AZERBAIJAN - The Power Sector.

Azerbaijan's total installed capacity for power generation is about 5 gigawatts (GW), consisting of eight thermal plants which supply about 85% of the electricity, and five hydro-electric stations. The thermal plants are based mostly on heavy fuel oil, and natural gas is only used as a secondary source for some plants. But the actual generating capacity now is only 4.8 GW, because of obsolete facilties and lack of proper maintenance, and more than 30% of the power produced is lost due to a bad transmission system and some theft. If the maintenance system is not improved, the usable capacity would drop further, while domestic demand for power has been rising rapidly since 1996.

There is also an exchange of power supplies between Azerbaijan and each of Russia, Georgia, Iran and Turkey. Since 1994, imports from these countries have overtaken exports by far. Azerbaijan still depends heavily on the import of power plant equipment and spare parts from Russia and Ukraine, as a result of full integration with them during the Soviet era.

The efficiency and profitability of the state's power utility, AzerEnerji, have to be improved. The utility is to be partly privatised along with Azerigaz. This is under a plan adopted in 2000, after a series of major power cuts, which called for three basic changes: (1) new incentives and a campaign to attract foreign investment into this sector, (2) creation of an independent power regulator, and (3) privatising the regional power networks.

The power sector has received priority in the country's development plan. Among projects now being implemented in the sector is a gas-based Combined Cycle Power Plant-II being built at Severnaya on the outskirts of Baku. With a capacity of 400 MW, this is the country's first gas-fired CC plant. It will replace Severnaya's 150 MW oil-fired station and is aimed to ensure stable power supply in the metropolitan area, cut air pollution and curb emission of toxic gases. The project has been financed partly by a loan of Y18,332m ($172m) from Japan Bank for International Cooperation  (JBIC), granted at the "most concessionary" interest rate of 0.75% for a 40-year repayment period including a 10-year grace period. The oil-fired plant has been upgraded and mostly rebuilt by Mitsui and Mitsubishi Heavy Industries (MHI) under a contract with AzerEnerji.

The Baku Thermal Power Plant has been revamped and expanded by ABB and Alstom under turnkey contracts signed in early 1999 and late 2000, respectively. This now has two new gas turbine cogeneration units with a combined capacity of 110 MW and 400 tons per hour steam. Completed in 2001, it supplies heat and power to the Baku regineries, other industrial customers and households in the capital.

Hydro-power generating capacity available in Azerbaijan now is limited to about 300,000 tons/year of oil equivalent, compared to 400,000 t/yoe in 1991-95.

AzerEnerji has received two sovereign loans from the European Bank for Reconstruction and Development (EBRD) worth about $60m for two projects: (1) to help complete the Yenikend hydro-power plant on the Kura River, which will enable Baku to raise fuel oil exports and reduce the amount of gas needed for this sector; and (2) to develop the legal and regulatory framework for the sector, raise hydro-power generating capacity and improve Azerenerji's management and monitoring systems.

The EBRD loans and aid from other multilateral agencies, including the Islamic Development Bank, were to help Azerenerji acquire computers, modern communications equipment, electric metres and spare parts. They were also to help replace three generators at the Mingechaur hydro-power plant on the Rura River to reduce pollution in that area. Sumitomo Corp. is to install a wind-power plant for Azerenergy on the Absheron Peninsula where supply of wind is abundant.

In addition, EBRD is helping in a programme to privatise Bages, the major power distributor, and the distribution network of the Baku Power Co.

However, both Azerigas and AzerEnergi are heavily indebted to their fuel suppliers including Socar. The two companies are also owed considerable amounts by domestic and industrial customers.

Coal consumption in Azerbaijan between 1987 and 1991 amounted to about 100,000 t/yoe. But coal consumption was stopped completely after the collapse of the Soviet Union at the end of 1991. Unlike several other former Soviet states, including Armenia, Azerbaijan has no nuclear power generating capacity.