Davos, January 21, AZERTAC
President of the Republic of Azerbaijan Ilham Aliyev has attended “The New Energy Equation” session of World Economic Forum in Davos.
After welcoming Azerbaijani President Ilham Aliyev and other guests, host of the session CNN Editor John Defterios said:
Let`s start with His Excellency the President. Mr President, if I was going to ask you that we’d be testing the price of 27 dollars for barrel for the Brent mark brand you’d have probably thought that I was drinking the wrong stuff and not water or tea this afternoon. Tell us the surprise you have at the price that we are seeing today, and how do you plan for the future if prices go even lower than we see today.
President Ilham Aliyev: Well, it is difficult to expect the prices going lower. But having this situation today we will not be surprised if this happens. Of course, we were not prepared for that. We in Azerbaijan were preparing ourselves for so-called post-oil era in about twenty years from now. Therefore, for us it was a surprise, and, at the same time, it was a stress for our economy. We already planned our budget at the level of 50 dollars this year, and 90 dollars last year. So we had to cut our expenses, our investments and keep the social package in place. Our economy is stable and sustainable and we have large reserves in our sovereign wealth fund, therefore we can compensate this situation. But if the situation continues for longer, of course, it will be a big pressure on our budget.
John Defterios: Mr. President, realistically, you produce about 800,000 barrels a day being a non-OPEC member. Have you ever reached out to OPEC and said: “Look, we are suffering in Azerbaijan, we need to do something about it”?
President Ilham Aliyev: We are ready to do it and actually that was part of our discussions with some of OPEC members. We are not a big producer. But I think that if we have more coordination between OPEC members and large non-OPEC members with respect to the reduction of production, then, maybe, we can have a result. Because unfortunately after every OPEC meeting the price of oil goes down. Therefore, we are very concerned about the possible new meeting which they are planning. Maybe better not to have it.
But this is a real situation. Therefore, of course, I think the coordination between large non-OPEC and OPEC, agreement to reduce production will increase the level of mutual trust. Because if it doesn’t happen, I think, OPEC itself would not make this decision and without this decision, we will have this situation, and just wait when the oil price will reach its bottom. Everyday we think this is a bottom and then, you know, we see a new price for oil. Frankly speaking, this is already a little bit exhausting, also from psychological point of view, not to mention the country’s need to balance the budget, to have funds for investment, and not only into oil and gas. And this is difference between the companies and countries. We need to invest in social infrastructure we need to invest in industrial infrastructure, and, at the same time, to maintain the level of the production we need to invest in oil and gas. So this situation, of course, is not very pleasant, but at the same time, for Azerbaijan it is a good time for reforms. We started fundamental reforms of our financial sector, economic reforms, export-oriented non-oil economy production to forget about the oil factor. As I said before, we were trying to prepare ourselves for this period maybe in 15-20-25 years from now on. But now we have to do it now. And I think that we will cope with this situation. Economic situation in Azerbaijan is stable. Our foreign debt is only 12 percent of our GDP and our foreign currency reserves are almost the same level as our GDP. Therefore, I am sure we will manage the crisis, but, of course, we want to have predictable future, in order to plan our budget for the next year.
John Defterios: You’ve had about 70 percent devaluation of your currency. It’s been a very painful process. You even had some protests in Azerbaijan as well.
President Ilham Aliyev: Of course, there were several factors. First of all, of course, the decline of oil price. Our national currency gained weight against dollar during the last ten years, which was, I think, a little bit artificial. One manat was 1.3 dollars. Therefore, the first devaluation was to bring manat back to 1-1. The second devaluation was mainly because of devaluation of national currencies in the neighborhood. As a result the competitiveness of our goods fell, and it was an additional burden on our budget. Therefore, it was inevitable, we tried to resist as long as we could. We lost some funds of our national bank reserves, but we had to take this measure. There were, of course, some concerns about that. Because it immediately reflected in the rise of consumer prices which we import, and we are still a country dependent on import of some goods. Therefore, the increase of price was a certain concern. It was a minor protest based on some, you know, stressed situation. People were not prepared for that. But now it is over, and I think that economic development in Azerbaijan will be sustainable. We have the fastest growing economy in the world. I think, one of the fastest - 300% growth in the last ten years. So it was too much. I think that now it is time and the cycle is going down. With the current situation, with the currency reserves, I think we will manage the situation.
John Defterios: Mr President, how would you plan if you have a price of 28 dollars per barrel? Do you think we have reached very close to the bottom, and we can turn back in the next quarter or not?
President Ilham Aliyev: Yes, I think so. I think that we are very close, maybe two-three dollars, more to drop, and then in the second half of the year, the market will grow. We all know that it is a cyclic system. There was a time, I remember, when we launched our major oil development projects in 1994, the price was twelve dollars and it seemed to be very normal. And when we were planning the development, I remember, we thought about optimistic scenario which was 22 dollars so now we are very close to that optimistic scenario of twenty years ago. So I hope that the market will stabilize, because oil sector needs investments. Last year we had the highest percentage of drop of investment in the oil sector. So without that the price will definitely go up and stabilize, I hope. I also don’t want to give any prognoses, but I think for companies, for investors, for governments 60-70 dollard per barrel will be an excellent price and I hope to see that sooner or later.
John Defterios: By 2017 you think?
President Ilham Aliyev: Yeah, I think in 2017. This year, the second half of the year I think will be a period of stabilization, and hopefully we can see the growth.