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Books on Azerbaijan
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Update No: 313- (25/01/07)
The oil curse
The Azeri economy is growing at a quite phenomenal rate, perhaps greater than
any other in history. GDP posted 26% in 2005 and 34% last year.
But this is not doing the population at large so much good. Azerbaijan is
suffering from the oil curse, an overvalued currency due to massive oil export
revenues, which hollows out the traditional economy.
Helping to explain the economic discrepancies is the fact that the oil sector in
Azerbaijan employs only 5 per cent of the population, while more than 40 per
cent are involved in agriculture. Economists have warned that Azerbaijan's
non-oil-and-gas-related economic sectors could shrivel because of the rapid
increase in energy export revenue, a phenomenon known elsewhere.
This has afflicted economy after economy, the UK, Nigeria, Mexico, Venezuela,
you name it. Now it is Azerbaijan's turn.
Drastic price hikes fuel tension
A dangerous economic discrepancy is taking hold in Azerbaijan, in which the
state's booming economy is offset by the population's languishing living
standards. The government's recent implementation of massive price hikes for
basic items - including fuel, water, electricity and public transportation - has
brought the country's growth dilemma into sharper focus.
Officials announced the drastic price hikes on January 8th. The cost of
electricity experienced the highest rise, up 320 per cent. In addition,
subsidies to poorer Azerbaijanis are being phased out, meaning that all citizens
will be paying the same rate for electricity. Meanwhile, gasoline prices rose 50
per cent, 25 per cent for diesel fuel. Azerbaijanis will now pay more for
gasoline than do Americans. The fare for city buses in the capital Baku
increased 33 per cent.
The government implemented a similar hike in early 2006, although the scope of
increase was not as broad. At the time, Economic Development Minister Heidar
Babayev held a news conference, during which he explained the government's
reasoning behind the increases. Babayev also serves as the chair of the
country's Tariff Council, which authorized the price hikes.
In sharp contrast to 2006, top government representatives did not initially
comment on this year's increases. The announcement, for example, came at a time
when President Ilham Aliyev was reportedly out of the country on vacation. The
official silence appeared to compound public anger. Finally, Babayev, in
comments published January 16th by the official Azertag news agency, claimed
that the price hikes were linked to the government's reform plan.
Babayev's reasoning seemed convoluted, according to the Azertag report. The
decision to raise prices was made "after conducting analysis and
estimations, including increasing local prices to match world prices under the
ruling of the Cabinet of Ministers on changing excise-duties on oil products
given the growing domestic demand for oil products as well as given the
necessity to regulate budgetary income from oil product sales, and suggestions
of oil companies," the Azertag report quoted Babayev as saying.
Babayev indicated that the 2007 price hikes would bring in an additional 200
million manats (roughly US$220 million) to the Azerbaijani treasury. He insisted
that the government would continue programs designed to help low-income
Azerbaijanis afford basic living necessities. He provided no indication that
state-sector employees would receive salary raises anytime soon.
The hikes for gasoline and electricity have already sparked a chain-reaction of
rising prices. Over the past week, the cost of many goods and services has
climbed, highlighted by a 50 per cent rise in the price of bread. Editors of 14
leading newspapers likewise decided to increase prices 50 per cent. Meanwhile,
the number of vehicles on the streets of Baku, including taxis and minibuses,
has experienced a sharp drop.
The hikes naturally caused widespread discontent. Some local journalists dubbed
January 8th, the day of the price-hike announcement, "black Monday." A
group of local lawyers has announced it will challenge the legality of the price
hikes. According to Alasgar Mammadli, one of the lawyers, the Tariff Council's
decision violated several legal and procedural norms. The hikes were
implemented, for example, before the country's Cabinet of Ministers formally
approved them, Mammadli asserted. "Besides, according to 2005 adopted law,
"On the Right of Obtaining Information," the government has to inform
the public about any price increase at least 30 days before [implementation],
but they [the government] did not do that," Mammadli added.
Opposition political parties have demanded the repeal of the price hikes. The
Azadlig (Freedom) opposition bloc has announced its intention to stage a mass
rally in Baku on January 26th, while the Musavat opposition party wants to hold
a rally of its own two days later. It is unclear whether or not authorities will
sanction the opposition rallies.
Officials are clearly concerned that the price hikes could produce popular
unrest. This concern is underscored by the authorities' moves to hinder access
to two websites www.tinsohbeti.com and www.susmayaq.biz, both of which initiated
a petition drive, trying to gather signatures of those against the price
increases.
The price-hike controversy is set against the backdrop of staggering economic
growth, driven by the rapid expansion of energy exports. In its Transition
Report 2006 published in November, the European Bank for Reconstruction and
Development said Azerbaijan had the highest growth rate in the world. GDP growth
in 2005 was estimated at 26 per cent. According to Anita Taci, the EBRD's
economist for Azerbaijan, growth for the first 10 months of 2006 was 34 per
cent. Some estimates call for Azerbaijan to maintain a growth rate in excess of
30 per cent in 2007.
"It's an anomaly in the history of former socialist countries," Taci
said. Despite this, Taci and other representatives of international financial
institutions do not see Azerbaijan as having a healthy economy. "Living
standards are failing to rise at the same pace with economic growth," said
Taci. "We have to still say the country is quite poor." Meanwhile,
Inglab Akhmedov, director of the Public Finances Monitoring Centre, a Baku-based
non-governmental organization, said that Azerbaijan's economy was showing signs
of "overheating."
Russian Gas
Azerbaijan which until the full operation of the Shah Deniz deposit depends
on the Russian gas as well stated that it was not prepared to pay US$235 per
1,000 cubic meters of Russian gas. "Why is Russia selling gas to Ukraine
for US$130 per 1,000 cubic meters, to Armenia for US$110 but we are supposed to
pay US$235?" the president of the Azerbaijani state oil company, Rovnaz
Abdulayev was reported saying. At the turn of the year Ilham Aliyev stated that
he refused to buy Russian gas. The Azerbaijani thermoelectric power stations use
Russian gas to produce electricity. But since Azerbaijan refuses to buy Russian
gas it intends to use its oil and fuel oil reserves for producing electricity
but it means, as Aliyev stated, that Azerbaijan will reduce the volumes of oil
imports to the international markets through the Baku-Novorossiysk oil pipeline
via the territory of Russia.
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ENERGY
Sweden's Vilma Oil wins Azeri tender
Sweden's Vilma Oil has won a tender called by Azeri state oil company SOCAR for
the third consignment of Azeri Light crude oil produced at Azerbaijan's
Azeri-Chirag-Gunashli (ACG) in 2007, a source at SOCAR said on January 9th, New
Europe reported.
The consignment of 1 million barrels will be shipped from the port of Ceyhan on
January 31-February 2nd. The Swiss company Addax bought the first consignment in
2007, and Glencore bought the second. SOCAR has a 10 per cent interest in the
ACG project. Profitable oil is distributed among shareholders in proportion to
their participation in the project.
Baku, Tehran hold natural gas talks
Azerbaijan is in talks with Iran to purchase natural gas at US$110 per 1,000
cubic metres, Iran Mania reported on December 30th.
Yagub Eyubov, deputy prime minister of Azerbaijan said that Iranian authorities
have agreed to supply the northern neighbour with 1.8 billion cubic metres of
gas per annum, but declined to set the price. "We will welcome any
reasonable price offer from Iran," he stressed, adding that US$110 per 1000
cubic metres seems to be a fair price. According to the report, Gazprom Company
of Russia, which supplies Azerbaijan with natural gas, asked for US$235 per
1,000 cubic metres from January 2007, US$135 more than it received in 2006.
Azerbaijan produces half of the 10-12 billion cubic metres of natural gas it
consumes per annum and imports the rest from Russia.
Shah Deniz to supply Georgia with gas
Georgian President, Mikhail Saakashvili, said on December 21st the Shah Deniz
gas field in Azerbaijan will be the main gas supplier of Georgia, but noted that
the country should still ensure other sources of supply. "I am optimistic
about the results of the talks here, but there are many technical issues. But
the most important thing we should understand is that Georgia should never again
depend on a single supplier. We should do everything to avoid dependence on a
single supplier," the president told journalists on December 21 in Turkey,
New Europe reported.
Saakashvili said the Georgian government is working to find the best possible
options. "The price of gas on the world market is increasing. Our goal is
to make the price increase less painful for our families, because I know very
well how much each family in Georgia suffers. The government has been instructed
over this issue as well to find the best options in order to make the transition
less painful," he said.
Georgian Foreign Minister, Gela Bezhuashvili, hailed talks on supplies of Azeri
gas with Turkey. "Turkey is ready to take Georgia's interests into
consideration and to cooperate with the country in the area," the minister
told journalists on December 20th in Ankara.
Azeri state oil company, SOCAR, recently launched a new gas pipeline that will
bring natural gas from the Shah Deniz gas condensate field to the Azerigaz
network, the monopolist on gas transportation in Azerbaijan, SOCAR said.
"We have completed the construction of a 4.5-kilometre pipeline. The
pipeline is equipped with an automated system for regulating pressure and
distributing gas. Construction has been completed and the pipeline is prepared
to transport gas," the statement said. The construction of the pipeline was
carried out in full accordance with the standards of BP, the technical operator
of the Shah Deniz field, SOCAR said. The management of SOCAR's gas operations
ordered the construction of the pipeline and Kaspmorneftegazstroi was the
contractor. Gas is to start being extracted from the field in the next few days.
The field's reserves are estimated at 625 billion cubic metres of gas and 101
million tonnes of condensate. Stage-1 development includes the production of 178
billion cubic metres of gas and 34 million tonnes of condensate.
During peak production under Stage-1 the field will produce 8.4 billion cubic
metres of gas and two million tonnes of condensate per year. Stage-1 also
includes a project to transport gas to Turkey through the South Caucasus
Pipeline.
Turkey expected to receive an estimated 2.8 billion cubic metres of Shah Deniz
gas in 2007. However, Azerbaijan, Georgia and Turkey later agreed on additional
volumes for Georgia from the share assigned to Turkey.
Georgia can hope to get 800 million cubic metres from Turkey's gas quota plus
250 million cubic metres under the earlier signed contract within the framework
of the Shah Deniz project. Georgia's demand for gas in 2007 is estimated at
1.7-1.8 billion cubic metres.
Meanwhile, three Georgian companies have sealed contracts for 2007 gas
deliveries from Russian gas giant Gazprom, preventing a threatening conflict
over gas supplies, a Gazprom official said December 22nd.
The contracts amount to 1.1 billion cubic metres of Russian gas at the asking
price of US$235 per 1,000 cubic metres, the head of Gazprom Export, Alexander
Medvedev, told reporters in Moscow.
Georgia has yet to confirm the agreement. Economics Minister Giorgi Arveladse
had rejected Gazprom's demands on December 21st in the Georgian capital Tbilisi.
Russian gas company Itera shut off gas supplies to six Georgian cities and
districts on December 21 for not paying their bills.
Shortly before Medvedev's announcement, a spokesman for Gazprom, Sergei
Kupriyanov said on December 22nd in Moscow that as Georgia had not reacted, the
country apparently did not want to buy Russian gas in 2007.
Salyan Oil to develop Kyursengi, Garabagly fields
Salyan Oil, the operator of the Kyursengi and Garabagly oil field, is planning
to invest US$44 million in developing the field in 2007, a company spokesman
said on December 14th. "Investment is forecast at US$44 million next year
to develop the field, which corresponds to 2006," the spokesman said, New
Europe reported.
Five new producing wells are scheduled to be drilled next year, he said.
"We have fulfilled all our contractual obligations for drilling exploratory
wells, therefore we are not planning exploratory work in 2007," the
spokesman said. Contracts in 2006 envisioned drilling seven producing wells,
however only four were drilled. The contract for the Kyursengi and Garabagly
fields was signed on December 15th 1998 and came into effect in 1999. The
operator Salyan Oil was founded on May 12th 1999, with equal participation by
SOCAR and CNPC. The contract block is located in southwest of Baku. Over US$200
million has been invested in the block, which currently produces up to 1,100
tonnes of oil per day. Potential recoverable reserves at the block amount to 25
million tonnes. The field is only 20 per cent developed.
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FOREIGN LOANS
World Bank to grant Azerbaijan US$130.9m in loans
The World Bank will grant discount loans worth US$130.9 million to Azerbaijan in
the 2007-2008 financial years, a source from the World Bank's office in Baku
said, New Europe reported.
"Azerbaijan is now a country that receives mixed loans, namely, discount
loans on the terms of the International Development Association (IDA) and
commercial ones on the terms of the International Reconstruction and Development
Bank (IBRD)," a bank source said. The World Bank will issue US$79.4 million
to Azerbaijan in 2007 and US$51.5 million in 2008 on privileged terms, he said.
Azerbaijan can also count on receiving up to US$250 million in loans on IBRD
terms annually, he said. Azerbaijan's debt to the World Bank on the loans
extended on IDA terms currently amounts to US$525 million, the source said.
"Azerbaijan forwarded 4.9 per cent of all funds spent on servicing its
foreign debts on servicing IDA loans in 2005. According to our forecasts, this
figure could rise to 7.3 per cent in 2008," he said. Azerbaijan has been a
World Bank member since 1992. Over this time, the bank has issued over US$ one
billion in loans to Azerbaijan. The World Bank plans to allot US$1.26 billion to
finance various projects in Azerbaijan in 2007-2010.
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FOREIGN TRADE
Azerbaijan, Ukraine trade turnover double
Ukraine and Azerbaijan have expressed satisfaction over the trade and economic
relationship between two countries, reports New Europe.
Azeri premier, Artur Rasizade, and his Ukrainian counterpart, Viktor Yanukovich,
have discussed the expansion and deepening of economic cooperation between the
two nations during the meeting in Baku. Yanukovich said that the main focus was
the cooperation in oil and gas sector. Ukraine's Economics Minister, Volodymyr
Makukha, informed that the trade turnover is expected to be doubled to at least
US$500 million in two months. This year turnover was registered at US$361
million. Besides cooperation in aviation engineering Ukraine is ready to
cooperate with Azerbaijan in the military and technical field also. Viktor
Yanukovich said that many big joint projects are in pipeline.
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