Why did Azerenerji switch to black oil regime again?

Recently Georgian Energy Minister Kakha Kaladze said that “Azerbaijan does not have enough free volumes of commercial gas to deliver to Georgia next year.” Mass media has discussed various versions of this statement, including geopolitical ones.

Early this week the Energy Ministry has requested the Tariff Council to reduce the price of black oil, which is supplied by the State Oil Company of Azerbaijan (SOCAR) by three times. The Tariff Council has considered the proposal and met the demand.

Since December 1, 2015 SOCAR will sell 1 ton of oil black oil at the price three times lower.

Why does one state company of Azerbaijan agree to sell its product to the other state company at its own loss so easily? For about three years Azerenerji’s payment for the supplied natural gas was not regular and its debts to SOCAR exceeded half a billion AZN. SOCAR has laid claim to the Economic Court and has won the trial, but it failed to get its money for the supplied gas. What is going on then?

The answer could be found in the report of the Statistical Committee. The report for 9 months, 2014 reads that 4.3 billion cub.m. of gas and 5,500 tons of black oil was delivered to the electric stations and heat generating plants to generate power. This data is not mentioned in any other report of the State Statistical Committee (though it is mentioned that 209.5 grams of fuel in oil equivalent was used to generate 1 KWh of power). It is unclear why one needed to hide such important facts from the publicity?

According to the other reports of the State Statistical Committee, during 9 months, 2015 black oil consumption in the country totaled 350,800 tons, up 22.9 times against the same period last year. From January to September 2015 the country produced 263,800 tons of black oil. This means that 87,000 tons of black oil has been used from the storages of thermal electric stations.

Why did Azerenerji suddenly decide to switch from the gas to the black oil regime?

Thermal power stations of Azerenerji did work with gas even when Azerbaijan could not supply itself with natural gas.  This was before 2007, when the first volume of gas from the Shah Deniz field was delivered to the local market of the country. A lot of people remember that at the end of October 2000 Azerbaijan started first import of Russian gas from private company Itera. That time Russian gas was imported, because it was 20-25% more profitable for the electric stations to use gas, than black oil. Even in 2004 replacement of the private Russian company by the state monopoly Gasprom and partial increase in gas prices did not change decision of the Azerbaijani government to stop import, because upgraded and new power stations have been using only natural gas.

If such radical measures are taken now, then there are real reasons for that. Solution of these issues is already at the level of executors – SOCAR and Azerenerji.—0—