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AZERBAIJAN


  
  

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 7,124 6,090 5,600 102
         
GNI per capita
 US $ 810 710 650 146
Ranking is given out of 208 nations - (data from the World Bank)

Books on Azerbaijan


 


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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