Foreign Actors’ Influence on Azerbaijan’s Energy Policy: Decisions under Complex Uncertainty

485 Pages·2016·3.61 MB·English

by  Tina Flegel (auth.)

Foreign Actors’ Infl uence on Azerbaijan’s
Energy Policy
Tina Flegel
Foreign Actors’ Infl uence
on Azerbaijan’s Energy
Policy
Decisions under
Complex Uncertainty
Tina Flegel
Mannheim, Germany
This publication largely corresponds to the doctoral thesis “Decisions under Complex
Uncertainty – Foreign Actors’ In(cid:192) uence on Azerbaijan’s Energy Policy”, submitted in
spring 2014 to the Otto-Suhr Institut for Political Science of the Freie Universität Ber-
lin.
ISBN 978-3-658-11403-9 ISBN 978-3-658-11404-6 (eBook)
DOI 10.1007/978-3-658-11404-6
Library of Congress Control Number: 2015951777
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Danke, Mama.
Contents

Tables .................................................................................................................. 9
Figures .............................................................................................................. 10
Abbreviations .................................................................................................... 12

1 Introduction ............................................................................................. 15
1.1 Research object ................................................................................. 18
1.2 Current state of research ................................................................... 21
1.3 Cognitive interest and theoretical premises ...................................... 27
1.3.1 Complexity ................................................................................ 28
1.3.2 Uncertainty ................................................................................ 29
1.3.3 Successful influence .................................................................. 30
1.4 Structure ............................................................................................ 33

2 Motivation and ability to act and influence .......................................... 35
2.1 Rationality in complex systems ........................................................ 35
2.1.1 Interests ..................................................................................... 38
2.1.2 Institutions ................................................................................ 41
2.1.3 Handling uncertainty in the real world ...................................... 45
2.1.4 Summary ................................................................................... 51
2.2 Power of collective actors in complex systems ................................. 52
2.2.1 Ideational power ........................................................................ 53
2.2.2 Organizational Power ................................................................ 64
2.2.3 Summary ................................................................................... 77
2.3 Hypotheses ........................................................................................ 79

3 Method ..................................................................................................... 83
3.1 Case selection ................................................................................... 83
3.2 Sources of information and data quality ........................................... 85
3.3 Availability and reliability of data .................................................... 86
3.4 Interpretation of information ............................................................. 87
3.4.1 Assessment of ideational power ................................................ 88
3.4.2 Assessment of aspects of organizational power ........................ 89

4 Country Analysis ................................................................................... 101
4.1 Bureaucratic competence ................................................................ 102
8 Contents
4.1.1 Quantitative assessments at macro-level ................................. 102
4.1.2 Input ........................................................................................ 110
4.2 Economic Analysis ......................................................................... 122
4.2.1 Macroeconomic development ................................................. 123
4.2.2 Structure of the economy ........................................................ 148
4.3 Political resolve ............................................................................... 157
4.3.1 Azerbaijan’s political configuration ........................................ 157
4.3.2 Democracy .............................................................................. 165
4.3.3 Rule of law .............................................................................. 173
4.4 Effectiveness ................................................................................... 175
4.4.1 Policy-making ......................................................................... 176
4.4.2 Budget ..................................................................................... 191
4.5 Ideological power of the regime ..................................................... 208
4.5.1 Political culture ....................................................................... 209
4.5.2 Satisfaction with state performance ........................................ 219
4.6 Politics ............................................................................................ 222
4.6.1 Political narratives .................................................................. 222
4.6.2 Interplay of interests ............................................................... 237
4.6.3 Political action space in due to uncertainty ............................. 250

5 Energy policy and politics .................................................................... 255
5.1 Azerbaijan’s energy sector .............................................................. 258
5.1.1 Trends ..................................................................................... 258
5.1.2 Policy and regulation .............................................................. 273
5.1.3 Players ..................................................................................... 279
5.2 Private influence in uncertain conditions ........................................ 296
5.2.1 Natural gas transport ............................................................... 297
5.2.2 Barmek .................................................................................... 319
5.3 Making Azerbaijan sustainable through initiatives ......................... 339
5.3.1 The Extractive Industries Transparency Initiative .................. 341
5.3.2 The Global Gas Flaring Reduction Initiative .......................... 362
5.4 Reflection of the cases .................................................................... 384
5.4.1 Patterns ................................................................................... 384
5.4.2 State capacity .......................................................................... 394

6 Summary and conclusion ..................................................................... 397

Bibliography ................................................................................................... 413
Annex .............................................................................................................. 485
Tables

Table 1: Azerbaijan against the Income Category Average 2012 ............. 104
Table 2: The World Bank Ease of Doing Business Ranking ..................... 105
Table 3: Country Policy and Institutional Assessment Azerbaijan ........... 106
Table 4: Bertelsmann Transformation Index 2003 – 2012 ........................ 108
Table 5: Shadow economy in Azerbaijan 1999 – 2007 ............................. 117
Table 6: Shadow economy estimates (percentage of GDP) in Azerbaijan 117
Table 7: Effect of Crossing the value added tax (VAT) threshold on tax
burden (AZN) using statutory tax rates (STR) ............................ 118
Table 8: Oil and non-oil GDP growth ....................................................... 132
Table 9: Designation of financial credits (million USD) .......................... 147
Table 10: Trust in law enforcement ............................................................ 173
Table 11: Azerbaijan's HDI rank ................................................................. 176
Table 12: Policy Index for Azerbaijan ........................................................ 177
Table 13: SPRSD policy target against real developments ......................... 181
Table 14: Poverty levels for the Republic of Azerbaijan ............................ 181
Table 15: Minimum cost of living in Azerbaijan (AZN / month) ............... 182
Table 16: Infant mortality / 1000 live births in Azerbaijan ......................... 183
Table 17: Infant mortality / 1000 live births in the EU ............................... 183
Table 18: Electricity prices in Azerbaijan per kWh .................................... 189
Table 19: Executed budget in Azerbaijan 2005 – 2012 (million AZN) ...... 195
Table 20: Deaths in the armed forces January 1st to November 7th, 2012 ... 207
Table 21: Nations in Transit ratings and averaged Scores .......................... 210
Table 22: Trust in various political institutions ........................................... 218
Table 23: Trust in 'Western' organizations in Azerbaijan ........................... 247
Table 24: Thermal power plants operated by Azerenerji ............................ 265
Table 25: Oil and gas in Azerbaijan 2011 ................................................... 271
Table 26: Estimated gas and NGL reserves in selected fields in Azerbaijan 272
Table 27: Trade and other receivables, gross end of… (million AZN) ........ 288
Table 28: SOCAR's income and contributions to the GoA (million AZN) . 289
Table 29: Number of employees of SOCAR ............................................... 289
Table 30: Overview of pipeline proposals, shareholder as of June 2013 .... 310
Table 31: Projected payment levels of the distributing companies (percent) 326
Table 32: Approximate payments by Barmek (million USD) ..................... 331
Table 33: Aggregate information from Azerbaijan's EITI reports .............. 347
Table 34: Oil and gas production and approximate flaring / venting .......... 368
Table 35: Planned Budget of the Republic of Azerbaijan (2003 – 2013) .... 485
Figures

Figure 1: “Linkages among rules and levels of analysis” ............................. 42
Figure 2: WGI Azerbaijan 2002 – 2012 ..................................................... 103
Figure 3: Knowledge Assessment Methodology Indicators for Azerbaijan 121
Figure 4: Exchange rates of 1 AZN ............................................................ 125
Figure 5: Azerbaijan’s GDP ....................................................................... 129
Figure 6: Foreign investments in Azerbaijan (billion USD) ....................... 130
Figure 7: GDP dynamics (% based on constant 2005 USD and AZN) ...... 131
Figure 8: Public and domestic investment .................................................. 133
Figure 9: Share of oil sector investments of ... (%) and of total
investments ................................................................................. 134
Figure 10: GNI to GDP (%) in Azerbaijan ................................................... 135
Figure 11: Inflation, consumer prices (annual %) in Azerbaijan .................. 135
Figure 12: Government and household final consumption in Azerbaijan .... 136
Figure 13: Forecast of economic growth in Azerbaijan ............................... 137
Figure 14: Transition indicators for Azerbaijan ........................................... 138
Figure 15: Azerbaijan’s reliance on natural resources ................................. 140
Figure 16: Azerbaijan’s oil and gas production ............................................ 141
Figure 17: The GoA's income from oil and gas ............................................ 142
Figure 18: Prices achieved for Azeri Light by SOCAR ............................... 143
Figure 19: Crude oil and natural gas prices in Europe ................................. 145
Figure 20: Natural gas commercial production in Azerbaijan ...................... 146
Figure 21: Companies fully owned by Azersun Holding (2010) .................. 154
Figure 22: Azerbaijan's HDI value ............................................................... 175
Figure 23: Azerenerji’s load dispatch on 06/28/09 (l) and 01/16/2009 (r) ... 190
Figure 24: Total investment needs for infrastructure (million USD) ........... 197
Figure 25: Volume of arms imports to Azerbaijan (millions of SIPRI trend
indicator values (TIVs)) for conventional weapons by country .. 202
Figure 26: Volume of arms imports to Azerbaijan (% of millions of SIPRI
TIVs) for conventional weapons by country ............................... 203
Figure 27: “Fairness of the most recent national elections” ......................... 212
Figure 28: Agreement with statement: “It is important for a good citizen
to“ ................................................................................................ 213
Figure 29: Economic situation in Azerbaijan ............................................... 219
Figure 30: General contentment in Azerbaijan ............................................. 221
Figure 31: Development of Azerbaijan's GDP and GNI .............................. 232
Figure 32: Natural resource rents (USD) and a country’s level of human
development (HDI) ..................................................................... 239
Figures 11
Figure 33: Primary energy production, trade and supply in Azerbaijan ....... 259
Figure 34: Primary energy supply and total final energy consumption by
energy source in Azerbaijan ........................................................ 260
Figure 35: Primary energy supply and final energy consumption by sector
in Azerbaijan ............................................................................... 261
Figure 36: Electricity output by source and electricity demand in
Azerbaijan ................................................................................... 262
Figure 37: Efficiency of the heat and power sectors in Azerbaijan
(Petajoule) ................................................................................... 264
Figure 38: Electricity consumption by sector in Azerbaijan ........................ 266
Figure 39: Natural gas use in Azerbaijan ..................................................... 267
Figure 40: Crude oil and NGL in Azerbaijan ............................................... 268
Figure 41: Oil products in Azerbaijan .......................................................... 270
Figure 42: Balance of the selected crude oil and oil products in Azerbaijan 271
Figure 43: Energy intensity of the economy and estimated energy intensity
of economic sectors in Azerbaijan .............................................. 274
Figure 44: Quality of the electricity sector framework in Azerbaijan .......... 276
Figure 45: Quality of the gas sector regulatory framework in Azerbaijan ... 277
Figure 46: SOCAR 2011 .............................................................................. 282
Figure 47: Oil and gas production in Azerbaijan total and by SOCAR ........ 287
Figure 48: Proven natural gas reserves ......................................................... 299
Figure 49: European Union 25 gas supply and consumption ....................... 304
Figure 50: Turkey’s operational long term natural gas contracts
(as of 2009) ................................................................................. 306
Figure 51: Azerbaijani natural gas potentially available for Europe ............ 312
Figure 52: Cash flows in the electricity sector ............................................. 327
Figure 53: EITI validation process ............................................................... 345
Figure 54: Exemplary overview of EITI output in Azerbaijan 2008
onwards ....................................................................................... 346
Figure 55: SOFAZ: assets, revenues and expenses 2001-2012
(million USD) ............................................................................. 352
Figure 56: Re-injection level of associated gas in Azerbaijan (bcm) ........... 371
Figure 57: Azerbaijan's gas imports by source ............................................. 382