CAR MARKET OVERHAUL

Many countries around the world face the problem of using old and unsafe vehicles that pose a threat to the lives and health of people, as well as the environment. Developed countries have found an optimal solution to this problem more than 50 years ago. They reward car owners who follow the rules of car recycling, and also punish those who violate them. As a result, such programs not only benefit the environment and traffic safety, but also boost the local car industry. Azerbaijan is following a similar path, where amendments to the Law on Industrial and Domestic Waste were passed last year and the Vehicle Recycling Fund was established on February 1, 2024.

Is the second hand market still dominant?

A decade ago, the government of Azerbaijan took the first steps to tighten the control over the import of used cars into the country, as well as to enforce stricter technical standards for the country's fleet of second hand vehicles. One of the measures in this direction was a ban on the import of cars that do not meet the Euro-4 environmental standard introduced in April 2014. More initiatives of this kind followed. For example, in December 2018, Azerbaijan approved the State Program on Road Safety, which covers some aspects of recycling of unserviceable vehicles. At the same time, the import of environmentally friendly hybrid and electric cars was encouraged. In 2022, the import and sale of hybrid vehicles up to a certain engine capacity were exempted from VAT for three years, and the import of electric vehicle chargers was also exempted from customs duties.

Further measures to prevent the influx of unsafe and technically worn-out vehicles were adopted at the end of March 2023. A Cabinet of Ministers resolution limits the import of passenger cars (petrol and diesel) with more than ten years since the date of production. The aim is to enhance the protection of human life and health, and to safeguard the environment by reducing the amount of harmful substances emitted into the air.

The above measures have somewhat limited the import of used cars with a long service life. However, they have not significantly changed the overall picture of the market, which, unfortunately, by year of production is very far from the standards of developed countries of the world. Out of more than 1.774 million vehicles registered in Azerbaijan by the end of last year, only a little more than 15% can be classified as new. The rest are vehicles with high mileage and wear and tear, the age of which exceeds the ten-year limit. "The number of cars, whose production period ranges from 10 to 20 years, is 707,623, or 39.9 per cent of the total number. In turn, cars whose year of production exceeds 20 years account for 45.1 per cent or 799,526 of all cars registered in the country," State Traffic Police (DYP) spokesman Lieutenant Colonel Mubariz Aghayev said at a round-table discussion on vehicle scrapping.

According to statistics provided by Aghayev, at the end of last year, 3,138 cars with an electric engine were registered in Azerbaijan, i.e., less than 0.2% of the total number of vehicles in the country. The situation is somewhat better with hybrid cars, of which there are about 42,500 in the country. However, most of them are heavily worn and often in a state of disrepair Toyota Prius, mostly used as taxis. Summing up the above figures, it can be said that in terms of its structure (years of production) the domestic car fleet is more similar to the indicators of poor countries in Africa and Asia than to those of developed countries.

Given the age structure of the local car fleet, it is no wonder that the main negative factor affecting air quality is vehicles. Older vehicles emit more harmful substances into the atmosphere," said Faig Mutallimov, head of the Environmental Policy Department of the Ministry of Environment and Natural Resources. He reminded that 2024 is declared the "Year of Solidarity for a Green World" in Azerbaijan and that Baku will host the session of the Conference of the Parties to the UN Framework Convention on Climate Change (COP29). "The main goal of the international event is to improve the environment by reducing greenhouse gas emissions into the air. The new car recycling program is also a contribution to the goals and objectives of COP29, supporting the implementation of national priorities for socio-economic development of Azerbaijan until 2030," Mutallimov said.

Scrapping old cars

To address the imbalance in the local car market, amendments and additions to the Law "On Industrial and Household Waste" were passed. According to the revised document, a recycling fee will be applied at the customs clearance of cars imported into the country after 4 years of production.

The Vehicle Recycling Fund was established by the order of President of Azerbaijan Ilham Aliyev on January 27, 2024. The Fund started its operation on February 1. Specifically, at customs clearance of imported passenger cars, a recycling fee will be applied: for cars aged from 4 to 7 years the amount is ₼400, over 7 years - ₼700.

Car owners will also pay a utilisation fee when conducting a state technical inspection. The amount of payments will depend on the year of production of the vehicle. Thus, for cars produced from 4 to 10 years - ₼10, from 10 to 20 years - ₼20, from 20 to 30 years - ₼30, over 30 years - ₼40.

In turn, by a decision of January 31, 2024, the Cabinet of Ministers approved the procedure for the formation and use of this fund. "According to the procedure, the fund's resources will consist of disposal fees, loans and grants, voluntary donations, allocations from international organizations and other donors, as well as other sources. The disposal fee will be charged only from vehicles older than four years," said Gizilgul Hasanova, an official of the Environmental Policy Department of the Ministry of Environment and Natural Resources.

As part of the recycling program, aspects of maintaining the relevant register have been developed, where recycling companies will be registered, the recycling process will be defined and their work will be monitored. In particular, such companies should have no tax debts and have suitable closed premises for receiving, storing and disposing of vehicles; they must have proper equipment and safe places for storing toxic waste, dismantled units and mechanisms.

Old cars are recycled on a first-come, first-served basis and without payment. In return, owners of such vehicles are issued a confirmation document reflecting the amount of the benefit and lump sum payment.

As Etibar Abbasov, Chairman of the Board of Təmiz Şəhər (Clean City), noted, the JSC has already started work on automating the whole process. Citizens will be able to submit applications through the software and monitor the process of its completion.

Based on the amendments to the Law on Industrial and Household Waste, amendments to the Code of Administrative Offenses have been drafted. According to these amendments, car dealerships that do not provide a discount on a new car to persons who have presented the relevant document on vehicle recycling will be fined ₼4,000. Recycling companies will also face penalties if they fail to provide the relevant certificate confirming the disposal of the car within the legal terms. Officials will be fined ₼3,000 and legal entities will be fined ₼5,000. Recyclers may also face fines from ₼300 to ₼600 if they fail to provide timely and written information on the sale of materials and parts from used vehicles to economic entities involved in the processing and sale of spare parts.

Clear benefits

The key point of all recent changes is the use of accumulated funds in the fund to motivate citizens who want to recycle their old cars. Specifically, by the decision of the Cabinet of Ministers, the amount of benefits in recycling for quad bikes and vehicles with less than 4 wheels will be ₼200. For cars and minibuses (not more than 8 passenger seats), as well as lorries weighing not more than 3.5 tonnes - ₼1.5 thousand. Motor vehicles for transporting more passengers, lorries, wheeled and caterpillar tractors, land reclamation, road-building machines, excavators, loaders and self-propelled machines are also eligible.

The preferential certificate issued as a result of disposal can be used when buying new domestic or imported vehicles - the amount of the benefit will be deducted from the price of the purchased car. "If a car owner plans to buy a new car of domestic production, he will be compensated the full amount, and if he decides to dispose of an old vehicle for other purposes, including the purchase of a foreign car, the amount will be 70 per cent," Mutallimov said.

With three passenger car production plants currently operating in the country (in Neftchala, Hajigabul and Nakhchivan), Azerbaijani citizens have some options: "Positive dynamics is observed at car production plants in industrial zones of Azerbaijan. In 2018, the year of the start of car production in industrial zones, 712 passenger cars were assembled, while in 2023 this figure was 4,233 cars," Azerbaijani Economy Minister Mikayil Jabbarov wrote on his page in social network X. That is, compared to the indicators of 2022 in the sector of car production, there was a growth of 2.1 times.

In the medium term, the volume of car production in Azerbaijan should reach 5,000 units per year. And it is possible that this figure will soon be exceeded. This is facilitated by the active cooperation of the Azerbaijani car assembly cluster with profile enterprises of Uzbekistan and Kazakhstan, which have started to form the "Turkic conglomerate of the automotive industry".

The new decisions will definitely have an impact on the market, including prices. The main thing is that both motorists, economists and environmentalists should be satisfied in the end.