Does Azerbaijan Have the Cash to Finance Its First Satellite?

A $203 million commercial satellite project could make energy-rich Azerbaijan the first South Caucasus country to venture into outer space, but some critics ask whether financial problems will interfere with the satellite’s launch and operation.

On May 27, the Ministry of Communications and Information Technologies (MCIT) signed a $109.5 million contract with the Dulles, Virginia-based defense contractor Orbital Sciences Corporation to manufacture a 16-transponder satellite named AzerSat.

The government sees the development of the space industry as part of its broader plans to transform Azerbaijan’s information communications technologies sector into a second priority after the oil-and-gas sector. [For background see EurasiaNet's archive.] A state program approved last year foresees Azerbaijan launching AzerSat, manufacturing satellite parts and training “space industry management” by 2013.

Under the contract with Orbital Sciences, AzerSat will be set into orbit by July-August 2012. The satellite will include military monitoring, intra-governmental mobile telephone communications, television, radio and Internet broadcast capabilities and will be accessible in part of Europe and Central and Southeast Asia. Azerbaijan itself plans to use up to a quarter of the satellite’s resources and sell the rest to other users.

A long-term lease has already been taken out with Malaysian satellite operator MEASAT for an orbital slot for AzerSat, according to MCIT.
Construction of the satellite will cost Azerbaijan 88 million manats (about $109.54 million); insurance for AzerSat will run at 18 million manats ($22.4 million). Construction of the launch vehicle and a control center will run another 57 million manats ($70.96 million).

The government will pick up the tab, but that could prove to be the catch. An MCIT source who asked not to be named told EurasiaNet.org that “the finance ministry is delaying financing the work on the satellite’s construction and launch.” He did not elaborate. Finance ministry representatives declined to comment.

Communications Minister Ali Abbasov has also indirectly admitted the existence of financial problems.

The AzerSat launch was delayed earlier this year from its initially planned launch date in December 2011 to summer 2012. Minister Abbasov [no relation to this EurasiaNet.org reporter] was quoted by AzertTAJ news agency as saying at a January cabinet meeting that the “delay is due to the necessity of considering recommendations and demands from the experts group and the finance ministry.”

Once the satellite is launched, a state-run company, AzerSpace, operating under the Ministry of Communications and Information Technologies, must gradually reimburse the state budget for the government’s 163-million-manat (about $203 million) project investment.

Azerbaijan’s 2010 budget, however, already faces a deficit. The budget forecasts expenditures of about 11.264 billion manats (roughly $14 billion) on revenue of about 10.015 billion manats (about $12.5 billion).

Osman Gunduz, chairperson of the Azerbaijan Internet Forum, a Baku-based information communications technology policy watchdog, argues that the satellite is an unreasonable waste of money.

“We are a small country and I doubt we will be able to use even 20 percent of the AzerSat resources,” Gunduz commented. “I do not know to whom the government is going to sell the remaining capacity while there is tough competition in this market in the world.”

Gunduz claims that members of the finance ministry and “some government bodies” are “against spending more than $200 million on a satellite. They are not sure they can recoup these investments.”

One economist shares that skepticism. Zohrab Ismayil, chairperson of Baku’s Public Association for Assistance to a Free Economy, noted that no “feasibility study, which would prove that AzerSat will return investments in six to seven years as Minister Abbasov promised” has been released. “I think it is more a prestige project than a commercial one,” Ismayil said.

The government’s track record for other such big-money projects drives the skepticism. It has announced plans for a multi-billion-dollar high-speed railway from Baku to Georgia and a South Korean-built bridge over the Baku bay, but the projects remain on paper.

A plan to open local airports throughout Azerbaijan was announced in 2006, but the two airports that opened – in Lankaran in the south and Zagatala in the northwest – closed a month after they opened. Flights could not be found to justify the airport operating costs. [For background see EurasiaNet's archive.]

The jury is still out on a $386 million Baku shipyard; construction started this year.

Doubters aside, the government is pressing ahead with its satellite project. Companies from Ukraine, Japan, France, the US, Russia and China have bid on building the AzerSat launch vehicle, an official at the Ministry of Communications and Information Technologies told EurasiaNet.org. Details were not released.

The MCIT is also looking for a site to build the satellite’s control center. The selection process for the center and for the launch vehicle should be finished within two to three months, Abbasov predicted at a May 27 press conference.

If the minister was feeling skittish about AzerSat’s prospects, he did not show it.

“With this contract, Azerbaijan has taken an important step to enter the international space market,” he declared.