SHAPE UP

Azerbaijan 2016 | ENERGY | INTERVIEW

TBY talks to Natiq Aliyev, Minister of Energy, on how the Ministry will be improving the energy efficiency of the country as well as how it is dealing with the challenges of low oil prices.

Natiq Aliyev
BIOGRAPHY
After graduating from university, HE Natiq Aliyev worked at the Azerbaijan Offshore Petroleum Trust and the Geological Exploration Office of the Kaspmorneft production association. From 1993 to 2005, he was President and Chairman of the Board of Directors at the State Oil Company of Azerbaijan Republic (SOCAR), and on December 9th, 2005 he was appointed Minister of Industry and Energy, which became the Ministry of Energy in 2013.

Azerbaijan signed a MoU with the Asian Development Bank worth $1 billion for the modernization and reconstruction of the energy system of the country. In which parts of the energy infrastructure of Azerbaijan will you focus these funds?

The effective use of energy resources at our current stage of development and making timely energy consumption payments are among the top priorities of the government. Energy efficiency primarily boils down to the restoration of old electricity networks. This will improve the reliability of the energy supply and reduce losses at the stage of distribution. The electricity sector is currently facing financial constraints. While the existing retail price of electricity is sufficient to operate the network, it is not adequate for its restoration and expansion. Therefore, the investment program on expanding Azerbaijan's electricity network, to be jointly financed by the government of Azerbaijan and the Asian Development Bank (ADB), is expected to cover all Azerbaijani districts. There are plans to build 110 and 35-kilovolt substations and integrated transformer stations, 110, 35, and 10-kilovolt transmission lines, the installation of insulating cables and meters, the provision of consultation services, and other activities. The total value of the project is $1 billion, of which $750 million will be financed by the ADB and $250 million by the government.

With the oil and gas sector struggling on the international market, what are some of the ways the Ministry of Energy is working to maximize energy efficiency in Azerbaijan, including the use of renewable energy sources?

The fourfold decline of the oil price on international markets has had an adverse impact on oil producing countries like Azerbaijan. It has led to a significant reduction of oil revenues and has undoubtedly affected the pace of development. At the same time, Azerbaijan's sustainable development model has secured the growth of other sectors of the economy, helping to preserve its position as an energy state. President Ilham Aliyev has initiated reforms and the national economy has embarked on a process of adapting to new challenges. The Ministry of Energy is also working to enhance energy efficiency. It is often seen as the most effective and tangible way of resolving economic problems. Energy efficiency bolsters competition, improves the energy supply to consumers, lays the groundwork for sustainable economic development and the transition to a green economy, as well as promotes environmental protection and the production of competitive industrial and agricultural goods. Although the abundance of energy carriers in Azerbaijan has overshadowed the need for efficiency for years, this area has now been receiving significant attention. As indicated in the Azerbaijan 2020: Outlook for the Future development concept, our main objective is to ensure a sustainable supply of electricity to consumers by 2020. To achieve this goal, serious measures are being taken to reduce losses at the stage of production, transmission, and sale of energy, increase the efficiency of power stations, and reduce the consumption of conditional fuel. The encouragement of energy efficiency activities, the application of innovations in this sphere, the attraction of investment to the energy sector, the integration of new technologies, the promotion of private enterprise, and closer involvement with businesses required the establishment of the State Fund for Effective Use of Energy. With this aim, a draft presidential resolution on the establishment of an out-of-budget state fund for effective use of energy within the Ministry of Energy of the Republic of Azerbaijan and other regulatory acts have been prepared and submitted to the Cabinet of Ministers of Azerbaijan. In addition, the Ministry of Energy has identified priority directions for the strategic long-term development of the energy sector. The objective is to effectively utilize all of the energy resources available in the country (natural gas, electricity, water, solar, wind, industrial and domestic waste, for example), ensuring that these resources contribute to the country's energy balance and undergo rapid economic development. Another direction in the field of improving energy efficiency was the preparation of a draft state program on effective utilization of energy resources for end users (2015-2025).

How has the Ministry of Energy participated in the socioeconomic development of the regions, especially with regard to improving the gas supply in villages?

Consistent steps are being taken to implement the state program on the socioeconomic development of regions of the Republic of Azerbaijan in 2014-2018 and the state program on the socioeconomic development of Baku and its suburban settlements in 2014-2016. Major upgrades of the gas supply system throughout the country are under way. As a result of the measures taken, villages and settlements that had not received gas for many years are now provided with blue fuel. Taking into consideration that there was no gas in the districts in 2004 and we imported gas until 2007, immense work has been carried out over the years. As a result, the level of gasification in Azerbaijan as a whole has reached 90%, including 80% in the countryside. We are continuing to work on the complete gasification of the country. In 2015, a total of 430 settlements were gasified and 104,309 were registered as new gas consumers. As of January 1, 2016, there are 1,811,309 consumers of natural gas in Azerbaijan. In other words, Azerbaijan is able to meet the demand for energy and ensure its energy security.

The country held parliamentary elections in November 2015. How will the new parliament help the Ministry develop the energy sector of Azerbaijan moving forward?

In addition to addressing the demand for fuel and energy, the development of the energy sector also requires the application of a management system aligned with the market economy. The road Azerbaijan has covered as an energy country and the experience it has gained illustrate that in the absence of advanced methods of governance, continuous attention to technological innovation, and an adequate legal framework, it is impossible to move the fuel and energy sector forward, produce competitive goods, and deliver them to the end user without losses. Therefore, in order to ensure the effective management of the energy sector, the existing legal framework should be continuously renewed, necessitating effective cooperation with the country's legislative body. The application of the best international practices, the introduction of changes to existing laws, and the adoption of new laws would certainly be impossible to achieve without the parliament. Therefore, the Milli Majlis and the Ministry of Energy maintain close cooperation.

How will the Ministry support the Formula One European Grand Prix that is coming to Baku this summer?

Azerbaijan has regularly hosted prestigious sporting events in recent years. All state bodies act in a well-concerted manner in organizing such competitions because they enhance the country's reputation around the world. Baku hosted the inaugural European Games last year and Azerishig carried out large-scale work in this respect. The old substations around the Olympic stadium were replaced with new ones. All venues of the games were provided with an uninterrupted and reliable power supply. The Formula One European Grand Prix to be held in Azerbaijan for the first time is another in a series of such events. As announced, the races will start and finish in front of the Government House, which is where the Ministry of Energy is based. An F1 camp is established in the city prior to the competition and Baku will have several of these camps. As was the case in the First European Games, the power supply of all competition facilities will be provided at a high level.

How would you assess the progression of the reconstruction efforts related to the petrochemical industry in Azerbaijan?

Azerbaijan is also noted for its achievements in oil refining and the petrochemical industry. The measures being taken in refining help the country address the domestic need for oil products and mitigate adverse environmental impacts. New projects have been launched to modernize the processing facilities at Heydar Aliyev Oil Refinery and AzerKimya Production Unit to increase their production capacity and expand environmental activities. In addition, preparations are under way for the construction of a new Oil and Gas Processing and Petrochemical Complex. The new complex will consist of a gas processing plant, an oil refinery, a petrochemical plant, and a power station. It will operate around 40 process installations. The Gas Processing Plant will have a capacity of 12 billion cubic meters per year, while the annual capacity of the Oil Refinery will be 8-10 million tons. To process the C2+ hydrocarbons produced by these plants, a complex comprised of a Petrochemical Plant and a Heat Energy Center will be put in place. This will enable the country to address its domestic demand for oil and petrochemical products and align the quality of local products with advanced European and world standards, in particular the Euro-5 engine oil standard. In February 2016, SOCAR and Italy's KT-Kinetics Technology S.p.A signed an agreement on a project to reconstruct the Heydar Aliyev Oil Refinery. The objectives of the project are to increase the refinery's annual capacity from 6 million to 7.5 million tons in a short time, to increase the capacity of the catalytic cracking facility from 2 million to 2.5 million tons, build and commission a number of new installations, and launch the production of oil products meeting the Euro-5 quality standard. The plans to overhaul the plant also include construction of a new facility to produce sulfur. Azerbaijan is also heavily involved in the development of the refining and petrochemical industry outside its borders. In particular, the products manufactured by the Petkim petrochemical complex cover about 25% of the Turkish market. The new investment projects planned by the Azerbaijani side are intended to increase the capacity of the enterprise and to build and commission a new STAR oil refinery with an annual capacity of 10 million tons. Thus, Azerbaijan has embarked a path of building a post-oil economy and the energy sector is doing its best to adapt to the new challenges.