The Regulation of Energy Trading in Azerbaijan

1. The Regulation of Energy Trading in Azerbaijan International Trade Law in the Region of the Caucasus and Central Asia: Between Regional Integration and Globalization • 30-31 May 2013, Baku • Nurlan Mustafayev • Deputy Head of Division for Legal Support of International Project • Legal Department of SOCAR • m.nurlan@gmail.com

2. Structure of Presentation • Energy Market Structure in Azerbaijan • Regulatory Framework • Trading in Oil and Gas • Trading in Electricity • Trading in Renewable Energy

3. Energy Market Structure of Azerbaijan: The Main Features • State monopoly on major industries (oil & gas, electricity, water, utilities, telecommunications, transport etc). • The upstream petroleum sector is partially liberalized with participation of IOCs in major projects, PSAs. • Vertically integrated state-owned enterprises in energy sector – SOCAR (incl. Azerigas) and Azerenergy OJSC (production, transportation, refining, sales). • Limited room for domestic energy trading • Most energy trade occurs within and among the state-owned vertically-integrated companies; • Price (tariff) regulation of the overall value chain in major industries. • External Energy trading (crude oil sales and GSAs with Georgia, Turkey, Russia)

4. Some International Law Issues • Can WTO be interpreted to cover energy markets or energy trading? • Does the Energy Charter Treaty oblige the member states to have a liberilized energy market and energy trading?

5. Regulatory State Authorities • The Ministry of Industry and Energy - the central executive authority implementing state policy and regulation for the energy sector; • Tariff Council establishes the tariff (price) (Incl. energy) in regulated industries, proposes changes to laws relating to pricing; and settles disputes on price regulation and tariff application;

6. The Laws Regulating Energy Trading • Charter of Tariff Council, 2005 • Numerous Resolutions of Tariff Council • Rules of Ensuring State Control Over Setting and Applying the Tariffs (Prices), 2005 • List of Goods (Works and Services), Prices (Tariffs) Regulated By the State, 2005 • Law on Regulated Prices, 2003 • Law on Natural Monopolies, 2001 • Law on Electric-Power Industry, 1998 • Law on Gas Supply, 1999

7. Trading in Oil & Gas • SOCAR has monopoly in production, transportation, wholesale of crude oil and products • Azerigas (SOCAR’s subsidiary) as monopolist gas supplier is engaged in gas transportation, distribution, sale and supply; • Tariffs for certain oil and gas trading activities: • (a) Wholesale and transportation prices of crude oil • (b) Retail and wholesale prices of some oil products and adjustment of excise amounts; • (c) Wholesale, refining and transportation tariffs of natural gas; • (d) Retail tariffs of natural gas to end-consumers; • (e) New natural gas processing tariffs;

8. Trading in Electricity • Azerenergy OJSC, a 100% state-owned enterprise, is engaged in the production, transmission, distribution, purchase and sale of electricity in Azerbaijan; • There is no wholesale electricity market. • A uniform tariff for the population and other tariffs for commercial and industrial enterprises: • (a) tariff for purchase from electricity producer; • (b) wholesale electricity sale tariff; • (c) retail electricity sale tariff; and • (d) export and import electricity tariff.

9. Trading in Renewable Energy • The Agency for Renewable and Alternative Energy Sources under the MIE • State programme for the Development of Alternative Energy (wind, solar , geothermal waters, hydraulic and biomass energy) • There is no established market for renewable energy • The Tariff Council set tariffs for only wind energy and mini hydro power • There are no schemes of subsidies aimed to encourage energy efficiency • No specific obligations to purchase renewable energy.

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