For a while, Azerbaijani experts believed that certain circles in the ruling elite lobby for the annulation of the contract with Barmek in order to replace it with the Russian electric monopoly RAO-UES. Frequent visits by RAO-UES head Anatoly Chubais to Baku further ignited these fears and rumors. However, last month’s visit by Russian President Vladimir Putin to Baku and the subsequent arrest of several high ranking employees with Barmek became clear warning signs for Barmek. The Ministry of Taxes and the Prosecutor General’s office launched an investigation into Barmek’s financial documents, and in the words of the General Prosecutor Zakir Garalov, “some initial financial misappropriations have been identified.”

The loss of Barmek and Azerbaijan’s electricity network could be a major blow to Turkish economic and national interests in Azerbaijan. Bilateral relations already suffer enough from the problems of Turkish businessmen in Azerbaijani customs and other governmental offices as well as the “cold shoulder” attitude that Baku receives from the pro-Islamist government of Turkish Prime Minister Recep Tayyip Erdogan. Azerbaijan is also unhappy with the delay in the construction of the crucial Baku-Tbilisi-Ceyhan pipeline, which has been delayed by the Turkish side by more than a year.

Barmek’s departure from Azerbaijan could also be a major blow to Azerbaijan’s national security because the Russian company RAO-UES already controls the electricity distribution and power generation networks of neighboring Armenia and Georgia, and thus the acquisition of Azerbaijan’s network would complete Russia’s plans to take control over the energy assets of the South Caucasus and thus gain a major tool for political influence.

After meeting one-on-one with President Aliyev, President Sezer announced at the press conference in Baku that “Azerbaijani-Turkish relations are an example for other countries in the region in terms of the level of strategic partnership.” This seemed like a very optimistic assessment of the bilateral relationship. Sezer also praised Azerbaijani efforts to build economic and political relations with the unrecognized republic of Northern Cyprus, a move which has been heavily lobbied by Ankara and which cost official Baku worsened relations with the European Union and its veto-power holding member, Cyprus. The diplomatic politeness continued as President Aliyev thanked Turkey for continuous support on the Nagorno-Karabakh conflict and said that “Azerbaijani-Turkish relations continue in all sectors, be it political, economic and humanitarian.”

Despite problems, there are indeed reasons to sound an optimistic note. Bilateral trade has grown from $500 million in 2004 to $750 million in 2005 and is expected to further grow to reach the $ 1billion mark. Sezer also pointed out that Turkish businessmen had invested $2,2 billion in foreign direct investment in Azerbaijan.

President Aliyev also informed journalists that the two leaders had discussed the Kars-Akhalkalaki regional railway project, which would link Turkey with Georgia and Azerbaijan and by-pass Armenia, thus further benefiting the East-West energy and transportation corridors and allowing railways goods from Asia to reach targets in Europe faster and with greater ease. This project already drew much criticism from Armenia and pro-Armenian legislators in the U.S. and Europe, yet Azerbaijan and Turkey seem to be determined to complete it. Two days prior to Sezer’s arrival, Azerbaijan’s Transport Minister Ziya Mamedov told the Azerbaijani press that an evaluation and feasibility analysis of the project had been completed and reported to the President Aliyev.

Should Baku and Ankara be able to pull this major regional project off, bilateral relations will reach new heights – perhaps irrespective of Barmek’s fate.