WHAT LACKS THE REAL TENDER?

Throughout all years of our state independence, citizens, comers to the country and foreign experts were puzzled by unbelievable price hike in Azerbaijan. Locally grown tomatoes and potatoes are expensive than imported ones. Cars cost higher again in Azerbaijan than in the country of origin. Real estate prices in Baku are exceeding the same prices in US. No matter how many times payment for internet has been decreased in the country, we have again one of the most expensive prices. Meanwhile, practically all analytical articles which debates the reasons of such typically Azerbaijani dazzling and omnipresent high cost of living are yielding the same conclusion blaming corruption among civil servants and monopoly.

Azerbaijani State is battling the corruption, but fails to win it. This happens in spite of the Decree of the President which nominated Ramiz Mehdiyev, the Head of Presidential Administration to the post of the head of state anti-corruption commission. As a rule, the reports of this commission are abounding with legal measures combating corruption recommended by international financial organizations. Among all these measures in the list, one can name the Law on Public Purchases adopted on 27 December 2001. On 29 January 2002, this Law has been improved and developed in the Decree of the President of the Republic of Azerbaijan related to its application. The quintessence of legislative documents which are extremely important from the point of view of fighting corruption is the same sentence from the very first paragraph of the law: (it) defines principles and rules of effective and efficient use of public funds in purchase process, creation of equal competitive environment for all producers (contractors) at the basis of fair play and pluralism.

UNBELIEVABLE CURVE

In my opinion, the brightest and most noisy indicator of effectiveness in applying the mentioned law as well as functioning of the whole system of fight against corruption is the complicated and absolutely unbelievable curve of unfolding events related to the issuance of the special license by the Ministry of Communication and Information Technologies to the operators of mobile communication enabling them to extend 3G services. The Cabinet of Ministers of Azerbaijan has approved a set of rules applied to this process of 3G license under the number 135 dated 10 September 2009.
According to the specialists, it is hard to imagine the nearest future of mobile communication in Azerbaijan without a package of services of 3G type because the majority of users wish to watch on display of their gadgets TV broadcasting, see their interlocutors live, use fully internet, send video appearances from a handy device to the screen of home TV set, ensure broadband data transmission, hear higher quality sound and plenty of other amenities. It is not a mere chance that these services have been branded as "a third generation" (3G or 3 generation). As Mr.Oguz Pardun, Head of Ericsson Representative Office in Azerbaijan said in his interview given to me, the company of mobile communication which has been granted the right to extend 3G services will become automatically the leader among its competitors because such possibilities of 3G do not simply exist in other packages of mobile communication services.

I have taken the interview with O.Pardun in summer when talks about 3G technology in our country have been known only to specialists while this miracle of phone services has been used already by residents of some CIS countries, Turkey, developed countries in Europe and America. During that period of time, 6 operators have been offering 3G in Georgia. All of them have obtained licenses at the basis of tender held in the country. I should add also that for the first time, 3G technology has been applied in Japan in 2001. Currently, there are 444 million people in the world enjoying this technology.

Six months have elapsed since my meeting with O.Pardun. In Azerbaijan, 3G has paraded itself on the stage in 16 December 2009. It has been applied in municipal elections of December parallel to the start of sales of services of the fourth generation (4G) in capitals of Finland and Sweden. Thus, our country has succeeded not to be an outsider in applying 3G in CIS territory by demonstrating its leadership by the level of state corruption.

In order to explain my last conclusion, I would be back again to the opinion expressed by Oguz Pardun. When asked about procedures defining in Turkey a mobile communication company to deserve the sales of 3G services, he said the following: usually, the license is issued by the state. It should be noted that such license is never given to only one company. Usually, it goes to two, three and even five competing operators. In some European countries as in Turkey, there is a tender defining the best company able to extend best services. In Turkey, the right to offer 3G services is granted to such companies as Turkcell, Avea and Vodafone.

In summer of 2009, there were speculations in Azerbaijan that the license to extend 3G services will be given to the only company which is closer to the authorities. I have asked the opinion of the expert, and Pardun said:

- It is not desirable at all that the license is issued to one operator only. In this case, the competition rules will be violated by forging a monopoly over 3G services. According to my information, there is the State Anti-monopoly Committee in Azerbaijan which intervenes and prevents the appearance of a new monopolist...

As we have seen in last developments, the tender on issuing a license for 3G services in our country has not taken place at all by pouching it simply to the mobile communication company - Azerfon, though Mr.Ali Abbasov, Minister of Communication and Information Technologies has been declaring in 2007 that the right to extend such services will be granted to a company winning the tender. The Minister promised that the tender held among three existing companies of mobile communication in Azerbaijan will define a winner which will have the best technical data for 3G. His words have been in full harmony with the requirements set in the Law of the Republic of Azerbaijan on Public Purchases which stipulates that issuance of state permits and state orders is possible only at the basis of transparent and objective procedure to define the best actor.

One of three possible contenders in this license battle - the Bakcell has subsequently shunned off its wish to extend 3G service.

Following the famous statement of the Minister made in 2007 on the intention to hold a tender, there were fullest two years passed by and remembered as the years when the said service has appeared in the markets of developed and less developed countries. Since that moment, Azerbaijan kept on saying about its leadership in telecommunication sphere. However, questions of journalists about the future of 3G directed to the employees of the Ministry were left unanswered.

In fall of 2009, Mr.Elmir Velizadeh, Deputy Minister of Communications in his interview has unexpectedly declared to me that the tender will not be run at all, and a winner will be determined in the result of internal ministerial competition. Besides that, he asked me with sarcastic mimicry: Who has promised at the Ministry to hold this 3G tender ("the man who said it should answer your question"). He went on as saying that such promise could not be made from the Ministry of Communication. During two years till now, the largest Azerbaijani company Azercell covering 80% of the national territory (besides occupied lands) and touching 99,7% of population has crafted its internal 3G network used inside the corporation. In 2008, this company has demonstrated its ready-to-go 3G system in Baku International Telecommunication Show while last year featuring the all-new 4G technology there again. Thus, Azercell has proved its full readiness and wish to get that badly needed license. However, its efforts appeared to be in vain when the circles close to the sphere of communication have tipped that the license will be given to a youngest participant of the market - Azerfon Company.

OJSS AZERFON launched its commercial activities on March 21, 2009 using the Nar Mobile trademark. The network of AZERFON covers almost 80% of the Azerbaijani territory. The services of this company are used by more than 1.5 million subscribers.

The said is done exactly in November. The Ministry of Communication and Information Technologies has announced that the license to extend 3G services is issued to Azerfon Company. In this regard, Mr.Osman Gunduz, leader of Multimedia public organization declared that the choice put on Azerfon is done in closed conditions which are illegal by violating openly the rights of other participants of the market. The pool of specialists in disput.az internet-portal has explained this decision of the Ministry by the fact that Azerfon is the only company among all three companies of mobile communication whose one hundred percent shares belong to the Azerbaijani officials. As a consequence of these events, people started to rumor that Azercell Company is being squeezed out of Azerbaijan.
OJSS Azercell Telecom started its activities on 15 December 1996. The first founders of this company were Turkcell İletişim Hizmetleri A.S. and the Ministry of Communications of the Republic of Azerbaijan. For the time being, the share of Azercell Telecom JV in the market of mobile telecommunications of Azerbaijan does not exceed 57.6%.
However, the press has stoned the public by publishing quite a surprising statement made by Mr.Mushvig Amirov, Head of Press Service of the Ministry of Communications by explaining the victory of Azerfon that Azercell has failed to submit all necessary documents to the Ministry of Communications and Information Technologies. The Minister Ali Abbasov has even promised to issue that important license to Azercell once the latter will hand over all documents to the Ministry.
Is Azercell culpable itself for not getting that license?
This question addressed to the representatives of the Ministry of Communications has been taken up by Mrs. Ulviya Hasanzadeh, Head of Corporate Relations Department of Azercell. In her interview given to Bizim Yol newspaper, she said that there is no certificate on compatibility needed in getting a right to work in the specific radio frequency among all technical documents presented to the Ministry two years ago (in order to get 3G license). But, it appeared that during two years, this certificate is denied to them by the State Committee of the Republic of Azerbaijan for Radio Frequencies. This organization is the same type of public agency as the Ministry of Communication.
The third generation (3G) networks are functioning at frequencies of decimetric diapason of almost 2GHz by transmitting data with the speed of 2Mbit/s. It allows organizing a videophone connection, watch movies and TV programs in mobile phones etc. There are 3G standards coexisting in the world: UMTS (or W-CDMA) and CDMA2000. UMTS is widely used in Europe; while CDMA2000 is applied in Asia and US.
Even if the Ministry of Communications will keep its promise this time by issuing a license to Azercell, this intrigue of 3G will not fade out at all because once the license will go to Azercell, then its competitor Azerfon appeared in the Azerbaijani market 10 years later, will become again an outsider. There is no doubt that Azercell with its large network of transmitters excluded only in the lands occupied by Armenians, and the huge number of subscribers in Azerbaijan will become a leader of new services in the market. One can easily understand that Azerfon bosses will do all their possible (and many things are possible for them) to leave Azercell without this promised license.

It is significant that such development of events as well as the violation described above are somewhat typical and expected in our country. In his conversation, Mr.Rovshan Agaev, Deputy Chairman of the Organization for Support to the Economic Initiatives said that such discriminating attitude to the actors of the competitive race for the license dates back to the times of establishing of these companies in Azerbaijan.

In majority of countries, the operators are given a possibility to work in the market following its victory in tender where they prove to the state that their technical capabilities are the best. In Azerbaijan, none of companies of mobile communication has passed the tender. If it is quite clear in the case with Azercell and Bakcell when they have appeared in the country in 1995 and 1997, there was no any Law on Public Purchases. But, in 2007, when a third operator (Azerfon) has been established in the country while having enacted the Law on Public Purchases, this company had to win in tender procedure. This did not happen. "The reasons of current contradictions should be found in that case" - thinks the expert.

In tender rules elaborated by the government, it is said that the contender should have a 5 years plus working experience in the said sphere (the professional compatibility) by indicating the financial volume of works done in last five years. The Law on Public Purchases envisages even the terms for a company to own a specific technical equipment in order to exclude its rental from other company specially designed for the tender procedure. If the state would respect strictly the provisions of the national law, Azerfon should not even be allowed to be in tender and a right to work in Azerbaijan. But, the tender itself has not taken place as we know.

BYPASSING

The register of monitoring the public purchases elaborated by the State Agency includes the name of 800 public organizations which make the purchases. Annually, there are almost 6 - 10 public purchases made in the country. Such wide scale violation of tender rules cost very high for Azerbaijan and its people. Nevertheless, as I have been told by Mr.Oktay Akhverdiyev, the formed head of department of the Cabinet of Ministers and now, the independent economist, if tenders in the countries are held, all this is being done just formally. "The strongest wins these tenders, but not the best one. The public purchase order goes to the company which is ready to give good bribes for a rich contract, and not that which proposes the optimal conditions", - said expert.
O.Akhverdiyev cited some examples:
- Road building in Azerbaijan is always done by the Ministry of Transport though as a rule, they always hold a tender with different contenders. It is unknown how they realize these tenders, and even the prosecutors" office cannot intervene into this process. One can see announcements about these tenders. Formally, everything is done as the law describes. But no paper says on how we should run this tender. There is no even information about winners. Or, let"s take another example: there was a tender in the field of communications where we had the German Company Siemens and some unknown Turkish firm. The tender commission has considered Turks as winners. Formally, Turks have been proposing the cheaper project, but we had to give a contract to the German company because their proposals, though expensive, reflected a modern, high quality, scientifically viable and future oriented technology", - said the respected expert.
His last comments need more explanation. At the end of 1998, the Ministry of Communications has lodged a complaint to the Court of Yasamal region of Baku city citing one of the publications in Zerkalo newspaper as insulting one. Authors of this complaint though that the Article called "We have remained out of the Eurasian Communication Corridor. Who is culpable?" dated 31 October 1998 as far from being impartial. The idea of this publication run about the fact that Azerbaijan is out of the large international communication project Trans-Asia-Europe (TAE) due to the fault of by the Ministry of Communications. The Court has obliged the newspaper and Kamal Ali, the author of article to pay a fine in the amount of 30 million manats (USD7.000). Consequently, both sides have come to the peaceful agreement in Baku Court in the course of cassation hearings. The said article has been also describing the dubious results of tender when Siemens has lost it to some unknown Turkish firm.
Mr.Azer Mekhtiyev, Chairman of Organization for Support to Economic Initiatives (OSEI) has responded my questions on how the law on tenders in our country is being bypassed:

- Following strictly the text of the Decree of the President of the Republic of Azerbaijan on Public Purchases, "all public purchases in the amount of 250 (two hundred fifty) million manats and higher should be done via tender", - he said. According to the current official rate of denominated Azerbaijani manta, 250 million manats are equal to 50 thousand new Azerbaijani manats. This means that all services, goods and works financed by the state and cost higher than AZN50 thousand should be assigned (ordered or obtained by) to companies which won the specially held tenders (contests). All these provisions are designed to enable citizens to benefit, buy and use the best, but least expensive goods and services. Certainly, the total value of works to create the system of third generation cost Azerfon the amount which exceeds AZN50 thousand by ten times, but this did not become an obstacle for the state to "gift" this license without any tender.

The Law forbids artificial reduction of value of goods or services in order to avoid an open tender. It is banned to divide one project into several parts to lower the value of work or service. It is neither possible to run false tenders with companies created specially to falsify a tender while all these companies are managed from the same source.

In spite of these provisions, it happens in Azerbaijan that the project of road building is divided into several types of works fulfilled by various companies and each of them work for the value inferior of AZN50 thousand, - said A.Mekhtiyev.

Even if a tender is announced, its terms are published in a way that breaches the law. OSEI has analyzed tender announcements published in Azerbaijan press within six months of 2009 and revealed that data about the works to be done are given in common lines without giving a precise information about the volume of works, requirements applied to its execution and deadline set. This is done in spite that the law requires all these details be published.

Transgressing of law is the practice of hiding the comprehensive information about tender by the proposal to get details directly from tender commission. Often times, the contender applies to the tender commission where he is asked some payment to get additional information though this information should be free of charge. The extorted money becomes so high that it becomes uninteresting for the contender to pay for information. Indeed, the law prescribes the payment only for a right to participate in tender after having obtained the full information. According to the Law, this payment in the amount of AZN11 thousand is not paid back to those companies which lost the tender.

The Law on Public Purchases requires that the results of tender must be published in the same mass media used for its announcement. However, results of tenders in Azerbaijan are not published in the press often times. "We have repeatedly applied to various Ministries in written form to announce the results of the announced tender and got no single answer so far", - said A.Mekhtiyev.

The Law on Public Purchases provides a possibility of imposing administrative sanctions in case of law violations. But, on many occasions, nobody think about a possibility to punish those who violate it in Azerbaijan. "We have been applied to the State Agency for Public Purchases to give us information about any cases of punishment for law violations. We have been told only about some minor fines which cannot be deemed as the punishment", - concluded A.Mekhtiyev.

While writing this article, I have searched open information about tenders held and non held in Azerbaijan. It appears that when the road junction has been under construction in 20 January square of Baku, there was no any tender for such works. The Ministry of Transport has said that there was no time for the contest. As a final result, the wide scale and of course, rich order has gone to ZQAN Holding. The official head of this Company is... the son of Ziya Mamedov, Minister of Transport. It should be added that the Law bans the participation of any companies in public purchases which have direct or parental links with officials.

The construction of a new building of Baku Bus Station has been fulfilled again by ZQAN Holding.

One of the largest Azerbaijani economic projects in last decade is the construction of Oghuz-Gabala-Baku water pipeline. The Organization for the Rights of Oil Workers has conducted the monitoring of law compatibility while constructing the water pipeline. Head of that organization Mrs.Mirvari Gahramanly said that the tender to define the best executing agency of this project has taken place with rude violations. First of all, she has noted the unwillingness of organizers to inform the public about the planned and fulfilled works as well as the tenders held in closed conditions for the population.

In April 2007, the Auditors" Chamber of Azerbaijan has revealed the misuse of budget funds by the Company called Azeristiliktehchizat (Azerbaijan"s Heating Systems). While holding tenders, this organization did not respect the requirements of the legislation (Interfax).
Local press has repeatedly published articles about misappropriations and other violations while purchasing food and outfits for the Azerbaijani army. One of publications wrote that the special public agency dealing with the centralized purchases in military field will be created to prevent such crimes. This forecast of unknown author did not come true.
Mr.Gubad Ibadoglu, Chairman of the Center for Economic Initiatives is concerned also by giant scale of misappropriations of public funds while carrying out works in the field of public purchases. In 2010, the state budget of Azerbaijan will reach AZN11 billion 164 million manats. As it was in previous years, this time again the main part of budgetary expenditures will be the civil engineering works. We observe it by construction and rehabilitation works done in Baku. In 2010, AZN3,564 billion manats will be allocated for such purposes. "Data on state budget known to us about the construction works in Baku cause many questions. First of all, there is a detailed summary of investment expenditures. These data are kept in secret. We can obtain such data only with the special permission of the Cabinet of Ministers following lengthy process of letters, talks and conversations. There is no single word in website of governmental structures about such issues. Though, there is a law on the freedom of circulating the information. The state financial control has the imitational character. The State Auditors" Chamber checks barely important institutions such as the construction of a school in village. The reports of this Chamber do not give details of the expenditures from the state budget. Often times, works which require significant amounts are done with the compulsory tender. If even this tender takes place, the total value of the works remains always unknown. There are even cases of tenders for works with still uncertain value", - said G.Ibadoglu.
It is important to note that while searching information about cases of violations of tender legislation in Azerbaijan, I did not find any data about punishment of those culpable ones. Meanwhile, Azerbaijani "fighters against corruption" could use the experience of brotherly Turkey. In October 2007, APA Agency has communicated that bribing cases have been revealed while holding three tenders, including the transportation of natural gas from the Azerbaijani gas field Shahdeniz to Turkey. In the course of investigation, phone conversations have been tapped among suspected persons: 23 persons were convicted and 11 out of this number are the high ranking officials of Turkish Botas Company.

Transparency International, World Bank and other international organizations fighting the corruption have discussed repeatedly with the Government of Azerbaijan the application of the Law on Public Purchases. However, as says A.Mekhtiyev, Transparency International checks the existence of the Law and its effectiveness as well as the legislative transparency while making public purchases. But, foreigners are not interested to see whether this law is respected or not and are there real mechanisms of respecting the laws. Though our laws are perfect on paper, during recent years, Azerbaijan has significantly improved its place in global corruption rating elaborated by international organizations. Besides that, such organizations are applying for the opinion of local experts often times. This decreases the quality of evaluation.

There is an obvious question: what is being done by the State Agency for Public Purchases if there are total violations of tender legislation in Azerbaijan. Website of the said State Agency - tender.gov.az - does not contain any information about violations of tender legislation. At the same time, the official web-resource provides reports about the activities of the Agency in the years of 2006-2009 where you can find information about tenders announced in the country. However, there is no information about the results of tenders. I could neither find any data about public purchases made by breaching tender legislation.

The State Agency for Purchases has been established at the basis of the Decree of the President of the Republic of Azerbaijan № 583 dated 16 May 1997 in order to pursue the state policy in the field of purchases of goods (works and services) at the expense of budgetary funds.

I have met with Mr.Zahid Veliyev, head of sector for training and international relations of the Agency for Public Purchases. He declared that there was no single case of transgressing the terms of tends illegally in the country. Z.Veliyev does not dispose any information about the reasons of refusal of the Ministry of Communication from holding the tender on extending 3G services. When I have explained him that the price of 3G technology is much higher that the threshold of AZN50 thousand indicated in the law, and therefore, the Ministry of Communication had to hold such tender, Z.Veliyev reacted by saying that if the work is being done urgently within operative conditions or the value of works is changing, the Ministries can choose executive partner by other means without tender. According to him, the Agency is not investigating the case to define those who violate the Law on Public Purchase if there is no incoming complaint. "As we receive the complaint, we check the procedure of holding tenders", - he said.

Unfortunately, the responsible employee of the State Agency for Public Purchases did not name any Ministry violating the analogical law often times. He has declined to answer the question related to the number of cases in last year to give a permit for making public purchases without holding tenders and name a leader fulfilling public orders out of any contest.

WHAT TO DO?

There are quite modern laws in Azerbaijan to purse a right economic policy. According to Zahid Veliyev, the Law on Public Purchases has been approved by the World Bank. If in Belarus, for example, the law does not oblige the Ministry to hold tenders, public purchases in our country are prohibited in our country without tender procedure.

When asked about the punishment for violations of tender procedures, Z.Velieyv, head of sector of the State Agency has said that the punishment should be tougher because the amount of fines applied against eventual lawbreakers are not burdensome for them. He has acknowledged that there was not a single case of repealing the results of tender in our country due to the law breaching in tender.

It is quite obvious that something very important lacks to Azerbaijan in enforcing its own laws. For instance, there is the corruption in neighboring Russia. The same exists in Azerbaijan. However, leaders of the Russian Federation demonstrate their open fight against this evil. Last November, there was the press release at the level of the Chairman of the Russian Government which described the governmental decision to run all tenders publicly, via internet and necessarily unveiling all terms of tender commissions and proposals of contenders.

Formally, the same activities are realized in Azerbaijan. The Azerbaijani Agency for Public Purchases fulfills works to create its own electronic system of tenders. The same has been said by Z.Veliyev. But, he declined to say when this system will transit from a pilot status to the normal one and ready to be used.

It is necessary for Azerbaijan to get rid off omnipresent monopoly in order to create equal opportunities and acceptable conditions for all contending operators. If the documents of any company (for instance, Azercell) are not ready, some period of time should be allocated to that company for preparing all documents. This could help us to avoid monopoly in 3G services. Of course, this should be the highest interest of the state.
In getting objectivity and transparency in holding the tenders, Gubad Ibadoglu attaches a higher importance to the civil society. "The public and non-governmental organizations could participate more actively in the protection of the budget from intervening civil servants. The collect of signatures under the collective applications to the Executive Power City of Baku, holding of rallies and sending complaints by post can be legal methods in bringing the opinion of citizens into the attention of the head of state", - declared G.Ibadoglu.
Oktay Akhverdiyev hopes also that if there will be a necessary amendment to the Law on Public Purchases about the compulsory participation of non-governmental organizations in controlling tenders, then the state will not be able to falsify the process.
"It is necessary to change the Law on Public Purchases and amend it with the following wording: while holding tenders, the tender commissions should obligatory have non-governmental organizations as their members," - said the expert. The current status is not right because the ordering side - the state controls itself the tender process. It appears that the state does as wishes the civil servant though money is public and should be spent for the needs of society. Therefore, the society should have a control over tenders".
Here is what said by the government representative - Mr.Zahid Veliyev, head of sector for training and international relations of the State Agency for Public Purchases: "According to the national strategy of increasing transparency, we prepare our proposals to legislators about strengthening of control against corruption in the activities of public and municipal institutions. There is the instruction under way to control the legitimacy of public purchases. These documents are being considered at the Ministry of Justice, and will get a juridical force once it will be adopted. Following these steps, the progress in getting more transparency in public purchases will be more visible".

I have decided to conclude my article knowingly by the opinion of Z.Veliyev though I could stop following the comments of independent economists. The readers can notice that wishes and promises of the governmental representative are not differing by its contents from the proposals of such our experts like G.Ibadoglu, R.Huseynov, A.Mekhtiyev and O.Akhverdiyev. Truly to say: what lacks to make some real avoiding any doubts? There is a normal legislative basis in the country and enough number of specialists able to apply the Law on Public Purchases. There is only one thing which lacks - the demonstration of the political will of the head of state.

Kamal Ali