Energy in Azerbaijan

[Haykakan]

Re: Energy in Azerbaijan

Food prices have skyrocketed in Azerbaijan since the manat was allowed to float to offset the effects of low oil prices and the country’s shrinking foreign currency reserves.

The prices of tomatoes and grapes have doubled since the central bank stopped propping up the currency three weeks ago, Radio Free Europe says. The increase is less severe but still considerable for foods such as rice and beef.

Borrowers who took out loans in dollars and other foreign currencies are also feeling the pinch. The manat fell by a third against the dollar and euro immediately after the float and has continued to trade at the same level, around 1.56 to the dollar.


President Ilham Aliev (pictured) weighed in on the situation 10 January, saying “artificial” price rises must stop.

“The recent increase in prices must not be applied to domestic products and there should be strict control over consumer prices,” he told the cabinet, as quoted by APA.


Lines formed at currency exchanges and many exchange offices suspended business last week after the central bank imposed a 4 percent band on exchange rates to stem speculative trading. The bank also set a ceiling on transactions of $500 and 500 euros, Caucasian Knot reported.

In his remarks to the cabinet, Aliev admitted the country remained dependent on food imports, while insisting there should be no increase in the price of domestic foods.

The president also said development of the non-oil sector and economic diversification in Azerbaijan will remain priorities in 2016, APA reports.

http://www.tol.org/client/article/25...ood-aliev.html

Imposing price ceilings can cause shortages.

[Mher]

Re: Energy in Azerbaijan

It's remarkable how severe their economic collapse has become. It's truly shocking what is happening in that country. This coming from the person who saw this coming a few years ago. the ideal situation for us would be a toppling of the central government, and emergence of a failed state with multiple warring parties. And like Haykakan said, imposing price ceilings will only worsen the situation. It's remarkably how poorly the situation is being handled by that government. Really takes a lot of ineptitude to manage to completely screw up an economy when you start out with $15 billion in foreign reserves and a $37 billion sovereign wealth fund...

... but hey, Formula 1 is coming to Azerbaijan in 2016

[Joseph]

Re: Energy in Azerbaijan

It's remarkable how severe their economic collapse has become. It's truly shocking what is happening in that country. This coming from the person who saw this coming a few years ago. the ideal situation for us would be a toppling of the central government, and emergence of a failed state with multiple warring parties. And like Haykakan said, imposing price ceilings will only worsen the situation. It's remarkably how poorly the situation is being handled by that government. Really takes a lot of ineptitude to manage to completely screw up an economy when you start out with $15 billion in foreign reserves and a $37 billion sovereign wealth fund...

... but hey, Formula 1 is coming to Azerbaijan in 2016

http://armenianow.com/news/region/69146/armenia_azerbaijan_region_karabakh_economy

Reversal of Fortunes: Armenia’s oil-rich arch-foe reels under falling revenues


Gohar Abrahamyan
ArmeniaNow reporter

The continuing currency market shocks and related price hikes in neighboring Azerbaijan do not directly impact Armenia, but observers say developments in a country hostile to Armenians may have influences on the situation in and around the Nagorno-Karabakh conflict zone as well as broader regional politics.

On December 21, the Central Bank of oil-rich Azerbaijan decided to free float the national currency, the manat, to reflect the dramatic fall in international oil prices and decreased currency revenues in this fuel exporting country. As a result, the manat immediately lost about 50 percent of its value against the U.S. dollar and continued to fall in the subsequent days. The situation resulted in panic currency buying and also affected the level of consumer prices in the country.

Azerbaijan’s Turan news agency reports that last week in Azerbaijan’s capital Baku exchange offices practically stopped selling dollars and euros, giving rise to “black market” transactions where the manat has an even lower exchange rate against hard currencies.

Natural gas, oil and oil products make up 95 percent of Azerbaijan’s exports and the country’s state budget is by 75 percent formed due to revenues from fuel sales. The fairly high level of international fuel prices until recently ensured stable revenues for Baku, but a reverse situation is taking its toll now.

Azerbaijani President Ilham Aliyev addressed the issue at a cabinet meeting on January 10, considering the development of the non-oil sector of the economy and reduction of dependence on energy resources to be a priority issue for his government in 2016.

At the same time, media in Azerbaijan also write about other economic woes of the country, including difficulties in the tourism and jewelry sectors and predict more challenges ahead as fuel prices continue to fall on the world market.

While many Azerbaijanis seek to leave the country, some take to the streets these days for protests against their government. These mass anti-government actions taking place in different cities and towns are accompanied by arrests of activists by police.

Other desperate citizens in Azerbaijan attempt suicides as possible ways out of their dire financial straits. A report from one of the towns in Azerbaijan says three young men tried to kill themselves by attempting to plunge from a five-storied building because of not being able to even afford to buy staple bread for their families.

Political analyst Hrant Melik-Shahnazaryan sees greater political activity among residents of Azerbaijan in fighting against the regime led by an autocratic president.

“A few days ago a republic was proclaimed in one of the [Caspian Sea] islands of Azerbaijan, and on Tuesday one of the major highways in the country was closed by authorities to prevent protests at sea ports. It is obvious that society in Azerbaijan already feels the severity of the economic situation to a degree that despite all the persecution its members stage protests and raise economic issues,” the Yerevan-based expert tells ArmeniaNow.

Still, the analyst sees risks that the government in Azerbaijan will try to use the factor of the Armenian-Azerbaijani dispute around Nagorno-Karabakh and through increased border tensions will once again attempt to divert public attention from social and economic problems.

But Melik-Shahnazaryan does not think this method will work this time around. “The Azerbaijani authorities have long used border tensions as a means of solving their domestic problems, but I think that this policy has exhausted itself and the public in Azerbaijan no longer has the same perception of what is happening at the borders with the Armenian states as before. They do understand that their difficulties are not caused by the warlike situation, but are conditioned by the internal policies of their government,” he says.

In Melik-Shahnazaryan’s view, official Baku also understands that new approaches are needed. But while these approaches are absent, he says, Azerbaijan will continue to use the threat of renewed hostilities in Nagorno-Karabakh as pressure also on the international community.

Despite its continuing war rhetoric, because of the drop in international oil prices Azerbaijan has had to nearly twice reduce its military spending for 2016. Until recently, Baku boasted of having a military budget equivalent to the entire state budget of Armenia at around $3 billion.

Azerbaijan’s ceasefire violations in the Nagorno-Karabakh conflict zone and at the state frontier with Armenia in 2015 resulted in the deaths of more than four dozen Armenian soldiers. Several Armenian civilians also died in border shooting.



....but hey, Mehriban has another art show coming up this Spring!

[HyeSocialist]

Re: Energy in Azerbaijan

Jan 13 The Azeri state oil fund SOFAZ said on Wednesday it had sold $200 million on the forex market, a move to support the country's weakening national currency.

"The Azeri oil fund has started selling foreign currency again this year. The first auction took place today. $200 million was sold and bought by 32 banks," SOFAZ said in a statement.

The $34 billion SOFAZ sovereign wealth oil fund holds proceeds from oil contracts, oil and gas sales, transit fees and other revenue. It uses income from investments to pay for social spending and infrastructure projects.

Baku withdrew support for its currency, the manat, on Dec. 21, triggering losses of 33 percent against the dollar. It had burned through more than half its foreign currency reserves trying to defend it against the effect of falling oil prices.

On Jan. 8, the central bank widened the exchange rate corridor within which banks can buy and sell the manat, to 4 percent either side of its official rate from 2 percent.

On Wednesday, the central bank set an exchange rate of 1.5706 manats per U.S. dollar, which will stay in place until Jan. 15. (Writing by Margarita Antidze; Editing by Jack Stubbs and Katharine Houreld)

http://www.reuters.com/article/azerbaiajan-sofaz-currency-idUSL8N14X3SZ20160113

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All this financial talk is making me wonder if I should go back to school and get that MBA...

[Joseph]

Re: Energy in Azerbaijan

OH NO!!!!!!!!!!!!!!!!

http://www.eurasianet.org/node/76811

Azerbaijan: Baku’s Reserves Rapidly Evaporating Amid Fiscal Storm

January 13, 2016 - 1:07pm, by Durna Safarova
Azerbaijan EurasiaNet's Weekly Digest

January 13, 2016 - 1:04pm
With oil prices now barely above $31 per barrel, Azerbaijan’s energy-export economy is taking on lots of water. And what is worse, Baku’s lifeboat, the State Oil Fund of Azerbaijan, appears to be in danger of foundering.

The shaky condition of government finances is starting to strain social stability. On January 13, for example, local media reported that police in multiple Azerbaijani regions staged massive shows of force to control protests fueled in large part by rising consumer prices, unemployment and the country’s recent currency devaluation.

In the past, the Azerbaijani government had been able to contain discontent by having plenty of cash on hand to funnel into infrastructure initiatives. But now – with oil prices at a near 13-year low, and government reserves quickly dwindling, the state’s ability to use money to paper over problems is increasingly uncertain.

The State Oil Fund of Azerbaijan (SOFAZ), a critical source of funding for Azerbaijan’s state budget, needs help, too, some observers say. The question is what, or who can supply it.

Established in 1999, at the dawn of Azerbaijan’s oil boom, the extra-budgetary fund was designed to safeguard and invest for the public good the windfall profits earned from Azerbaijan’s oil and gas exports.

The fund’s revenues, estimated at $33.6 billion as of last December, have been used to fund infrastructure improvements, including the construction of housing, roads and water systems. It is also been used to finance key economic projects, including pipelines, and create a government-backed study-abroad program.

Recent decisions taken by authorities have compounded the fiscal challenges facing the state. In 2015, as oil prices began plummeting, officials used the Fund to bolster the Central Bank’s declining foreign reserves, and shore up Azerbaijan’s embattled currency, the manat, against the US dollar. On December 21, however, the Central Bank gave up the fight and unpegged the manat from the dollar, slicing off 33.2-percent of the manat’s value. (The exchange rate currently stands at 1.57 manats to the dollar).

The Bank’s manat campaign ate up more than half of its hard-currency reserves, and took a high toll on SOFAZ, too. Based on official data, the Fund saw its reserves dip by over 9.4 percent since the start of 2015 — from $37.1 billion to $33.6 billion as of December 1.

That has consequences for this year’s 14.6-billion-manat ($9.3 billion) state budget, already down by a quarter compared with 2015. The Fund’s transfers to the budget in 2016 will decrease to 10.6 billion manats (over $6.76 billion) — a decline of over 43 percent, according to an RFE/RL report in December.

The government has announced a three-year austerity program, with President Ilham Aliyev calling for citizens to “work more efficiently” to “cover all expenses.” At the same time, the president sent a mixed signal by calling for a 30 percent increase in pensions and state-funded salaries. Those commitments, if implemented, would potentially increase the financial pressure on SOFAZ.

SOFAZ representatives did not respond to questions submitted by EurasiaNet.org in time for publication.

Vahid Ahmedov, a non-party member of parliament’s Economics Committee, downplayed concerns about the Oil Fund’s reduced revenues, describing the agency’s fiscal condition as normal, given current trends in the energy sector. He indicated that managers had means at their disposal to hedge against low oil prices to ensure the Fund remains buoyant.

“The Oil Fund can place its money in certain banks or can purchase a property and use its rental fee [for income] and so on. There are such kinds of ways [to increase revenues],” Ahmedov said. “The Oil Fund is investigating these methods.”

Already, the Fund is reportedly diversifying its portfolio. Together with state-run investment bodies in Abu Dhabi and Qatar, SOFAZ has agreed to invest a combined 350 million euros ($379.8 million) in the purchase and maintenance of three properties in the Italian fashion hub of Milan. SOFAZ itself plunked down 97 million euros ($105.26 million) for the Palazzo Turati, an office facility. How much it expects to receive in any rent is not known.

In late December 2015, SOFAZ announced that it would double the limit for investments in real estate, to up to 10 percent of its overall portfolio. Investments in equities will increase from 10 percent up to a potential 15 percent of its overall pool of resources.

So long as oil prices do not hit $20, predicted Samir Aliyev, the editor-in-chief of the Economic Forum Magazine, an analytical monthly, “there won’t be a problem in the implementation of the Oil Fund’s 2016 budget.” The manat’s devaluation helps “the Oil Fund to feel comfortable,” he added.

There seems to be little margin for error. Business revenues are declining, as consumers purchase less, and debt for small and medium businesses is rising, noted Mahammad Talibli, director of the Institute of Economic Analysis, a Baku-based think-tank.

“We can’t see the same market dynamism which appeared before, thanks to the oil money,” Talibli commented.

Although the Fund is designed partly to serve as a rainy-day fund for the Azerbaijani public, now that the country finds itself caught in an economic deluge, it seems that ordinary citizens are left without much protection from the elements.

Many ordinary Azerbaijanis are already struggling to make ends meet, and it seems likely that conditions keep declining over at least the near-term, Samir Aliyev suggested. “We can say that the people will pay for the Fund’s loss” of revenue as the economy slows, he said.

Prices for food, mostly imported, already are soaring, prompting President Aliyev to call for measures against “artificial prices.”

In the southern region of Neftchala, one maintenance worker, allegedly unable to meet his loan payments, set himself on fire on January 7, RFE/RL reported.

In downtown Baku, Habil Huseynov, a cab driver with rising diesel costs and fewer riders, is skeptical that the Oil Fund can serve as a lifeline.

“I don’t know actually how the Oil Fund operates and where its benefits go, but I’ve never felt its effect in our lives,” Huseynov said. “[W]e can see the role of oil in the infrastructure of the city, but not in social welfare.”

Editor's note: Durna Safarova is a freelance reporter who covers Azerbaijan.

[londontsi]

Re: Energy in Azerbaijan

... but hey, Formula 1 is coming to Azerbaijan in 2016

When the Titanic was sinking the captain ordered “Keep the band playing” !!!!!!

.

[londontsi]

Re: Energy in Azerbaijan

Imposing price ceilings can cause shortages.

Not if they stop eating !!!

.

[HyeSocialist]

Re: Energy in Azerbaijan

UPDATE 1-Azeri oil fund SOFAZ sells $200 mln on FX market
(Adds details, background)

By Nailia Bagirova

Jan 13 The Azeri state oil fund SOFAZ said on Wednesday it had sold $200 million on the forex market, a move to support the country's weakening national currency.

"The Azeri oil fund has started selling foreign currency again this year. The first auction took place today. $200 million was sold and bought by 32 banks," SOFAZ said in a statement.

The $34 billion SOFAZ sovereign wealth oil fund holds proceeds from oil contracts, oil and gas sales, transit fees and other revenue. It uses income from investments to pay for social spending and infrastructure projects.

Baku withdrew support for its currency, the manat, on Dec. 21, triggering losses of 33 percent against the dollar. It had burned through more than half its foreign currency reserves trying to defend it against the effect of falling oil prices.

On Jan. 8, the central bank widened the exchange rate corridor within which banks can buy and sell the manat, to 4 percent either side of its official rate from 2 percent.

On Wednesday, the central bank set an exchange rate of 1.5706 manats per U.S. dollar, which will stay in place until Jan. 15. (Writing by Margarita Antidze; Editing by Jack Stubbs and Katharine Houreld)

http://www.reuters.com/article/azerbaiajan-sofaz-currency-idUSL8N14X3SZ20160113

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They still have $34bln in the bank. Important things to note so far is that they are running a budgetary deficit, their largest projects are the gas fields and the railways (both which use dollars to fund of which the railway has already lost its rating credibility), and that it seems their central bank is still not letting the manat slip out of a certain threshold. There are reports of banks in Azerbaijan being given 90 days by S&P and Moodys to prove that the state is going to bail their monkey a$$s out. Won't happen. The question is what are they going to spend the remaining treasure chest on?

[HyeSocialist]

Re: Energy in Azerbaijan

By Anvar Mammadov – Trend:

Standard & Poor's Ratings Services has withdrawn its 'BB-' long-term corporate credit rating on state-owned railway operator Azerbaijan Railways CJSC (ADY) at the issuer's request, said the message of the rating agency Jan.5.

“We had placed the rating on CreditWatch with negative implications on Dec. 11, 2015,” said the message. “At the time of the withdrawal, the rating remained on CreditWatch with negative implications; there was no change to the rating prior to today's withdrawal, owing to insufficient information.”

This rating reflected the fact that the ADY was three business days late on a payment on one of its commercial loans in November 2015 due to a delay in approval of another loan by the Azerbaijani ministry of finance, aimed at covering its liquidity gap.

S&P expected to resolve the CreditWatch within the next 90 days, during which time the agency expected to gain a clearer view of the government's administrative capacity to provide support to ADY following its expected transfer to the Azerbaijani cabinet of ministers. S&P also had to analyze the company's new strategy, financial policy, and liquidity position.

Last year, the agency had already suspended the monitoring over the rating of the CJSC due to the lack of information on financial and operational indexes of the company, but then restored long-term credit rating at "BB +", outlook "negative."

http://en.trend.az/azerbaijan/business/2476992.html

[HyeSocialist]

Re: Energy in Azerbaijan

Baku, Azerbaijan, Jan. 12

By Anvar Mammadov – Trend:

Standard & Poor's Ratings Services placed its 'BBB-' long-term and 'A-3' short-term corporate credit ratings on vertically integrated Azerbaijan-based electricity utility Azerenerji JSC on CreditWatch with negative implications, Standard & Poor's said Jan. 12.

On Dec. 21, Azerbaijan removed its currency peg. S&P notes that about 81 percent of Azerenerji's debt is exposed to foreign exchange risk.

In S&P view, Azerenerji benefits from an almost certain likelihood that Azerbaijan would provide timely and sufficient extraordinary support to Azerenerji in the event of financial distress.

S&P does not expect the government to increase Azerenerji's tariffs, given its previous reluctance to do so due to social concerns, but S&P assumes the state might provide support by other means, such as paying Azerenerji's debt.

S&P base case for 2015-2016 assumes:

• A 4%-5% increase in revenues on the back of power volume growth;
• Annual capital expenditures of about 100 million-120 million manat

Based on these assumptions, S&P expects the following credit measures:

• EBITDA of 220 million-240 million manat;
• Funds from operations (FFO) of about 150 million-170 million manat;

The negative CreditWatch placement reflects that S&P could lower the ratings if the agency reassesses the likelihood of extraordinary financial state support for Azerenerji.

S&P expects to resolve the CreditWatch within the next 90 days, during which time the agency expects to gain a clearer view of the government's intentions and administrative capacity to provide support to Azerenerji.

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Basically, in order for the Azeris not to have a somewhat similar situation to the electrical price hikes in Armenia this year, they're going to have to spend $200mln Manat on this alone AND raise rates on consumers already suffering from a 50% decrease in wealth. Armenia should take note of this and try to solve its energy problem as well.