CITEI calls on the Government to cancel these decisions taken by the Tariff Council

As it is known, the prices for electricity and natural gas have been raised again in Azerbaijan these days. So, according to the decision of the Tariff (Price) Council, the price of each cubic meter of natural gas up to 1,200 cubic meters per year will be calculated at 12 gapiks for the population. Until now, this price was 10 gapiks, which means an increase of 20%.

According to the decision of the Tariff Council on Saturday, the volume of natural gas for the population after 1,200 cubic meters will remain in line with the tariff adopted in July.

In other words, if people exceed the norm of 1,200 cubic meters per year, they will pay 20 gapiks per cubic meter up to 2,500 cubic meters, and if they exceed this limit, they will pay 25 gapiks for each subsequent cubic meter.

As for electricity, the tariff differentiation for the population has changed. So far, there have been two payment limits for electricity - 7 gapiks per month for consumption up to 300 kWh and 11 gapiks for consumption over 300 kWh. The new decision of the Tariff Council defines three categories: 8 gapiks/kWh for consumption up to 200 kWh, 9 gapiks/kWh for consumption between 200 kWh - 300 kWh, and 13 gapiks/kWh for consumption over 300 kWh.

Since we are directly connected with the extractive industry as the Coalition of Public Unions for Increasing Transparency in the Extractive Industries, we would like to state our position on the decision of the Tariff Council dated October 16, 2021, on the increase in gas consumption prices.

First of all, we would like to note that a similar situation with the rise in prices for state-regulated goods and services is that the government cannot convince consumers that these decisions are necessary.

The fundamental reason for this is that government decisions are not made in a collegial way, but on the basis of instructions, and there is no dialogue with society. For this reason, no public discussions are held before decisions that directly affect the interests of the country's population, and the interests of the people are not taken into account.

We would like to draw attention to another point. As we have noted, Azerbaijan has written its name in our energy history as a gas exporter since 2007. Between 2007 and the first half of 2021, 36% or 45 billion cubic meters of gas produced from Shah Deniz was sold in the domestic market of Azerbaijan, and Azerbaijan buys this gas in dollars. However, for unknown reasons, the state does not disclose these prices.

However, after Azercontract is entrusted with the wholesale purchase of gas for the domestic market in December 2020, it could be hoped that all sources and prices of gas purchased for the domestic market would be publicized, the cost price of gas and the cost elements affecting it would be disclosed on a regular basis before it is delivered to consumers. Unfortunately, there was no transparency in this area either.

However, it is also known that each country immediately informs the public about the purchase price of imported gas. For example, the Moldovan government has announced that from October 1, 2021, it would receive gas from Gazprom for $ 790 per 1,000 cubic meters, while Armenia states that it currently buys gas from Russia at $ 165, and so on.

We believe that the government should be transparent and accountable in these matters in accordance with the latest standards adopted by the EITI in 2019, disclose contracts and licenses, and make public the terms of tenders and trade in raw materials.

According to the data, the Tariff Council explains the rapid increase in natural gas prices by the fact that the cost of production and delivery of natural gas exceeds the selling price, as well as rising gas prices in the world and in Europe.

While substantiating this decision, AzeriGas Production Union said that the review of tariffs was "inevitable", and the representative of Azerishig OJSC said that during the new differentiation of electricity, the preferential tariff policy for low-income families was "preserved".

From the very beginning, as the Coalition of Public Unions for Increasing Transparency in the Extractive Industries, it should be noted that the government and monopolistic state companies explain the increase in domestic gas prices by the increase in world gas prices and are not based on any economic laws. Because Azerbaijan is not a gas importing country and the increase in world market prices has no negative impact on the domestic market. On the contrary, because Azerbaijan is a gas exporter, rising prices on the world market create additional foreign exchange reserves, which are sufficient to compensate for the minus difference between the inflated "production and delivery costs" of gas in the domestic market and sales prices and generate additional income.

However, we would also like to note that the idea of ​​the authorities that the cost of "production and delivery" of natural gas in the domestic market exceeds the cost price of natural gas is not based on any serious grounds too.

According to SOCAR's annual report, the cost price of natural gas is 61.27 manats. The cost of transportation of every 1,000 cubic meters of natural gas for 100 km is 2.0 manats, and the cost of the management of the natural gas process is 5.5 manats. Thus, while the final selling price of 1,000 cubic meters of natural gas in the domestic market is 75 manats, the new prices announced by the Tariff Council are many times higher than the cost price. (https://www.socar.az/socar/az/economics-and-statistics/economics-and-statistics/socar-reports)

To substantiate this and the previous decision (Decision No. 8 dated June 30, 2021), the Tariff Council stated that the new increased prices are lower than the tariffs of some countries. So, in the statement of the state body, in 2020, it was noted that in 2020, the price of 1 cubic meter of natural gas for the population varied between 32-40 gapiks in Turkey, 54 gapiks in Ukraine, 19.7-29.5 gapiks in Georgia, and 9.2-34.2 gapiks in Belarus.

We would like to note that the countries presented by the Tariff Council for comparison - Turkey, Ukraine, Georgia, Belarus - buy gas from abroad and sell it to their population, and in this case, it is natural that prices are relatively high, and this is also expected in terms of economic laws. We believe that such an illogical "comparison" of the state body is very flawed and aims to confuse public opinion.

It should be noted that according to the latest OPEC reports on gas-producing countries, there are five countries with gas reserves of more than 1 trillion cubic meters among the countries of the former USSR, and one of them is Azerbaijan. According to current tariffs, Azerbaijan is the country that sells natural gas to its population at the highest price.

Taking into account the rising price, we can note for comparison that Azerbaijan currently sells gas to its population for 25 gapiks per cubic meter for more than 2,500 cubic meters, which is 1 gapik in Turkmenistan, 4 gapiks in Uzbekistan, 10 gapiks in Kazakhstan, and 13 gapiks in Russia.

The Tariff Council estimates that the price increase will cover about 50% of subscribers. According to the decision of the state body, the price of natural gas will remain unchanged for about 5 million subscribers. However, these figures do not seem convincing. Because, in 2020, the number of salaried employees in the country was around 1.7 million, and the share of high-paid employees was not high.

It should be noted that in April 2019, the Tariff Council responded to SOCAR's request for an increase in gas prices by Decision No. 2, saying "given the social policy pursued in the country, the increase in natural gas tariffs should not be considered expedient". On the contrary, the limit on the use of natural gas was increased from 1,700 cubic meters to 2,200 cubic meters.

However, we would also like to note that the volume of nominal income per capita in Azerbaijan in 2020 decreased by 2.7% compared to 2019, from 5,687 manats to 4,898 manats, and compared to the results of 9 months of 2019, the nominal income of the population in the same period of 2021 decreased by 2.1%.

According to official figures, the level of consumer prices for the first 9 months of 2021 increased by 5.2% compared to the same period in 2020. According to unofficial estimates, in 2021, especially in the last three months, consumer prices have risen sharply, and every Azerbaijani feels this increase in their lives day by day. (https://www.stat.gov.az/news/macroeconomy.php?page=1)

However, although the reduction of consumer prices for gas and the abolition of the applied limit or increase of the limit (at least up to 2,200 cubic meters in accordance with the decision dated April 2019) would be more logical in 2021, despite the official figures and the importance of providing the social protection of the population of the exporting country, by Decision No. 13 dated October 16, 2021, the Tariff Council increased the price of natural gas by 20% to 12 gapiks per cubic meter for the use of up to 1,200 cubic meters of natural gas per year, kept the limits as they were, and did not remember the "social policy pursued in the country" as in 2019.

By the way, the situation with electricity generation is similar.

So, electricity tariffs are also regulated by the state. According to the International Energy Agency’s report of 2020, the cost price of 1 kWh of electricity by Azerenergy is 4.1 gapiks at thermal power plants, 5 gapiks at small hydroelectric power stations, 5.7 gapiks at wind plants, 5.7 gapiks from other alternative sources, and 0.2 gapiks for transit fee. In this case, the re-rise of electricity tariffs by the Tariff Council in the domestic market is incomprehensible and serves to further worsen the current social situation of the people. (https://www.iea.org/reports/azerbaijan-energy-profile)

Taking into account the above, as the Coalition of Public Unions for Increasing Transparency in the Extractive Industries:

• We state that the recent decisions of the Tariff Council to regulate the prices of natural gas, as well as electricity in the domestic market do not meet the interests of the country's population and assess these decisions as a step that will further aggravate the socio-economic situation of citizens, especially in the current pandemic period.

• We call on the government to repeal these decisions of the Tariff Council and reconsider the prices of energy carriers, including gas and electricity in the domestic market, in order to further improve the social situation of the population.

• We call on the government to return to the EITI and achieve transparency in all areas and activities in the extractive industry, including the disclosure of contracts, licensing conditions, trade in raw materials, tenders, and procurement.