Reliable electricity - guarantor of Azerbaijan's energy security
Azerbaijan's energy sector has traditionally been the flagship of the country's economy. The republic established itself as a reliable supplier of oil and oil products long ago. In the coming years, the country will meet Europe's growing demand for gas. One of the promising areas of energy development is Azerbaijan's electricity sector.
"Around 2800 megawatts of new energy facilities have been created and 14 power plants constructed in Azerbaijan over the last 10 years. It can be said that 50 per cent of our available energy potential has been created in the past 10 years," President of Azerbaijan Ilham Aliyev said at the opening of a new substation in Baku.
The country's demand for electricity rapidly grows with Azerbaijan's economic development.
"Azerbaijan's development is so swift that we will miss the current facilities after five to 10 years," the head of the state said.
However, now Azerbaijan has a standby capacity that can be used not only to meet growing domestic demand, but also for implementation of exports. Today, Azerbaijan, Georgia and Turkey are implementing a project that will allow the export of electricity to Europe. There is a project for the synchronisation of electricity systems of Azerbaijan, Russia and Iran on the agenda.
Currently, the capacity of the republic's power system exceeds 6200 megawatts. This creates an opportunity for the production of 22-24 billion kilowatt/hours of electricity per year which exceeds the maximum demand of the country's electricity by 25-27 per cent.
However, Azerbaijan looks forward. Currently, construction of new hydropower plants and the second combined-cycle unit at the Shimal power plant continue in the country's regions.
Some 173 small hydropower plants, capable of producing a total of 3.2 billion kilowatt/hours of electricity per year will be constructed in Azerbaijan's rivers and water industry facilities in the future. In addition, the construction of hydroelectric power plants can solve three main issues of national importance: the regulation of mudslides, electricity generation and creation of new irrigation systems.
Azerbaijan also possesses significant reserves of geothermal waters and a high potential to use solar energy. The country plans to increase production capacity in all sources of alternative energy to 2000 megawatts by 2020.
However, a reliable supply to the population with electricity requires a large scale reconstruction of transmission networks in the country's regions.
"Today Azerenergy was instructed to bring the networks in the regions to a normal level, so there are no interruptions. Actually there should not be interruptions, as we have enough energy capacity. These arise from the fact that some of the network lines are out of order," the President of Azerbaijan said.
Creation of a reliable electricity system allows Azerbaijan to not only improve its own energy security, but also ensure the export of electricity, as well as the growing demands of the country's fast-growing economy
Azerbaijan justifies EITI expectations
As opposed to other Soviet republics on the eve of the Soviet collapse, Azerbaijan was fully confident in its future. This feeling was based on the fact that the country is very rich in energy resources. At the same time, there was a risk of it becoming one of the poorest countries and one of the states most dependent on oil and gas production.
After joining the Extractive Industries Transparency Initiative (EITI) 10 years ago, Azerbaijan made a big step forward in gaining a reputation as a transparent country. During this period, Azerbaijan directed revenue from the extractive sector to successful economic growth and increasing living standards in the country.
Head of the EITI international secretariat Jonas Moberg stressed Azerbaijan's leading role in the EITI and the country's achievements in this sphere during the tenth anniversary of Azerbaijan's accession to the initiative.
EITIs purpose is to increase the transparency of expenses and revenues in the mining sector of the countries directly dependent on natural resources. The principle of the initiative is for the mining companies to fill in the declarations reflecting their payment to the treasury in details. The countries, where these resources are being developed, fill in a similar declaration. This allows them to verify data with these companies. As a result, it enables the society to control income obtained from natural resources.
According to Azerbaijan's latest report on EITI, around $454.4 million and 2.109.2 million manat were transferred to the country's government in 2012 as a result of implementing the oil and gas projects and gold and silver production. Thus, revenues from the activity of oil and gas companies and the companies engaged in gold mining through taxes, royalties, bonuses and other payments have become an important tool for ensuring economic growth and social development of Azerbaijan.
Azerbaijan will soon apply new accounting standards on EITI. They will reflect more information about the revenues from implementing the production projects, each company's deductions in annual reports. It is assumed that responsible companies will benefit as a result of equal relations in the economic field, more predictable business conditions and an opportunity of better ensuring the energy security.
There are such global trends that the companies thinking about their image and ultimately their entering the international capital markets become more open. Transparency is a financial and economic category, rather than moral. The more a company is open, the more it is competitive on the stock exchange. Those who evade taxes are losing.
Extractive Industries Transparency Initiative was put forward at the World Summit on Sustainable Development in Johannesburg by British Prime Minister Tony Blair for the first time in September 2002. London hosted the conference on EITI in June 2003. The representatives from 32 world countries, including Azerbaijan, attended it. An Azerbaijani delegation was headed by incumbent President Ilham Aliyev.
The resolution on the government's joining of EITI and the establishment of the State Commission on Extractive Industries Transparency Initiative dated November 13, 2003 was the result of the conference and Azerbaijan's first step. Thus, Azerbaijan became the first country which joined EITI, by confirming the full application of principles and criteria of the initiative.
Summing up the ten-year-results, it should be stressed that Azerbaijan gained success in transparency in the extractive industries. This was facilitated by the government's understanding of the strategic future of the country and the desire of the companies developing oil and gold deposits in the country to ensure the transparency of income formation and distribution by using natural resources.
Report: Azerbaijan to become non-oil dependent modern economy by end of this decade
The impact of the global financial crisis on Azerbaijan, unlike on its neighbours or on Central and Eastern European countries, was rather limited, South Caucasus 2008-2013 analytical report of the Ronald Reagan House said.
According to the report, Azerbaijan has not experienced a sharp drop in GDP and the living standards of the local population continued to improve significantly and the economy continued to develop.
"The main reasons behind the economic growth in the time of global decline are Azerbaijan's vast hydrocarbon reserves and the state's prudent strategy of managing the petrodollar flows into the country," the report said.
During the last decade Azerbaijan maintained an impressive economic growth that averaged almost 14 percent annually. This is direct effect of what is known in Azerbaijan as the "Contract of the Century" - an agreement signed in 1994 between the state of Azerbaijan and the Western Oil Consortium of 13 oil companies.
"The Production Sharing Agreement that effectively opened Azerbaijan's oil reserves to the world transformed the country's economy beyond recognition. Thus GDP nearly tripled from 1994 to 2000," the report read.
The report said that, revenues from the sale of hydrocarbon resources, accumulated into the State Oil Fund of Azerbaijan (SOFAZ) are directed toward oil extraction infrastructure. A part of the SOFAZ funds is also used to improve the living standards of internally displaced persons - a problem which persists because of the prolonged Armenian occupation of Azerbaijan's Nagorno-Karabakh region.
"The rapid growth of the Azerbaijan's economy was successfully used by the government substantially to reduce the levels of poverty. Poverty in Azerbaijan dropped from 49 percent in 2001 to 6 percent in 2012," the report said.
The other notable drop was observed in the level of income inequality. In 2010 income difference in cities and rural areas was becoming comparatively small.
Created using the best examples of state energy funds of Norway and the U.S., SOFAZ has become an active investor in foreign assets. As of 2012 the total value of the State Oil Fund investment portfolio reached 34 billion USD.
Along with the State Oil Company of Azerbaijan Republic (SOCAR), an Azerbaijani state oil company, SOFAZ became a provider of foreign direct investments in the neighbouring countries.
"Since one of the main objectives of SOFAZ is to provide a lasting macroeconomic stability, the fund is not allowed to invest in Azerbaijani assets," the report said.
Albeit crude oil and natural gas make up to 90 percent of Azerbaijan's exports, sectors unrelated to energy resource exports already generate 52.7 percent of the country's GDP.
Over the last years Azerbaijan was rapidly improving in terms of competitiveness. In the latest Global Competitiveness Report 2013-2014, published by the World Economic Forum (WEF), competitiveness of the country's economy is ranked 39th out of 144 states. According to the WEF, in terms of competitiveness Azerbaijan is the leading regional and CIS economy.
According to the report this is corroborated by the IMF.
"To sum up, Azerbaijan is proceeding with cautious strategy to use oil revenue in boosting the non-oil economic activities. The share of GDP generated through other than energy resources grew gradually even during the global financial crisis. If this trend persists, it is more than plausible that - all thanks to the careful management of oil revenue - Azerbaijan will largely become a non-oil dependent modern economy by the end of this decade," the report said.