COMPROMISE MIGHT BE AN OUTLET

The activities of the energy distributing companies Barmek-Azerbaycan and Bayva-Enerji were the key topic discussions last week. Thus, on 7 July Etibar Babayev, the President of Azerenerji JSC, told journalists about the necessity of reconsidering the investment agreements concluded between the Azerbaijani government and companies Barmek and Bayva. Given the wrong management of the energy distributing networks he stated the necessity of the cancellation of the contracts and return of the network to the disposal of Azerenerji. Pirverdiyev also voiced dissatisfaction with the level of transfer of payments to Azerenerji by Barmek and Bayva. He particularly mentioned that in June Barmek paid only 30% of the purchased electricity. There are also problems with Bayva in this respect.

In his turn the management of Barmek held a news conference, where Husseyn Arabul, the President of the company, stated that only the head of state can annul the contract signed between the Azerbaijani government and Barmek. В"Barmek Holding had a contract with the Ministry of Economic Development and Azerenerji does not have a right to interfere. There is a market economy in Azerbaijan, which allow legal framework for functioning of the foreign companies in Azerbaijan,В" Arabul noted. No commentary has been made by Bayva.

There rally problems in the activities of the energy distribution companies. These are frequent incidents (in particular in winter period), cessation of energy supply to some parts of the capita, as well as the regions, sometimes the low quality of the electricity. However, it is necessary to note that Barmek and Bayva undertook the management of the electricity distribution system, which was in a tough financial and investment crisis, and they could improve the situation during their management. So, with all drawbacks the distributing system continues improving.

Barmek set up its activities in Azerbaijan in 2002. The company started with the management of the electricity network of Baku (Bakelektrikshebeke), then the electricity network was given to its management. Now the company manages the distribution network of the capital and northern regions. Since the beginning of the activities the company’s investments in the country have comprised around $60m, whereas under the contract signed with the government in November 2001, it was panned to put $30.3m. Cf., in 2000 and 2001 only $0.7m was invested in the development of the energy distributing network.

Over 3 years of management the capacity of the energy distribution network was increased 60%, which enabled to avoid serious crisis in the cold February of 2004.

Moreover, the existing retail tariffs of energy do not enhance the investments. Average retail tariffs in the country comprise 175 manats per KW/H. According to Arabul, the difference between the retail and wholesale prices should comprise 70-75%. Relevant difference between tariffs should be 205 manats per 1 KW/h.

Besides, the amount of collection for energy consumption increases, enabling Barmek to implement its liabilities to Azerenerji. If in 2003 the payments to Azerenerji comprised 43.5%, in 2004 it was equal to 51.4%. Arabul said that in accordance with the contract this year the company will pay 75% of the cost of the energy purchased from the state company.

The case with Bayva, which manages the energy system of the western and southern regions of the country since October 2002 is a bit difficult. While estimating the activities of Bayva it is necessary to note that it covers larger territory than Barmek, with a specific situation in the western regions under the Armenian occupation. Over the past few years the western regions suffered different natural calamities, which greatly damaged the economy and numerous facilities. One of the major reasons for lag of Bayva from Barmek is the difference in the structure of consumers.

The overwhelming majority of Bayva’s subscribers are community consumers, who pay for energy at 96 manats per KW/h, or lower than the retail tariff. In the contrary, Barmek has many consumers, functioning in industry and commerce and paying for energy at tariffs higher than the average retail tariff. It helps the company to indemnify part of losses due to low tariffs set for community subscribers.

Despite the difficulties Bayva copes to incre
ase the collection of charges for energy supply and pt investment in the infrastructure. This year the company should pay to Azerenerji 40% of the cost of the energy received. The company pans to increase the figure to 60-70%.

Thus, the appraisal of the activities of the two companies enables to come to a conclusion that the energy distributing companies brought positive changes to the energy system of the country. However, the progress is not felt, or they are too weak.

Besides, there are also frequent disconnections and incidents in the energy networks in winter season> Poor energy supply to regions impedes the implementation of state program on socio-economic development of regions.

For the sake of justice we should note that there some points when the resolution of the problems linked with the energy supply turns out of opportunities of the company. The key problem is linked with the insufficient capacity of the domestic energy system.

During a governmental report made on the results of 2004 Azerbaijani Prime Minister noted that the deficit in the capacity of the energy system was equal to 700 MW. According to specialists of the company the improvement of the energy supply is linked with the amount of investments needed for the installation of meters, rehabilitation of the energy transmission system, full and qualitative energy supply to consumers.

The issues of tariff policy are out of authorities of Azerenerji. The company itself is certainly interested in profitable tariffs, while the government acts carefully on this respect guiding with the social problems.

Besides, the government allots tremendous grants-in-aid to the Azerenerji (1.8trn manats or 5% of the GDP in 2003) and acts as guarantee for international credits taken by the company. Starting in 1995 the company received and spent $400m in investment credits, though there is no serious progress in the work of the generating section of the energy system. It should be so naive to expect core changes, as $400m is the smallest part of the sum that Azerenerji needs.

In this respect the role of to big credit agreements recently signed by Azerenerji with the total amount of around $635m should play a considerable role. One of the agreements was concluded with the Japanese Bank for International Cooperation and the next - with the German bank Bayerische Landesbank. The sum, as one sees, covers almost half of investment demand of the field. Considerable part of problems could be resolved through expedient use of the loan.

Thus, the difficulties existing in the energy system are linked with the gaps in the activities of the managing companies, as well as the investment problems of Azerenerji. In this situation its would be more expedient to achieve a compromise among the sides, which would finally benefit both sides and energy system of the country.