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Azerbaijan: Caspian Region Faces Fuel Shortages

As oil-rich Azerbaijan suffers fuel shortages and rations electricity, the government has charged its top energy officials with corruption. But the problems in the country go far deeper and call for a regional energy solution.

Boston, 3 February 2000 (RFE/RL) -- These may be perilous times for energy officials in the Caspian region. Within the past week, the presidents of both Azerbaijan and Turkmenistan have fired top officials who were responsible for managing their countries' energy affairs.

In Azerbaijan, President Heidar Aliyev sacked the acting president of state-owned Azerigaz and the vice president of the electricity company Azerenerji after blaming them for power shortages. In a televised meeting, Aliyev cited "corruption and irresponsible behavior by state employees" as electricity rationing was imposed throughout the country last week.

In recent days, government ministers and leaders of the state oil company SOCAR have tried to explain the energy shortages in a country that has been at the center of international oil investment for the past five years.

While Azerbaijan's foreign partners in the Caspian have been exporting up to 115,000 barrels of crude oil per day, the country has run out of fuel oil to fire its power plants.

The head of the state oil company SOCAR has suggested that Azerbaijan may now have to import crude oil to refine into fuel oil. SOCAR has already ended exports of its own crude through the Russian port of Novorossiysk. Azerbaijan has sought relief by increasing electricity imports from Iran.

The crisis has placed Azerbaijan in the uncomfortable position of turning to Turkmenistan for additional fuel oil. But Turkmenistan has reportedly said that it lacks the supplies because it has also been exporting crude for cash.

Turkmenistan created its own turmoil this week after President Saparmurat Niyazov fired his top energy official, Deputy Prime Minister and Energy Minister Saparmurat Nuryev, for alleged corruption. But even without the latest trouble in Niyazov's government, Baku's appeal for fuel could hardly have come at a more sensitive time.

Azerbaijan and Turkmenistan have been locked in a long struggle over plans to build a trans-Caspian gas pipeline to Turkey. Baku has demanded at least half the pipeline's capacity, citing its recent discoveries of huge gas reserves in the Caspian. But Azerbaijan's potential as a future gas exporter has not eased its current predicament.

While fuel supplies are low, there seem to be many explanations for Azerbaijan's problems, including a reported failure to collect up to 70 percent of its electricity bills in cash. President Aliyev cited alleged thefts of fuel oil and discrepancies in collection figures. But current gas shortages have also contributed the problem, despite the claims of new Caspian reserves.

Government officials said this week that Azerbaijan's power plants have been getting only 80 percent of the gas they require. The country produced only 6 billion cubic meters of gas last year, while its demand was estimated at 15 billion cubic meters. Without enough gas, power plants have also been running out of fuel oil. This is a problem that feeds on itself. Some regions report that they have redirected gas to heating plants after they have run out of oil. Azerbaijan had a surplus of fuel oil over the summer, but it has insufficient storage to make supplies last through the winter, officials said.

Last fall, several countries in the region including Russia and Ukraine suffered soaring gasoline prices due to shortages. Azerbaijan came to Ukraine's aid by supplying it with diesel fuel at harvest time. Now, Azerbaijan says it has been trading diesel for fuel oil.

In Kazakhstan, the government is forcing oil companies to sell over 20 percent of their production domestically at low prices due to similar problems. So far, Azerbaijan has not raised the possibility of buying oil from its own Western partners, probably because it would have to pay a high price to divert exports that are under contract.

Although officials may be blamed for corruption when fuel crises occur, the major issue appears to be an inability to manage petroleum resources wisely in the post-Soviet period. Despite Western investment, many countries have inherited Soviet refineries and infrastructure that were designed to keep them interdependent. They have yet to become self-sufficient in energy, despite their oil and gas reserves.

Caspian countries have been exporting as much as possible to earn foreign currency. But in their domestic markets, they continue to provide energy at subsidized rates. The competition between export profits and domestic demands provides a constant tension, even without the problems of Soviet legacy.

But the case of Azerbaijan may be particularly difficult because of its competition with Turkmenistan. After seeking dominance as a gateway both to the Caspian and Central Asia, Baku may now find it hard to negotiate for emergency fuel supplies.

Regional cooperation could ease energy shortages without interrupting oil exports, given Turkmenistan's huge gas supplies and the ability to swap either gas or electricity across borders. But in addition to their internal problems, the countries of the region have yet to rationalize their energy trade.

Azerbaijan's crisis could be an opportunity for fundamental rethinking of energy and trade relations in the region. But for that to happen, leaders will have to look beyond their attempts to find someone to blame.