ECONOMY

INTERNATIONAL MONETARY FUND AND DOMESTIC ENERGY PRICE POLICY

29.07.2004 [22:41]
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The IMF has been discussing with the Azerbaijan Government reforms to the domestic energy price policy for over a year now as part of the structural reform element in the Poverty Reduction and Growth Facility /PRGF/, AZERTAG correspondent learnt from the International Monetary Fund office in Baku. Energy Prices in Azerbaijan are now much lower than world prices and this leads to a waste of national wealth. The Government has in principle agreed that domestic energy prices should reflect their true value, as reflected in world market prices, but understandings have not byet been reached regarding the best way to proceed towards this objective.

In the meanwhile, there have been reports in the press that the IMF has insisted on a 90 percent increase in energy prices, including electricity and natural gas, these reports are inaccurate.

As this office has underlined in the past, the current discussing are mainly confined to the prices of petrol, mazut, jet fuel and naptha. The prices of natural gas electricity, kerosene, and diesel have been deliberately left out of these discussions in recognition of the fact that any increase in their cost would have a significant social impact and this would need to be properly and thoroughly addressed. The World Bank is taking the lead in the discussions with the government on issues related to electricity and natural gas tariffs.

As regards the prices of petrol, mazut, jet fuel and naptha, various formulas have been discussed but no final conclusions have been reached, so it would be premature to conclude that the IMF has insisted on raising the prices of these products by any particular amount. Indeed. In the case of petrol prices, these are already relatively close to world markets levels (on a wholesale basis) so even if crude oil prices were to stay at their current high levels for the next two years, we do not foresee that petrol prices would need to rise substantially from today’s levels. As regards mazut, jet fuel and naptha these products are largely intermediate goods used in the production process and the public would not experience any significant direct impact from their increase. This is especially true of mazut where the increase in price would be reflected mainly in the increase in the subsidy provided to the population by SOCAR and Azerenergy.

The aim of the economic program under discussion between the IMF and the Azerbaijan government is to build a robust and flexible non-oil sector that can general incomes and employment in the near future as well as when these natural resources start to run out.

Bringing domestic energy prices into line with world market prices over the medium term is a vital component in this effort.