Introduction

This Factsheet outlines the current progress in advancing Sustainable Public Procurement (SusPP) in Azerbaijan based on a desk review. The review applies an analytical framework of six Pillars (or "building blocks") of SusPP systems.

The Framework is designed to make clear that countries do not need to follow a linear step-by-step path to build effective GPP systems. Rather it is important to examine local contexts and prioritize the Pillars with the most potential in the country. No matter where a country starts, a balanced approach to implementation calls for progress on all Pillars to some degree.

This Factsheet is organized as follows:

• "Country Overview" section with executive summary, indicative maturity rating, key achievements, potential pathways forward and timeline of key events related to advancing sustainable public procurement.
• "State of Play & Forward Looking Analysis" section that summarizes the research findings from the desk review for each Pillar theme.
• "Key Stakeholders Driving the Agenda" explores opportunities for ADB teams to open discussions with country counterparts and add value to the work of partners.

The Factsheet is intended to be a living document to promote knowledge sharing and support training activities at ADB. It will be revised and improved as new information is uncovered and advances are made. If you have new information, please contact ychu@adb.org.

Azerbaijan’s economy is driven by the oil and gas sector, which accounts for some 90% of the country’s exports and between 30% and 50% of its GDP. Faced with decreasing demand for oil and gas, the Government of Azerbaijan has prioritized efforts to diversify its economy. The private sector, especially small and medium-sized enterprises (SMEs) are seen as core to the country’s diversification goals especially in the energy, agri-food and tourism sectors.

Sustainable public procurement is not explicitly recognized as a policy tool for achieving national development goals. However, a new draft of the Public Procurement Law has been adopted that contains provisions that promote environmentally friendly and social procurements. The use of domestic preferences and limited bidding has long been encouraged to promote local suppliers and use of locally sourced materials. Dialogues have been launched on sustainable public procurement with the first workshop held in December 2022 with support from UNEP. Further dialogues on the new public procurement law are planned in Fall 2023 with ADB support.

The Government has set priorities to promote energy efficiency and the use of locally sourced construction materials, outlined in its Azerbaijan 2030: National Priorities for Socio-Economic Development and Strategy of Socio-Economic Development in 2022‒2026. With air pollution a concern in major cities, electric vehicles are being proposed as a promising environmental technology for adoption across the country. In addition, the Smart City concept has been adopted as the guiding principle for the restoration of previously occupied territories, offering significant potential to pilot sustainable public procurements and showcase its benefits.

>> Visual snapshot of Sustainable Procurement Maturity Level

Maturity Level:

Very Early Stage

Key Achievements

• Public procurement law updated in 2023 including provisions in support of environmentally friendly and social procurement
  
• Domestic preferences in public procurement encouraged in procurement framework
  
• National development vision prioritizes “a clean environment and country of “green growth”
  
• Updated legislation and policies adopted on energy efficiency and renewable energy, making these issues a national policy priority
  
• Support programs exist to support green technologies and practices in local businesses and SMEs
  
• Green building certification system exists and green buildings have been successfully certified
  

Potential pathways forward

• Conduct awareness raising campaigns to understand level of buy-in and obstacles to sustainable public procurement
  
• Pilot sustainable criteria in ADB financed projects to demonstrate benefits
  
• Integrate sessions on sustainable public procurement into training on new public procurement law
  
• Develop tools (e.g. criteria, listings, directories) to support procuring entities to identify sustainable products, works and services
  
• Support centralized procurement approaches (e.g. framework agreements, joint procurements) for sustainable products, works and services
  
• Expand new e-procurement system to track metrics on sustainable public procurement
  

>> Timeline of Implementation of Sustainable Procurement Activities

2001

2011

2021

2022

2023

Public procurement law sets basis of award as best value for money and allows consideration of limited non-price criteria

Parliament approved the Law on the use of renewable energy resources in electricity production

Parliament approved the Law on rational use of energy resources and energy efficiency

Azerbaijan 2030 vision sets a clean environment and country of “green growth” as one of five core objectives

Order passed to establish a Green Energy Zone in the liberated territories

EU4Environment offers business training and support on resource efficient and clean production

Strategy of Socio-Economic Development in 2022‒2026 sets target to improve energy efficiency of public buildings

VAT and sales tax exemption created for import of electric vehicles to complement existing exemption for hybrid vehicles

Introductory workshop on Sustainable Public Procurement and Eco-Labelling organized by UNEP

Procurement law reform introduces provisions that promote sustainable public procurement

Pillar 1: Government Vision & Awareness of SusPP

Governments that establish a clear policy vision on SusPP can accelerate the shift from procurement as an adminstrative to strategic function, making clear how SusPP can deliver on important national social and environmental goals.

Sustainable public procurement is not explicitly recognized as a policy priority in Azerbaijan. However, the Government has set national policy goals that sustainable procurement can contribute towards achieving.

The country’s development vision is set out in the Azerbaijan 2030: National Priorities for Socio-Economic Development and Strategy of Socio-Economic Development in 2022‒2026. Both strategies are aligned with the 2030 Agenda for Sustainable Development and state that “a clean environment and country of “green growth” is one of five core National Priorities. Azerbaijan committed to reducing its GHG emissions by 40% by 2050 at COP26. The Government plans to develop a “State Program for low-carbon development” by 2024.

National development priorities that sustainable procurements can be designed to contribute to include:

• Energy efficiency: The Government has developed a draft law ‘On the Efficient Use of Energy Resources and Energy Efficiency’ and developed a draft National Action Plan on Energy Efficiency. The Strategy 2022-2026 sets a target to improve energy efficiency of public buildings under a national renovation program by 2026. The National Action Plan calls for
  

• the use of Energy Performance Contracts (EPCs) to finance energy efficiency upgrades in public buildings and promote energy efficiency measures in the irrigation and fisheries sectors.
  
• Renewable energy: The Government has passed Law No 339-VIQ, dated 31 May 2021 On the use of renewable energy sources in the production of electricity. A target has been set for renewable energy to provide 30% of electricity generating capacity by 2030.
  
• Small and medium enterprises (SMEs): The Strategy plans to accelerate development of the private sector, especially small and medium sized businesses especially in the agri-food and tourism sectors to become the main source of economic growth and employment. A 2016 Strategic Roadmap for the Production of Consumer Goods in Azerbaijan at the Level of SMEs includes a call for policies, a legal framework, and funding initiatives to help SMEs transition to renewable energy and the green economy.
• Local construction materials: The Strategy 2022-2026 prioritizes action to promote local production of construction materials. The Azerbaijan Standardization Institute aims to create a certification program and conduct trainings to promote recognition and use of local construction materials.
• Electric vehicles: Car ownership is rapidly growing in Azerbaijan leading to increased air pollution, congestion and health issues. The Government plans to develop a National Plan on electromobility and expand the network of charging stations. In 2022, a VAT and sales tax exemption for electric vehicles was created to complement the existing exemptions for hybrid vehicles.
• Women: Decent employment for all groups of the population is a priority, in particular to by improving women’s access to economic opportunities.

A key opportunity for sustainable procurement exists in the “Great Return to the Occupied Territories” envisioned by the Government of Azerbaijan. An allocation of USD 1.76 billion has been made in the 2023 State Budget for the

restoration and reconstruction of the territories previously occupied by Armenia. Within these territories, the Strategy 2022-2026 envisions promoting small business models based on a circular economy and a “green energy zone” to expand the use of clean and efficient energy. The President of the Republic of Azerbaijan signed Order No. 2620 in May 2021 on the measures to establish a Green Energy Zone in the liberated territories, followed by the Cabinet approval of a complementary Action Plan (Order No. 459 dated 3 August 2022).

Pillar 2: Legal & Regulatory Framework

Procurement law reform can be key to clear obstacles to implementation by establishing "value for money", not "lowest price", as a core procurement objective, and authorizing procurement approaches suited to SusPP.

A new Law on Public Procurement (PPL) was adopted by the Azerbaijan Parliament and endorsed by the President in 2023. The new PPL contains provisions that promote sustainable procurement practice by procuring authorities. However, no copy of the law was available for detailed review at the time of desk review. The Government of Azerbaijan has sought assistance on the development of a sustainable public procurement policy and draft legislative proposals to amend the current procurement framework to implement the new concepts.

The previous PPL was the Law of the Republic of Azerbaijan “On Public Procurement” No. 245-IIQ of December 27, 2001 which was amended several times over the years. Back in 2011, the Government of Azerbaijan adopted a state policy of protectionism aimed at increasing the participation of domestic suppliers in public procurement. Key tools to achieve this include leveraging the domestic preference clauses in the PPL and the Catalogue of Industrial Enterprises & Item List of Industrial Products that lists domestic suppliers and products. The 2001 PPL (Article 36.9) allows procuring authorities to apply a 20% price preference to any locally produced goods, a provision aimed at stimulating investments in non-oil sectors to diversify the economy. Procurements with a value equal or less

than 3.0 million USD are to be carried out through electronic procurement and micro, small and medium-sized enterprises encouraged to participate (Article 50-1).

The 2001 PPL (Article 36.8.2) allows for consideration of limited non-price criteria in tender evaluation, including costs of operation, technical servicing and maintenance and shipping. The basis of award is best value for money, considering all criteria that can be translated into a monetary value.

Pillar 3: Institutions & Capacity

Institutions

The Ministry of Economy, State Service for Antimonopoly Policy and Consumer Protection is the responsible government agency overseeing public procurement policy and practice. Previously a State Procurement Agency had been created but was terminated in January 2016.

Other government agencies that may be involved in the promotion of sustainable procurement include:

• The Ministry of Energy (MoE), State Oil Company of Azerbaijan Republic (SOCAR) and Azerenergy are the main public agencies driving the energy agenda. An Azerbaijan Renewable Energy Agency was created in 2020 to lead renewable energy development.
  
• The Ministry of Ecology and Natural Resources is a central executive body implementing state policy on environmental protection.
  
• The Azerbaijan Standardization Institute is the national standardization body.
  

No interministerial body exists to promote sustainable procurement. However, a National Coordination Council on Sustainable Development of Azerbaijan has been established that could take on this role.

Capacity

The Introductory workshop on Sustainable Public Procurement and Eco-labelling in the Republic of Azerbaijan took place on 20 December 2022. The training workshop was moderated by representatives of the Ministry of Ecology and Natural Resources of the Republic of Azerbaijan. A workshop on the new public procurement law is planned in 2023 with participation from the Asian Development Bank and World Bank.

The 1st SDG Dialogue on Green Transformation held on November 2, 2022, attracted broad participation across Azerbaijan stakeholders, including over 100 representatives of government agencies,the United Nations (UN), international financial institutions (IFIs), the diplomatic community, the private sector, civil society and academia. Many of these stakeholders could also be engaged in discussions on sustainable procurement.

Pillar 4: Market Practices

Market dialogue throughout the procurement process helps procuring entities to choose realistic sustainability criteria and ensure suppliers succeed in delivering on sustainability commitments over the contract duration.

Market dialogue

The 2001 PPL (Article 18, 46) allows procuring entities to conduct two-stage tenders, allowing for a minimum level of market dialogue. This approach can be used to explore the market’s readiness to respond to new environmental and social criteria, while allowing room for innovative ideas to be proposed by suppliers. Based on the knowledge gained from these market dialogues, changes to the tender requirements can be made up until the deadline for submitting tender offers (Article 30). Informal dialogues between procuring entities and bidders is strictly forbidden (Article 39.1).

Training and Support

Several business support tools and programs exist in Azerbaijan:

• An online self-assessment tool for SMEs to assess their level of environmental performance and receive a tailor-made report outlining recommended actions to improve sustainability
  
• Four Resource Efficient and Cleaner Production Clubs have also been set up in Baku and Ganja, and the regions of Yevlakh, Ganja, Khachmaz and Sumgayit to provide practical support to local businesses through coaching sessions and mentoring to develop greening action plans.
  

• 15 national experts have been trained by UNIDO on Resource Efficient and Cleaner Production (RECP) and 35 manufacturing enterprises benefited from RECP assessments to identify greening opportunities.
  
• An incubator programme for social entrepreneurs was launched in 2023 by UNDP and the European Union. It hosts 41 entrepreneurs with business ideas that contribute to the Sustainable Development Goals. Other past accelerator programmes include the ClimateLaunchPad Azerbaijan and the Climate and Energy Tech Accelerator.
  

Business Groups & Businesses

The Small Business Development Agency (SMBDA) is a public agency that has expressed readiness to develop training programs on resource efficiency and clean production in regional SME development centres. INKOEL, the first installer and developer of renewable energy in Azerbaijan, has created a Smart Innovation Hub to teach green skills and provide apprenticeships to recent graduates.

Pillar 5: Procurement Operations

Various tools and procurement approaches can be employed to help procurers more easily identify environmentally friendly goods and services and attract a competitive market response.

Green building

Interest in green building is growing across Azerbaijan. A national energy performance certification system, AZERI GREEN ZOOM exists that assesses nine categories: 1. Indoor environment quality, 2. GHG emission control and energy efficiency, 3. Water efficiency, 5. Site ecology, 5. Transportation linkages and site location, 6. Materials, resources and waste, 7. innovations, 8. Local issues and 9. Project design.

A seminar on Sustainable development of Azerbaijan Republic: Green building and «Smart» City was held on April 14-15, organized by the Azerbaijan and Architecture and Construction University and International EcoEnergy Academy. In Baku, the Class-A White City Office Building is the first property in Azerbaijan to be awarded BREEAM certification with a rating of Good. The building features energy efficient lighting and automated controls, passive solar lighting, water efficient sanitation fittings and leak detection systems, bicycle racks and e-charging stations, and biodiversity-friendly landscaping.

A prototype smart village has been developed in Aghali, in the area of Zangilan in Karabakh.

Pillar 6: Monitoring & Impact Measurement

Monitoring systems are essential to gather the information needed to keep SusPP implementation on course and communicate on the benefits achieved for the country.

No monitoring system for public procurement was identified in this desk review.

The Government launched a new electronic procurement system in 2018. According to the April 2019 “Regulations on a single Internet portal of public procurement”, procuring entities must publish announcements on the official e-procurement portal including information on procurement results, contracts concluded, service proposals of procuring entities and proposals for determining the suitability of qualifications.

The State Statistical Committee has put in place the information platform for measuring and reporting on green growth. The measurement framework consists of 38 green growth indicators under five categories: (i) socio-economic efficiency; (ii) environmental and resource efficiency; (iii) natural asset base; (iv) environmental dimension of quality of life; and (v) indicators of economic opportunities and policy response.

Projects Supported by ADB

Other Initiatives supported by National/International Agencies

Within the pilot project “Knowledge Exchange and Technical Assistance on the Development of Floating Solar Panels System” implemented with the support of the ADB, the installation of a photovoltaic system with a capacity of up to 100 kW on Boyukshor Lake, as well as the development of business models to encourage the participation of the private sector in the installation of solar panels, strengthening national capacity through trainings are envisaged. Investigations are underway within the relevant project for the implementation of large-scale projects on water basins in the future..

UNEP is coordinating activities to be implemented by a national organization to conduct a national status assessment and legal review for sustainable public procurement, national status assessment on ecolabelling, workshop to discuss findings to be completed by November 2023.

References

ADB Member Fact Sheet (2023). Azerbaijan.

Baku Research Institute (2021). Public Procurement in Azerbaijan: Limits on Transparency and Public Oversight.

Government of Azerbaijan (2021). Azerbaijan 2030: National Priorities for Socio-Economic Development.

Government of Azerbaijan (2021). Strategy of Socio-Economic Development in 2022‒2026.

International Energy Charter (2019). In-Depth Review of the Energy Efficiency Policy of the Republic of Azerbaijan.

Organization for Economic Cooperation and Development (OECD) (2020). “Azerbaijan: Small Business Act country profile”. SME Policy Index: Eastern Partner Countries 2020 – Assessing the Implementation of the Small Business Act for Europe.

United Nations Economic Commission for Europe (UNECE) (2013). Promoting Green Innovation - Policy assessment and recommendations. Azerbaijan.

United Nations Economic Commission for Europe (UNECE) (2019). Presentation on the ‘National Sustainable Energy Action Plan of Azerbaijan’.

The World Bank. Global Public Procurement Database “Azerbaijan country profile for 2021”.

The World Bank (2022). Azerbaijan: Towards Green Growth, Issues Note.

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