On 15 September 2016, the President signed Decree No 1046 On Supplementary Measures to Improve Effectiveness of Procurement in Operations of State Executive Bodies and Organizations Funded through the State Budget (the "Decree") which came into effect on 16 September 2016. The Decree’s goal is to increase the effectiveness of the operations of the state executive bodies and organizations funded from the State Budget of the Republic of Azerbaijan (altogether the "Subjects"), as well as to improve the efficiency and competitiveness of the business and investment environment.
The Decree prohibits the procurement of imported goods (works and services) by the Subjects starting from 16 September 2016 up to 1 January 2018. However, it does not cover the purchase of state guaranteed foreign loans, foreign grants, pharmaceuticals and medical products, as well as the procurement of imported goods (works and services) concerning state security and defence. The Subjects must seek consent from the Ministry of Economy if there is a necessity to procure imported goods (works and services). The Minister of Economy will issue its decision in agreement with the President.
Neither the Decree nor the relevant legislative acts of the Republic of Azerbaijan provides a definition of "imported goods (works and services)". The Customs Code of the Republic of Azerbaijan only differentiates between "foreign" and "internal" goods, according to which foreign goods imported to the country get the status of internal goods after completion of their customs clearance and placement under the free turnover customs procedure. Therefore, it is not clear whether the restrictions in respect of imported goods, works and services are limited only to their direct imports by the Subjects, or whether they also apply to the procurement of all such goods, works and services from vendors, contractors and service providers registered in the Republic of Azerbaijan. Such ambiguity may affect the procurement of the Subjects from the local branches of foreign vendors, contractors and service provides and require the latter to explore new ways and possibly restructure their local operations so that their offerings are not qualified as imported goods, services and works.
Furthermore, the circle of the Subjects considered under the Decree is not clear. The Decree specifies the restrictions applied to procurements by the executive bodies and organizations funded from the state budget. It does not clarify which organizations are covered under the organizations funded from the state budget. Although the Law of the Republic of Azerbaijan on Budget Systems provides a definition for "budged organization", where it means a department or organization which is directly financed through the state budget of the Republic of Azerbaijan (or the budget of the Nackhivan Autonomous Republic), the law does not define the term "organizations funded from the state budget", which has a different meaning within the law.
There are a number of state owned enterprises, e.g. SOCAR, which are partially subsidized or funded from the state budget. It could be expected that the restrictions will only apply to them where their procurements are financed by the funds allocated from the state budget. Nevertheless, the Cabinet of Ministers should clarify to what extent these organizations are subject to the above mentioned restrictions.