Weekly actual topics in Azerbaijan (Feb.18-22)

Expert: Producers in Kazakhstan not yet capable of ensuring operation of oil and gas companies

Currently, Kazakh producers are not capable of ensuring quick and efficient functioning of transnational oil and gas companies in terms of local content, the director of the Risk Assessment Group, Doctor of Political Sciences Dosym Satpayev said.

"Kazakh companies are not capable ensuring the quick and efficient functioning of transnational oil companies in terms of local content in major projects such as the development of Kashagan or Karachaganak," Satpayev told Trend.

He recalled that the Government of the country has been constantly putting pressure on investors since 2010, concerning the increase of local content, especially after adopting a new law 'On Subsoil and Subsoil Use' which tightened requirements for subsoil users, including for expanding purchases of Kazakhstani goods, services and attracting of workers.

According to official data, the companies, especially in the oil and gas industry, will be required to comply with the requirements of local content for staff by 90-100 per cent, for goods and materials by 50 per cent, for services and works by 90 per cent.

It is also known that by 2014 the country plans to increase the share of local content in the total amount of purchases of goods up to 60 per cent and work and services to 90 per cent. In addition, as the political scientist highlighted, in January 2011 the Ministry of Oil and Gas of Kazakhstan announced new requirements for oil and gas companies systematically violating the rules of procurement of goods and services. "In particular, it was decided to apply penalties, including termination of contracts to oil and gas companies, seriously violating legal requirements for local content," the expert said. According to him, ever since then the oil ministry requested preparation of an effective programme for the development of local content and use of local expertise with an indication of graphics reflecting the annual replacement of foreign workers with Kazakh specialists.

In addition, expenditures for acquisition of goods, works and services by foreign companies outside Kazakhstan, as well as purchases made in violation of the law were excluded from the costs. "The problem is that the Kazakh producers themselves are not prepared for such an increase in local content, especially when it comes to the supply of complex oil and gas equipment and highly skilled professionals. This requires time and strong government support for the development of local production and training," Satpayev said.

Last Thursday, executive secretary of the Ministry of Oil and Gas of Kazakhstan, Kanatbek Safinov, speaking at a forum of oil and gas companies entitled 'Oil and Gas: Kazakh Content 2013', said the Ministry of Oil and Gas intends to transfer part of procurement within the largest PSA (Production Sharing Agreement) projects, such as Kashagan, Tengiz and Karachaganak, to an electronic format in order to ensure maximum transparency. Safinov added that performance indicators for the local content will be considered when applying for renewal of contracts for subsoil use.

"We will not consider proposals from subsoil users to extend the contracts within the expert committee and working groups given they have violated contractual obligations," Safinov said. He recalled that the law stipulates that "any changes to the contract may only be introduced for those companies that perform their contractual obligations".

"The Ministry of Oil and Gas will accurately track these when it comes to local content," Safinov said. Safinov noted that main complaints of domestic producers to subsoil users are the unfounded refusal to accept bids with price proposals, non-admission to the opening procedure, breach of the deadline for submission of announcements of competitions and artificial delay in the conclusion of contracts.

Commission may be cancelled to deliver high denomination banknotes in cash in Azerbaijan

The Azerbaijani Central Bank (CBA) may cancel a commission of 0.3 percent, which has been applied to the commercial banks for each 100 manat banknote in cash since Feb. 1, 2013.

Using this administrative measure angered banks, which also have problems with customers. Despite the Central Bank's decision applies to the banks, they have to take a commission during the settlements with customers in case of giving 100 manat banknotes. Otherwise, they will have to give customers banknotes of small denomination in cash.

Although this factor [receiving cash in small denominations] must not bother clients, but some of them think that this is a violation of contracts, so the banks must solve this problem by reviewing the contracts, which is a waste of time.

In this regard, the banks either individually or through the banking community are holding the consultations with the Central Bank to remove this commission or at least reduce its amount.

The banks, knowing about the Central Bank's policy, which also has costs in the money supply governance (storage, printing new banknotes and utilization of old banknotes), believe that it would be reasonable to set a lower commission, for example, at 0.05 percent.

Before this decision, around 90 percent of the banks bought cash money by 100 manat banknotes from CBA. But now they take banknotes of small denomination to avoid unnecessary expenditure. The banks hope that this commission will be eliminated, as there is common understanding of the situation during the consultations with the central bank.

CBA originally planned to set a similar commission for 50 manat banknotes, along with 100 manat banknotes, but it has not been set due to the efforts of banks. The Central Bank justifies the decision by the necessity to optimize the nominal structure of banknotes, reduce using cash in calculations and promote the use of non-cash payment systems.

According to experts, tax incentives rather than administrative is the most effective measure in the international practice to increase the volume of cashless payments.

The share of cash payments in the turnover hits only 4-5 percent in Western countries, while in Azerbaijan the figure hits 50-60 percent.

This decision is not linked to the CBA recent statements about the plans to issue higher denomination banknotes of 200 manat. In this case, the CBA could face a similar problem [increasing demand for big currency]: banks and the public will buy 200 manat banknotes in connection with costs while buying 100 manat banknotes.

According to the CBA, the share of 100 manat banknotes in circulation has reached 75 percent for the last seven years, exceeding the internationally accepted standards.

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