments were aligned.

The agreement with Shanghai Electric was only signed last Friday, two days before Dr Muscat and Dr Mizzi's flight to Azerbaijan, which suggests that the visit is somehow related. But SOCAR is only one of four members of the ElectroGas consortium, whose lead partner is Gasol: it would be strange if the ElectroGas agreement was discussed in depth.

One possible complication to the ElectroGas agreement was the claim, made in reports earlier this year, that Shanghai Electric was insisting that Enemalta should be constrained to purchase electricity generated at the BWSC plant - as it presumably would have to do with the ElectroGas plant - leaving it with considerably more energy than the country needs at most times of the year. But the government has denied that this is the case.

Since collaboration in oil and gas exploration was specifically mentioned in the government's statement, it appears that SOCAR may be granted an exploration concession in Maltese waters in the near future. While Maltese oil exploration efforts have failed to produce results so far, they have been far from exhaustive, and various factors - including Malta's proximity to existing oil and gas fields - suggest that the country may have commercially-viable reserves of its own.

SOCAR's oil and gas exploration efforts are almost entirely focused on Azerbaijan, but in 2011 a company subsidiary acquired a five per cent stake in the Med Ashdod oil field off the coast of Israel, indicating the company's interest in exploiting overseas petroleum reserves.

There is no indication of what "the possibility of new infrastructure and innovative services of LNG" could actually mean.

While power generation remains the most important use of natural gas, it can also be used for domestic purposes - such as heating - and transportation: over 15 million vehicles run on natural gas worldwide.

But the use of a similar product - LPG - for such uses is already well-established in Malta: any gains in the use of LNG would be detrimental to the long-existing industry which saw significant investment take place in recent years to upgrade its infrastructure, including the construction of a new importation terminal, storage and bottling facility at Bengħajsa.


Is former Petroleum Division up for grabs?

Curiously, earlier this year, sources with business interests in Azerbaijan had told The Malta Independent that the government had offered, unsuccessfully, to sell Enemalta's Petroleum Division to Azerbaijani interests for some €100 million, although the Finance Ministry has denied that this was the case.

The Petroleum Division has since been sold off to two newly-formed state-owned companies - Enemed and Petromal - for €80 million, allowing the corporation to settle tax arrears with the government.

The government, however, is reported to be seeking "strategic partners" for the running of the former Petroleum Division. If Enemalta's experience is any indication, this would involve at least a part-privatisation of the state-owned entities, and a company such as SOCAR could prove to be an option.

Dr Muscat did refer to the agreement with SOCAR in an appearance on One Radio yesterday, stating that an additional investment agreement was expected with the Azerbaijani state oil company.

The Prime Minister did not elaborate, but investment in the former Petroleum Division would certainly fit the bill.

There is little else that SOCAR could reasonably invest in, unless the government is planning to sell off further stakes in Enemalta itself.


Azerbaijan's growing strategic importance

Azerbaijan's petroleum industry is one of the world's oldest: its oil has been traded since antiquity. The country remains a significant oil producer, but its gas industry has been gaining in importance, particularly after the relatively recent discovery of major gas fields.

And the country's strategic importance has only increased in recent years as it is increasingly being seen as an alternative to Russia as a gas supplier.

Russia has been a crucial source of gas for the EU, particularly in Eastern Europe, but diplomatic tensions - particularly after its unilateral annexation of Crimea - have been mounting.

One complicating factor has been the lack of gas pipelines linking Azerbaijani gas fields to Europe, but this is being addressed through the construction of two pipelines that should be operational within a few years.

The Trans-Anatolian Pipeline (TANAP) is set to deliver Azerbaijani gas to the Turkish-Greek border, while the Trans-Adriatic Pipeline (TAP) will start at the border and end in southeast Italy, where it will connect to existing pipelines supplying Western Europe.

The two pipelines are expected to be operational in 2018, and would thus precede the construction of a planned gas pipeline linking Malta to Italy. This pipeline could thus be supplied with Azerbaijani gas from the outset.

SOCAR is actively involved in the construction of both pipelines: it is the main partner and operator of TANAP, with a 70 per cent stake, and is one of six partners of the TAP joint venture, with a 20 per cent stake.

Whether SOCAR would be interested in investing in the pipeline to Malta - and whether such assistance was sought - remains to be seen.

Azerbaijan's efforts to project itself on to the global stage have been increasing in recent years: among other things, it spent far more than any other country when it won the right to host the Eurovision Song Contest in 2012.

Closer ties to Malta may be in the interests of a country that lies on the border between Europe and Asia but which appears to look towards the west.

However, the country's questionable human rights record has attracted criticism, including by the European Parliament, which approved a resolution calling on the European Council - EU member states - to agree to apply targeted sanctions against those responsible for human rights violations, should they persist.

The Council has not replied, and no such criticism appears to have been made by the Maltese government.

One factor that may soften criticism of the country is what critics describe as "caviar diplomacy": wooing politicians with expensive gifts, including copious amounts of caviar sourced from the Caspian Sea.

A report by the non-profit European Stability Initiative argued that such gifts helped silence the Council of Europe. It specifically mentions Maltese member of the Parliamentary Assembly of the Council of Europe Joe Debono Grech, who is co-rapporteur for Azerbaijan, describing him as an apologist for having gone on record in defence of the state of its democracy.


Corruption and personality cults

The Aliyev family has been a prominent feature of Azebaijani politics for half a century - President Ilham Aliyev's father Heydar was the leader of the Azerbaijani Soviet Socialist Republic between 1969 and 1982, before becoming First Deputy Premier of the Soviet Union.

He was forced to resign by Mikhail Gorbachev in 1987, but reinvented himself when Azerbaijan won its independence, becoming its third president in 1993 and stepping down a few weeks before his death in 2003.

Ilham Aliyev is his father's hand-picked successor, and has obtained over three-quarters of the national vote in three presidential elections, marred with allegations of irregularities and political oppression.

 A cult of personality was created around the former president, which has been continued under his son's rule. The state news agency, AzerTAc, actually uses the appellation "Great Leader" - the same term that the North Koreans use to describe his counterpart Kim-il Sung.

In another article published this month, AzerTAc even goes so far as to state that "grave of the great leader and ever-living President in the Alley of Honour has become a place of worship for the people of Azerbaijan".

The Alley of Honour is a memorial and cemetery in the Azerbaijani capital, Baku, and was visited by Dr Muscat: AzerTAc reports that he laid a wreath at the tomb of "national leader, founder and architect of modern Azerbaijani state Heydar Aliyev."

Even more strangely, Dr Muscat put flowers on the grave of "prominent ophthalmologist academician Zarifa Aliyeva" who just happens to be President Aliyev's mother. It would be unthinkable, of course, for leaders of European democratic states to ask their counterparts to pay tribute to their late parents.

The Memorandum of Understanding between Malta and Azerbaijan was itself signed underneath a massive bust of Heydar Aliyev, which overlooks a quotation of his that roughly translates as "all our efforts in the economic sector should be devoted to the welfare of our people".

But various reports suggest that a sizeable part of the country's economic efforts is devoted to improving the welfare of the Aliyev family itself.

While Azerbaijani law prohibits President Aliyev - whose annual salary is around €200,000 - from owning businesses, there are no such restrictions on his relatives, who appear to have amassed significant commercial interests across the globe.

In 2010, the Washington Post revealed that real estate in Dubai worth some $75 million was owned by the president's three children: daughters Leyla and Arzu and son Heydar. The lion's share of this real estate - nine waterfront mansions in the Palm Jumeirah land reclamation project worth $44 million - had been acquired by the president's son, who was just 11 years old at the time.

This and other revelations of the family's business interests helped earn Mr Aliyev the dubious honour of being named "Person of the Year" by the Organised Crime and Corruption Reporting Project.

The Washington Post also quoted an Azerbaijani Opposition leader as saying that Azerbaijan's leaders faced no risk of consequences because the country's judiciary, anti-corruption bodies and most of its media outlets were firmly under their control.

One journalist who has bucked the trend is Khadija Ismayilova, an investigative journalist who directed the Azerbaijan service of Radio Free Europe/Radio Liberty - which was banned from the airwaves in 2009 - and who has since written extensively about state-level corruption in Azerbaijan.

But she was arrested earlier this month, and ordered to be held in preventive custody for at least two months after allegedly having driven a colleague to attempted suicide, charges that are believed to be politically motivated by Reporters Without Borders. The arrest was made a day after the head of Azerbaijan's Presidential administration, Ramiz Mehdiyev, denounced her as a traitor.

The latest World Press Freedom Index issued by Reporters Without Borders ranks Azerbaijan 160th out of 180 countries, and this was before "repression reached a new high this year". The NGO also describes the country as "Europe's biggest prison for news and information providers".

Perhaps, then, the Maltese government's decision not to invite journalists to accompany the official delegation was made out of fear for their safety.



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