AZERBAIJAN FOLLOw-UP IN-DEPTH REVieW of the Investment Climate and Market Structure in the Energy Sector Energy Charter Secretariat ENERGY CHARTER ENERGY 2011 Disclaimer Information contained in this work has been obtained from sources believed to be reliable. However, neither the Energy Charter Secretariat nor its authors guarantee the accuracy or completeness of any information published herein, and neither the Energy Charter Secretariat nor its authors shall be responsible for any losses or damages arising from the use of this information or from any errors or omissions therein. This work is published with the understanding that the Energy Charter Secretariat and its authors are supplying the information, but are not attempting to render legal or other professional services. © Energy Charter Secretariat, 2011 Boulevard de la Woluwe, 56 B-1200 Brussels, Belgium ISBN: 978-905948-108-4 (English, PDF) Reproduction of this work, save where otherwise stated, is authorised, provided the source is acknowledged. All rights otherwise reserved. Table of Contents 1. INTRODUCTION...................................................................................................................... 6 2. POLICY CONCLUSIONS ADOPTED BY THE ENERGY CHARTER CONFERENCE.......................................................................................................................... 7 3. MAIN FINDINGS OF THE SECRETARIAT .......................................................................... 9 4. GENERAL INDICATORS...................................................................................................... 15 4.1. Size of the country, population and climate ................................................................... 15 4.2. State structure................................................................................................................. 17 4.3. Macroeconomic development......................................................................................... 20 4.4. General energy policy of the country ............................................................................. 26 5. LEGISLATIVE FRAMEWORK FOR ENERGY INVESTMENT ........................................ 28 5.1. Legislation relevant to investment in the energy sector ................................................. 28 5.1.1. Constitutional provisions.................................................................................. 28 5.1.2. Establishment of enterprises (national and foreign companies)....................... 28 5.1.3. Foreign investment legislation ......................................................................... 29 5.1.4. Legislation on land/immovable property/real estate ........................................ 30 5.1.5. Competition legislation .................................................................................... 31 5.1.6. Corporate taxation............................................................................................ 32 5.1.7. Legislation regulating conditions for entry for foreigners................................ 34 5.1.8. Foreign exchange and securities laws/regulations............................................ 35 5.1.9. Legislative basis regulating compensation for loses and expropriation..................................................................................................... 35 5.1.10. Legislative framework for privatisation ........................................................... 36 5.1.11. Legislation regulating the publishing of laws................................................... 37 5.1.12. Observance at sub-national levels .................................................................... 38 5.1.13. Intellectual property rights................................................................................ 38 5.2. Summary of laws/regulations for the energy sector ....................................................... 38 5.2.1. List of laws and regulations.............................................................................. 39 5.2.2. Plans to amend legislation ................................................................................ 39 5.3. Summary of participation in international organisations................................................ 40 5.4. Exceptions to national treatment .................................................................................... 40 6. ENERGY SECTOR – SUPPLY AND DEMAND SIDE ........................................................ 42 6.1.1. Institutional structure........................................................................................ 42 6.1.2. Supply and demand .......................................................................................... 43 6.1.3. Energy consumption by sectors........................................................................ 45 6.1.4. Energy prices, subsidies and plans for achieving market conditions ............... 47 7. ENERGY MARKET STRUCTURE BY SECTORS .............................................................. 51 7.1. Oil Sector........................................................................................................................ 51 7.1.1. Physical features............................................................................................... 51 7.1.2. Oil storage........................................................................................................ 53 7.1.3. Crude oil supply infrastructure......................................................................... 54 7.1.4. Refining ............................................................................................................ 56 3 7.1.5. Oil exports........................................................................................................ 58 7.1.6. Legislation specific to the sector ...................................................................... 60 7.1.7. Market structure monopolies............................................................................ 61 7.2. Natural gas sector........................................................................................................... 63 7.2.1. Physical features............................................................................................... 63 7.2.2. Natural gas exports........................................................................................... 65 7.2.3. Natural gas pipelines........................................................................................ 65 7.2.4. Gas storage....................................................................................................... 66 7.2.5. Legislation specific to the natural gas sector.................................................... 66 7.2.6. Market structure monopolies............................................................................ 67 7.2.7. Current opportunities for private investors....................................................... 69 7.3. Electricity sector............................................................................................................. 70 7.3.1. Physical features............................................................................................... 70 7.3.2. Legislation specific to the electricity sector ..................................................... 75 7.3.3. Market structure monopolies, privatisation...................................................... 77 7.3.4. Current opportunities for private investors....................................................... 79 7.4. RE Resources.................................................................................................................. 79 7.4.1. Legislation specific to RE sources ................................................................... 79 7.4.2. Biomass ............................................................................................................ 80 7.4.3. Wind energy..................................................................................................... 81 7.4.4. Solar energy...................................................................................................... 82 7.4.5. Geothermal power............................................................................................ 83 7.4.6. Hydropower potential....................................................................................... 84 7.5. District heating sector..................................................................................................... 85 7.5.1. General information.......................................................................................... 85 7.5.2. Legislation specific to the heating sector ......................................................... 86 7.5.3. Market structure monopolies............................................................................ 86 ANNEX 1 INTERNATIONAL AGREEMENTS FOR THE AVOIDANCE OF DOUBLE TAXATION .............................................................................. 88 ANNEX 2 LIST OF BITS OF AZERBAIJAN .................................................................. 89 ANNEX 3 EXCEPTIONS TO NATIONAL TREATMENT ............................................ 90 Table of Figures Figure 1 Map of Azerbaijan ..................................................................................................... 16 Figure 2 Structure of the judiciary system in Azerbaijan........................................................ 19 Figure 3 Economic growth and inflation................................................................................