2017 June 09 ( Friday ) 13:16:42
- SOME EVENTS OF MAY
- MONTH"S FOCUS
- FINANCIAL SYSTEM
- FUEL AND ENERGY SECTOR
- POLITICAL BACKGROUND
02 - State Property Committee held an open auction on sale of real estate objects in Baku and regions of the country. The auction was attended by 16 investors who purchased one object.
- A seminar on sales of marketing and consulting services for local consulting companies started in the capital.
- In the Khachmaz region, a presentation of the European Union Technical Assistance Project on the implementation of the rural development and regional development program was held.
03 - In April 2017, the currency reserves of the Central Bank increased by 186.6 million dollars or 0.04% compared to March, amounting to 4 billion 619.3 million dollars.
4 - Sumgait Chemical Industrial Park first published its annual financial report announcing the receipt of an income of 316.6 thousand manats in 2016.
- The Cabinet of Ministers approved the "Rules for the organization and conduct of electronic auctions for the purpose of selling the listed property of the taxpayer".
07- The Head of State approved the procedure for the submission of toxic (idle) assets in the framework of measures to resolve and improve the banks that have lost their solvency.
11 - In 2017, the World Bank expects the economy of Azerbaijan to decline by 1.4%, the World Bank's chief economist for Europe and Central Asia Hans Timmer said.
12 - President Ilham Aliyev signed a decree "Fundamental Directions of the Use of Funds and Investment Policy of SOFAZ."
-The Head of State received the Saudi Arabian Minister for Gulf Affairs Tamer al Sabhani.
13 - The New York court, having satisfied the appeal of the IBA, decided to protect the assets of this financial institution from the claims of foreign creditors in the United States.
- The maximum permissible limit in the structure of investments in the shares of the State Oil Fund of Azerbaijan was raised to 25%.
14-15 - Two-day summit "One Belt - One Way" is held in China.
- SOCAR signed a service agreement with HQC (a subsidiary of CNPC) and Italian Technip Italy, which provides services in the initial design of SOCAR GPC
16 - Issues of cooperation between the Caspian states in the field of transport were discussed in Ashgabat.
19- Donald Trump's first trip abroad, envisaging the participation in the summit in Riyadh, a visit to Israel, the Vatican, participation in the NATO meeting and a meeting in P-7 format
21 - The President of Azerbaijan Ilham Aliyev arrived in Saudi Arabia to participate in the Arab-Islamic-American summit.
22 - The President of Azerbaijan met a delegation led by the Minister for Foreign Affairs and International Cooperation of the United Arab Emirates Sheikh Abdullah bin Zayed Al Nahyan
-The 25th summit of the Black Sea Economic Cooperation Organization (BSEC) took place in Istanbul.
23 - In London, the IBA negotiations began with the external creditors of this bank with the participation of the Minister of Finance of Azerbaijan and the head of the Financial Market Supervision Authority (FIMSA).
24-25 - The OPEC Plus countries extended the agreement on oil production reduction.
26 - Trade House of Azerbaijan officially opened in Minsk.
30 - The conference Economic Reforms: Results and Recommendations opened in Baku.
-President Aliyev received the Minister of State for Gulf Affairs of the Ministry of Foreign Affairs of Saudi Arabia Tamir bin Subhan al-Subhani.
-The Ministry of Taxes announced the introduction of legislative norms for calculation of value added tax (VAT) on the whole value chain.
31 - 24-th International Caspian Oil & Gas 2017Exhibitionopened in Baku
MONTH"S FOCUS. At the beginning of the year, it might seem that the country's financial system is in balance and now there is just a small task to develop the real sector of the economy. There has been introduced a flexible exchange rate of the manat, outlined the amount of support of the Central Bank by the Oil Fund, and strengthened control over the balance of payments and budget. The Central Bank said recently that the country's currency market is now "not the demand market, but the supply market", and the strengthening of the manat was even declared a problem for the balance of payments (given current measures to reduce imports and support exports).
According to the results of the first quarter of this year, in the balance of current operations of Azerbaijan, for the first time after a two-year deficit, a surplus of $ 380 million arose. The CBA head Elman Rustamov is convinced that, given current oil prices and the trend of import-export operations, one can forecast a surplus and an increase in the current account. IFIs also talk about the country's balance of payments surplus by the end of the year at 0.5% of GDP.
However, the history of the IBA default on the debt, as well as the "voluntary restructuring" of the external debt of this bank, have spoiled this emerging picture, showing that everything is not so simple and the banking system does not come from the deep crisis that has been observed last two years. Half of the problems here were due to the fact that the CBA did not correct the manat rate to the dollar in time. The other fact was bacchanalia and lack of control in the banks.
The growth that could save the economic system is also likely to be postponed, although the government forecasted 1% of GDP growth in 2017. Now the beginning of economic growth is attributed to 2018. This year some large enterprises that are built should start work, the flow of goods through the country is expected to increase, and in the middle of the year gas production will begin at Shah Deniz-2 (93% of works are completed).
In the first four months of the year, growth was 1.2% less than in the same period in 2016. And this time the State Statistics Committee explained the reason for the fall of the GDP with the decline in the volume of oil production and refining. A small increase (1.9%) in the production of value added was recorded in the non-oil sector, but following the results of a third of the year, investment in the economy again fell sharply. The decline in the construction sector slowed somewhat. The government is trying to revitalize this sector, but large-scale measures, such as renovation, which is announced in Russia, are not being resolved. The government has already announced its plans to begin eviction of people from the so-called Khrushchev residential buildings and build high-rise buildings in their place. The project is profitable both socially and economically, and it would certainly revive the construction sector, but, most likely, it is limited by financial considerations. In early June, even the mortgage market collapsed: the borrowers of the same IBA cannot pay the mortgage and even have to sell the already developed apartments: it is good that a mortgage can now be transferred to another person. No wonder: the incomes of the population fell by at least 25%, and the ability to save will not be restored until 2021.
But 2017, apparently, will be as difficult as 2016. International financial organizations forecast the fall of the GDP in Azerbaijan by up to 2% in 2017. The WB, for example, reduced its January forecasts from 1.2% to 1.4%. The most optimistic estimates (from the rating agencies) predict zero growth of the economy this year. The preservation of the refinancing rate of the CBA at the level of 15% did not affect inflation so far, which was annually 13.5% for the third year. It is expected that only next year it will drop to 4.2%, as in Russia.
You cannot calculate for major changes, and, especially, for a breakthrough in the economy, if the rules of the economic game do not change. It is noteworthy, for example, that the authorities stopped talking about corruption, monopoly or insufficient competition in the economy. These systemic problems today are opposed by the business activity of many departments and by more vigorous lawmaking. But small and medium-sized businesses cannot develop if monopoly groups rule the economy. They will also block the development of competitive relations in the economy. The situation in the banks is a reflection of the corruption that hit the entire economic system.
A significant part of the problem is in the field of management. It is no coincidence that the country's Vice-Premier came up with the almost forgotten idea of changing the regional governance structure. The bureaucracy in general has strongly grown. It turns out that in 2005-2015 the number of administrative posts in district executive bodies increased by 17% - from 25,735 to 30,123 employees. Again, it is suggested to divide the country into 8 to 9 large districts and there might have been a place for municipalities that have found themselves in the backyard of the economy and politics. And in the first days of June, reorganization began in the presidential office. It is still more like the consolidation of the results of last year's referendum. One must assume that the next step will be a thorough cleansing of the bureaucracy: without this, not a single reform in the world has ever taken place.
FINANCIAL SYSTEM. All financial events of May were somehow discussed in the context of the situation in the International Bank of Azerbaijan. It should be recalled that even with the first problems in the IBA in 2015, many analysts predicted that they would rock the entire financial system of the country for a long time to come. It would seem everything already took place - the arrest of the head of the IBA, the transfer of bad assets of this bank to Agrarkredit, strong support from the state and clearing the bank's balance sheet. But, despite all these efforts, the country's once main bank was unprofitable. At the end of 2016, the loss of the IBA group (three banks, processing, leasing companies, etc.) was 1.9 billion manats. In addition, in the year 2017, the IBA should pay off debts in the amount of $1,290.763 million and 28,679.4 thousand euros. It became obvious that the bank's external creditors would sooner or later become worried about their investments.
This happened in early May. On May 10, only one IBA lender demanded to return his $100 million back. Theoretically, this could be returned, but the government, apparently, became nervous - and a default was declared on this debt. The Financial Market Supervision Authority (FIMSA) agreed with the beginning of the voluntary restructuring of the bank's debts. On May 11, the IBA announced that it would suspend payments on foreign debt and offer investors to exchange part of their debts for sovereign bonds of Azerbaijan. On the same day, this decision was confirmed by the Ministry of Finance of the country. For some time, the uncertainty about the amount of external debts of the IBA remained. A little later they were called - $ 3.337 billion (of which $ 1 billion is SOFAZ funds), and a full list of creditors was announced.
Already on May 23, negotiations began with the IBA lenders in London. Very inopportune were problems with the Single Pension Fund (SPF) of Kazakhstan, which managed to invest about $ 250 million in the IBA securities at the end of 2014. The problem of the return of "live money" of the pensioners became a subject of discussion at the highest governmental level of the two countries. At the last moment, these debt obligations were also included in the plan to restructure the debts of the IBA, and the Prime Minister of Azerbaijan promised to provide a painless solution to the issue with the credit of the SPF of Kazakhstan. The IBA has presented its vision of the situation in the bank to creditors: "The key phases of the bank's recovery plan are the restructuring of assets and liabilities, internal reorganization and privatization. Internal reorganization involves the sale of subsidiary banks in Georgia and Russia. The bank intends to implement it in 2017. The sale of the state's stake in the IBA is scheduled for 2018," the presentation says. The bank intends to complete the restructuring of assets and liabilities in May-September 2017. The completion of the first stage of asset restructuring in 2016 was also noted: the transfer of toxic assets of 9.9 billion manats to the state-owned Agrarkredit NBCO. Immediately after the process of restructuring the bank's external obligations, the Ministry of Finance will begin the second stage of asset restructuring, transferring the IBA"s bad assets of additional 4.7 billion manat to Agrarkredit.
The main creditors were offered three options for restructuring the obligations of the IBA and all the three ones assume a loss and a loss of profit. On May 26, creditors rejected the proposals of the IBA. Citybank, in particular, expressed its strong disagreement with the 20% discount on debts, announcing that Azerbaijan has a sufficient financial cushion to pay off its debt in full. Hard negotiations will be conducted all summer. If they fail, then, according to the bank lawyer Akram Hasanov, there are two options: either the state takes on all the existing external debts of the IBA, or declares the IBA bankrupt. It was the latter that the Azerbaijani side intimidated at the talks. But the experienced Western financial institutions are well aware that Azerbaijan itself is least interested in such bankruptcy. Hasanov also stresses the juridical weakness of Azerbaijan's position in these negotiations: the decision that 2/3 of the votes (and 1/3 already provided by SOFAZ) for restructuring appeared as a result of recent amendments to the law on banks and contradicts the Civil Code of the country. Negotiations with creditors continue.
At the same time, some experts are convinced that there was no need to publicly announce the bank's refusal to fulfill external obligations, and it was possible to start behind-the-scenes negotiations with the creditor or creditors (if there are many of them) and, after the development of the corresponding plan for restructuring, make the procedure public. And the current situation may lead to an outflow of capital from the IBA, an increase in rush demand for the dollar and a new surge in devaluation. Perhaps this is not a close prospect. But the growth of public debt due to restructuring is already evident. Some financial structures that have long been operating in Azerbaijan have even begun to predict that as new information about the plan for the exchange of default obligations of the IBA emerges, the value of the state's debt obligations may rise by 40 basis points. Fortunately, this did not happen. But the agency Fitch assumes that the proposed scheme of restructuring of the IBA in any case will increase the public debt by 6-7% of GDP, bringing it to about 29% by the end of 2017. Two of the three "whales", Fitch and Moody`s, have begun a procedure to reduce the bank's rating. This is a standard procedure, but it starts to put pressure on the entire economy and increases the cost of external loans. The rise in the cost of borrowing can aggravate the economic difficulties of Azerbaijan, which constantly looks to foreign markets in the search for capital to finance expensive energy projects. And the growth of public debt can create tension in the foreign exchange market.
Problematic now is the privatization of the IBA. Indeed, no one can assess today the attractiveness of the IBA for external investors. Increasingly they say that they will have to rely on local investors, but who will pull this burden?
Many observers noted that the Chairman of the Central Bank of Azerbaijan, Elman Rustamov, did not comment on the situation around the IBA. He is as if busy with his own tasks, especially since the fate of the banks has now been entirely entrusted to the FIMSA. The task of the CBA is obvious - to slow the rate of inflation and reduce the level of devaluation - in other words, to maintain the value of the national currency in order to prevent a third devaluation in the country.
The CBA's published report for the first quarter on the dynamics of household deposits is still negative. According to the CBA document, the volume of household deposits in banks as of April 1, 2017 amounted to 6 billion 911.4 million manats, of which 1 billion 480.5 million manats (21.42%) was placed in national currency, and 5 billion 431 million manats (78.58%) - in foreign currency (see Attachment). Bank deposits of the population by the same period of last year decreased by 977.5 million manats or 12.4%. Currency was withdrawn from banks - 946.3 million of this amount was foreign currency deposits declining much faster than manat deposits. By early 2017, bank deposits had decreased by about 394 million manats.
The Central Bank of the country since last year persistently applies the tactics of de-dollarization by introducing high interest rates for manat deposits (12-15% per annum). Nevertheless, the volume of dollar deposits is more than three times higher than manat savings.
The credit investments of banks in the domestic economy were reduced: on April 1 of the current year they amounted to 15 billion 78.9 million manats. Compared with the same indicator for the corresponding last year's period, banks' credit investments in the economy decreased by 4 billion 12.6 million manats or 21%.
Due to the policy of the Central Bank, the demand for manats did not decrease throughout May. At the next deposit auction, it was planned to raise AZN 250 million, and the demand amounted to 612.8 million AZN, although at the previous auction the CBA managed to attract only 200 million AZN. The weighted average interest rate on deposit transactions concluded on the basis of the auction amounted to 12.01%. But now the Ministry of Finance has raised the rate on state T-bills to 15%: the value of money began to grow again.
According to some estimates, about half of the money supply in AZN is at the disposal of the population and business structures, that is, the manats are spinning outside the banking system. The CBA seeks to take control of these cash flows. Some analysts argue that the dollar boom in February, associated with a short but sharp increase in the value of the dollar, was dictated by the need to pull these free funds from the population.
As a result of the tight monetary policy of the Central Bank, the share of the monetary base to GDP in Azerbaijan is critically small - according to the Center for Economic and Social Development, it is 11.4%./ (6.8 billion manats). This is especially noticeable when compared with other countries (see Attachment).
According to the head of this center, the monetary policy of the CBA has exhausted itself. Limiting the money supply allows regulating the AZN rate and the inflation level, but cuts spending in the real sector. To this we should add the paradox of the consumer - the less money, the more he is inclined not to waste, but to savings. And if you take into account also the limits imposed by banks on the restriction on cashing, it is not difficult to describe the real borders of the manat supply. He is convinced that the tactics of improving the financial sphere should be adjusted, and measures to limit the monetary base must be replaced by a policy of optimizing the base.
The head of the CBA said recently that banks have excess liquidity. But banks refrain from lending, preferring other ways of maintaining a balance (participation in the IBA manat auctions, buying state T-bills, currency transactions, cutting costs). In addition, they simply cannot collect old loans, let alone giving out new ones. Although it is lending that should be the main source of income of the bank. Economists noted an interesting fact: in the largest bank of the country, Pasha Bank, the assets amount to 3.1 billion manats, but loans account for only 25% of the assets.
The first five months of the year demonstrated that the Central Bank is completely focused on reducing the manat in the economy, as the only guarantor of relatively low inflation. The same measure blocks the growth of the value of the dollar. The rate of the manat to the dollar so far can be kept stable, which is also indicated by bilateral currency auctions held by the CBA and SOFAZ. So trades on May 23 began with the rate of 1.7023 manats to 1 US dollar, but following the auction the weighted average rate of the American currency dropped to 1.7021 AZN for 1 USD. The head of the CBA, Elman Rustamov, even said that "the risk of raising the manat is higher than the risk of its getting cheaper." Since the beginning of the year, the manat has even strengthened by 4%.
As for the role of the Central Bank in the growth of the real sector of the economy, here the CBA scrupulously monitors and regulates the real effective exchange rate (RER) of the Azerbaijani manat. As of April 1, 2017, the RER amounted to 95.5 points, and increased by 3.6 points compared to March and by 6.6 points compared to the same period last year. And the growth of the real effective rate means that the manat is becoming more expensive relative to the currencies of the trading partner countries. It strengthened against the backdrop of stabilization of the Turkish lira, the Russian ruble and the Chinese yuan in March, as a result of which the RER rose. The cheapening of the currencies of these countries will lead to an increase in imports and will increase the pressure on the manat.
The minimum value of RER was registered in 2004 at 74.2, and the highest in 2015 at 153.1. Since the beginning of the financial crisis, the minimum value was fixed on September 1, 2016 at 87. We note that the real effective rate of the manat in the range of 85-90 points is considered satisfactory.
We also note that the promised meeting of the head of the Central Bank with entrepreneurs never took place and was postponed indefinitely. The explanation for this is simple: the Central Bank has nothing to offer to entrepreneurs: according to the amendments to the law on banks, even the possibility of targeted lending to the CBA of the real sector is now limited. It is true that on the last day of May the head of the CBA stated that he has his own package of proposals ready for creation of an active money market in Azerbaijan, strengthening of trust relations between credit organizations, application of a guarantee mechanism, development of non-cash settlements and full transfer to non-cash settlement.
Another serious issue is the situation in SOFAZ. The financial results of the previous year were even better than expected: the Fund held back the decline in assets. However, this year began with the fact that SOFAZ allocated 7.5 billion manats to the central bank of the country. Another 500 million, apparently, will have to be allocated to the Southern Gas Corridor, although until recently it was believed that the government could possibly find the missing funds in foreign markets. Judging by the intensity of the passions around the IBA, one cannot rule out that under certain conditions SOFAZ will have to pay the debts of the IBA, which it already supported by placing a deposit there for $ 1 billion. The government is well aware that the level of SOFAZ assets should be kept as high as possible: it insures against external shocks and helps attract foreign loans on more favorable terms. It is also looking for ways to increase the yield of SOFAZ. In May, the President of the country signed an order to increase the permissible maximum limit in the structure of SOFAZ investments in shares from 15% to 25%. In addition, up to 5% of the total funds of the Fund can be invested in equity funds investing in shares. Accordingly, the benchmark for managing the debt portfolio and the money market instruments of the Oil Fund, which is mainly subject to the LIBOR profitable rates for the relevant currency (excluding the euro), is being revised and doubled.
At the very end of May, the FIMSA announced that five banks in the country, which have problems with the capital, were taken under control. It is difficult to say how timely this statement is and whether it will increase the outflow of capital from the banking system. One of such banks is already named - this is Ata Bank, which was joined by Caspian Development Bank last month. Access Bank, as it can, fights off the rumors about closing it. But who is following the "penalty box", no one knows. Banks are less likely to believe. There is no panic, but today any careless statement can dramatically increase the outflow of deposits from banks.
After an unsuccessful attempt to rehabilitate Bank Standard CJSC (it ended in bankruptcy after six months of temporary administration), the apparent breakdown with the IBA rehabilitation testifies to Azerbaijan's inability to effectively sanitize its assets. However, apparently, it's time to call things by their own names: the IBA was plundered in an elementary way, and it was unlikely that this could be done only by the arrested ex-head of the bank. It is reflected on the problems of Standard"s creditors. Most of them are unlikely to be able to return funds, as they were ransacked through unsecured loans. The crediting committee of this bank continues to demand revealing the direct culprits of the theft, up to the Central Bank. It is all the more surprising that Agrarkredit recently was "loaded" with new toxic assets - the obligations of Bank Standard to Azer-Turk Bank. As of December 31 last year, the balance on the loan was 103.319 million manats. To some extent this is a mystery: why in July 2016 they allocated these funds to the bank, when it was already clear that the bank was going to bankruptcy. It is also unclear how and from whom this means of Azer-Turk Bank will be forcibly taken.
FUEL AND ENERGY SECTOR. The movement of oil prices is dictated by a number of major causes, mostly well-known. But there is always a place for new circumstances and statements that have an impact on prices. In this regard, it is interesting that Trump's latest statement did not become a subject of heated discussions. In the published budget plan, the US administration proposed to gradually sell off strategic oil reserves from October 2018 to raise $ 16.5 billion. The United States possesses the largest strategic oil reserve, which is about 688 million barrels. A sale of half, as stated, of the reserve for 10 years is entering the market with up to 95,000 barrels per day. The sluggish reaction to this high-profile statement was most likely connected both with the existing relations to the statements of the new American President, and with the fact that this is not today's perspective. And OPEC is struggling to stabilize prices today.
Economic institutions closely monitor the immediate prospects of the oil sector, not only at prices, but also because of the constantly changing nature of the oil market. Suffice it to say that the same Canadian oil companies raised their oil production by 30% this year, but at the same time reduced the cost of oil production by 30%. The engineering companies involved in the process of reducing production costs are experiencing a kind of boom today.
Until recently, all noted the decline in investment in world oil production, believing that, sooner or later, this should lead to a reduction in supply in the market and a new increase in prices. Now there is more skepticism about this, although there is a chance that if the equilibrium of supply and demand recovers, the price of oil will be fixed at $ 60 per barrel, or may go higher. But, apparently right are analysts, who say the oil market is more complicated than the simple equilibrium of the market.
On May 24-25 in Vienna, the OPEC / NOPEC (OPEC +) countries decided to extend the oil production reduction regime for another nine months, until March 2018. Before this decision was taken, there were two options - another six months or nine months of restriction, and they stopped on nine months. It's interesting that OPEC + was ready to extend the production freeze even up to 12 months, but so far it has refrained from this step. The reaction of the stock exchange was unexpected and confirmed that the prices most often grow on expectations. So, only for May 25, the WTI oil lost 5.03% of the cost or $ 2.46), down to $ 48.90 a barrel. In turn, Brent fell 4.86% ($ 2.5) to $ 51.46 a barrel. Low prices were observed throughout the last week of May.
But the response of OPEC + to this was calm. They are sure that corrections will take place, but they expect to keep prices in the range of 50-55 dollars a barrel, and the ceiling for the current situation is $ 60 barrel, after which the producers of shale oil are included again. The head of the BP Dudley called the price range of $ 50-60 per barrel convenient for both producers and consumers.
Also interesting are new nuances, on which OPEC + counts. In addition to the emerging consensus on the corridor of oil prices for the next five months, these are also considerations related to the behavior of stock exchange players. Since August 2014, oil is in a "bearish" phase, when there is an excess of the price of distant futures over close ones - the so-called contango. And the highest peak of backwardation (when already close contracts are more expensive than distant ones), that is, the "bullish" phase occurred in September 2013. But recently, the tendency of the transition of oil futures to the "bullish" phase began to be seen in the market.
OPEC, perhaps, decided to use this trend. Goldman Sachs believes that while oil futures are in a state of backwardation, OPEC can struggle to significantly reduce reserves. Contango on the market usually allows shale producers to hedge their future production and fix high delivery prices at a later date. This provides shale companies with confidence in their future earnings, which in turn allows them to develop drilling. The end result is a surge in supply in the short term, blocking the restoration of the equilibrium of supply and demand.
The purpose of OPEC + is likely to move the market into a state of backwardation, when oil storage becomes unprofitable, since the trader not only has to pay the cost of storage, but also sell at a lower price in the future. This entails a decrease in oil reserves.
Goldman Sachs believes that this very backwardation is a key condition for OPEC, not only to reduce reserves, but also to keep the US shale industry busy. In a word, there is a chance that oil reserves may decrease somewhere by the middle of 2018. But MEA still leaves its forecasts in force: shale production is still growing (see Appendix).
The Minister of Economy of Russia Oreshkin said in May that Russia over the past five to ten years has greatly reduced its dependence on oil. "We are actually ready to live forever at oil prices of $ 40 or less," Oreshkin said. But today we are talking about how to bring the world's oil reserves to a five-year average. Such statements are perceived in Azerbaijan with hope: but suddenly the prices will go up again.
We still live in the feeling that Azerbaijan has already entered the post-oil era. But the oil and gas industry is still the main stake of the government, despite the problems associated with declining oil production and volatility in world oil prices. Hence the constant state support to the development of even those projects that SOCAR intended to perform on its own. In particular, it became known at these weeks that the reconstruction of the New Baku Oil Refinery (NBOR) will be carried out at the expense of the Oil Fund, and the cost of the project has increased by several hundred million dollars. The project is, of course, necessary. Today, processing has significantly subsided, but by 2020, when the modernization of NBOR is completed, the growth of processing will resume and the Euro-5 gasoline will appear on the market.
Increasingly, oil revenues are returning to the same oil industry. You can understand this. On the one hand, there are many new projects that cannot be turned off. On the other hand, the oil industry is almost the only one that can quickly master the funds allocated and turn them into new revenues. The turning point here could be that SOCAR is betting on self-development and henceforth does without the constant guardianship of the state. But this did not happen either.
SOCAR is looking for new opportunities everywhere, trying to integrate into projects with other countries. In May, it became known about Iran"s proposal to conduct joint operations in the oil and gas sector and in the processing sector. A preliminary agreement on cooperation in this field between SOCAR and Uzbekneftegaz was concluded. In the same month an agreement was concluded between Turkmenistan and Uzbekneftegaz this time with exact addressing: Uzbekistan is offered oil development on the Caspian shelf on the basis of the PSA principles. It is worth pondering, why not with Azerbaijan? But this is politics.
SOCAR's activities in Turkey are expanding. SOCAR Vice President Vaghif Aliyev announced the intention of the state oil company to build another petrochemical complex next to the successful Petkim. This is a strategic project worth $ 3 billion. Earlier, Socar Turkey Energy announced its intention to buy or build new gas stations in Turkey to get more profit from the Star refinery.
Despite existing problems, SOCAR continues to keep a clear line in several areas of development. The company's efforts are aimed at the early start of the Southern Gas Corridor and gas exports to Europe, the expansion of projects related to oil and gas refining, as well as the implementation of its own projects to increase oil production.
The Azerbaijan Center for Oil Studies believes that Azerbaijan in the next decade will be able to produce about 40 million tons of oil per year and only 10 years later the volume of produced oil can be reduced by 5-6 million tons. Against the backdrop of falling production at ACG, such statements should be explained. The head of the Center Ilham Shaban in his interview to the newspaper Azadlig explained that, speaking about 40 million tons of production, it is meant to increase the production of gas condensate, associated gas product at Shah Deniz-2. According to him, after 20 years, about 6 million tons of gas condensate will be produced within Shah Deniz-2, which will support falling oil production. We should not forget about the planned expansion of production at ACG by the end of the decade, either. He also explained why it is believed that gas revenues in the coming decades could cover oil revenues, despite the relatively low cost of gas. The revenues from gas exports will be added revenues from gas condensate, which will account for about half of gas revenues. In addition, there is a project for the development of deep-seated gas at ACG (5-6 billion M3 annually) and the development of other gas fields in the Caspian. It is necessary to add new processing enterprises operating on gas here. Their products will cost 2-3 times more than the gas itself (gas-chemical complex, carbamide plant and methanol plant, two polymer plants). It is necessary to take into account the fact of creating a large chemical industrial park in Sumgait. That is why we can say that the revenues from gas will outweigh the revenues from oil. Gas projects are the future of Azerbaijan.
But the problem for the government remains in the electric power industry. A state-run natural monopolist, an electricity producer Azerenergy OJSC suffered a loss of 137.7 million manat in 2016, before attracting to the tax. But this industry cannot and should not be unprofitable by definition. According to the financial report published in the press, the loss was formed mainly due to the exchange rate difference between AZN and convertible currency for a total of 220.1 million. The assets of Azerenergy OJSC as of January 1, 2017 reached 4.3 billion manat. At the same time, the company's liabilities exceed 2.8 billion manat.
In general, Azerenergy OJSC raised the operating profit from the sale of electricity in the amount of 144 million manat, by 190.9 million manat less than in 2015. Despite the balance sheet loss, the company was charged with a profit tax of 28.7 million manat. In the previous year, this indicator exceeded 183 million manat. In fact, in 2016, a profit tax of 2.7 million manat was paid.
The volume of electricity sales against the background of the increase in electricity tariffs in July and December 2016 increased by 11.2% - to AZN 807.1 million. But it did little to help the company. The additional problem is created by the fact that the return of debts for the electricity supplied by Azerishig was prolonged by the government decision until 2020.
A notable part of the problems of this branch is institutional. One can regret that not even a part of this sector was privatized. Without this self-regulation of the sector is impossible. The industry has largely returned to fuel oil, but at the same time, the changing world energy balance has almost never been registered. Alternative energy is in its infancy, and private companies have not appeared here either. Without energy, the economy cannot develop at all. Judging by the laws that are being prepared for adoption in the parliament, there is already an awareness of the need for institutional changes in the situation. The Law on Energy Efficiency is being prepared. But an integral part of the new law will be the development of draft laws on regulated domestic gas and energy markets, including the draft law on Independent Regulatory Authority for the Internal Energy Market (Gas and Electricity), as well as the Network Code on Electricity and Gas. How important it was to do this in the due time, and then to include mechanisms of denationalization of the industry!
INFRASTRUCTURE. In May there were broad discussions of the One Belt - One Way summit, which was initiated by China and the new infrastructure policy of this country. The problems that have arisen in the course of globalization are pushing big countries to search for effective solutions in the regional aspect. But sometimes the very scale of such projects makes them global in content.
The two-day summit One Belt - One Way was held in Beijing. The meeting was attended by 30 world leaders. It was announced that the meeting will become traditional. The total cost of the proposed project is about 1 trillion dollars. Basic financial support will be provided by the Asian Infrastructure Investment Bank (AIIB), and the main goal of the project is the development of free trade in Africa, Asia and Europe.
The United States, who considers itself the undisputed leader of globalization, as if did not notice this ambitious project. But earlier it recognized the importance of creating AIIB (where 57 countries have already entered, including Australia, the UK and possibly Canada). But it does not intend to participate in the capital of the bank, apparently perceiving AIIB as a serious competition for such American institutions as the International Monetary Fund and the World Bank.
The stated objectives of AIIB are to invest and provide long-term financing for transport, telecommunications and energy projects in Asia. To date, AIIB has approved financing for 1.73 billion US dollars to support 13 projects in eight countries, including Azerbaijan and Tajikistan. In Azerbaijan, AIIB also invested $ 600 million in the $ 8.6 billion TANAP project. Although China will not directly benefit from TANAP, in the future there may be an initiative to build a pipeline to connect the Caspian Basin to China.
Strictly speaking, the project of the restoration of the Great Silk Road has been under discussion for decades. There was a routine development of the project, but now it unexpectedly accelerated. And the project's prospects have become different. China always does everything slowly, but thoroughly. Today, China is changing its economic policy and implementing the strategy of transition from dynamic exports to investment expansion and growth of domestic demand. It is no accident that China's current project is compared to the Marshall Plan for Europe after the end of World War II. The implementation of this project should help the member countries of the project, fairly shabby with the economic crisis, to add to the economic growth. It should also be noted that the above-mentioned summit took place at the very moment when President Trump practically refused to participate in ASEAN and questioned the project of creating a transatlantic free economic zone. Such isolationism today is openly seen in Trump's policy - and China is ready to occupy a vacant niche. And its new initiative is much broader in content than the simple development of trade routes.
It is true, however, that the "intra-Chinese" economic underpinning of the new project is called. China has created a large industry for infrastructure projects within the country. Now this program is curtailed and these enterprises, in order to maintain capacity, need new markets and spheres of activity. The project, of course, will open such opportunities. But even with this in mind, China does not intend to give the whole project to Chinese companies. Its tasks are more ambitiousand there will be room for every participant of the project.
The Russian press is focused on the benefits that Russia can receive from the implementation of this large-scale project. The revenues from the expanded transit through the country are obvious here. But we are talking about broader tasks - the revitalization of huge regions within Russia, which is prompted by the development of communications. At the same time, even in Russia there are voices calling this new neo-colonialism and believing that low-interest loans can enslave participating countries and that China itself will benefit most from the implementation of this project, including, politically as well. Beijing does not hide the fact that it seeks to strengthen its geopolitical and geo-economic influence, but without a hint of imperial ambitions. It is also clear that with an initial capital of $ 100 billion and an annual loan of $ 4-5 billion, AIIB is a relatively small player for such a large project. But in China there are other major creditors - the Chinese Development Bank and Exim Bank. Under the new project, additional institutions will be created, in particular, the Silk Road Foundation. The crediting of the project will grow. And given the multiplicative effect of such super projects, one can talk about the profitability of this project for all participants.
Kazakhstan is an active participant in this project, especially since it is already considered the CIS leader in the effectiveness of investments in infrastructure development planning. The author of the relevant study stated that Kazakhstan is not only leading in terms of the efficiency of using the funds of international financial institutions (IFIs) for the design of infrastructure development, but also in the Volatility Index (VIX), calculated as the ratio of the cost of scientific research to the volume of investment (Uzbekistan and Moldova are also among the three leaders here). Although Azerbaijan attracted $ 261 million from the IFI for infrastructure design, the return on the use of these funds turned out to be practically zero. Not surprisingly, the interlocutor of the agency complained that Azerbaijan was among the ten countries in last place in the planning of infrastructure development. But we must assume that Azerbaijan will not only take advantage of the obvious transit capabilities of the country, but will also try to become an active and proactive participant in the new project.
To the effect of the epochal project One Belt - One Way, one should add a statement of the Turkish Minister of Economy Nihat Zeybekci, who told the press that in June trains from China will be able to follow to London through the BTK (Baku-Tbilisi-Kars). He made this statement following the recent talks with China and noted that next year the annual transshipment of Chinese goods by BTK could amount to $ 30 billion in value terms. Zeybekci also said the Baku-Tbilisi-Kars railway is currently undergoing final tests. Tests are also conducted in Azerbaijan. The Canadian engineering company Bombardier has launched pilot work to modernize the train management system in Azerbaijan. Works on the improvement of communication and signaling are conducted on the Baku-Beyuk-Kesik section, which is part of the Baku-Tbilisi-Kars international corridor. The company's message says the pilot section of Soyug Bulag-Salahly has been put into operation, which operates on stable power supply and is equipped with a centralized microprocessor brand EBILock 950. This good news is somewhat overshadowed by the fact that in Sweden there is a corruption investigation into the receipt of the contract in Azerbaijan by Bombardier.
Azerbaijan and Kazakhstan signed an agreement in late May on the carriage of goods in wagons and containers in an international direct rail-ferry service. The agreement was signed within the framework of the activities of the Trans-Caspian International Transport Route and provides for railway-ferry communication between Alat-Aktau-Alat and Alat-Kuryk-Alat. The main ports and railways of the two countries placed their signatures under it. The order of settlements between the parties has already been determined. The ferry bridge is ready for active transshipment. Uzbekistan and Kyrgyzstan will apparently soon join this. By the way, one can be surprised at the thoroughness of the Chinese approach to transit. We already wrote that China proposed to build another railway to Baku along the northern coast of the Caspian Sea to hedge against bad weather conditions in the Caspian Sea, which is not uncommon.
It is also interesting that the development of infrastructure begins to raise questions that the government kept postponing "for later". In Alat, apparently, a special Arbitration Court (Center) will be created. This was stated by the international consulting company DP World (UAE), which is engaged in the creation of a special economic zone in the settlement, which has all prospects to become a small busy city.
The authority of this center will include consideration of commercial and civil issues. "The basis will be the legislative base of any country, which will be specified in the agreement with the consent of legal parties. The advantage will be given to British or Azerbaijani law. However, the parties are free to choose any legislative basis. Domestic personnel (with British training) or those invited from another country can be selected as judges," the proposal says. The most interesting thing here is that Kazakhstan already creates a special international arbitration court in Astana, taking the British legislative base as a basis. Azerbaijan, perhaps, starts from a more modest task: in fact, a pilot project to create such a court in the Alat Free Economic Zone. Large infrastructure projects always require subordination to the general rules of the game.
POLITICAL BACKGROUND. What we see today in world politics may seem like a continuation of the previous confrontations in the world. But the old order is under the pressure of changes - technological, economic and political ones.
This makes economists very cautious about economic growth in the world, especially after years of actual recession. But most of them converge on the fact that the world economy has approached the fork, the point of bifurcation. One road leads to higher growth, to a more "comprehensive form of capitalization," and the other leads to recession, instability, and confusion. In other words, within two years, even a global crisis is possible, the probability of which one of the most eminent financiers of the world Mohammed Er-Ryan estimates in 50%. It seems that all the big economies have gone into growth, but then where do these pessimistic expectations come from? Riyan calls all the unexpected events that can turn the events in another direction, because these are the problems of the world system: Brexit and elections in the US and France. He also notes other interesting phenomena: for example, the fact that 30% of the world's public debt is traded with negative returns, that is, investors pay money just for assets in the property.
The contrast between the general expectations about a new technological breakthrough and the deteriorating quality of the political class may surprise. Er-Rian makes an interesting remark here too. He believes that politicians have still found a way to slow down dangerous processes, avoiding influence on markets, and even calls this situation "slow Brexit". But this situation can not last long. The policy type changes, and maybe the type of politicians changes, too. The candidate for Chancellor of Germany, Martin Schultz, called Trump"s political behavior "a targeted violation of the taboo." The multi-day foreign policy tour of Trump did not add clarity about his foreign policy. But there were enough violations of the taboos.
There are more and more double standards in politics. Many countries were shocked when Trump announced a fight against world terrorism in Riyadh, but at the same time designated Iran as probably the main bulwark of world terrorism, though Iran, despite all the shortcomings of clericalism, is much higher and more democratic than Saudi Arabia. The information age has made the world of politics denser, if the theme of Russia's influence on Trump's election as President is still being discussed.
International terrorism is becoming familiar, but this is no less dangerous. In the past weeks, terrorist attacks in Britain and Afghanistan smashed dozens of lives. Everyone says that terrorism must be ended. But ISIS ceases to be the main goal. All external forces involved in Syria behave as if the main goal was to stake out their own victory. Kurds in Syria agreed with ISIS that they would not prevent its militants from leaving Rakka in the southern direction. And there is Palmyra is the zone of government troops, which is defended by Russia. The result was that Russian missiles annihilated the columns of ISIS warriors. In early June, Qatar was directly accused of collusion with ISIS, which was the beginning of a rupture of diplomatic relations and the declaration of an actual embargo by eight countries, primarily Arab monarchies and Egypt. But for anyone, this is the first time that a country is openly accused of supporting ISIS. It is still a question if the Riyadh summit played its role here.
It is an indisputable fact that democratic values played a key role in the development of the developed countries of the West. But increasingly we become witnesses of the fact that, given the choice between geopolitical interests and values, these countries make a choice in favor of "interest." This is facilitated by the actual crisis of international law. But in a similar ambiguous position, small countries that have only recently chosen a democratic path of development can get involved. After all, for Georgia, for example, democracy is not only a value, but also a serious asset: a democratic image helps it to count not only on political, but also on certain financial support from Western democracies. But today, after the disappearance of the Azerbaijani journalist Afgan Mukhtarli in Tbilisi and his unexpected appearance in Baku as a prisoner, Georgia found itself in a very ambiguous position. The Azerbaijani authorities, of course, will deny that there was a kidnapping. But the story turned out to be very resonant. For the first time it turned out that there were different systems in the neighboring countries, but it was only businessmen and tourists from Azerbaijan that noticed it before. Almost all the leaders of Georgia expressed their opinion on the case of Afgan Mukhtarli - from the President to the Prime-Minister and Minister of Internal Affairs. The democratic forces of Georgia continue to attack the government with new demands.
It seems that relying on strategic economic partnership, the Azerbaijani authorities may have crossed the red line. To do this, it is enough to recall how in the nineties the Azerbaijani society was shocked by the fact of the abduction of several opponents of the Iranian regime from the sovereign Azerbaijan. It is unlikely that Georgia will be pleased with such parallels.
It is still unclear why Azerbaijan itself was so crudely put under attack. After all, the authorities themselves argue that the opposition is insignificant in its capabilities and has no social support. So why fight with it? The opponents of the authorities, and this is not only the political opposition, already say the authorities want to distract the people from economic turmoil by this noisy struggle with the opposition and the persecution of journalists and the Internet community. A reasonable and even authoritarian power understands that a society can never be blocked all oxygen - it is necessary to leave some windows.
|Main macroeconomic indices||2017 January-Aprelmln. AZN||IV- 2017 IV- 2016 %||2016 January-Aprelmln. AZN||IV -2017 IV - 2016 %|
|Gross Domestic Product||20 139,8||98,8||16 867,9||95,5|
|Industrial Production||12 563,2||94,0||9 442,3||98,9|
|Agricultural Production||1 087,0||103,2||938,8||103,5|
|Money incomes per capita (in AZM)||1 510,3||105,7||1 436,1||107,7|
|Turnover of Goods by Transport, comm. (in mln Tons/km.)||67,9||102,8||66,0||96,2|
|Capital Investments||4 533,4||96,5||4 291,3||68,9|
|Trade turnover||10 225,7||101,7||8 738,5||102,7|
|Services||2 425,9||99,7||2 238,8||101,7|
|Export ($ mil.)||3 578,1||150,6||2 781,6||44,7|
|Import ($ mil )||1 512,8||82,9||1 825,9||75,1|
|Average monthly salary ( from the beginning of the year, (in AZN)||514,3||105,9||485,5||108,0|
|Index of Consumer Prices||X||113,5||X||110,5|
GROSS DOMESTIC PRODUCT IN OIL AND NON-OIL SECTOR mln.AZN
|January-Aprel||January-Aprel 2017 compared to January- Aprel 2016, the percentage|
|Gross domestic product||20139,8||20139,8||98,8|
|- oil sector||8414,5||6057,6||93,3|
|- non-oil sector||11725,3||10439,1||101,9|
* 2016 figures are determined based on final data
STRUCTURE OF GDP BY INDUSTRIES IN JANUARY-MARCH 2017, %
PRICE AND TARIFF INDEXES
|In Aprel 2017 compared with March 2017||January-Aprel 2017 compared to January-Aprel 2016|
|Consumer price Index||100,2||113,5|
|Producer price index||99,6||166,3|
|The price index of agricultural producers||99,2||110,2|
|Transport, Postal tariffs||98,7||110,5|
STRUCTURE IMPORT AND EXPORT (IV - 2016/ IV - 2017)
CAPITAL INVESTMENTS BY FUNDING SOURCES (%)
|In January-Aprel 2017, million manat||Compared with the last year (in comparable prices),%||Share of total, %|
|Including funds of enterprises and organizations||3 298,4||83,8||72,8|
|Funds of population||202,0||157,9||4,4|
|Other tools||24,3||7,3 d.||0,5|
MF ASSESSMENTS FOR FDI DYNAMICS TO 2020 (% Of GDP)
FORECAST OF S&P ON THE NET FDI DYNAMICS, as % of GDP
KEY INDICATORS OF HOUSEHOLD INCOMES
|In January-Aprel 2017||Compared to the previous year, in percent *)|
|Nominal income of the population, mln. AZN||14655,6||106,8|
|For each, Manat||1510,3||105,7|
|Disposable income, mln. Manat||13409,5||106,9|
|For each, Manat||1381,9||105,8|
*) In 2017, the indicators were defined on the new information.
EVALUATIONS OF S&P GLOBAL RATINGS ON DYNAMICS OF SAVINGS IN THE ECONOMY (% Of GDP)
DYNAMICS OF PRODUCTION IN THE MANUFACTURING INDUSTRY in 2016 and January-Aprel 2017
|Compared with the previous period,%|
|Total in manufacturing||non-oil processing industry|
DYNAMICS OF PRODUCTION OF CONSTRUCTION MATERIALS
CRUDE OIL AND NATURAL GAS PRODUCTION
|Types of products||Produced in January-Aprel 2017||A comparison last year,%||The presence of the finished product on 01.05.2017|
|Crude oil (including condensate), tons||12 642,0||90,5||414,7|
|the marketable||12 628,1||90,5||414,7|
|Natural gas, million cubic meters||9 245,4||93,1||1 373,7|
|the marketable||6 284,8||99,8||1 373,7|
RELEASE THE MAIN PRODUCTS OF THE OIL INDUSTRY
|Types of products||Produced in January-Aprel 2017||A comparison with the last year,%||The presence of the finished product on 01.05.2017|
|Car benzinb th. Tons||413,9||112,2||48,3|
|Gasoline for use in oil and himicheskyo industry, thous. Tons||68,8||114,1||1,0|
|Kerosene, thousand thous. tons||199,8||91,8||11,2|
|Diesel fuel, thousand thous. tons||625,5||80,6||61,7|
|Fuel oil, thous. tons||230,5||64,8||9,2|
|Lubricating oil, thous. tons||7,3||3,5 d.||7,3|
|Bitumen, thous. tons||40,9||135,4||11,0|
|Petroleum coke, thous. tons||60,4||137.0||19,9|
ELECTRICITY, GAS STEAM
|Types of products||Produced in January-Aprel 2017||In comparison with the previous year,%||Inventories of finished goods on 05/01/2017|
|Electricity million. Kilowatt-hours||8 006,6||104,1||-|
CASH BASE TO GDP (%)
* Data of the Center for Economic and Social Development
FORECAST OF S&P ON THE CURRENT ACCOUNT OF PAYMANT BALANCE (% of GDP)
CREDIT INVESTMENTS IN THE ECONOMY (billion manat)
DEPOSITS OF THE POPULATION
|Aprel 1, 2015 million mana||Compared with last year's period,%|
|Deposits of population - total||6911,5||87,6|
|Besides that:in national currency||1480,5||97,9|
|in foreign currency||5431,0||85,2|
DYNAMICS OF THE GROWING OF THE CURRENCY RESERVES OF THE CENTRAL BANK OF AZERBAIJAN FROM THE BEGINNING OF THE YEAR (bln. $)
TRADING VOLUME AT THE BSE (mln.AZN)
DYNAMICS OF MONEY AGGREGATES
AZN RATES TO USD AND EUR
FORECASTS FOR THE PRODUCTION OF SLANG GAS IN THE USA (million barrels per day)
* IEA data
COMPARISON OF BARRELS OF CRUDE OIL BRENT AND AZERI LIGHT YEAR ($)