The violent crackdown by police on protestors in Baku this weekend highlighted simmering political discontent in Azerbaijan, the latest former Soviet country where unrest has broken out.
The abrupt development raises awkward questions over the EBRD's controversial backing of projects in a country whose human rights record is causing growing international concern.
Violence broke out on Saturday after opposition forces staged a protest in the capital, Baku, calling for democratic reforms in the run up to November's parliamentary elections.
Baku's mayor refused to permit the rally because of security concerns before Wednesday's ceremony to inaugurate the Azeri section of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. The project is partially funded by the EBRD.
The Azeri government yesterday was quick to distance itself from the weekend's events. The country's deputy minister for economic development, Mikayil Jabbarov, told Emerging Markets that the handling of the demonstration was the responsibility of the mayor, not the central government.
"I don't know what the demonstration was about," he said. "As in any country facing elections there are discussions about laws that have to be changed."
This view was echoed by the EBRD's head of office for Azerbaijan, Raymond Conway, who will attend the opening of the pipeline on Wednesday, along with other senior EBRD officials.
"It was not the government, but the mayor of Baku who prohibited this demonstration and who called in the police," he said. "The mayor belongs to the traditionalists, the old, less reform-minded generation. We are trying to work with the parts of the government that are reform-oriented."
Yet the EBRD's operations in the country are under increasing scrutiny from NGOs. "We have demanded a change in EBRD policy towards Azerbaijan on several occasions," Mayis Gulaliyev from the Center for Civic Initiatives, an Azeri human rights organization, said yesterday. "Unfortunately, we have only received promises and no actual changes."
Human Rights Watch (HRW) called for the EBRD to adopt political benchmarks and to closely monitor the Azeri government's progress towards meeting such goals. "We are asking the bank to make the most of its political mandate," said Veronika Szente Goldston, advocacy director of HRW's central Asia division. "The level of repression in Azerbaijan is very high and we have to be prepared for a nasty blowup."
But Conway dismissed worries that upheavals such as those in Georgia or Kyrgyzstan could hit Azerbaijan. "Benchmarks are a lovely concept but extremely difficult to implement," he said. "Azerbaijan is going though rapid changes and you can't be too dogmatic."
The official added that the bank was not turning a blind eye to the tensions and that political challenges in Azerbaijan exist.
The government and opposition parties recently reached an agreement on certain democratic standards which, according to Conway, shows a substantial step towards greater openness. "The traditionalists are undermining the president's agenda," he said.