This article was originally published in Russian by Turan Analytical Service.
***
On November 28, the Azerbaijani government continued a long – standing tradition of raising fees for gas and electricity without public discussion or justification. It referred to this latest move as the introduction of a “differentiated system” of utility payments.
So, the fee for natural gas for those consumers whose yearly consumption exceeds 1,500 cubic meters (m
3
) will be raised from 0.1 manat to 0.2 manat per m
3
, i.e. up to 200 manat per 1,000 m
3
.
The situation with electricity is the same – if monthly consumption exceeds 250 kilowatt hours (kWh) the fee for additional kilowatts (kW) automatically increases from 0.07 manat to 0.11 manat per kW.
The
Tariff Council
asserts that the fee increase affects only a minor part of the population, capable of making payments. For example, according to information from the state oil company SOCAR, 62% of customers from the ‘population’ category use less than 1,500 m
3
of gas per year. And according to information from the energy distribution company Azerishiq, 72% of customers from the population category use less than 250 kWh electricity per month.
However, statistics tell a different story. By admission of Azəristiliktəjhizat (Azeristiliktajhizat) OJSC, 2,000 buildings in Baku receive central heating. If we account for the fact that an average of 50 families live in one building, then the result is that central heating is received by 100,000 families, or 400,000 individuals (the statistically average family has four members). In Sumqayit, 1-2% of buildings have central heating. The situation is the same in Ganja and other cities. As such, only 5% of the country’s population benefits from centralized heating. This means that around nine million individuals use gas, electricity, and in a few cases firewood, for heating. This begs the question, how can a house of 70 m
3
or more be heated using 1,500 m
3
gas or 1,250 kW of electricity during the five cold months (November – March)? These data attest to the fact that an overwhelming part of the population feels the effects of the so-called differentiated approach, or will be forced to turn down heating in order to accommodate so-called state interests – patching up holes in the state budget, which were made by an irresponsible government.
There is no justification for a price hike
There is no justification for a price hike, since Azerbaijan is a producer of energy resources which are cheap. The supply of gas from fields for a consumer costs ten dollars and as a result its share in the cost of electricity production is miserly. A comparative analysis of European and Azerbaijani electricity and gas prices show the following:
Gas / 1000 m2 Electricity kW
Europe $250 $0.15
Azerbaijan $10 $0.06
In Europe, prices for electricity are twice as high, but the cost of gas is 25 times higher than in Azerbaijan. Let’s say the average wage in the average European country like Greece is 1,800 dollars, and in Azerbaijan it’s 250 dollars. What sort of comparison, and what justifications can we speak of? There is only one conclusion – filling out the budget by robbing consumers.
A Chain Reaction
Raising fees for the non-population category – two times over for gas, to 200 manat per 1,000 m
3
and electricity by 58%, to 0.11 manat per kW – will automatically lead to a rise in prices for the production of goods and performance of services. If the population reconfigures their market basket towards energy carriers and transport, this will lead to a reduction in the purchase of goods and services. A reduction in buyer power will lead to a reduction in the production of goods and services. All this will provoke a reduction in tax collection and budget revenues, and a fall of the manat. In such a case, the government will once more turn to a price hike along this same chain, and so things will continue in a circle, until the weak link breaks, with all the resulting consequences.
The cause of price hikes is in the stalling of reforms
The crisis in Azerbaijan has been openly visible for two years and the government hasn’t undertaken any sort of reforms in order to begin building a non-oil economy with an emphasis on the development of small and medium business. In practice, everything has taken place in exactly the opposite fashion. The devaluation of the manat and reduction of buyer power led to the closing of a mass of business structures – banks, producing and construction companies, shops, service-providing organizations, and others, and this process is ongoing. In principle, a way out of the crisis could realistically have been provided by development of small and medium private enterprise – hundreds of thousands of producers of goods and services – in agriculture, industry, and most importantly services. In developed countries the latter makes up 70% of GDP, whereas in Azerbaijan it’s 5%. However, the promised reforms haven’t shown up – they’ve been pushed back to the spring.
In order to understand the motives for such behavior from the government, we need to take into account that the independence of small and medium business in Azerbaijan has been methodically and consistently done away with since the middle of the ‘90s. If, at the beginning of the 20
th
century, the driving force in society was the proletariat, then at the turn of the 21
st
century this force was small and medium business – the community of free producers. This class, in command of financial and political freedom, was and remains dangerous for the ruling elite, who built their framework on the oligarchic administration of the government. In this case, giving freedom to business means losing control over society, the instruments for repression of which are monopolization of financial assets, monopolies of the executive system for all branches of government, repressive actions against society by sowing fear and depression.
As is clear, the situation is truly depressing and processes continue to develop in the direction of a gridlock, compressing the coil of social tension. As was indicated earlier, President Aliyev is pushing back reforms to the spring. This would seem to be just 3-4 months, but in the case of Azerbaijan, this is an unjustifiably long period of time. The situation is changing at a blistering pace, and strangely enough, the government is the one speeding it up.
