Weekly economic review

Analysis Materials 26 February 2008 12:02 (UTC +04:00)

Last week talks took place in Baku between Russian 'Inter RAO Unified Energy System' and Azerbaijani Azerenerji JSC regarding tariffs for the electricity sell-buy between Azerbaijan and Russia. A decision was made as a result of talks to devise technical issues after which changes will be made to the existing agreement. The Russian side suggested carrying out electricity exchange according to so-called principle of 'mirror', i.e. to apply a single cost of 4.3 cent for 1 KWt/h of electricity for each sides.

It should be mentioned that from April 2007, the Russian Unified Energy System stopped electricity supply to Azerbaijan. From that period, RAO transferred to the 'zero regime' with Azerenerji. It means that electricity exchange will not take place between the countries, but in case of the electricity exchange, the sides will compensate these volumes equally. So, the electricity received by Azerbaijan from Russia (by Russia from Azerbaijan) will be returned within the day at same volume.

The reason that the sided failed to come to an agreement is that Russia wants to increase price for the electricity supplied to Azerbaijan. In its turn, Azerbaijan does not want to import electricity with higher prices which exceed export tariffs by two times. Thus, the electricity was imported by Azerbaijan from Russia for 3.6 cent per 1 KWt/h of electricity, but the cost of the Azerbaijani electricity for Azerbaijan totaled 1.8 cent.

The difference in the tariffs for the electricity import and export is explained though implementation of special coefficients. It differs depending on the day, night and peak times. In the day time, the coefficient equals - 1, night - 0.7 and peak - 1.6-1.7. Azerbaijan received electricity from Russia in volume of 200-250 MWt in peak hours when deficit was observed in Azerbaijan and returned it in night hours.

Currently the volume of the electricity production in Azerbaijan fully covers the demand. In 2007 the volume of the electricity received from Russia decreased by 70% as compared to 2006.

The electricity exchange between Azerbaijan and Russia is a positive factor. It raises trust and sustainability of the electricity system of Russia's south region (Dagestan, North Caucasus) and Azerbaijan's north regions.