STRIKE A LIGHT!

Today when a whole number of countries are experiencing a shortage of electricity, Azerbaijan is building new expensive module power stations meant to guarantee the country's energy security. We are talking not only about overcoming the shortage of electricity in the ill-fated autumn and winter period when its consumption reaches its maximum. The development of the electricity sphere itself, which ensures the work of many enterprises and economic development as a whole, is on the agenda. What is more, many new enterprises, commercial organizations, shops and services facilities are opening in the country, and the population of Azerbaijan is steadily increasing. All this furthers a growth in electricity consumption.

The main thing is sound competition

According to some information, electricity consumption in Azerbaijan increases by 7-8 per cent every year. For this reason, despite the opinions of many "experts", the state is spending hundreds of millions of dollars on the construction of new energy facilities. A lion's share of the money spent on such construction work is brought from abroad. Credits obtained for investment projects form the basis of Azerbaijan's foreign debt (80.9 per cent) today. On 1 May this year, this figure totaled 1,599.6m dollars against 1,577.9m dollars at the beginning of this year, and almost half of this money - 749.2m dollars (or 37.9 per cent of the overall debt) falls to the electricity sphere. This is almost one billion dollars.

The national energy agency - the Azarenerji joint-stock company - is engaged in generating electricity in the country. It is in charge of all power stations, including hydroelectric and thermal power stations. Its shares belong to the state. Meanwhile, according to electricity legislation, private companies can also generate, transport and distribute electricity. However, the handover of distributing networks in Baku, Sumqayit and northern regions of Azerbaijan to private investors did not yield any positive results for the state. But this is not what we are talking about. What we are talking about is that the sphere of power generation has remained untouched throughout the history of independent Azerbaijan (this does not include the construction of new energy facilities at the expense of private capital). So Azarenerji is a monopolist in this sphere today, which runs counter to market laws. For this reason, the country's government decided to entrust power generation to foreigners. By the end of this year, according to representatives of the Azerbaijani Ministry of Economic Development, it is planned to start the construction of at least two private power stations with 100-per-cent foreign capital in the country. These will be thermal power stations with a capacity of 500 MW each. "The government of Azerbaijan has already signed a memorandum on mutual understanding with the Korean companies KEPCO/STX to build new power stations (by drawing up the feasibility study of this project in advance). The new stations will be situated in Baku," the Ministry of Economic Development said.

The purpose of the construction of private power stations is not only to increase energy facilities, but also to "create a competitive environment in the sphere of power generation and distribution", the ministry stressed.

Of course, it is difficult to overestimate such a theory. But will the new thermal power stations be profitable for foreigners? Yes. Investors have already been given the opportunity to invest their capital in power generation and distribution because in January this year, the Tariff Council established a new wholesale price for one kW/h - 0.043 manats (a 300-per-cent increase). It must be remembered that the retail price for all groups of consumers is 0.06 manats (a 300-per-cent increase for the population, a 230-per-cent increase for budget and industrial facilities and a 20-per-cent increase for commercial organizations).

We have to say that the government is confident that Azerbaijan's electricity market is attractive for investors and stresses that all conditions have been created for the private sector to work.

Experts support the idea

According to the experts we polled, it is high time to de-monopolize the electricity sector in Azerbaijan, which is why the government's decision to build new power stations in the country causes only positive emotions. Meanwhile, it is necessary to grant additional privileges to the new investors.

Another fact that speaks in favour of this idea is that although the country has been experiencing a shortage of electricity in autumn and winter in the last few years, its generation reached a record level last year - just under 24bn kW/h. For comparison, in 2005 the annual volume of electricity generated by Azarenerji equaled 22bn kW/h. Moreover, the government is planning to generate more than 30bn kW/h by 2010 - this is how much developing Azerbaijan will need at that moment. But experts also point out that the operating costs of power generation in the country are extremely high. This means that it is high time to stake on foreign manufacturers.

Many think that foreign capital could participate not only in the construction of new facilities and in the reconstruction of the already existing ones, but also in the privatization of numerous power stations, i.e. in their transformation into joint-stock companies. But this is only a long-term plan.

So the government has given the "nod" to the construction of not just one, but two "foreign" thermal power stations. There is a logical question: Which foreign company can take this worthy niche on Azerbaijan's electricity market?

We have to point out that after the termination of the contract with the Bayva Energy company on the management of the Ganca and Ali-Bayramli energy distributing networks, many people seriously thought that Siemens could take its place. Moreover, such an idea was voiced during negotiations between a top delegation of the Eastern Committee of the German Economy and the Azerbaijani government. We have to say that this proposal was quite sensible - the company is actively participating in the reconstruction and construction of a number of energy facilities in Azerbaijan, for example, in the construction of a modern steam-gas installation with a capacity of 506 MW in Sumqayit. Along with Turkey's Barmek, the Germans have also taken part in a tender to define an investor in the distributing networks of Baku, Sumqayit and northern regions of Azerbaijan. Since Barmek's scandalous departure from the energy market, there has been an idea to hand over new powers to the Germans, and what is more, the candidacy of the Unified Energy System of Russia was not ruled out either. But there is a problem. It is no secret to anyone that Siemens is a German company of world renown which produces high quality equipment, including for the energy sector, but does not generate, transport and distribute electricity. This means that it cannot be a possible candidate for power generation.

We cannot say anything specific about the Russian energy monopolist either. Incidentally, all talk about Russian investments in Azerbaijan's energy sphere has been going on for five years, but nothing specific has happened yet. This means a lot.

As can be seen, today when the government has just announced its plans to build new thermal power stations with 100-per-cent foreign capital in Azerbaijan, it is quite difficult to predict which foreign investor will rush into Azerbaijan's energy sphere. The main thing is that there should be at least some progress in this cause, and we do not mind paying for it…