Who will win the debt conflict?

Analysis Materials 12 December 2006 12:04 (UTC +04:00)

The analysis conducted in the Baku distributing network allows us to speak about the fact that Turkey Barmek did not provide the distributing networks with new technologies as it was stipulated in the contract, Baba Rzayev, Head of BakuElektrikShabaka stated.

The Turkish company provided Azerbaijan with up-to-date technologies in a restricted quantity. Moreover, Barmek delivered outdated and worn out facilities made in 1970-1980s by Turkey, China, and Russia.

The Company used aluminum cables with vinyl isolation. BakiElektrikShabaka prohibited it since 1970s. Barmek installed air lines with outdated and worn out pipes in the centre of Baku City. No up-to-date technology was used during the reconstruction and repair of the electric power substations.

He also said that negative situation was observed with the installation of electric power counters. Electric power counters have been installed only to 68.4% consumers in Baku City, and only 27,2 percent Baku suburbs. At the same time, it should be mentioned that about 30% of consumers have not been registered at all, he said.

To date, the Network has installed 374.000 counters produced in India and China. The technical loses of the Network is estimated at 13-14%.

Actually these looses are much more, since no measures to reduce the loose have been taken at all, said Mr. Rzayev. The situation with the distributing networks is worse than it was five years ago,

Expecting dividends in the form of management over electricity distribution networks, as well as huge investments in this strategic sector, the Azerbaijani government granted Turkish company Barmen in 2002 with right of 25-year management over the Baku and Sumgayit Electricity Distribution Networks. However, it faced with a plenty of problems ranging till the legal proceedings.

Barmek Holding which filed a lawsuit filed at Washington Court for the compensation of investments amount to $291m. The sum also includes the compensation for major asserts and lost profits. Mr. Arabul, Barmek President urges that the Azerbaijan Government should pay in exchange to non-implementation of commitments indicated in the contact, while the consideration of electricity tariffs in 2005-2006, as well as interest n other payments for 4 years. So far, the company has invested $67.35mln in Azerbaijan.

However, the Government assures that it is necessary to clarify who owes. One question has remained unsettled between the Azerbaijani Government and Barmek Holding in the process of takeover of the assets of Baku and Sumgait Electric Networks from Barmek Holding, This question is linked with the non-collection and non-payment of the debts for the use of the electric power by the subscribers.

Barmek considers that Open Joint-Stock Companies Baku Electric Network and Sumgait Electric Network created by the State should assume the responsibility for non-collected debts. Such a position does not correspond with the contract or business relations, because the key activity of the Company is to carry out the collection of debts and payment for the electric power.

Barmek has two kinds of debts to Azerenerji. The matter is that according to the management contract, in the first stage of the activities, Barmek had the opportunity not to fully pay off the used electric power: in the first year 50%, later 55%, 60%, 75% and fifth year (from 2006) 100%.

The first debt to Azerenerji emerged due to the non-payment of the finance for the purchase of electric power from this year, and the second, collection of debts for the previous years 50%, 45%, 40% and 25%). Paying 50-60% of the finances does not release Barmek from the rest part of debts. After the completion of the defined period, Barmek should pay off the debts through collected finances

The financial problems of Barmek began exactly from 2006, as it paid only 10mln AZN to Azereneji for the electric energy supply.

So, it is dealt with a huge amount. These facts are supported by the documents which will be submitted during the court investigation.

The Court will define who is correct in this dispute. According to the rules of the arbitrary court, each party appoints an arbiter, and these two arbiters, for their parts, choose a third one. The above mentioned process is a usual legal action, and it does not bother us. The Azerbaijani Government is ready to prove its right both in domestic court and in any international one, said the Deputy Economic Development Minister.

The damage inflicted to government by Barmek will be restored. We are going to summarize all unpaid funds for electricity transited to Barmek and we are keen on obtaining all funds, the Azerbaijani Deputy Minister for Economic Development, Mikayil Jabbarov, said.

Irrespective on the Court Sentence, Barmek is unwilling to work further in the Azerbaijani energy sector. At present Turkey is preparing tenders for privatization of electricity networks and after the completion of takeover of Azerbaijani electricity network Barmek plans to participate in these tenders. Mr. Arabul stated that the company plans to use its Azerbaijani experience in Turkey. We plan to use the Azerbaijani personnel in Turkey in our projects. We are keen on attracting young engineers in the process of application of automated systems for calculation of meters, which was established in Azerbaijan, he stressed.

Azerbaijan in its turn has no plans on attracting foreign companies for management over the Baku and Sumgayit electricity distribution networks. The First Prime Minister, Yagub Eyyubov, said that the companies established for management over the networks can fully carry out their work.