BUSINESS AND INVESTMENT OPPORTUNITIES IN ENERGY SECTOR OF AZERBAIJAN. Subsectors: Oil and Gas Electricity

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1 BUSINESS AND INVESTMENT OPPORTUNITIES IN ENERGY SECTOR OF AZERBAIJAN Subsectors: Oil and Gas Electricity

2 OIL&GAS SECTOR 60,0 Production * 50,0 40,0 30,0 20,0 8 10,0 * Statte 0, Oil, bln.ton 32,3 42,6 44,5 50,4 50,8 45,6 43,4 43,5 42,1 41,6 Gas, bln.cub.m 9,1 16,9 23,4 23,6 26,3 25,7 26,8 29,2 29,6 29,2 *State Statistical Committee

3 Largest fields Azeri-Chirag-Deepwater Gunashli (ACG) Largest oil field is located about 120km east of Baku in the Azerbaijan sector of the Caspian basin ACG is a complex of six production platforms: Chirag 1, Central Azeri, West Azeri, East Azeri, Deepwater Gunashli, West Chirag The Production Sharing Agreement (PSA) signed in September 20, 1994 in Baku by the Government of Azerbaijan and a consortium of 11 foreign oil companies operated by BP on behalf of the Azerbaijan International Operating Company (AIOC) Shahdeniz Largest gas-condensate field located 70 km south-east of Baku operated by BP on behalf of its partners in the Shahdeniz Production Sharing Agreement (PSA). over 1 trillion cubic meters of gas in place

4 Ongoing projects Shahdeniz-2 Phase South Caucasus Pipeline Expansion (SCPX) Trans Anatolian Pipeline (TANAP) Trans Adriatic Pipeline (TAP) These 4 projects are part of The Southern Gas Corridor infrastructure project that aimed at improving the security and diversity of the EU s energy supply by bringing natural gas from the Caspian region to Europe. It is comprised of several separate energy projects representing a total investment of approximately US$45 billion.

5 Major players State SOCAR - The State Oil Company of the Azerbaijan Republic is involved in exploring oil and gas fields, producing, processing, and transporting oil, gas, and gas condensate, marketing petroleum and petrochemical products in domestic and international markets, and supplying natural gas to industry and the public in Azerbaijan. Private BP, Statoil,Total, Chevron, TPAO, Itocu, Exxon, etc.

6 ELECTRICITY SECTOR POWER SYSTEM Includes 14 thermal and 17 hydropower plants. The installed capacity of the power system is more than 7 GW; High-voltage power networks include substation and line voltages of 110, 220, 330 and 500 kv. The total length of high-voltage lines is about 9590 km.

7 Power generation 30,0 bln. kwh 25,0 20,0 15,0 10,0 5,0 0, Total 24,5 21,8 21,6 18,9 18,7 20,3 23,0 23,4 24,7 24,7 Thermal 21,4 19,1 19,1 16,3 15,0 17,3 19,5 20,1 21,4 20,9 Hydro 2,5 2,4 2,2 2,3 3,4 2,7 1,8 1,5 1,3 1,6 *State Statistical Committee

8 Major players Generation and transmission «Azerenergy OJSC» - state power engineering enterprise carrying out of energy production, import-export and energy system management Distribution «Azerishiq" OJSC» - state operator on the electricity distribution network in Azerbaijan.

9 INVESTMENT CLIMATE Regulating by laws and regulatory documents that aim to: Protect rights and interests of investors Protect inviolability of property Create equal conditions for local and foreign entrepreneurs LEGAL FRAMEWORK Law on Investment activity Law on Foreign Investment Protection Law on Suspension of inspections in the field of entrepreneurship

10 New step in investment promotion Presidential Decree on Additional measures to Promote Investments dated January 18, 2016 endorsing the Regulations on providing a document (The Investment Certificate) which encourages investment in Azerbaijan The Investment Certificate can be obtained by individuals and legal entities to obtain tax and customs privileges. Investment Certificate holders will be exempt for 7 years from paying customs duties and value added tax on machinery, technological equipment and devices imported for investment purposes in priority industries of the economy (as determined by the government of the Republic of Azerbaijan).

11 LICENSES AND PERMITS Ministry of Energy issues licenses and special permits for the following activities: Sale of oil and gas products; Special permit for export, import, re-export, re-import and transit of goods (works, services, intellectual activity results) that under Ministry of Energy authority and subject to export control; Special permits for extraction of precious stones, extraction and processing of gold and other precious metals, crude oil, petroleum products and natural gas, oil and oil products waste processing means turnover; Certificate for applying of special economic regime for contractors and subcontractors engaged in oil and gas export activities.

12 TARIFFS Domestic wholesale and retail tariffs are regulated by Tariff Council and reflected in the following tables: Table 1. Processing, transportation, wholesale and retail tariffs of natural gas Services Tariffs (AZN/thousand m 3 ) Natural gas processing 5,5 Natural gas transportation ( for every 100 km 2,0 distance) Wholesale of natural gas to gas distributors 42,0 Retail of natural gas 100,0 Sale of natural gas to chemistry, aluminum enterprises, steel foundry on the base of mining ore, as well as, electricity generating enterprises consuming natural gas for the purpose of production by connecting to gas main directly ( on condition that monthly consumption is not under 10 billion m 3 ) 80,0

13 Table 2: Domestic tariffs of some oil products Products Company tariffs Excise Tariffs (including VAT) level amount supply wholesale retail AZN/ton % AZN/ton AZN/ton AZN/ton AZN/ton AZN/liter Car petrol (AI-95) 482,12 64,0 308,56 15,0 948,0 1048,0 0,80 Car petrol (AI-92) 411,91 65,0 267,74 15,0 817,0 917,0 0,70 Car petrol(ai-80) 409,43 66,0 270,22 15,0 817,0 917,0 0,70 Diesel fuel 430,19 18,0 77,43 15,0 614,0 714,0 0,60 Jet fuel 338,20 9,0 30,44 15,0 450,0 NAFTA (the initial processing petrol) 224,99 13,0 29,25 300,0 Liquefied natural gas 208,39 22,0 45,85 300,0

14 OPPORTUNITIES For companies: Subcontractor projects Procurement supply Construction Reconstruction Attending annual exhibitions Caspian Oil&Gas Caspian Power&Alternative energy For individuals: Jobs Skilled professionals (such as mechanical, instrument, production and electrical technicians, engineers)

15 Useful links For business: SOCAR Procurement Supply Azerishig - Power Stations Reconstruction Tender Ads TANAP Investment Programs TAP Project Opportunities for Companies Doing Business with BP Azerbaijan-Georgia-Turkey For participation in exhibitions Caspian Oil&Gas Exhibition Caspian Power&Alternative energy exhibition Country reports Doing Business 2017 Azerbaijan EITI Azerbaijan reports