Comments by Ayhan Satiji

Analyst, Center for Analysis of Economic Reforms and Communication

According to the decision of the Tariff Council of the Republic of Azerbaijan dated June 30, 2021, there were made changes to wholesale and retail natural gas prices in the country. Such key factors as ensuring the sustainability of energy security following the country’s economic policy, purposeful and efficient use of resources, coordination of the interests of consumers and producers, economic profitability, social orientation, staged formation of market relations in the field of gas supply, and elimination of subsidies from the state budget were taken as the main grounds for approving the changes. 

Here, the significant point is that no changes were made to tariffs for natural gas in the volume of 1200 cubic meters per year and kept for 10 qepik per 1 cubic meter. It covers 51% of the population or 5 million people. It means that the decision is socially oriented and serves as an obvious example of protecting the interests of the majority of the population. Moreover, to ensure economic recovery, the gas tariff for the agricultural and industrial sectors remained unchanged - 20 qepik per cubic meter. In addition, the part of the consumed gas from 1,200 to 2,500 per year will be calculated at the rate of 20 qepik per cubic meter and above 2,500 cubic meters per year – 25 qepik per cubic meter. Here, it is important to mention that the rising energy prices in world markets are related to the increase in energy consumption and inefficient use. Therefore, to ensure the sustainability of the natural gas heating system, as well as to optimize the cost for using the heating system by our citizens, the natural gas tariff for Azeristiliktejhizat OJSC and boiler houses of residential buildings was reduced from 20 to 13 qepiks. The analysis of global trends demonstrates that centralized heating systems are a priority in terms of energy efficiency. Also, the reduction of tariffs for this purpose itself will have a positive impact on environmental protection. We can review England as an example. Thus, according to the statistics of 2020, 95% of the population was using the centralized heating system. 86% percent of centralized heating systems use natural gas.

Comparing the prices for natural gas sold to the population in Azerbaijan with other CIS and neighboring countries, it can be observed that in our country gas is inexpensive even for a part of the population that consumes more than 1,200 cubic meters per year. In 2020, the tariff per cubic meter of natural gas per capita was 32 qepik in Ankara and 32.6 qepik (0.19 cents) in Kyiv. Currently, these figures have raised up to 32-40 qepiks in Ankara and 54 qepiks in Kyiv. At the same time, this figure varies between 19.7-29.5 qepik in Georgia, 9.2-34.2 qepik in Belarus, 11.9-16.5 qepik in Russia. Coming to European Union countries, the figure varies between 29 qepik to 68 qepik per cubic meter of natural gas in Latvia, Lithuania, Hungary, and Romania.

By another decision of the Tariff Council, the electricity tariffs for data centers, engaged in data processing, registration, and transmission, that consume electricity through 35 or 110 kV transmission lines, have a stable load during the day, and use at least 5 million kWh of electricity per day for production purposes have been differentiated by time of a day. Thus, the tariff is set at 7.3 qepik from 08 AM to 10 PM, and at 3.5 qepik  from 10 PM to 8 AM. Considering energy efficiency and increasing consumption, day and night time-of-use tariff differentiation is a positive step. Thus, adjusting prices to different times of the day regulates the daily load schedule, as well as creates an incentive to use electricity when prices are low, reduces the level of overload during peak hours, and reduces the need to invest in additional volumes.

In conclusion, it should be mentioned that there were not made any changes to the local electricity tariffs for the population and customers carrying out activity differing from that mentioned above, which also shows the efficiency and social orientation of the decision.