On 1 April 2007 Unified Energy Systems UES) of Russia ceased electricity supply to Azerbaijan. The governmental sources announced that Russian company transited to 'zero regime with Azerenerji. It means energy exchange between the two countries will be stopped. Should any electricity flows are implemented, they will be returned in equal volumes. Thus, electricity bought from Russia by Azerbaijan (or by Russia from Azerbaijan) within a day will be returned in the same volume. It is explained with the failure of the sides to reach an agreement on the cost of electricity.
Russia wants to increase prices for electricity supplied to Azerbaijan, because the supplies are unprofitable. In its turn Azerbaijan is unwilling to import electricity at higher prices, which is equal to a doubled sum of the export tariffs. Thus, in the first quarter of 2007 Russian electricity import to Azerbaijan was carried out at tariffs of 3.6 cents per 1 KW/h, while the Azerbaijani electricity was sold to Russia at 1.8 cents.
Difference in tariffs for the electricity import and export is explained with the application of special co-efficiencies. It differs depending on day, nights and buy periods. . In daytime the co-efficiency is 0.7 and busy period - 1.6-1.7. Azerbaijan receives energy in busy period and returns it in night period.
In accordance with the agreement, Russia supplies Azerbaijan with electricity at the capacity of 200-250 MW during busy periods at a time when Azerbaijan has an electrical power shortage. During the first quarter of this year Russia supplied to Azerbaijan 35mln KW/h of electricity and Azerbaijan 50mln KW/h to Russia.
The existing agreement on electricity deliveries between Russia and Azerbaijan is scheduled for 2007 while tariffs were adopted only for the first quarter. In the beginning of March, when the sides started coordinating the parameters of the contract for the second quarter, Azerenerji proposed UES to cut export prices to 3 cents per 1 KW/h, but refused from reflectionally decrease of electricity prices exported to Russia., insisting on the maintenance of current prices. The increase direct price of Azerbaijani electricity production on the basis of mazut, makes unprofitable sale of electricity at lower prices. During further talks the Azerbaijani partners made one more proposal: Russian export at - 3.4 cents per KW/ h with the maintenance of import prices at the level of 1.8 cents per KW/h. However, the Russian side did not confirm the change.
Meanwhile, Russian reports that UES offered Azerbaijan to maintain the existing conditions in the second quarter and develop a flexible mechanism on price making under contracts with the consideration of different parameters, but Azerbaijan refused. Indeed, in the second quarter of 2007, Azerbaijan wanted to increase tariffs for deliveries.
At the end of last year Russia announced on considerable cut in electricity supplies to Azerbaijan in 2007, UES of Russia explained it with the sharp rise in country's domestic demand. In 2006 electricity deficit in the south region of Russia made up 20%. If earlier capacity of electricity deliveries was around 300MW in winter period, in 2007 the figure will not exceed even 60MW. As to prices, Russia proposed increase of tariffs for electricity supplies to 4.1 cents per 1 KW/h.
However, persistence by Azerbaijan enabled to establish energy exchange between the country on acceptable frames and also led to private success - inconsiderable increase of export prices in the contract from 1.58 to 1.8 cents per 1 KW/h in the first quarter.
UES urges that without Russian electricity import Azerbaijan with its electricity system overloaded in busy period, can face with serious shortages in electricity. Azerbaijan has high demand in electricity, though Azerenerji asserts that Azerbaijan does not depend on Russian electricity. This country warned against refusing from Russian electricity import unless an agreement on tariff cut is achieved.
Thus, 700mln KW/h of electricity has been purchased from Russia last year, which is equal to some 4% of all electricity produced in the country.
In March 2007 Azerenerji has produced over 2,177bln KW/h of electricity. Some 1.981 bln kW of electric power was passed through the thermal electric station and 0,196 bln through hydro-electric power stations. In March 2007, there was an exchange of electric power with neighboring countries. Some 27 mln kW was received from Russia, 17.98 mln from Iran, 0.8mln from Turkey and 9.7 mln from Georgia.
Last year the electricity supply from Russia made up 48.6mln KW/h, 61.6mln from Iran, 39.1mln KW/h from Turkey and 14.7mln KW/h.
In 2006 Azerenerji produced over 23.8bln KW/h of electricity. It is a record figure for Azerbaijan. The volume of electricity production in 2006 exceeds the similar figure of 2005 by 1.5bln KW/h.
According to forecasts, in 2007 electricity production in the country increased 400 MW. By 2010 the total amount of electricity production is expected to increase 4,000 MW and reach 10,000. It is explained with increase of production capacities in the country - the construction of new power grids. Thus, the electricity production increases 5%-6% every year. It will enable Azerbaijan fully cover its demand for electricity and also export it. For the time being Azerbaijan is in need of import.
In January to February physical amount of electricity imports by Azerbaijan exceeded export by 4.8 times and in cost - 7.2 times. The State Customs Committee announced that over the first two months of 2007 Azerbaijan exported 72.8mln KW/h of electricity worth $1,227,300 and imported 349.5mln KW worth $8,888,300. Thus, average export price made up $0,0169 per 1 KW/h and import - $0,025.