I. Aliyev: WTO Rules Should Not Apply to Gas Prices for EU

Azerbaijani President Ilham Aliyev believes that the rules of the World Trade Organization (WTO), which the EU relies on in negotiations on a new strategic partnership agreement with Azerbaijan, should not apply to the prices of gas the EU will receive from Azerbaijan.

Such a conclusion can be drawn from the statements of the head of state made on December 23 in an interview with 4 major television channels of the country.

"Most of the clauses of the new agreement with the EU have already been agreed, about 90%. For the rest of the points, I hope we will find a solution too. I want to say that we are the initiators of the fact that the agreement has not been signed yet. And there are several reasons for this," Aliyev said.

According to him, the first key problematic issue is related to the sphere of trade.

"Today Azerbaijan is not a member of the WTO. The time has not come for such a membership, since the basis of our exports today is oil and gas. In addition, we need to protect the domestic market and domestic producers in the field of industry and agriculture. In addition, inside the WTO today there is a crisis: the United States is reviewing its membership in it, and the facts of trade wars between individual countries are evident. In such circumstances, our cautious approach to the issue of WTO membership is logical and justified," he said.

Aliyev called energy the second key point. "This primarily concerns energy prices. We are offered to sell gas for export at an internal price. What does this mean? Today in Azerbaijan 85% of the population pays for gas at a reduced price, about 100 manats ($ 58) per 1,000 cubic meters," whereas in Europe the prices are $ 300-500 per 1 thousand cubic meters. It turns out that we need to sharply increase the domestic price, which is unacceptable, or to export gas at a price of $ 58, which is impossible. Therefore, it remains for us to coordinate these two key issues," Aliyev added.

EXPLANATION OF EXPERTS

In the fourth quarter of 2020, Azerbaijan should begin exporting gas to Europe through the new Southern Gas Corridor (SGC), which includes an expanded South Caucasus gas pipeline (from the Shah Deniz field to the Georgian border with Turkey), TANAP (in Turkey) and TAP (in Greece, Albania and Italy).

Contracts for the delivery of this gas were signed back in 2013 with Turkey (for 6 billion cubic meters of gas per year) and with 9 companies in Europe (for a total of 10 billion cubic meters per year, of which 8 billion cubic meters for Italy - TAP terminal in SGC, and 1 billion cubic meters each for Greece and Bulgaria, which are connected by the IGB interconnector).

Gulmira Rzayeva, an adviser to the World Energy Council, an expert at the Global Gas Center, in an interview with ASTNA noted that gas prices in Europe are currently at a historic record low - at $ 150-160 per 1000 cubic meters, but certainly not as low as in gas producing Azerbaijan itself.

Thus, the cost of gas production at SOCAR fields is less than 60 manats (a decrease of 7.4% in 2018 compared to 2017).

Excluding the field tax, the cost of production by SOCAR of 1,000 cubic meters of gas in 2018 amounted to 45.82 manats (a decrease of 9.09% compared to 2017).

The decrease in the cost of gas production in the company in 2018 compared to a year earlier was due to a decrease in capital repair costs (by 21.7%), depreciation of fixed assets (by 2.1%), and maintenance costs (by 21.7%) , expenses for other services (by 24.6%) and a reduction in other expenses (by 43.7%).

In the cost structure, the specific weight of wages amounted to 9.7%, material costs - 4.2%, social security contributions - 2%, depreciation charges - 26%, repair costs - 4.7%, maintenance costs for fixed assets – 8.3%, transportation costs - 16.7%, subsoil tax - 18.4%, and the rest was other expenses.

Gas is sold to the population somewhere at 100 manats per 1 thousand cubic meters.

“Of course, it is impossible to sell gas to European buyers at the same price. After all, it must be borne in mind that SGC has a huge length, and there are a lot of costs. And such a price will not only not cover the costs of SGC, but will also lead to the fact that Azerbaijan will incur losses,” G. Rzayeva said.

It should be noted that according to the 25-year contracts signed between SOCAR, the Shah Deniz consortium and 9 European companies in 2013, the cost of gas, for example, for Italy will be about $ 240 per 1,000 cubic meters, and these contracts have the force of law.

Is Europe dumping gas prices, as it currently receives the fuel from new sources (in particular, LNG from the USA) and already has an excess?

In an interview with ASTNA, an informed source in SOCAR gave the following comment: “It is known that the WTO always opposes subsidies and preferences in local markets, which should be taken into account by countries that are oriented towards joining the WTO. In Europe, they believe it is impossible to discriminate either one’s own or others. The market is open, and competitive conditions are applied. Azerbaijan is not ready for this yet.”

As for the possible impact of contradictions with the EU on current and future contracts for the sale of Azerbaijani gas in Europe, a source from SOCAR expressed confidence that there would be no such impact.

“There is no connection between negotiations on the WTO and negotiations on commercial sales of gas. The initial market test for expanding SGC showed interest in the prospects for increasing gas supplies from the Caspian region to Europe on market conditions. Azerbaijan is important for the EU, as it helps reduce dependence on other gas sources, which meets the energy security strategy (gas from at least three sources), and we think that we can supply gas under favorable conditions,” the SOCAR representative, a participant of the gas negotiations with EU countries, said.

Thus, Aliyev’s concern is more likely to be “populist in nature,” which is the usual practice of state leaders, especially in the “era of change.”