Weekly actual topics in Azerbaijan (march 26-31)

Raising utility rates in Uzbekistan is not April Fool's joke

From April 1, 2012 tariffs for natural gas sold to population and wholesale customers in Uzbekistan increase by 14 per cent, National Holding Company (NHC) Uzbekneftegaz announced earlier. Earlier the state joint-stock company Uzbekenergo announced increase in electricity tariffs by seven percent from April 1.

Raising utility rates in Uzbekistan is inevitable process which is call of the times. It is known that the sector of public services of not only of Uzbekistan- this is a problem of all former Soviet republics - is an obsolete, unprofitable, and is only supported by the state budget. The government allocated huge sums of money to subsidize the public utilities sector each year which leads to huge losses of the state budget and through it the whole society and ultimately hinders growth of living standards.

However, it is the population, or rather its poor layer who are against rising prices for public services, not realizing at the same time that these subsidies are indirect, that is, the more wealthy people use electricity or gas, the more support they get from the budget. Public funds which became available as the partial removal of subsidies can be used to improve the living conditions of the poor, finance targeted social assistance to poor families to pay for utilities.

Studies of the UNDP "Millennium Development Goals" showed the poverty rate in Uzbekistan in 2010 was 20 percent.

By gradually increasing the prices for utility services to the level of profitability it's possible to achieve upgrade of aging infrastructure of utilities, establish the modern smart meters, to increase the quality of service as an uninterrupted supply with gas and light and at the same time to address the problem with the collection of fees for services rendered.

Raising the domestic energy prices to world level is also a recommendation of the International Monetary Fund (IMF), which Uzbekistan has cooperated with since 1992. The IMF justifies this by saying that low prices are supported by the available gas resources, which are not renewed. And sooner or later this will bring functioning on cheap fuel national economy (which uses it ineffectively) before the fact of depletion of raw material deposits. In this case, the manufacturing sector, accustomed to cheap fuel, in the short term will lose its competitive advantage.

At the beginning of 2011, 232 fields of hydrocarbons were discovered in Uzbekistan, including 183 - gas fields. Of the newly discovered fields 103 are under development, 60 - prepared for development, exploration is still at 69 fields. Recoverable proven reserves of hydrocarbons in Uzbekistan today is 2.517 million tons of equivalent fuel, of which about 65 per cent fall in the reserves.

With regard to electricity, according to research, because of maximum depreciation of facilities in service for over 30 years, the lack of the necessary technological base, the fall of coal production, the lack of gas underground gasification and fuel oil, electric power industry of Uzbekistan is not able to reach even half of the installed capacity of 12,300 megawatts. If we add to that the huge losses, non-productive outlays, the country over the past two years actually consumes less than 4,000 megawatts of electricity.

According to the World Bank, in 2010 the prices for energy carriers in Uzbekistan increased by 32 percent. During 2011 several times tariffs on utility services increased, resulting in the fact that in January this year they become 17.63 percent more compared to last year. The last time gas prices rose in Uzbekistan was in October last year. Then the growth of tariffs was almost nine per cent. The last time the price for electricity rose in Uzbekistan was on October 1, 2011. Then the increase in electricity tariffs was nine per cent.

Also, from April 1, 2012 Uzbekistan will increase tariffs for central heating and hot water supply- by 15.5 per cent, cold water 11 per cent, and electricity seven per cent.

Kyrgyzstan-Tajikistan-Afghanistan-Iran railway: well-forgotten past

Iranian, Afghan and Tajik presidents signed an agreement to develop the Kyrgyzstan-Tajikistan-Afghanistan-Iran railway project during the fifth trilateral summit in Dushanbe on March 25. The presidents also decided that a joint working group will be established to undertake the necessary preparations. The meeting of the group must be held in Tehran in two months.

When U.S President Barack Obama addressed an audience in Cushing, Oklahoma, a few days ago, he pointed out the weak spot in the country's energy strategy. He added that we drill and extract enough oil. Every year we increase production volumes. The number of drilling rigs has recently reached record levels, but we do not have enough pipeline capacity. We cannot quickly deliver this oil to our refineries. According to the president, the solution to this problem would reduce U.S. dependence on imported oil and gas prices in the country.

Perhaps, the analogy with Central Asia is not entirely correct, but it clearly demonstrates how the presence or absence of a transport infrastructure affects the economy of world leaders. The continental insularity of the Central Asian countries used to playing a key role in the commercial corridor called the Silk Road does not give them the opportunity to fully realise their economic potential. Last year's situation with Kazakh grain and the search for additional funds for its export transportation is an example.

The proposed construction project of the Kyrgyzstan-Tajikistan-Afghanistan-Iran railway is almost an exact copy of one of the Silk Road routes. A very weak railway infrastructure in three countries immediately strikes the eye. The total length of railway network in Tajikistan is about 600 kilometres and less than 400 in Kyrgyzstan. Afghanistan does not have it. It is not well developed in Iran across its eastern borders. This makes the project too expensive.
Another issue is what to transport? The fact all three countries are oil dependent also strikes the eye. This is good news for Iran. There are few alternatives to Iranian oil and related products and in the opposite direction, small volumes of cotton, wool, aluminium, minerals, agricultural products and a few more items of goods (Kyrgyz gold has traditional buyers).

One cannot speak about the transportation of non-produced deposits of rare earth metals in Afghanistan. One of the decisive factors will be the speed of goods transportation. Therefore, safety of transportation, rules for crossing borders between the countries, the unification of shipping documents, the transparency of customs control may seem as challenges.
Freight flow from China, for example through the China-Central Asia transport corridor with an extension to the Persian Gulf would really increase the attractiveness of the project. By the way, China is now studying the possibility of building a railroad through Afghanistan to the Afghan-Tajik border.

The Kazakhstan-Turkmenistan-Iran-Persian Gulf railway is being actively constructed within the North-South transport corridor. This project will bring direct commercial relations between the two Central Asian countries outside the region to the ocean. The documents signed in Dushanbe, can break through this 'natural insulation' of two more countries in the region which would benefit from this.

International loans in Azerbaijan: offer more benefits

Azerbaijan's public external debt increased 24.9 per cent in 2011. According to the governmental report as of 2011, the index of the country's external debt reached $4.817 billion as of January 1, 2012, whilst that of January 1, 2011 hit $3.857 billion.

This index increased by almost a quarter. It is associated with the expansion of Azerbaijan's cooperation with various international financial organisations, as well as donor countries. As a result, about 12 loan agreements worth about $1.67 billion were signed in 2011 to finance significant projects for the country's economy.

International financial organisations

Number of loans

Sum, mln dollars

World bank

4

175,4

Islamic development bank

2

131,2

Czech Komerční banka

1

318,6

European reconstruction and development bank

1

750

U.S Eximbank and BNP Paribas New York branch

1

116,6

French Sosiete Generale bank and Sumitomo Mitsui bank corporation

1

98

Abu-Dhabi development fund

1

60,7

International Fund for Agricultural Development (IFAD)

1

19,4

Consequently, about a third of Azerbaijan's external debt falls to the debts of the international financial institutions. On the one hand, this part of the external debt cannot be considered as a market one. This makes the structure of borrowing non-optimal.

Looking at this situation from the other side, one should recognise that no financial activity in the world today is implemented without a loan. Therefore, there is a problem with the terms, rather than taking money on credit, borrowing or not.

For example, there is no need for the full support of the state budget and the replenishment of currency reserves. Azerbaijan should fulfil all the requirements of the international financial institutions which are sometimes unacceptable for the country.

Now a transition is being made to more 'point' projects in selected sectors. There are many such areas - education, health, transportation, institutional development. The international banks' funds are ensured by relatively cheap and long term loans, followed by a 'know-how' and experience in solving similar problems in other countries.

Therefore about $2.215 billion fell to concessional loans among the foreign loans used by January 1, 2012. About 3.8 per cent of external debt must be returned to creditors in a period from five to 10 years, 56.4 per cent from 10 to 20 years and 39.8 per cent in a period of more than 20 years.

The country would lose much and fail to do anything without international loans. The most important thing is that international loans allow Azerbaijan not to lose time.

In 2011, the implementation of 10 projects in the construction of roads, seven in the water and sewerage system reconstruction, seven in the social area, six in the electricity sector, five in agriculture, land reclamation and irrigation, four in the financial sector and three in the transport sector and the environment was continued backed up by foreign loans in the country.

Weekly actual topics in Azerbaijan (April 16-20)
Weekly actual topics in Azerbaijan (April 16-20)
Weekly tenders in the region (April 16-20)
Weekly tenders in the region (April 16-20)
Last week’s laws, orders and decrees in Azerbaijan (April 16-20)
Last week’s laws, orders and decrees in Azerbaijan (April 16-20)
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