Nurlan Mustafaev

The Regulation of Energy Trading in Azerbaijan
International Trade Law in the Region of the
Caucasus and Central Asia: Between Regional
Integration and Globalization
30-31 May 2013, Baku
Nurlan Mustafayev
Deputy Head of Division for Legal Support of International Project
Legal Department of SOCAR
Structure of Presentation
Energy Market Structure in Azerbaijan
Regulatory Framework
Trading in Oil and Gas
Trading in Electricity
Trading in Renewable Energy
Energy Market Structure of Azerbaijan:
The Main Features
• State monopoly on major industries (oil & gas,
electricity, water, utilities, telecommunications, transport
• The upstream petroleum sector is partially liberalized
with participation of IOCs in major projects, PSAs.
• Vertically integrated state-owned enterprises in energy
sector – SOCAR (incl. Azerigas) and Azerenergy OJSC
(production, transportation, refining, sales).
• Limited room for domestic energy trading
• Most energy trade occurs within and among the stateowned vertically-integrated companies;
• Price (tariff) regulation of the overall value chain in major
• External Energy trading (crude oil sales and GSAs with
Georgia, Turkey, Russia)
Some International Law Issues
• Can WTO be interpreted to cover energy markets
or energy trading?
• Does the Energy Charter Treaty oblige the member
states to have a liberilized energy market and
energy trading?
Regulatory State Authorities
• The Ministry of Industry and Energy - the central
executive authority implementing state policy and
regulation for the energy sector;
• Tariff Council establishes the tariff (price) (Incl.
energy) in regulated industries, proposes changes
to laws relating to pricing; and settles disputes on
price regulation and tariff application;
The Laws Regulating Energy Trading
• Charter of Tariff Council, 2005
• Numerous Resolutions of Tariff Council
• Rules of Ensuring State Control Over Setting and
Applying the Tariffs (Prices), 2005
• List of Goods (Works and Services), Prices
(Tariffs) Regulated By the State, 2005
• Law on Regulated Prices, 2003
• Law on Natural Monopolies, 2001
• Law on Electric-Power Industry, 1998
• Law on Gas Supply, 1999
Trading in Oil & Gas
• SOCAR has monopoly in production,
transportation, wholesale of crude oil and products
• Azerigas (SOCAR’s subsidiary) as monopolist gas
supplier is engaged in gas transportation,
distribution, sale and supply;
• Tariffs for certain oil and gas trading activities:
• (a) Wholesale and transportation prices of crude oil
• (b) Retail and wholesale prices of some oil
products and adjustment of excise amounts;
• (c) Wholesale, refining and transportation tariffs of
natural gas;
• (d) Retail tariffs of natural gas to end-consumers;
• (e) New natural gas processing tariffs;
Trading in Electricity
• Azerenergy OJSC, a 100% state-owned enterprise,
is engaged in the production, transmission,
distribution, purchase and sale of electricity in
• There is no wholesale electricity market.
• A uniform tariff for the population and other tariffs
for commercial and industrial enterprises:
• (a) tariff for purchase from electricity producer;
• (b) wholesale electricity sale tariff;
• (c) retail electricity sale tariff; and
• (d) export and import electricity tariff.
Trading in Renewable Energy
• The Agency for Renewable and Alternative Energy
Sources under the MIE
• State programme for the Development of
Alternative Energy (wind, solar , geothermal
waters, hydraulic and biomass energy)
• There is no established market for renewable
• The Tariff Council set tariffs for only wind energy
and mini hydro power
• There are no schemes of subsidies aimed to
encourage energy efficiency
• No specific obligations to purchase renewable