Baku Covers Socar Losses on Regulated Market
Azerbaijan's government has decided to pick up the bill for state-owned Socar's 2016 losses incurred in supplying the regulated domestic gas market.
Finance Minister Samir Sharifov told Azerbaijan’s parliament, in a revision to the state budget, that the country's deficit is expected to be 1.175 bn manat ($690mn), representing 1.8% of GDP, so higher than originally forecast.
One of the extra government costs is a payment to Socar. That's because the officially regulated domestic sales price for gas produced by the state company in 2016 of 100 manat ($58.73)/’000 m3 turned out to be less than cost price, and the government has therefore decided to allocate manat 250mn ($146mn) from the 2017 state budget in order to cover Socar’s losses on this regulated market.
After two devaluations in 2015, the local currency’s value has fallen almost twofold. Since early 2016, the 3.5bn m3/yr bought by Socar from the Shah Deniz 1 field to cover the local market, even at a discounted price, has become loss-making once transportation and distribution costs are factored in.
So from January 1 2017, the government decided to apply differential tariffs for the local market: those using more than 1,700 m3/yr will pay 200 manat ($117.46)/’000 m3, while gas supplied to the energy industry will be charged at 120 manat/’000 m3 which is 20% higher than their previous price.
Azerbaijan’s residential sector in 2016 consumed 3.1bn m3 gas, the energy sector used 4.5bn m3, and other consumers used 2bn m3. Another 0.8bn m3 was technical losses, which include unpaid gas owed to Socar. At early 2017 there were 2mn gas consumers.
Azerbaijan Desk