Publication: Eurasia Daily Monitor Volume: 3 Issue: 9

The new year has brought new economic surprises for the average Azerbaijani citizen. The Council on Tariffs decided on January 6 to double the price of diesel fuel (from 20 cents per liter to 40 cents), giving it the same price tag as regular gasoline. Prices for light kerosene, airplane kerosene, and household heating fuel have also increased. The head of the Council, Minister of Economic Development Heydar Babayev, explained that the government sought to reduce subsidies in the energy sector as well as to prevent the smuggling of diesel fuel into neighboring countries (Trend News Agency, January 6). “Because the price of diesel is higher in Georgia and Russia than in Azerbaijan, state-funded organizations and companies are smuggling diesel into these countries,” he claimed (AzTV, January 7). The government should bring in an additional $85 million from these financial measures.

Yet this rational explanation found little sympathy among ordinary citizens. The price increase especially hit minibus drivers in Baku, as most of them used the cheaper diesel fuel in order to make a small profit. Immediately, fare prices increased from 500 manats to 1,000 manats, even though the Department of Transportation had prohibited uncontrolled fare hikes. Drivers, in turn, complained that the price jump makes it impossible to continue their work. Gun Seher reported on January 11 that several hundred drivers in Baku’s Banagadi district staged a picket and are refusing to drive the minibuses until the issue is resolved. “They [government officials] make laws and these laws crack down on the heads of ordinary people,” one driver complained to ATV on January 8. Meanwhile, the Department of Transportation has sent a formal request to the Council on Tariffs to permit the increase of ticket prices (, January 7). Moreover, the price of metro tickets and Azerbaijan Airlines flights likely will also increase, as the two companies have sent similar letters to the Cabinet of Ministers.

In addition to the transportation sector, the energy price hikes have also affected the agricultural sector. Most of the machinery out in the fields operates on diesel, creating the potential for the price increase to have a ripple effect on agricultural products in the markets. Babayev even admitted that the price increase for the diesel would lead to the inflation (, January 7). The government plans to cap the inflation rate of Azerbaijan’s overheated, booming economy at 10% in 2006, yet many experts believe that will be impossible. Ali Masimov, a legislator and expert on economic issues said, “It was known long before that the price increase of the fuel will lead to the increase of other goods prices and the general level of inflation” (, January 12).

Opposition parties immediately jumped at the opportunity to criticize the government for its latest actions. “The price increase on energy goods will make the Azerbaijani population even poorer,” declared a January 7 press release from the Popular Front Party. The opposition alliance Azadliq has also discussed the issue and condemned the actions by the Council on Tariffs.

In an effort to calm tensions, government officials announced a new wave of salary increases. Last year, the government increased the salaries of teachers, police officers, and doctors in what opposition parties claimed was a campaign stunt. Obviously, these measures, coupled with the GDP growth of 25% in 2005, have fueled inflation.

Some local analysts do not rule out links between the government move and the recent deal signed between Azerbaijan and the Russian gas provider Gazprom. According to this new agreement, Azerbaijan must buy gas from Russia at the increased price of $110 per 1,000 cubic meters as opposed to $60, which it had paid until last year. Although government officials stated that the price increase for the Russian gas would not affect the average customer and that the government would subsidize the difference, these latest actions by the Council on Tariffs suggest otherwise. In an effort to diversify suppliers and reduce dependence on Russia, Azerbaijan has also agreed to purchase gas from Iran, mainly for its exclave of Nakhichevan. The start of the new gas delivery system from Iran to Nakhichevan took place two weeks ago with the presidents of Azerbaijan and Iran present.

The domestic situation in Azerbaijan will remain tense for most of the winter, but Azerbaijani citizens will have no other choice but to become accustomed to the new reality. With no elections scheduled for 2006, the government has little reason to worry about its reputation.