Cernobbio, September 3, AZERTAC

President of the Republic of Azerbaijan Ilham Aliyev has been interviewed by the correspondent of the Italian “Il Sole 24 Ore” newspaper Roberto Bongiorni in Cernobbio.

Roberto Bongiorni: Good morning, Mr. President and thank you for receiving us again. A lot of things have changed since we last time met, I do thank you again for helping us to understand the dynamics in the Caucasus in the energy market.

President Ilham Aliyev: Well, in our region, the situation is developing towards peace. I hope so. I came to Italy from Brussels where we had trilateral negotiations with the President of the European Council and the Prime Minister of Armenia and we agreed that within one month foreign ministers of Azerbaijan and Armenia will meet in order to start practical discussions on peace agreement. That was our proposal from almost immediately after the second Karabakh war ended, we said that we need peace. We need a peace agreement and it took almost two years for Armenia to agree with that. So, I think this is one of the most important outcomes. Of course, a lot will depend on how these peace talks go, what will be the timetable, what will be the substance. I think that we can finalize and sign a peace agreement within several months. I think this is realistic if the Armenian side expresses the same will, because we introduced five basic principles, which peace agreement should be based on and Armenia accepted them.

-So, this would be a very important step towards building infrastructure that can connect two countries and the whole region.

-Yes, you are absolutely right and building the new infrastructure connecting Azerbaijan, Armenia and our other neighbors was part of the trilateral declaration, which was signed just after the war ended. And Azerbaijan already started large-scale infrastructure projects on the liberated territories. We already inaugurated the first international airport and the second international airport’s runway is already operational. Soon, we will inaugurate it. We build electric lines, we build power stations, highways, tunnels, bridges and railroads. So, all is in the process. Of course, we build it not only for connectivity with the neighbors, for internal use, but also Zangazur corridor, which will connect Azerbaijan with its Autonomous Republic of Nakhchivan through Armenia, is also part of our efforts.

-Let’s just shift to guess, because as you have focused, it is an important issue, Europe is trying to rid itself of Russian gas and as you said before, in mid-July you met in Baku European Commission President Ursula von der Leyen. You signed an agreement to double the Azerbaijani export toward Europe from 10 billion cubic meters to 20 billion cubic meters by 2027, I guess. But I was just wondering, Mr. President, that this is a very important and huge step, but comparing it to the Russian export to Europe, that was in 2021, 155 billion cubic meters, it is just a small quantity. Is Azerbaijan, under your presidency, studying any other projects that could increase this supply, maybe through other pipelines, through other parts of Europe. I just value it because this is a very big need.

-Yes, I understand the point and actually we are now evaluating the new options and new plans with respect to investments. But, the situation, which you are referring to, is very new. Therefore, no one was prepared for that and all our energy projects, including natural gas transportation, were based on the existing contracts. We signed the contracts with the European companies, which purchase our gas, many years ago, and then we invested in pipelines and then we started to supply gas to Europe only a year and a half ago. On the very first day of 2021 we started to supply gas to Italy. Therefore, our previous plans are fully implemented and now you are referring to our meeting with Madam Ursula von der Leyen. We discussed how to increase in a short term the production. To double the export to Europe is a big deal. It is not a small thing. We need investments, we need to expand the capacity because our pipeline, which brings our gas to Europe, has a capacity of 10 billion cubic meters - TAP. So, we need to expand it up to 20. It needs money, it needs agreement between the shareholders and all that is a process.

With respect to the reserves we have, I spoke at the conference, the minimum proven reserves are 2,6 trillion cubic meters of gas. So, potentially we can increase the supply to Europe even more than 20 billion cubic meters. But, also, we should understand that Europe is not our only destination. We supply Turkiye with the same figure like Italy - about 10 billion cubic meters and the demand in the Turkish market also is growing. We supply Georgia, though the market is not big, but still. Our total export this year will be about 22-23 billion cubic meters, but in order to increase, first: a lot of investments must be made in the fields and expansion, not only of TAP. We need to expand TANAP from 16 to 32 billion cubic meters. Yes, it will not be needed to build a new pipeline. We only need to upgrade the compressor stations, but still it is investment. And also one important thing that we never in the past or even now put in front of us a target to compete with Russian gas on the European market. No, we had our space. We have signed contracts with three European countries, with Italy, Greece and Bulgaria. There are demands from other European countries and we are evaluating those demands. There are projects, as you mentioned in your question, to have other extensions like the Ionic-Adriatic pipeline, which can go to the Balkans, the Greece-Bulgaria interconnector, which soon will be inaugurated and other interconnectors. But all this is a kind of puzzle on the table, we need to have active negotiations with potential consumers, to agree with shareholders about the investments in production, in distribution and also to negotiate the price. So, a lot of issues are in front of us.

-Mr. President, allow me to look in the long term. Your country has got so many potentialities and has got an extraordinary strategic position. For instance, in 2021, after 30 years of disputes, you just had an agreement with Turkmenistan to develop the Dostluq gas field on the Caspian Sea. And if we see the gas fields on the Caspian Sea, are you considering, for instance, to build the Trans Caspian pipeline? Because in this case, you can connect Kazakhstan gas fields, Turkmenistan gas fields. You could become an extraordinary gas hub for the whole region, not only for Europe.

-Yes, you are right. The decision, which we made together with Turkmenistan to develop the Dostluq field, I would call it a historical decision because we managed to agree, based on national interests of both countries and based on our brotherly relations. So, now, in front of us is a task to start developing all these fields. This field is mainly an oil field, not a gas field. But with respect to the Trans-Caspian project, this project is being discussed for many, many years. I remember, maybe at least 15 years it is being discussed, but from practical point of view, no steps have been made. When we initiated construction of the Southern Gas Corridor, we took the lead, we created a team, we started negotiations with countries, with consumers, with companies and also we were the main investor. When we built an oil pipeline from Baku to Ceyhan, it was the same. What I am trying to say is it is not the transitors who initiate these projects. It is the owners of the resources. Transitors can only facilitate, provide the territory or can be co-investor or can only be kind of recipient of transit fees. In other words, the Trans-Caspian pipeline is not a project of Azerbaijan. As far as our projects are concerned, all of them in oil and gas have been completed. Now, we implement the projects of export of electric energy to Europe. But the Trans-Caspian project is based on Turkmen resources. Therefore, if Turkmen government decides to build Trans-Caspian, it will be their decision. If they make such a decision, of course, we will support it, but we will not initiate it.

-You are a small, but modern country surrounded by three regional powers like Turkiye that is a strong ally of you, but also in south Iran and Russia. You have always been able to keep the balance, as you underlined before. But nowadays, since six months, things have changed dramatically and you are getting closer to Europe for the gas. Do you feel any reprisal from Russia that could be not military, but commercial or diplomatic reprisal?

-No, not at all. I think the reason is that our relations in the region are well-balanced and they have their own dynamics. With every neighbor we have a special agenda of bilateral cooperation, which is different from other neighbor and with every neighbor we always have been very fair and sincere. We never violate our promise. If we said something, our neighbors are sure that we mean it. So, our signature has the same power as our word. Therefore, in this complicated situation we do not have any messages neither from Russia nor from Iran about our position. Our position is straightforward. We always supported territorial integrity of every country and this is a fundamental positon. Yes, this was based on our own problem that our territorial integrity was violated. Now, when we restored it, we still are on this position because territorial integrity of a country cannot be violated by force. This is a violation of international law. Some may like this position, some may dislike, but they have to take it into account. So, to put in a nutshell, we don’t have any moments which would create concern with respect to regional development. You mentioned, Turkiye, our ally. It is a strong global power and, of course, the alliance declaration which we signed with Turkiye last year is a very important factor of regional stability and since the end of the second Karabakh war, where Turkiye showed us political and moral support, our relations have strengthened even more. So, this is an important factor and on many issues in our region Turkiye and Azerbaijan act as one team and this also must be taken into account by everyone.

-Let’s shift to the economy. In this very moment, Azerbaijan, I think, is having a lot of interesting energy earnings. But you told me last time that the diversification of the economy is an absolute priority for your country and how is it going? Because it doesn’t look that it is going so fast as you mentioned maybe.

-Well, with respects to the earnings, I just want to clarify because there is a common opinion that these high oil prices bring enormous additional wealth to the exporters. Yes, it is true. Our revenues increase. But at the same time, we lost money on the capital markets because our assets of our State Oil Fund are in different instruments and the biggest assets are in the capital market and the capital market went down. Therefore, we as many other sovereign funds, lost, not a lot of money. Some sovereign funds lost more than 100 billion dollars. We lost 2-3 billion dollars.

But with respect to the diversification, of course, no matter how we try to diversify our exports, our non-oil and non-gas exports will not match oil and gas exports, because oil and gas exports are growing. For instance, with Italy, we supplied natural gas to Italy last year in the amount of 9,6 billion dollars. This year, in 7 months, 11 billion dollars and the gas price is up. So, for us diversification is not statistics which is reflected in GDP. It is a means to provide jobs and to provide good quality of life to our people. If you look at our GDP, for instance, in these six months, what you will see. GDP grew 6,2%, but in the non-energy sector almost 10%, in the non-energy related industry more than 11% and also in the non-energy exports grew 25%. The growth is here, but it is not enough. Therefore, we need more reforms, more investments in the non-energy sector and for that, of course, we need to have a better business climate. Also there is an improvement, but still we need to do a lot in order to remove all these bureaucratic obstacles and some psychological legacy of the Soviet past.

-I imagine that you also have to rebuild the liberated areas. And in the diversification of the liberated areas, do you think that there is any room for Italian companies to have contracts to help your country?

-Italian companies are very actively working in the liberated areas. I can tell you with respect to the scope of work, Italian companies are second after Turkish companies. And Turkish companies are natural, because it is our ally and close friend. And second, it is our neighbor and they have very prominent construction companies. But second companies from countries are Italian. I can give you an example, for instance, our memorial and victory museums, not only in Baku, but in some other liberated cities, are designed and will be built by Italian companies. Italian companies provided equipment for electric energy production in four liberated territories -Aghdam, Fuzuli, Gubadli and Kalbajar.

-Do you speak about green energy?

-This is hydro energy. This is the company called Ansaldo. Then, one Italian company designed, based on our request, and will implement the project of the new mosque in Shusha. So, this demonstrates the level of our relations because Shusha for every Azerbaijani is a sacred place and the new mosque in Shusha was awarded to an Italian company. That means that there is such a high level of trust that we made that step. And we have big plans for renewables, for wind and solar plants, for hydro, to invite more Italian companies. Yesterday, during my meeting with the Prime Minister, we brought the figure of the amount of contracts implemented by Italian companies in Azerbaijan, the contracts financed by Azerbaijan. It is more than 10 billion dollars. So, Italy is well presented in Azerbaijan, but in liberated territories, I am sure they will keep this important second position after Turkiye during all time of the restoration.

-So, I guess yesterday it was a good meeting with Sergio Mattarella. It was not the first one and the meeting with Mario Draghi was about multidimensional agreements and strategic partnership.

-They are implemented successfully and our bilateral agenda is becoming broader. Of course, energy and trade are main parts, but not only. Yesterday, in the new building of our embassy we had an excellent ceremony of exchange of documents between ADA university and five leading Italian universities - Luiss, Bologna, Sapienza, Turin and Milano polytechnic universities. The Italy-Azerbaijan University is created, the building is being built and by the end of 2024 they will have excellent location. So, we operate actively with respect to the EU-Azerbaijan partnership. Italy always strongly supported Azerbaijan’s rapprochement with EU. Italy always supported our efforts to establish closer relations with NATO and, of course, energy security. Today this energy bridge of 3,500 kilometers, which unites Baku and Italian cost, is really a bridge of energy security and not only for Italy, because Italy also, I am sure, will be a country which will distribute further to Europe Azerbaijan’s hydrocarbons. So, we have energy segment, economic and trade development. Italy is our main trading partner. We have education, culture, so many more areas. So, strategic partnership, the declaration is working.

-Thank you. A very short last question is that with all these difficulties in Russia, do you think that it is just a dream to think of a new silk road that could cross the Caspian. In this case, you could also become a commercial hub with the right infrastructure.

-Yes, you are right. And we have been working on that. Many years ago already we started this work. We built the biggest trade sea port in the Caspian and now it is full. So, we need to expand it after 25 million tons of cargo handling and one million TEU. We built a ship building yard in Baku, so now we produce all types of ship to transport oil and cargos from the eastern shores of the Caspian. We built railroads and highways and the export through Azerbaijan from Central Asia and China grows. I think the growth is more than 20%. That all was done before the Russian-Ukrainian war. The Russian-Ukrainian war only sent the signal to companies on the eastern shores of the Caspian that this route should be more closely examined. And we provide good tariffs and we provide all the necessary logistical support. So, having no access to open seas, being a landlocked country, Azerbaijan today is becoming a regional transportation hub, not only from East to West and backwards, but also from North to South. The South-North transportation corridor crosses Azerbaijan. There is no other way for this corridor to go. And this corridor also becomes very important, for instance, for Russian companies, which now have difficulties in exporting their goods to European destination because of the sanctions. So, the route from Azerbaijan to Iran and to the Persian Gulf becomes for Russian companies one of the most attractive. And also from the Persian Gulf through Azerbaijan to Russia. So, we are sitting on two corridors - the South-North and East-West and, of course, it increases the geopolitical importance of Azerbaijan and gives an opportunity to create new jobs and we expect that the South-North transportation corridor will be as important as the East-West. For us, both have the same value, because both cross our territory.

-I do thank you for your kindness and for information about your country. I wish you all the luck. Thank you again, Mr. President.

-Thank you.