Azeris Angry at Rocketing Fuel Prices

Thursday, 21 October, 2004

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Nurlana Gulieva

People in Azerbaijan – a major oil exporting country– might be forgiven for hoping that the recent leap in world fuel prices would eventually trickle down to them.

But for the moment they are finding that life is getting ever more expensive, as they bear the brunt of rising prices at the petrol pump and increased charges for other energy products, while revenues from crude oil exports disappear into a special government fund.

When the government announced last week that petrol, natural gas, electricity, and other energy prices would be hiked by as much as 50 per cent, it said it was doing so at the behest of international lenders who were demanding that domestic fuel prices be raised to align them with world levels. Earlier this year, the International Monetary Fund urged the government to make such a move.

For consumers, the direct effects on the costs of running a vehicle or heating a home have been compounded by a wave of inflation in the wider market, with retail prices of food and some industrial goods rising by 30 or 40 per cent.

According to Agakerim Hajiev, a departmental head at the Centre of Economic Reforms, part of the ministry for economic development, these non-fuel costs have spiralled largely because of external economic factors.

“Oil price rises are causing a rise in inflation affecting products imported from Europe, the United States, South-East Asia and so on,” he told IWPR. “Secondly, an increased influx of investments into the country [transacted] in foreign currency is having a negative effect on the exchange rate of our own currency.”

Azerbaijan’s economy revolves around oil and gas production, with exports of crude and refined products accounting for around 85 per cent of export revenues last year, according to World Bank data.

The government’s own finances are also heavily dependent on petrochemicals, with officials saying oil profits contributed 40 per cent of budget revenue, and independent experts say that taken together, oil and associated industries probably account for closer to 80 per cent of treasury receipts.

The treasury is currently in the happy position of underestimating its likely income. Budget projections for 2005, for example, are built around an oil price of 25 dollars a barrel, while world prices recently hit 50 dollars. A one dollar rise in oil prices can mean 10 million dollars in added annual revenue for Azerbaijan’s government budget.

Under a scheme designed to keep the economy stable through the oil boom years and provide a “bank” to fund future welfare and investment programmes, the bulk of the income the state earns from oil export sales is placed in a special “oil stabilisation fund” quite separate from the government budget.

Finance minister Avaz Alekperov said on October 15 that the fund currently held 276 billion manats (56 million dollars) at the beginning of June. An industry expert told IWPR that by the end of this year the sum could rise to about 90 million dollars.

Yet ordinary Azerbaijanis say these huge figures have no practical impact on their lives, and hundreds of thousands of people remain in poverty.

“Suppose the government finally decides to raise our salaries because of the oil revenues,” said Gulnara Alieva, a teacher. “Even if they do, it won’t be an increase of more than 30 per cent. Yet price rises have already exceeded that.

“What that means is that the budget is growing but our lives are getting harder.”

Alieva thinks money should be taken from the oil fund to improve public-sector wages, which are much lower than in the private sector.

Pensions are especially hard hit when prices go up.

“We’re constantly being told that our lives will get better with an oil price rise,” complained Zeinab Husseinova, who gets a state pension of 25 dollars a month. “But why don’t we feel it? Why can I buy less and less with my pension money? Why does the number of beggars on the street keep growing?”

Finance minister Alekperov has said the government is developing ways in which the oil fund can be used to finance investment and social projects.

Some analysts agree that the government should not simply release the oil money to be spent on running costs, and that the special fund should instead be used to build infrastructure and other economic projects which create jobs. One analyst, Anar Azizov, argues that such a move would make public expenditure vulnerable to oil market fluctuations.

“The population always wants to improve its material welfare,” he said. “But it would be wrong to raise salaries in line with oil price rises. Prices can fall just as sharply, and then what would one do with the budget? How would we to cover swollen expenditure demands?”

Others are more sceptical about the government’s intentions. Ilham Shaban, an analyst with the pro-opposition Turan news agency, questions both the amounts the government says it has earned from oil exports to date, and the way the money is being used.

“It’s rather strange that the amount held in the fund has not reached 100 million dollars,” he said. “If the government spent its oil revenues responsibly, then we could already have achieved the level of prosperity of many other oil exporting countries.”

Nurlana Gulieva and Fatima Mamedova are correspondents with Echo newspaper in Baku.