One man's 50 companies and millions in tenders

A 47-year-old Azeri businessman is the registered owner of more than 50 companies. Those companies won more than 180 government tenders worth six million manats ($3.5 million at current exchange rates) from 2012 to 2016. Most of these companies, it turns out, have no office address or phone number, but instead are listed at two primary addresses, both family residences where there is no sign of the businessman himself.

The entrepreneur, Fakhraddin Mammadov, could not be reached by phone and did not respond to several attempts to contact him personally through friends or relatives who live at the registered addresses given for his companies.

There is no evidence that Mammadov or his companies have done anything illegal. But why would anyone create multiple individual companies, without any obvious offices or staff, to apply for government tenders?

Experts believe that the motive for establishing multiple companies often has to do with tax legislation. If a company's annual turnover exceeds 200,000 manats ($118,000), it must pay an 18 percent tax. But if the turnover is less than 200,000, it pays 4 percent in tax. In addition, if a purchase is officially registered, the 4 percent in tax is refunded. At the same time, because it is unusual for one company to win many tenders, entrepreneurs prefer to establish several companies to spread them out.

 

FOLLOWING THE ADDRESS TRAIL

At least 49 companies owned by Fakhraddin Mammadov were registered in 2012-2016 at 187A Jorat, a settlement three kilometers from Baku on the shore of the Caspian Sea in the Sumgayit administrative region, where he is registered himself as a voter.

This is a narrow street in Jorat. There are two houses in the courtyard, which is surrounded by a three-meter-high stone fence. We knocked on the door, which was open, and a dog barked in response. An upstairs window opened and an elderly woman peeked out.

Meydan: We need Mr. Fakhraddin. As far as we know, he lives here.
Woman: No, he does not live here.
Meydan: How can we find him?
Woman: I do not know.
Meydan: Ms. Fatma, is that you? Mr. Fakhraddin is your son, isn’t he? Do you happen to know where we can find him?
Woman: He's not my son. He's a relative…

Four visits to this Jorat address where Mammadov and several of his companies are registered failed to turn up the business owner. A man aged 35 to 40, grey-haired, about 1.70-1.75 tall, opened the door on the final visit and introduced himself as Javanshir Mammadov, Fakhraddin Mammadov's brother, and confirmed that Fatma Mammadova is their mother.

Meydan: Hello. We need to talk to Mr. Fakhraddin.
JM: Why?
Meydan: He is the legal representative of about 49 companies. We have questions about that.
JM: I have nothing to do with that.
Meydan: How can we find him?
JM: Leave your phone number, he will be in touch.

The expected call never came.

The house where Fakhraddin Mammadov is registered

The house where Fakhraddin Mammadov is registered

Three other companies owned by Fakhraddin Mammadov are registered at another address, which turns out to be the house of a friend, at 39/16 2nd micro district, unit number 59, in Sumgayit.

Rena Mahmudova, the owner of the apartment shown as the legal address of three of the companies owned by Fakhraddin Mammadov, says that her ex-husband, Zaur, was friends with Mammadov and therefore allowed the businessman to use their address. Ms. Rana herself learned that the address was being used for business purposes when letters from the Tax Ministry started arriving at her place in April-May 2016, seeking debt payment. When we asked for those letters, she said that she had thrown them away.

Another company listing Mammadov as owner is Tac LTD, which is registered in 6th micro district in Sumgayit. This is the address of a shopping site that belongs to the company Iter Star International. Tac LTD, which was registered on 25 October 2002, won a tender announced by the Gubadli District Culture and Tourism Department of the Ministry of Culture and Tourism in 2012. According to the terms of the tender, the company was to supply the department with 30,000 manats ($17,700) worth of stationery.

No public information could be found on offices or phone numbers while we searched online for any of the companies, of which Mammadov is the legal representative.

 

TENDERS COVER WIDE AREA

KEY FACTS: The State Procurement Agency's database contains information about more than 180 tender orders won by Fakhraddin Mammadov's 49 companies. The orders that he received in 2012-2016 had a total value of 6,056,520 manats ($3.57 million).

Of that amount, he received 1,543,984 manats ($910,000) from the Gadabay, Guba, and Ismayilli regions and 4,512,536 manats ($2.66 million) worth of tender orders were from Sumgayit-based state agencies.

Mammadov is one of the main winners of tender orders from various agencies in Zangilan. (Zangilan is a region in southwestern Azerbaijan occupied by Armenian forces in 1993. After the occupation of Nagorno-Karabakh and seven neighboring regions, the state agencies of those regions, including executive authorities, schools, and clinics, continued to function in other regions of the country, where the IDPs were settled.) For instance, Mammadov won about a quarter of the tender orders in the Zangilan region in the past four years, for a total of 3,030,000 manats ($1.8 million), including for food, equipment, furniture, office supplies, renovation work, etc. Of that amount, 157,953 manats ($93,000) were received from the Zangilan Hospital, which serves IDPs from Zangilan at three different locations.

The Zangilan District Central Hospital is located in the building that houses the Masazir Clinic

The Zangilan District Central Hospital is located in the building that houses the Masazir Clinic

Zangilan Central Hospital’s main branch occupies three rooms in a polyclinic in the Masazir settlement on the Absheron peninsula. The chief doctor, Tariyel Salmanov, uses one of the rooms as an office with his desk, a stretcher, a TV, and several small cabinets. In the second room, containing a bed, several tables, and a refrigerator, patients are received. In the third room five or six young women were in the third room, each with a desk and a computer.

Confirming our first impression, Dr. Salmanov told Meydan TV that there is no medical equipment here at the main site of the Zangilan Central Hospital. According to him, the hospital simply does not have the budget for equipment although, between 2012 and 2016, the Health Ministry handed out approximately 229 million manats ($135 million) in tenders for furniture, machinery, and equipment for the hospital, including those won by Mammadov’s companies.

First-aid facility in the IDP settlement in Masazir

First-aid facility in the IDP settlement in Masazir

The second branch is 10 minutes away - a four-room building in the yard of a dormitory for Zangilan IDPs. It is equipped only with furniture.

The third branch is in the New Zangilan settlement built for IDPs in the Sabirabad region. The small town was built in 2010 and currently 150 families reside there. The hospital serves the IDP families as well as residents of the nearby village of Rustamli. A one-story building with four rooms, the hospital is furnished with three beds, one refrigerator, one TV, and one desktop computer.

View of the first-aid facility in New Zangilan in Sabirabad

View of the first-aid facility in New Zangilan in Sabirabad

View of the first-aid facility in New Zangilan

View of the first-aid facility in New Zangilan

Fiday Abbasov, the physician at the facility, says he has held his position for about five years now. According to Dr. Abbasov, the The equipment that we see at the first-aid facility are items that were purchased and placed here when the facility was built and put into operation, except the television and the computer, which the hospital received two years ago.

But the State Procurement Committee's database does not provide detailed information about specific items acquired through tenders, so it is impossible to say which supplies or equipment Mammadov's companies were supposed to provide to the Zangilan hospital.

Fiday Abbasov, physician at the first-aid room in the village of New Zangilan

Fiday Abbasov, physician at the first-aid room in the village of New Zangilan

 

TRANSPARENCY MISSING IN GOVERNMENT TENDERS IN AZERBAIJAN

In Azerbaijan, little is known or can be discovered about government tenders, the businesses that win them, or even what specifically the contracts cover.

The main problem is that the law "On State Procurement" does not set strict requirements for a company participating in a tender, according to Toghrul Valiyev, who is an economic analyst of the non-oil sector in Azerbaijan.

"For example, in many countries, in order to participate in state tenders, a company must meet certain operational requirements,“ he said. “But by law this is the responsibility of the entity organizing the tender.” No outside agency evaluates the companies which are granted tenders.

There is also a lack of transparency in the vague wording of tenders in Azerbaijan. “Tender announcements and reports indicate only ‘renovation work’ or ‘office supplies,’ Valiyev said. “In neighboring Russia, for example, [items in tenders] must be clearly specified - how many vehicles, how much construction material, etc.”

Another problem, according to Valiyev, is that laws on competition and monopolies are not enforced in Azerbaijan. According to the law "On Anti-Monopoly Activity", if a company controls more than 35 percent of the market in a certain sector, it is considered a monopoly. However, the law does not specify how to calculate that share or what indicators should be used as a basis (although it does specify indicators such as entry into the market, volume of assets and sales, etc). Legislators have been discussing a proposed competition code for 10 years now, but even if it is eventually adopted, drafts suffer from the same problems as existing legislation, and experts believe that it will not remedy the situation.

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