BRINGING CARS UP TO STANDARD

On 1 April, April Fool's Day, this year many importers of second-hand cars into Azerbaijan did not find much to laugh about. April 1 was precisely the deadline on which a ban came into force on the import into the country of cars non-compliant with the Euro 4 emissions standard. This government decision is aimed at improving the country's car stock and reducing the exhausts polluting the environment. At the same time, from 1 April in Azerbaijan restrictions on the prices of 95-octane and 98-octane petrol were lifted, or to put it more simply, they were cut. 

By decision of the Cabinet of Ministers of Azerbaijan of 31 March 2014, the imported Ai-95 petrol and even higher octane fuel compliant with the Euro 5 standard, are not included on the list of commodities regulated by the state.

Moreover, as stated in the report of the Tariff Council, before this the Cabinet of Ministers had abolished customs duties on imports of Ai-95 and Ai-98 car fuels. The excise duties on a tonne of 95 and 98 petrol have been reduced from 250 dollars to 100 and 150 dollars respectively. For Ai-95 petrol this decision is valid until 1 June 2014, and for Ai-98 petrol there is no deadline. As a result, from 1 April the price of Ai-98 has drastically been cut in the country from 1.5 to 1.03 manats per litre. In future, the price of this petrol, as well as of Premium Euro [BMB] 95, which is already being sold at 0.93 manats per litre, may change, depending on world prices and supply and demand on the domestic market. 

Regionplus was told at SOCAR [State Oil Company of Azerbaijan] that this decision will allow companies with a chain of petrol stations in the country to import Ai-95 and Ai-98 petrols. "Up until now SOCAR was engaged in importing Ai-95 petrol, but the decision does not fundamentally restrict the owners of chains of filling stations from purchasing the fuel themselves. They have largely imported petrol from Romania, Bulgaria, Russia, Greece and a number of other countries," they noted at SOCAR.

This decision by the government has promoted a growth in demand for petrol in the country. In particular, SOCAR has been warning since back last year that petrol production is equal to petrol consumption in the country now, which means that the company has had to cease exports of this type of fuel. Moreover, in order to satisfy the growing levels of consumption, SOCAR has decided to stop production of Ai-95 petrol in favour of the much more popular Ai-92. In principle, the decision to lower the prices of high-octane forms of petrol did not cause any particular stir on the domestic market, since consumption of Ai-95 and Ai-98 petrols only accounts for 10 per cent of total consumption. Owing to the closure of the Heydar Aliyev oil refinery in Baku for upgrading, SOCAR is temporarily importing Ai-92 petrol as well. 

The introduction of the Euro 4 emissions standard may turn out to be of greater importance to motorists. This decision is known to have resulted in a ban on imports into the country of cars non-compliant with the Euro 4 standard. This means that from 1 April it will be possible to import European cars manufactured since 2005, South Korean cars manufactured since 2006 and Japanese cars produced since 2011 (see table).

Besides improving the environment, this decision should have an impact on the numbers of cars imported. Over the last few years a really drastic growth in car imports into the country has been observed. Whereas in 2010 a total of 51,800 cars were imported into the country, last year this figure had risen to a record 94,900. Consequently, this car boom has led to the country's car stock more than doubling over the last 10 years, rising from 500,000 in 2003 to 1.2m cars last year. 

But in the early months of this year a drop in car imports could already be seen. Thus, in January and February 2014 13,200 vehicles were imported into the country, which is 6.6 per cent less than in the same two months of 2013.

As a result, the share of vehicle imports in Azerbaijan's overall imports fell from 13.4 per cent last year to 9.1 per cent in January and February this year. The number of cars imported from Georgia, which is the main supplier of second-hand cars, dropped considerably from 5,760 cars in January and February last year to 4,720 over the same two months of this year. So, even before the Euro 4 standard had been introduced, the announcement of it had an impact on the motor vehicle markets in Azerbaijan and Georgia.

Tsezar Babayev, the owner of one of the major motor vehicle markets in Georgia, told Regionplus that the introduction of the Euro 4 emissions standard in Azerbaijan has already had an effect on the Georgian market right from the very early days. "Many automobile traders in Georgia only operate for the Azerbaijani market. They previously brought in cars from Europe manufactured before 2005, i.e. cars non-compliant with the Euro 4 standard. As a result, they now have to cut the price by 5-10 per cent in order to sell the cars somehow. I think that this situation is likely to continue for three or four months. Then everyone will bring in cars compliant with the latest standards," Ts. Babayev said. He does not however expect any particular reduction in the numbers of cars sold in Azerbaijan.

But experts are of a somewhat different opinion. Ramin Osmanli, a specialist in the motor vehicle market, thinks that, taking into account the introduction of the Euro 4 standard, as well as the tougher rules for obtaining credit to buy cars, the number of car sales in the country is bound to fall. At the same time, buyers on the motor vehicle market are likely to change their preferences. "Whereas previously more German cars were imported into Azerbaijan (in the main via Georgia), there will largely be South Korean cars now." R. Osmanli asserts. The price factor is naturally having an influence here, since the 2005-made German cars which were so popular in Azerbaijan now cost almost twice as much as the "newer" South Korean cars.

"At this stage, the price of cars manufactured between 1999 and 2003 has been artificially inflated by 15-20 per cent. In the coming months this situation is set to continue when it comes to cars non-compliant with the Euro 4  standard. This is due to the relatively low price of these cars compared with the cost of cars compliant with the  Euro 4 standard. In its turn, in the coming months the price of cars manufactured between 2005 and 2008 will drop slightly, within a margin of three to five per cent," R. Osmanli told Regionplus.

It is understandable that the introduction of a new standard is not only aimed at improving the environment, since 70 per cent of the country's car stock are non-compliant with the Euro 4 standard. This is also aimed at improving safety on the roads and slowing down the rapidly growing rate of car acquisition. Another measure aimed at achieving this may be the scrapping of old cars, which is being discussed by the government.

These measures do, however, require considerable financial and administrative resources. For the assembling of cars in Azerbaijan is only in its infancy (NAZ-LIFAN [SUV-type crossovers] are being assembled with a Chinese company in Naxcivan), and, in the case of cars being confiscated for scrap metal, the government will in fact be providing incentives to foreign producers. Therefore the form and methods of scrapping cars needs to be worked out very carefully, so as not to damage the budget on the one hand and not to cause dissatisfaction among the poorer strata of the population on the other. At any rate, it is unlikely that this measure can be avoided, since only by scrapping cars can we get rid of large numbers of old and practically unusable cars on our roads.