Why Electricity Tariff Increased

As reported by Turan, last week, the Tariff Council (TC) of Azerbaijan increased retail and wholesale rates for electricity sales. From 15 July the wholesale cost of the sale 1 KW / h is 4.3 kopecks (+ 4.6%), while the value of retail sales is 7 kopecks (+ 14.3%).

The official reason is that 9 years have passed since the increase in prices for electricity consumption, so there is a need to bring tariffs in line with the economic processes, provide sustainability and duration of quality service in energy supply, reduce the long-term financial dependence and provide the development of producers and the electricity network.

Explaining the reasons for such a step, the director of the Association of Azerbaijani Energy Specialists Rasul Suleymanov explained the TC decision that the current tariffs do not cover the cost of electricity producer. Despite government subsidies and guarantees on debt obligations of OJSC Azenergy, rates for electricity in the country and lack of demand for full power of the power stations built reduces the profitability of electricity production.

"The cost of electricity in Azerbaijan, perhaps, will rise up to 2022, he told Turan. The JSC has increased capacity twofold - from 4 MW in 1990 to 8 MW at present. But it is quite immaterial impact on the electricity production, which grew from 24 billion KW / h in 1990 to 25 billion KW / h last year. The rebuilt large power stations are not in demand because of the lack of demand from consumers, businesses and industry. Moreover, the reason for the low profitability lies not only in the low rates, as the rebuilt power plants are not running at full capacity and do not pay off the needs of local production. With regard to exports of electricity supply, plans for the eastern part of Turkey also failed and exports in the Georgian direction reduced. Even with the increase in retail prices up to 7 kopecks the losses will not be covered."

Last year's twofold increase in the cost of fuel to 100 AZN per 1,000 cubic meters of gas was not much impact on profitability, as compared with the amount of credit debt. Construction of additional facilities was carried out on foreign loans, and debts of Azenergy on the loans from the Asian Development Bank (ADB), the World Bank (BC), the Japan Bank for International Cooperation (the JBIC), the European Bank for Reconstruction and Development (EBRD), the German Development Bank (KfW) and so on were mostly denominated in the growing foreign currency, while the main revenue is made in AZN. Thus, according to Fitch Ratings, the devaluation of the national currency weakened.