Tony Blair has triggered an outcry on the eve of the Copenhagen climate summit by endorsing a fossil-fuel power plant that is owned by an Azerbaijan oligarch.

The former prime minister was paid by millionaire Nizami Piriyev to fly to the former Soviet state to visit his AzMeCo factory last week – prompting further questions about Mr Blair's intricate private arrangements.

Mr Blair also faced criticism for holding private talks, accompanied by Prince Andrew, with the President of Azerbaijan, Ilham Aliyev, who has banned the BBC from broadcasting in his country and whose election was declared to be undemocratic by international observers.

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Speaking to local reporters in the capital, Baku, last week, Mr Blair said the AzMeCo methanol plant, which is backed by £73m of funding from a European development bank, part-owned by the Treasury, was a sign of Britain's interest in Azerbaijan. His comments appeared to blur the line between his status as a private individual and a former prime minister campaigning for British investment in foreign countries.

During his trip, Mr Blair was also paid tens of thousands of pounds to speak at the £150m AzMeCo factory. His office refused to say who paid for the speech, saying it was through his agents, the Washington Speakers Bureau. Yet the entire speech last Tuesday consisted of praise for the plant, its owners and the President – making it little more than a gold-plated endorsement. He said AzMeCo was "showing the way" in developing clean energy. "This project," he said "is not just of significance to Azerbaijan, but also the international community and for negotiations we are about to have in Copenhagen – because it shows the way forward."

AzMeCo's methanol will be produced from natural gas – a fossil fuel. Ofgem does not classify the chemical as a renewable energy source if it is created in this way. When the plant starts operation next year, it will annually produce 561,000 tons.

David Santillo, senior scientist at Exeter University's Greenpeace Research Laboratories, has examined documents drawn up by the European Bank for Reconstruction and Development (EBRD), including its environmental action plan, as part of its £73m funding package for AzMeCo.

He said the investment would significantly increase the region's petrochemical production: "This is a fossil fuel-based development, which is about increasing the economic value of Azerbaijan's reserves of natural gas by converting it to methanol, which commands a much higher value. It is not primarily, and arguably not at all, about delivering any environmental benefit. It may be a laudable goal in terms of development and economic well-being, but I don't think this can be dressed up as an environmental project.

"If [Blair] is looking for a clear environmental benefits message in the lead-up to Copenhagen, this is certainly not one that we would support."

An EBRD statement on 23 October, announcing the funding, said the plant would use carbon capture to mitigate the effects of burning natural gas. But its statement on 1 December, confirming the funding, does not mention carbon capture as part of the deal. Dr Santillo said that even if carbon capture were used, it has no proven environmental benefits and it could be decades before it starts to reduce emissions. It was therefore "not a sustainable approach to climate change mitigation".

The EBRD environmental action plan highlights potential hazards with AzMeCo's plant, stating: "There are several elements of emergency planning that require improvements, including a spill-prevention programme, environmental response for chemical release, chemical hazard planning and leak detection and repair, fire and explosion prevention and major accident prevention planning."

Mr Piriyev's son, Nasib, who is AzMeCo's chief executive, said the firm had met Mr Blair's expenses. "We hope he will mention Azerbaijan and our methanol company when he makes speeches around the world," he added.

A spokesman for Mr Blair said the speech was a "one-off engagement" and there was no commercial arrangement with AzMeCo or the President.

Mr Blair, who failed in his attempt to become EU president last month, has amassed an estimated fortune of £10m since leaving office in June 2007. He is a paid adviser to JP Morgan, receives fees through Tony Blair Associates for private consultancy work and speech-making, as well as office costs and expenses in his work as Middle East envoy.

During Mr Blair's visit to Azerbaijan, President Aliyev, who has close ties to the Piriyev family, hosted a dinner in honour of the former prime minster and Prince Andrew. It is understood that Mr Blair and President Aliyev discussed relations between their two countries.

Azerbaijan is a member of the Council of Europe and has aspirations to join Nato. However, after President Aliyev won office in 2003, the Organisation for Security and Co-operation in Europe found that the election "did not reflect all the principles of a meaningful and pluralistic democratic election". The country is also ranked 158 out of 180 in Transparency International's 2008 Corruption Perceptions Index.

Mr Blair said of the talks: "I believe Azerbaijan will become even more important for Britain in the future." The former prime minister's spokesman added last night: "The President asked to see Mr Blair because he heard he was in town."

Key characters in the Azerbaijan adventure

The Duke of York

Prince Andrew is an envoy for UK Trade and Investments and is a regular visitor to Azerbaijan. Last week's visit was his sixth in six years. He flew by private jet to Baku in June, at a cost to the taxpayer of £60,000. He has been goose-shooting with his friend, the Azerbaijan President, Ilham Aliyev.

Ilham Aliyev

The President of Azerbaijan came to power in 2003 after his father stepped down. The 48-year-old won the election with 76 per cent of the vote, prompting accusations of rigging. One of his daughters, Leila, 24, is married to the son of a Russian oligarch and recently spent £300,000 on Cristal champagne for 12 friends.

Nizami Piriyev

Owner of AzMeCo. His son, Nasib, is the chief executive of the methanol production firm. The 51-year-old heads one of Azerbaijan's richest families and was a director at Gazprom, the state-owned Russian oil company.