Weekly economic review (16.08- 21.08.2010)

Analysis Materials 25 August 2010 12:03 (UTC +04:00)

Last week Azerbaijani Cabinet of Ministers decided to write off debts of JSC "Azerbaijan Hava Yollari" (Azerbaijan Airlines) worth 99 million manat, and JSC Azerenergy's debts to the State Oil Company of Azerbaijan (SOCAR) worth 1555.4 million including the results of financial and economic activities for 2010, the Cabinet of Ministers said.

The Cabinet of Ministers also decided to write off these accounts receivable to Azerenergy, including the results of financial and economic activities for 2010: on the Gabala radar station - 14.5 million manat; on JSC Bakielektrikshebeke - 389.1 manat; on JSC Sumgayitelektrikshebeke "- 194.7 million manat and 101.8 million manat, on Barmek Azerbaycan - 466.4 million manat; JSC Azersu - 116.8 million manat; on Nakhchivan AR State Energy Agency - 113.2 million manat; on JSC Azeraluminium - 23.5 million manat; on JSC Azeristiliktechizat"- 4.1 million manat; on JSC Melioration and water management - 90 million manat; on Azerbaijani Ministry of Defence - 16.1 million manat, on the Ministry of Health - 10.9 million manat, on  Ministry of Education - 9.1 million manat, on the State Border Guard Service  - 2 5 million manat; on the Interior Ministry - 0.6 million manat; on the Ministry of Culture and Tourism - one million manat; on the Ministry of Agriculture - 0.8 million manat; on the Ministry of Ecology and Natural Resources - 0.3 million manat.

The agencies, whose debts were written off, will have to hold corresponding marks in the account documents and ensure payment of taxes on income received from debt write-off.

It should be mentioned that the previous step by the Government of Azerbaijan to write off debts was a decision by the Cabinet of Ministers in order to ensure implementation paragraph 4.2 of the Decree № 207 by the Azerbaijani President dated December 29, 2009 on "Measures to eliminate debt of the population for consumption of natural gas." That decree took a social character, since it was aimed at strengthening social protection and regulation of the situation with respect to the cost of natural gas consumption. Upon the decree by the Head of State, public debt for the consumed natural gas accumulated as of October 1, 2009 had been written off. In connection with the cancellation of debts of the population, the 2009 Public budget of Azerbaijan provided compensation for SOCAR.

Writing off energy debts of major state organizations and agencies takes a different character. Thus, the lack of a modern and transparent management, high production costs and difficulties in establishing an efficient system for collecting fees from customers (mainly corporate clients, large state agencies) deprives electricity and gas providers of opportunities to independently accumulate funds to replace worn-out equipment and modernize infrastructure. Moreover, these state enterprises are often unable to bring elementary debit-credit balance and pay off the accumulated fee for SOCAR for the provided fuel. Especially still there is a problem inherited from the Soviet times - a system of "cross subsidy", when the artificially low tariffs for the population and budget organizations are partially offset by higher costs for commercial structures.  

However, conducting reforms in the utilities and energy sectors is more important than writing off debt in order to establish the stable operation of large state enterprises.