2017 May 09 ( Tuesday ) 13:22:01
- SOME EVENTS OF APREL
- MONTH"S FOCUS
- FINANCIAL SYSTEM
- FUEL AND ENERGY SECTOR
- POLITICAL BACKGROUND
02 - President of Kazakhstan NursultanNazarbayev arrived in Baku on an official visit
04 - Russian Committee on Statistics transferred to the Ministry of Economic Development of Russia
05 - The decree on stimulation of manufacture of sugar beet
06 - An agro-park with a total cost of AZN 14 million is being created in the Shabran district on the territory of 1,738 hectares
- European Court of Human Rights announced three decisions on 11 cases from Azerbaijan
07 - Amendments to the Law on Banks
08 - A delegation of SOCAR headed by RovnagAbdullayev visited Iran, where it met the Minister of Oil of this country BijanNamdarZanganeh
10 - The visit of the World Bank (WB) mission on railway transport to Azerbaijan started.
12 - A Coordination Meeting of Donors was held at the Ministry of Agriculture, which identified directions for financing the agricultural sector in Azerbaijan by international financial institutions.
14 - The Azerbaijani airline Silk Way Airlines and the aerospace corporation Boeing signed a contract in Baku for the purchase of ten Boeing-737 MAX passenger aircraft with a total value of about $ 1 billion.
- The State Statistics Committee reports that as of the first three months of this year, the average quarterly export price of Azerbaijani oil increased by 25% compared to the same period last year.
17 - Republican meeting of non-oil exporters under the chairmanship of IlhamAliyev was held in Yevlakh
19 - The first private credit bureau in Azerbaijan was established
20 - Within the framework of Shahin Mustafayev's visit to the UAE, the sixth meeting of the intergovernmental commission on trade-economic and technical cooperation between Azerbaijan and the United Arab Emirates was held, as well as a business forum and a number of bilateral meetings
21 - General Director of the Transport Agency of Baku VusalKerimli told APA about the need to introduce a single tariff in the sphere of taxi services
- The Parliamentary Committee on Natural Resources, Energy and Ecology recommended the MilliMajlis of Azerbaijan to approve the Risk Service Contract for the exploration and development of the block of offshore fields of Umid-Babek.
24 - In Malta, a power station and a gas terminal built with the participation of SOCAR, Siemens PV and GEM Holding were opened
27 -The President of Azerbaijan received the Minister of Energy, Industry and Natural Resources of Saudi Arabia Khalid Al Falih
28 - Foreign Ministers of Russia, Azerbaijan and Armenia met in Moscow
- President Aliyev visited the carbamide plant under construction in Sumgait
- Another presidential decree on measures to strengthen control over observance of labor relations in the construction sector of Azerbaijan was issued.
MONTH"S FOCUS Against the background of political uncertainty in the world, the economic situation seems to be more advantageous. The cycle of decline is replaced, finally, by a cycle of growth. In some large countries, growth was even greater than expected. However, local uncertainty persists. Once the stock markets freeze in anticipation of a collapse, then once again the rally of oil prices down begins. For the latter, there is no need even for special efforts. If oil prices drop by 10% in four days, then there must be serious grounds for this. Most of all, the influence of the American producers of shale oil, which enter the market, as soon as the price goes to the range of 55-60 dollars per barrel, is noticed here. But this time, Russia's evasive statements about its participation in the OPEC initiative to extend the OPEC/NOPEC production reduction regime also played an exceptional role.
Living with expectations for oil prices is becoming uncomfortable and many economists realize this. Hence, there is a sober proposal to the extracting countries to initially forecast prices of 25 dollars in the budget. The economy is less feverish this way.
We already wrote in the last issue that the growth of the economy is constantly on the verge of a statistical error. Actually, we observed this in the first quarter, when, after growth of 0.2% and 0.4% in January and February, the economy again went down, and the decline in three months was 0.9% in the annual cut. To bring the economy to growth does not succeed, although it is fair to note that all economic departments are now in motion. IFIs are also restrained in assessing the growth of the economy this year. According to the estimates of the Asian Development Bank, the economic decline in Azerbaijan will be 1.1% in 2017 against a decline of 3.85% in 2016. But already in 2018, the Bank expects a growth of 1.2%, which will not be able to compensate for the decline of 2016-17. The IMF also shares similar assessments, calling the main factors supporting the recession, i.e. the decline in oil prices, the decline in the construction sector and the vulnerability of the financial system.
The authorities still have enough resources to consider the Azerbaijani economy stable. Unlike Russia, Azerbaijan was able to save an appreciable part of the country's Oil Fund. The investment portfolio of the Fund at the beginning of April was $ 33.199 billion. This year, for the first time, investments in the economy began to grow - for the first quarter by 3%. Growth of the economy is not yet observed, but there are high expectations for the growth of transit through the country - here the boom even outstrips real income. To a certain extent, the rate on tourism justifies itself. Agriculture does not come out of the government's field of vision. For the development of cotton growing, almost everything has been done, and we will see how this year will turn out. But at a recent meeting in Yevlakh on the development of the non-oil sector, the President called for a large-scale development of grain production. Stressing the complexity of the problem, President Aliyev emphasized the problem of import substitution - the country annually spends $ 300 million on wheat imports. Next year several large industrial enterprises of export orientation in new industrial parks should be commissioned, and they will also add something to growth. The government is trying to revive the construction sector, where decline at 10% is expected this year. A deep crisis in this area is also indicated by the fact that cement production fell by almost two and a half times (in 2013-14 it was 5.3 million tons), but as there is a noticeable recession in the labor market, the government seeks at least to support jobs in this labor-intensive sector (see Application).
In all likelihood, it will be possible to maintain a balance of payments, especially because the government has been pursuing a tough line to reduce imports since last year. In the first quarter, exports increased by 49.2% (to $ 2.6 billion), while imports decreased by 17.1% (to $ 1 billion). As another positive fact, it is worth noting a significant increase in exports of fruits and vegetables by 73%, with a decrease in their imports by 17%.
Today we can talk about attempts to bring the entire economic bloc into equilibrium. The Center for Analysis of Economic Reforms and Communications held a regular discussion on ways to achieve the goals set in the strategic maps for the development of the national economy and its key industries. Economists urge to move from restriction to optimization of the monetary circulation in the country, insisting on the need for a balance between the liberalization of foreign trade and the protection of the domestic market. The Central Bank is allocated 7.5 billion manats from the Oil Fund this year. Uncertainty about the purpose of these funds generates the most unexpected proposals, for example, to send a part of these funds to AsanKhidmet to support small and medium-sized businesses. For this, it is proposed to create the Asan Credit service as an agent of the Central Bank. One can hardly believe that such a proposal will be heard, but who knows? The real lack of funds to maintain business prompted the Ministry of Labor and Social Protection to return to the idea of reducing these deductions for business (for example, up to 18%) with a parallel increase in the work load (by 7-8%). The Ministry of Labor and Social Protection probably thought the limited increase in the retirement age was not enough, and now it has decided to play on the topic of business support. However, it's a little funny when AsanKhidmet is instructed to conduct video monitoring of construction companies attracting illegal labor force, although this should have been done by the Ministry of Labor and Social Protection for a long time. It even knows how much money it would be possible to attract from illegal workers - 2.7 billion manats.
Strangely enough, with a certain persistence of the authorities, apparently, they are even ready to use the services of the civil sector. The agency Turan won a suit against Azersu in the Court of Appeal. Azersu refused to answer the last question of the agency, set in its appeal, about the cost of the estimate of works when installing water meters. But in order to reach this result, the agency had to go through 9 trials. Pleasantly surprising was the election of AkramHasanov as the Chairman of Bank Standard's creditors committee. But, apparently, the situation is so difficult that a persistent and uncompromising person is required. And, indeed, he immediately requested full information not only on the situation in the Bank, but also on CBA's inspections of the Bank"s activities in the past 10 years and throughout the situation in the Bank.
The revival in government offices is already evident. The activity of the bureaucracy is already just off scale. But there is a feeling that behind all this there is a non-stop process of distribution of power and property. The system maintains inertia. The initial shock from giant thefts in IBA or from the trials of high-ranking officials of MNS and the Ministry of Communications is already dulled. It is increasingly obvious that all these are the defects of the system, and not of individual people. And it is here that change is needed.
Meanwhile, the main problem is the situation in the banking system. Formally, everything is in order here (this can be easily verified by looking at the data in the Appendix). Moreover, the net profit of banks in the first quarter was about 124 million manats. And, nevertheless, there is a sharp slowdown in lending, excluding, of course, several major projects. The banking system is incredibly difficult to get out of this stupor, because it is now generally occupied with the problem of survival. And only now it turns out how many negatives have accumulated inside the banking system. One can only regret that in its time the Bank of Development did not appear in Azerbaijan, which, incidentally, was hampered by the very IBA for a long time, when it was in force. Since the beginning of this decade, there have been talks about the establishment of a full-fledged Agrarian Bank on the basis of Agrarkredit. How required it would have been at the current policy of agricultural sector development! Today the government takes great efforts to stimulate exports, but Eximbank giving guarantees for investments, which are so necessary in Azerbaijan, still has not appeared. It would seem that now it is not the right time to create new banks, but it would be worthwhile listening to these suggestions of the country's obvious well-wishers.
FINANCIAL SYSTEM Let's start, perhaps, with inflation, because it is it that motivates the activity of the Central Bank of the country today. Inflationary targeting is the declared goal of the CBA. And in connection with high inflation, the rest of the task of the central bank, including support for economic growth, is left in the background.
The statistics here are still disappointing. In Azerbaijan for the first quarter of this year, the inflation rate reached 13.2% compared to the same period last year. During this period, food products went up by 17%, non-food products - by 12.6%, and the cost of paid services rendered to the population increased by 8.6%. Last March, consumer prices and service tariffs rose by 1.6% compared to February, and by 2.3% compared to January.
The increase in prices in the consumption basket can be found in the review of markets by Turan IA. We only note that the largest increase in prices was recorded for products that are not produced in the country or, if produced, they are tightly tied to exports: tobacco products, tea, coffee, and other products. And among non-food products the entire line of household appliances, computers, tablets, laptops, etc., has grown by more than a third.
Factors that spurred the inflation rate in the country are numerous: weakening of the national currency, increase of customs duties on imports of both food and non-food groups. Despite serious changes at customs, the independent economist AzerMehtiyev believes the monopoly on certain groups of goods is still in force. Monopolists and oligarchs dictate prices in construction, services, processing, industry, etc. The so-called administrative corruption has decreased, but hardly disappeared.
Prices for domestic food also went up. Producers explain this with high tariffs for electricity, raw materials and ingredients purchased abroad, and transportation costs.
The increase covered most manufacturing areas. In the extractive industry, the prices grew by 83.3%, in the processing industry by 38.3%, in the production, distribution and supply of electricity, gas, and steam - by 58.1%. Only in March there was a slight decrease in production prices for industrial goods - by 6.3%.
In these conditions, the only thing that can be done by the CBA to prevent a surge in inflation is uninterrupted reduction of manats in circulation and keeping a high refinancing rate. It is interesting that the CBA, contrary to custom, badly follows the experience of the Russian central bank, which consistently reduced the refinancing rate, but at the same time was able to reduce inflation to 4%.
Some Russian economists believe that this is also a lot. Today, in developing countries, average inflation is 2.58%. And in developed countries it is 2.14%. That is, throughout the world, inflation is considered to be normal from 2 to 3%. There is a certain consensus that inflation below 1% hinders growth. And high inflation, above 3%, destroys the accumulated wealth. We know countries that cannot get out of the deflationary spiral (once we also approached this level), but in any case, low inflation is better than high. They say that this is better for investment. But is the low inflation enough for business to let investment come to the country? An investor can come to the country even with high inflation, if the inflation rate is more or less stable. But he will never come to the country, if he is not sure that it can provide full protection of his property rights. And behind this, in turn, arises the image of an independent court.
Recall that in the budget for 2017, inflation is planned at 7.3%. According to analysts, the chances of inflation to keep within the annual forecast of 7.3% so far remain, but directly depend on the agricultural sector, competent actions of the CBA and antitrust struggle of the state. ADB predicts that inflation in Azerbaijan in 2017 will grow by 9%. And only in 2018 it will drop to 8%.
The Financial Stability Board is very opportunistic and believes that business in the economy is improving. The April report of the Council says the inflation trend has been reduced, the national currency has been strengthened, economic growth has recovered, and progress has been made in the balance of payments and the growth of strategic foreign exchange reserves. As positive, the effect on the currency market and the CBA's exchange rate on sterilization of the money supply are noted. The leveling of the impact of the debt problem on the domestic foreign exchange market and the rate, as well as the beginning of the dedollarization of the economy is noted.
The CBA evaluated the results of the first quarter and said the national currency remains on the strengthening trend, inflation began to decline, and a real-sector survey showed a decrease in inflation expectations. Nevertheless, the CBA believes that the current situation does not allow increasing the money supply. "As a result, the discount rate remained at the level of 15%, and the percentage corridor remained in the range of 12-18%.
The expected sharp decline in the rate of manat in the first quarter did not happen. The CBA announced a flexible manat rate from the very beginning of the year and found a good unscheduled backup in the person of the Oil Fund, which will send seven and half million manat to the CBA this year. As economists estimated, 1.4 billion of these funds were used to replenish the currency reserves of the CBA (by $ 500 million). The purpose of the remainder so far is unknown.
But the market heard the signal. And besides this, the CBA has so tightened the money supply that the manat cannot be cheap by definition with such a squeeze. The analytic group Report, however, believes that in summer the manat rate may drop to 1.6 manat.
Stagnant phenomena in the economy are, to a large extent, the result of the fact that the country's banking system finds a hard way out of the crisis situation. The past month was unusually rich in events in this area. This is a series of new amendments to the laws on banks, the revival of currency exchange offices, the beginning of bank mergers, and the creation of the country's first private credit bureau.
In early April, the parliament adopted amendments to the law on banks, according to which in Azerbaijan there will be temporary bridge banks, which we wrote about in the last issue. Lawyers doubted about the legal competence of FIMSA to create such structures, but now it has taken the form of law. On the one hand, there are doubts that such "commodity-like" banks will be easily sold to outside investors.
The law On Currency Regulation will be amended, and the relevant draft law is ready. The Central Bank will restore the right of intervention to the currency market to ensure the stability of the manat and will again establish a margin between the rate of sale and purchase, as well as the upper limit of the exchange rate. But the license for currency exchange activities will be issued by the Financial Market Supervisory Authority (FIMSA) and the locations for the functioning of the exchange points will be coordinated with FIMSA. Some banking analysts are suggesting that FIMSA lobbied this decision to have additional (except bank contributions) earnings, so necessary with its current legal status.
Finally, the first private credit bureau was created and this is a boon that it arose with the participation of the foreign financial structure. The existing credit register of CBA covers credit histories of about a third of the bank's borrowers. This decision is important, first of all, for borrowers from small and medium-sized businesses, usually the most deprived of loans. It is no coincidence that Pasha Bank, which is among the clear leaders of the banking system, announced that it also intends to participate in the credit bureau. For SMEs, it is very important that the law on pledge of movable property has already been practically adopted. For them, this is a new opportunity for access to credit.
FIMSA is very aggressive today. It turned out, in particular, that it did not abandon the idea of consolidating banks and in April a decision on such consolidation was approved. Caspian Development Bank announced that it was entering Ata Bank, which, according to the management of the bank, is the seventh bank of Azerbaijan in terms of assets, deposits and loans (500 million, 300 million and 400 million manat, respectively). The consolidation process will take three months and consulting services will be provided by PwC.
But Ata Bank itself has not been part of Ata Holding for long and the majority of its shares are owned by Synergy Group LLC. The same group has been the owner of Caspian Development Bank for several years. So the merger of banks actually takes place within the framework of one holding structure. There are interesting points in this merger process. First, in fact, the economic group optimizes the work of its banking unit. Secondly, Ata Bank is not in a better, and maybe even in a worse condition than Caspian Development Bank
The bank lawyer AkperHasanov, head of Anti-collector LLC, has repeatedly expressed doubts that the Deposit Insurance Fund can be the sole liquidator of the failed banks and, moreover, solely manage the process of returning money to the creditors of banks. His proposal was that credit committees be set up at banks to ensure that this process was transparent and open, and no creditor, including the Deposit Insurance Fund, had a preferential right to return the invested funds.
These fears had their own logic. When the creditor feels that he can lose his funds in the bank, he is ready to pay anyone to return at least a part of them. If the process is uncontrollable, there is always the possibility of a cheap sale of bank deposits so that they can be bought by "the right people". The questions are not easy. In any case, the fact is that Agrarkredit keeps complete silence about whom and how the assets of the major debtors of IBA, which are transferred to this structure, are sold.
At the end of April, FIMSA announced that such a credit committee for Bank Standard had nevertheless been initially provided and on April 28 its first meeting was held. Credit committees were created in two more closed banks - Ganja Bank and Atra Bank. The Azerbaijani Deposit Insurance Fund (ADIF) really has a large debt of 700 million manat, as ADIF Executive Director Azad Javadov said at the first meeting of the crediting team of the Standard Bank. More than 400 million of these funds have been returned to the depositors of Bank Standard.
According to him, it is very difficult to receive these funds from closed banks: "The property of all banks is pledged. Several banks have a bad loan portfolio of 80-90%. The Fund is interested in repaying the money not less than the creditors of Bank Standard itself." This is understandable, since ADIF borrowed money from the state. And the indices that it leads are truly depressing. From the loan portfolio of Bank Standard in the amount of 747.4 million manat as of April 1, 2017, 707 million manats is classified as non-performing loans (NPL). At the same time, only 271.2 million manats from NPL has collateral, and 442.2 million manats is not secured. And from assets of the bank for AZN 46 million assets for AZN 31 million are in pledge with the Central Bank. In other words, most of the loans have been simply distributed.
At this meeting, it was not possible to choose the chairman of the Creditors' Committee. However, at the next meeting, a week later the chairman of this committee was elected independent bank lawyer AkramHasanov, one of the most radical critics of the country's banking system. Earlier, he stated that such a large amount of unsecured loans was the result of the direct connivance of CBA - and it must repay this amount. He does not exclude even the possibility of criminal cases against bank employees who issued these unsecured loans. He admitted that the situation in the bank is so bad that it will be a problem even to return the funds allocated for the insured deposits. But first of all he strongly asked to provide full transparency on the situation with the bank itself. At the moment, 24,026 individuals and legal entities have liabilities to the bank.
In any case, the image of a banker being an advanced businessman or a manager and financier knowing foreign languages, and sometimes even mathematics, and trusted by the customers has grown pretty dull today. Borrowers of many banks had no idea that their funds are lent to the near-range of banking management, and at low interest rates. Quite often these loans did not return at all, which eventually became the cause of the collapse of the bank. So at the time of the crisis, the most important thing was to withdraw as much money from the bank as possible, not really considering if the capital is your own or not. This explains why many banks that are on the verge of closure (and today there are at least five of them) are making their last efforts, dragging out the procedure of bankruptcy, as they expect to leave the game with the maximum benefit for themselves.
It is clear that all these processes reflect the general entrepreneurial landscape in the country. But the role of CBA in these processes was enormous, primarily in terms of lack of control and personal macroeconomic games with banks. Sometimes it makes sense to call things right. What are today's CBA deposit auctions? Yes, this is sterilization of AZN money supply and CBA has already collected 6 billion of these liabilities to banks. As a result, banks completely lost interest in lending. And why should they, if the Central Bank itself offered a place where banks can put their funds under a guaranteed 14-15%. And this game will continue as long as the yield on deposits is high. We will see the first signal about the changes in the credit policy when the refinancing rate drops from the current 15%. It does not look like it will happen soon.
Already when the first figures were announced on the financial "black holes" in IBA, it was clear that this is a story for a long time and it will be repeated for many banks. If this is possible in the country's largest bank (and banks always know what's in the other bank), why not try it for us? And in a purely financial sense, the echo of this story will be rolling for a long time. And there was Tekhnika Bank that pulled IBA after itself, and there were machinations around the Bank of Azerbaijan. The collapse will not happen, but the banking system will be shaking for a long time.
An independent economist GuluIbrahimli called sharp decline in the rate of AZN in early February, and then his rapid increase in the same month "exchange rate regime with IBA syndrome." He believes that between the devaluation of the manat in February 2015 and the "problem" of IBA there is a direct link. According to the expert, during two weeks of a sharp decline and appreciation of the national currency, "another issue of IBA problem loans was transferred to NBCO Agrarkredit." "On February 2, the toxic assets of the bank in foreign currency were assessed at a high dollar rate (1.9200 AZN / USD), so that CBA transferred more funds to IBA in manat terms. On February 15-16 at the rate of 1.7296 AZN / USD, the State Oil Fund made a currency transfer to CBA, which was paid to IBA. The rise in price of the manat is caused by the fact that the bank should receive more dollars."
FUEL AND ENERGY SECTOR Of course, the external expansion of SOCAR will be successful if trade is successful along the whole route of the gas pipeline, enterprises are built, and new companies are created. In the first country along this route, Georgia, SOCAR"s assets are almost fully exploited. This year, Georgia will continue to receive ten percent of gas from the volume of Russian transit to Armenia. But already next year it will receive payment from Gazprom in cash and will completely transfer to purchase of Azerbaijani gas. Many observers estimate this as a small but net gain of Azerbaijan as an exporter.
The most successful projects are in Turkey. By the end of the decade, the total amount of investment in Turkey will be about $ 20 billion. Petkim Holding itself, the main share of which belongs to the State Oil Company of Azerbaijan (SOCAR), is in constant development. The terminal in Izmir is ready and the construction of the refinery Star is nearing the completion. But SOCAR does not refuse any new opportunity to earn additional funds. In June, the Petkim peninsula (Izmir, Turkey) will complete the construction of a wind station, which is being built by Petkim Holding. According to Bilal Guliyev, deputy general director of the holding, 14 out of 17 turbines with 3 MW of electricity have already been completed at the station. Even the sale of electricity in the amount of 20.5 MW began. The fact is noteworthy if we recall that SOCAR is not seen in anything like that inside Azerbaijan, and the Agency for Alternative Energy is not audible or visible at all.
It is also planned to create enterprises for the production of aromatic hydrocarbons and purified terephthalic acid (PTA) in the Petkim petrochemical complex. It is known, in the presence of such raw materials, it is possible to produce better plastic products. And here again it is suggestible to "return to Azerbaijan". SOCAR Polymer in Sumgait will produce products that have export markets in advance: one half will go to Turkey, the other - to Europe. But economists believe that it would be more rational to build an enterprise in Sumgait that could take advantage of the products of this large enterprise in order to reach a higher level of processing of petrochemical semi-raw materials.
Strictly speaking, in the case of Petkim, we are dealing with a multiplicative effect, when the once correct economic solution is being pursued in new and new projects.
Sometimes it may seem that the events on the external projects of SOCAR are even greater than inside the country. Perhaps it seems so, because SOCAR is now more willing to join consortiums with other companies to implement external projects. In April, in particular, a power plant was opened in Malta, which was built with the participation of SOCAR, Siemens and GEM Holding. As part of the consortium CI-GNL, SOCAR obtained the right to build in Cote d'Ivoire and manage the regasification terminal of LNG with a capacity of 3 million tons per year. The share of SOCAR in this project will be 26%. The operator of the project will be Total with a share of 34%. The project will start in late 2017 and after half a year the terminal is planned to be put into operation. In the framework of this project, SOCAR Trading will sell liquefied gas of the state-owned company SI-Energy in Cote d'Ivoire, which will then sell it to other countries.
SOCAR Trading plans to build an LNG terminal and a power station in the Pakistani port of Gwadar. Both Pakistan and Côte d'Ivoire are ready to buy LNG on the back of growing gas consumption and low gas production in these countries. So, observing the accelerated development of this segment, SOCAR Trading is developing activities in the field of regasification of liquefied gas.
Relative stability of oil prices only supports this process: there is extra money that can speed up such projects. It is extremely important for the government to maintain, at least, the current price level.
This, in turn, is highly dependent on the June meeting of the OPEC countries and the NOPEC countries joining it. CityGroup believes that even a price increase of $ 10 is possible, if these countries agree to extend the production reduction regime. The same opinion is shared by analysts of JP Morgan. But in the event of a breakdown of the agreement, prices may again return to $ 40 per barrel.
More optimistic is the well-known company McKinsey, which predicts that in the next three years oil prices will remain within 60-70 dollars per barrel. But even here the forecast is based on the expectations of the OPEC countries' negotiability. And by the thirtieth year, they believe in McKinsey, prices will go to the range of 65-75 dollars per barrel. The most important thing here is to catch trends that pull prices up or down. In the analytical division of McKinsey they believe that the US will actively grow the production of shale oil, while production in wells that are exploited even before the application of the fracturing method, will decline due to lack of investment. By the way, the announcement of the International Energy Agency was almost a sensation, that in 2016 only 2.4 billion barrels of new oil reserves were recorded. In this regard, the following analysis of the analysts of McKinsey seems particularly interesting: by 2030, oil companies should increase crude oil production by 35 million barrels a day to meet demand; this will require in the next five years investment of around 1.6 trillion USD in new projects in the aggregate. But so far there is no question: commercial oil reserves in the world are great. And yet many long-term factors are influenced by many factors: world GDP, the value of the dollar, energy efficiency, cost cutting, the growth of alternative energy, and investment in the industry.
But one trend - the optimization of costs in the industry - has become noticeable in Azerbaijan. Recently Denis Lemarchal, Director General and Chief Representative of Total in Azerbaijan, said that in the development of the Phase I of the Absheron gas condensate field in September this year, there is no plan to build a platform on the contract area. The well will be drilled at a depth of 450 meters and will be connected to the existing facility at the field of NeftDashlari (Oil Rocks) managed by SOCAR.
"This means that there will be one well in the contract area, one infrastructure in the direction of NeftDashlari. That is, it will simply be connected to the existing facilities at NeftDashlari. Absheron has no need for a floating production system or for installing a stationary platform in shallow water near the field (as in the development of Shah Deniz-1 - Ed.), since the structures of NeftDashlari are located only 30 kilometers from the well," said Lemarchal.
Against the backdrop of this economic rationalization, the costs of the first floating semisubmersible drilling rig (SSDR) of the 6th generation, the construction of which just ended in Baku, may seem enormous. But this is not so - and this is an event.
The customer of the construction was LLC Azerbaijan Rigs, established by the State Oil Company of Azerbaijan (10% of the share) and the State Oil Fund of Azerbaijan (SOFAZ - 90%) to fulfill the financial obligations of the state. Financing of the project all these years was carried out at the expense of the Oil Fund, which since 2013 has allocated $ 859.7 million for this project.
The Singapore contractor Keppel Fels has designed a floating drilling rig according to the DSS38M model. This SSDR will be able to conduct drilling operations at a depth of the sea of 1,000 meters and drill wells with a record depth of 12 thousand meters. So there is a case for such an installation, and this fall, the new SSDR will drill an exploration well at the Absheron field.
It is also curious that the principle of saving and optimizing expenditures was introduced at the construction of the bitumen plant at the Baku Oil Refinery named after H. Aliyev. There is already the third phase of the implementation of the EPC agreement signed with the company Poerner (Austria) last year. The works on detailed design and procurement of the main equipment for this installation have been completed and the construction of the installation is commencing, which will be put into operation in the II-III quarter of 2018. In the detailed design of the project, the Amec-Foster Wheeler / SOCAR-Foster Wheeler alliance participated, and contractors are selected for new and planned for reconstruction. 12-15 new installations will be built.
The adviser to SOCAR Vice President T. Aliyev said the issue of reducing the capital costs for reconstruction and modernization is being considered, first of all, with the installation of primary oil refining which depends on the planned volumes of processing (the initial processing capacity is planned at 7.5 million tons per year. Also a curious statement was made that the exact amount of expenditure is unknown, although EPC contracts require a fixed contract value.
The problem is that two years ago the state agreed to allocate an IBA loan of 1.3 billion manat for this project. But the equipment was purchased abroad, and its value was calculated in dollars. And then the devaluation broke out and now efforts are being made to reduce the cost of the project.
The representative of SOCAR especially stressed that it is impossible to stop a single oil refinery in the country for a long time and stop of the plant for repairs will be reduced to 40-45 days, so as not to stop the production of gasoline and diesel fuel for a long time. Full completion of work is planned for 2020.
T. Aliyev also recalled that the same EPC contract was concluded for reconstruction at Azerkimya with the company Technip (Italy) in November last year. Works on the reconstruction of this enterprise will also be completed in 2020.
Another important event of April: the Parliamentary Committee for Natural Resources, Energy and the Environment recommended the National Assembly of Azerbaijan to ratify the Risk Service Contract (RSC) for the exploration and development of the block of offshore fields of Umid-Babek in the Caspian, most likely based on a new impulse for the country's gas production. And here, together, we talk about potential 600 billion cubic meters of gas, not to mention gas condensate.
It is obvious that the government place bets on petrochemical industry. And there is need for a rush here - there will be more and more demand for gas for the domestic consumption. The Carbamide plant in Sumgait alone which President Aliyev visited at the end of April will require annually half a billion cum of gas. And in addition to that there as the Methanol Factory, the Socar Polymer and other enterprises that need gas. There was even an information in Russian media that SOCAR is planning to purchase annually 5 billion cum of gas from ``Gazprom``. However, SOCAR Polymer`s President denied this information.
INFRASTRUCTURE Infrastructure development was a reflection of the active aspiration of the Azerbaijani economy to go beyond its geographical limits and effectively use the country's transit capacities. Activity here was observed everywhere and in the most various directions.
In April, negotiations continued with the Baltic countries, for which it is very tempting to have shorter transport links with the distant Indian market. Moreover, Russia is becoming unpredictable as well. In the end, let's not forget that dramatic Ukrainian events began precisely with the fact that Russia decided to choose a roundabout way for gas transit, bypassing Ukraine. In parallel, the issue of joint work of the European and Eurasian sections of TRACECA is discussed. Such discussions were also held in April, and this issue will be discussed in more detail at the May meeting of TRACECA national secretaries in Bucharest. Negotiations continued on the railways of Uzbekistan and Azerbaijan: even products that can be exported through Azerbaijan have already been identified.
The Silk Road and its opportunities were one of the main subjects of discussion during the official visit of the President of Kazakhstan NursultanNazarbayev to Azerbaijan. Much was discussed, but from the point of view of infrastructure development it is very important that both sides agreed to jointly invest $500 million in the Silk Road project and add another 500 million by 2020. It is also significant that right after the visit to Baku, President Nazarbayev visited the terminal in Aktau, built by Azersun Holding.
Ukraine also seems to have got used to the idea that the roads through Russia for it are largely blocked and it is necessary to look for other transport exits. This included the April discussions in Odessa between the management of the Odessa port and the Azerbaijan Shipping Company
After the abolition of the autonomous Transport Ministry, it became especially clear that the Azerbajan Railway takes on the role of a key player in multimodal transportation across the country. And the newly created companies are no longer waiting for the full completion of transport projects, and already today they are striving for profit. In March-April, AzRusTrans for the first time started deliveries of Russian products through Azerbaijan to Georgia. This is 14 thousand tons of grain, sent to Georgia at the request of two foreign companies with offices in Russia - Bunge and Glencore International.
A joint company with Russia, AzRusTrans (51% - the share of the State Railways, 49% -Rosagrotrans) was created only at the end of 2016, and it begins to function at a very serious level of assets. According to the director of AzRusTransJavidGuliyev, the new company has a fleet of 57 thousand freight cars, and also intends to purchase 500 cars for multimodal transportation. The actual sight of the new company is the emerging transport corridor North-South. But the company also has big plans for export of Russian grain to Turkey via the Baku-Tbilisi-Kars railway.
The head of the company especially stressed that all this became possible due to the optimization of transit tariffs in Azerbaijan. Moreover, the company has already begun the accelerated construction of a grain terminal on the border between Azerbaijan and Iran: its completion is planned for the end of this year. Already it is obvious that the demand for the services of this terminal will be high: the capacity of transshipment through it will be 30-60 thousand tons. "The work on the terminal depends not only on the Azerbaijani side, negotiations between the leadership of the railways of Azerbaijan and Iran are expected in the near future to speed up the construction and create a free trade zone on its territory," Guliyev said.
The issues of infrastructure development include not only the creation of a material infrastructure, but also a consistent improvement in the management infrastructure. So, in the light of the abolition of the Ministry of Transport, to some extent unattended was such an important object as the new International Seaport: the President's decision passed it to the Ministry of Economics.
National Entrepreneurship Development Fund does not quite cope with its duties. Although the audit of the company was successful enough, this does not mean that this is an effective structure aimed at a strategic solution to the problems of small and medium business. Apparently, the uncertainty of the mandate of this structure led to the fact that, in the long run, it more served the interests of big business.
That is why, apparently, serious discussion begins on the creation of a Centralized Agency for Small and Medium-sized Entrepreneurship. VusalGasimov, Executive Director of the Center for Analysis of Economic Reforms and Communications, said that at present time the experience of other countries (Poland, Germany, etc.) is being studied in this direction in order to choose the model that the future agency will work on.
As soon as there is competition, a structure necessarily arises that is convenient or beneficial to reduce the level of competition. The General Director of the Baku Transport Agency VusalKarimli said in April about the need to introduce a single tariff in the sphere of taxi services. Moreover, he said that a relevant appeal has already been made to the Cabinet of Ministers of the country. At the same time, there is no explanation what caused this need, or at least what it would give in the sense of tax revenues to the budget. There are about three dozen companies competing in taxi services in the country, so the contrast between the fares is impressive. And this is due to the optimization of the costs of these companies. This is best seen by the appearance in the country of the company Uber or on the plans to introduce Yandex-taxi in Baku. The proposal for a uniform tariff for taxi services is an attempt to create a monopoly in this area, the economist NatigJafarli told Turan IA. And he is right, most of all, in the part that the Baku transport agency, which owns London taxis, starts to work at a loss and is not averse to reducing this unprofitability at the expense of consumers.
POLITICAL BACKGROUND Politics has always been difficult and not entirely sterile. But the distinction between the sign and the signed becomes striking today. The goal denoted is means quite different - and the addressee is also different. The US military attack on the Assad airport was explained as a response to the use of chemical weapons. No one had any doubts about President Trump's internal political goal: he was proving his determination to the nation. Nevertheless, some political analysts regarded this as a signal to Iran, others as an ultimatum to the North Korean dictator. Following Syria, the newest heavy bomb was dropped in Afghanistan, and then the American squadron was pulled to the shores of North Korea. And then the foreign policy sense of what was happening became clear: "if necessary, we are everywhere."
Russia and Turkey seem to act in Syria as a united front. But Turkey is bombing the position of the Kurds, and Russia bombs the anti-Assad opposition, and now both countries have to negotiate a no-flight zone. The main common goal - the fight against ISIS has gradually receded into the background, and now more often we see how different countries involved in the Syrian conflict are solving their own political tasks. And for ISIS any misunderstandings between the actors of the Syrian war are just on hand: they even try to create their own social networks.
The more complex is the situation in the world, the more problematic is the solution of the Karabakh problem. Tom De Vaal, a known expert in the Karabakh problem, believes the problem is completely unsolvable if Armenia does not release at least part of the territories. The April meeting in Moscow of three foreign ministers - Russia, Armenia and Azerbaijan - was in fact unproductive: there were not even appropriate statements. Many political scientists are convinced that the problem will remain unresolved until the political situation in Armenia is settled. Meanwhile, the fact is that in the nineties Armenia swallowed the Azerbaijani territories more than it could digest, and now it becomes a problem for all, including Armenia itself. It renamed the villages and towns in Nagorno-Karabakh to the Armenian way, but it could not colonize the occupied territories around Karabakh - the demographic crisis is already taking place in Armenia itself, and they cannot think about colonization. But they do not want to peacefully return what is certainly not theirs and will never be theirs for many reasons: the theme of the "security belt" or the same "liberated territories" is too popular. Avoiding such symbols is very dangerous for the current political establishment of Armenia, as the events of the past year showed. The most paradoxical thing is that, if Armenia gave back at least a few areas around Nagorno-Karabakh, Azerbaijan would be bound hand and foot in an attempt to restore its integrity by military operations. So Azerbaijan is put in the conditions of constant choice between a military and peaceful solution of the conflict, but the real choice is less and less.
Today Azerbaijan has many problems connected with overcoming the economic crisis. Any way out of the crisis is easier in consolidated societies. In April, government officials surprised, when, referring to the state of war with Armenia, they spoke again about the fifth column in the country, the need to curb the opposition press and make restrictions on the Internet. The Ministry of Communications even filed a suit for the blockade of Azerbaijani websites operating abroad, but so far it has lost.
Meanwhile, it seems that the very logic of economic reforms (and they are inevitable) will force the authorities to start political reforms. At a minimum, we are talking about restoring the principle of separation of powers and ensuring the rule of law. Only it can provide the necessary system of protection of property rights, which, in turn, will contribute to the inflow of investments. And attempts to maintain power through hunting for dissidents and intimidating society are generally unproductive.
MAIN ECONOMIC INDEXES
|Main macroeconomic indices||2017January-Marchmln. AZN||III- 2017 III- 2016 %||2016January-Marchmln. AZN||III -2017III - 2016 %|
|Gross Domestic Product||15 229,7||99,1||12 588,7||96,5|
|Industrial Production||10 035,4||93,2||6 991,7||99,4|
|Money incomes per capita (in AZM)||1 171,3||105,5||1 073,5||107,7|
|Turnover of Goods by Transport, comm. (in mln Tons/km.)||49,6||102,9||48,1||95,4|
|Capital Investments||3 182,3||103,0||2 876,8||65,8|
|Trade turnover||7 926,1||101,6||6 793,4||103,4|
|Services||1 915,9||98,6||1 784,6||102,4|
|Export ($ mil.)||2 315,7||130,0||1 849,5||60,4|
|Import ($ mil )||972,0||99,6||979,9||57,1|
|Average monthly salary ( from the beginning of the year, (in AZN)||499,9||105,9||472,2||106,2|
|Index of Consumer Prices||X||113,2||X||110,8|
GROSS DOMESTIC PRODUCT IN OIL AND NON-OIL SECTOR (mil.AZN)
|January-March||January-March 2017 compared to January- March 2016, the percentage|
|Gross domestic product||15229,7||11897,6||99,1|
|− oil sector||6663,4||4304,2||93,2|
|− non-oil sector||8566,3||7593,4||102,4|
* 2016 figures are determined based on final data
STRUCTURE OF GDP BY INDUSTRIES IN JANUARY-MARCH 2017, %
PRICE AND TARIFF INDEXES
|In March2017 compared with February 2017||January-Fevruary2017 compared to January-February 2016|
|Consumer price Index||101,6||113,2|
|Producer price index||93,7||174,6|
|The price index of agricultural producers||101,3||110,0|
|Transport, Postal tariffs||97,9||110,7|
KEY INDICATORS OF HOUSEHOLD INCOMES
|In January-March 2017||Compared to the previous year, in percent *)|
|Nominal income of the population, mln. AZN||11362,1||106,7|
|For each, Manat||1171,3||105,5|
|Disposable income, mln. Manat||10449,6||106,9|
|For each, Manat||1077,2||105,8|
*) In 2017, the indicators were defined on the new information.
CHANGES IN THE GROWS OF UNEMPLOYMENT, %
GROWTH OF INVESTMENTS AND GDP, %
CAPITAL INVESTMENTS BY FUNDING SOURCES (%)
|In January-March 2017, million manat||Compared with the last year (in comparable prices),%||Share of total, %|
|Including funds of enterprises and organizations||2 393,7||85,8||75,2|
|Funds of population||149,5||168,0||4,7|
|Other tools||12,8||6,0 d.||0,4|
STRUCTURE IMPORT AND EXPORT (III- 2016/III - 2017)
DYNAMICS OF PRODUCTIONIN THE MANUFACTURING INDUSTRY (in 2016 and January-March 2017,%)
|Comparedwith the previous period,%|
|Totalin manufacturing||non-oilprocessing industry|
CRUDE OIL AND NATURAL GAS PRODUCTION
|Types of products||Produced in January-March 2017||A comparison last year,%||The presence of the finished product on 01.04.2017|
|Crude oil (including condensate), tons||9 464,5||90,1||629,3|
|the marketable||9 453,2||90,1||629,3|
|Natural gas, million cubic meters||6 954,9||93,2||1 339,1|
|the marketable||4 789,4||100,9||1 339,1|
RELEASE THE MAIN PRODUCTS OF THE OIL INDUSTRY
|Types of products||Produced in January-March 2017||A comparison with the last year,%||The presence of the finished product on 01.04.2017|
|Car benzin thous. tons||306,4||109,0||40,5|
|Gasoline for use in oil and oilchemistryindustry, thous. tons||52,1||121,7||1,2|
|Kerosene, thousand thous. Tons||148,6||86,4||15,0|
|Diesel fuel, thousand thous. tons||461,1||80,6||51,2|
|Fuel oil, thous. tons||195,9||57,7||11,3|
|Lubricating oil, thous. Tons||3,7||3,7 d.||5,4|
|Bitumen, thous. tons||17,3||78,6||4,8|
|Petroleum coke, thous. tons||41,5||193.9||21,9|
|Types of products||Produced in January-March 2017||In comparisonwith the previous year,%||Inventories of finished goodson 04/01/2017|
|Electricity, million Kilowatt-hours||6 220,6||103,9||-|
SCHEDULE OF PAYMENTS OF "AZERENERGY" DEBTS, million manats
* 1534.2 million manats residual debts, which must be paid between2020-2026
DYNAMICS OF PRODUCTION OF CONSTRUCTION MATERIALS
DYNAMICS OF MONEY AGGREGATES (mil.AZN)
SHORT-TERM AND LONG-TERM CREDIT INVESTMENTS INTHE ECONOMY (January-February, billion manat)
DEPOSITSOF THE POPULATION (Januaty-February)
|March 1,2015millionmanat||Compared withlast year's period,%|
|Deposits of population - total||7101,8||87,9|
|Besides that:in national currency||1463,7||103,9|
|in foreign currency||5638,1||84,5|
ASSETS, CREDITS AND AGGREGATED CAPITAL OF BANKING SYSTEM (I quarter, mln.AZN )
RANKIGS OF BANKS ON APRIL 1, 2017 (TOP -10)
ON COMPREHENSIVE CAPITAL
|¹||Banks||Aggregate capital (Thousand manat)|
|1||PASHA Bank||430 158,00|
|2||Kapital Bank||294 148,00|
|4||Silkway Bank||112 825,00|
|5||ASB Bank||81 328,57|
|10||Bank of Baku||63 000,43|
ON AUTHORIZED CAPITAL
|¹||Banks||Authorized capital (Thousand manat)|
|1||IBAR||1 241 687,00|
|5||Nikoil Bank||184 500,00|
|8||AG Bank||102 200,00|
|9||Silkway Bank||101 545,00|
BY VOLUME OF ASSETS
|¹||Banks||Assets (Thousand manat)|
|1||PASHA Bank||3 264 320|
|2||Kapital Bank||3 132 313|
|3||Xalg Bank||1 660 070|
|5||ASB Bank||949 376|
|6||Bank Respublika||881 240|
|10||AG Bank||505 752|
BY CREDIT VOLUMES
|¹||Banks||Loan Portfolio (Thousand manat)|
|1||Xalg Bank||1 221 209,00|
|2||Kapital Bank||1 215 823,05|
|3||PASHA Bank||915 094,00|
|7||Silkway Bank||372 551,32|
|8||VTB Azerbaijan||342 650,70|
ON PROBLEM CREDITS
|¹||Banks||Problem loans (Thousand manat)|
|2||AG Bank||140 249,40|
|3||Bank of Baku||139 131,50|
|4||PASHA Bank||132 410,00|
|5||YapiKredi Bank Azerbaijan||49 551,00|
|7||Bank Respublika||34 568,00|
|9||NBC Bank||13 790,00|
|10||Bank Avrasiya||12 252,20|
BY DEPOSIT PORTFOLIO
|¹||Banks||Deposit Portfolio (Thousand manat)|
|1||PASHA Bank||2 508 558|
|2||Kapital Bank||2 106 259|
|3||Xalg Bank||1 089 051|
|4||ASB Bank||595 900|
|5||Bank Respublika||590 528|
|9||Bank of Baku||270 353|
*Data of the Report agency
TRADING VOLUME AT THE BSE (mln.AZN)
AZN RATES TO USD AND EUR
COMPARISON OFBARRELS OF CRUDE OILBRENT ANDAZERI LIGHTYEAR($)