BENEFITS OF THE PRIVATIZATION OF THE POWER DISTRIBUTION SYSTEM IN THE COUNTRY

Exclusive interview of Mr. Huseyin Arabul, the President of "Barmek Azerbaijan Electricity Network LLC"

Huseyin Arabul graduated from the Middle East Technical University (METU) in 1963, having Master of Science degree in Electrical engineering and electronics, in Ankara-Turkey. He has 40 years working experience in the field of electrical equipment manufacturing, contracting, power generation and distribution. He is a founder of "Emek", subsidiary of Barmek, (since 1968), Turkish Electromechanical Manufacturing Association and Electrical Distribution Association. Also, he was Deputy Chairman of the World Energy Council and Chaired the Turkish National Committee of the World Energy Council. Mr. Arabul is married to writer Ozel Arabul and has two sons and a daughter.

Mr. Arabul, Azerbaijan is the only country of the region where the experience of privatization of the electricity distribution system was successful. What is your opinion about this approach?

When Barmek began its mission in Azerbaijan, the average yearly power consumption for Baku and Sumqayit was 10.5 bln kWhs.

Today, the world population is 6 bn. We should take into account that 1,6 bn of them have no access to electricity. The developed countries with 800 mln people consume 9000 T-Wh of electricity, while in developing countries 3,5 billion people consume only 3000 T-W of electricity per year. For instance, power consumption in China with 1,3 bn people is 1300 T-Wh per year. In Turkey 70 mln people consume 150 bln kwh per year and in Azerbaijan 8 mln people consumed 23 bln kwh electricity in 2004.

Annual losses of electricity in Turkey average to 21 %, including technical, commercial and undefinable losses. For Azerbaijan, this figure is above 60%. For both countries, these levels of losses are unacceptable.

A consumer has a right to demand high-quality, regular and stable power supply. Low price and compliance with legal norms should be added to those requirements. Who and how can provide such services?

The governments in the world, which provided electricity distribution services formerly, could not stand this unbearable load. Therefore, specific models were developed, which are able to provide consumer satisfaction and consider appropriate directives and power use policy. Determinate actions of international financial institutions sometimes may accelerate the progress of the model development. Due to the lack of competency of Turkish decision makers, these opportunities were lost in most cases. The Privatization Law adopted in Turkey in 1984 probably was one of the first similar laws in the world. The privatization of the electricity networks, put out to tender in 1997, was canceled by the State High Administrative Court in 2004. As a result, Turkey lost at least 10 bln US dollars.

How effective is the model implemented in Azerbaijan?

Time will show the positive results of the transfer of the electricity distribution system under the management of private companies.

Discussions about the privatization of electricity distribution networks of Azerbaijan which started in 2000, were completed in November 2001 and resulted in implementation at the beginning of 2002. The opinion of Azerbaijan top decision makers and the national leader Heydar Aliyev's personal effective actions were very important in this issue.

Such innovations and modern technologies, as Oracle-based Customer Information System, Technical Procurement Database, ERP system, Geographic Information System, Meter Installation and Reading System, Meter Adjustment and Monitoring System, transformer repair and manufacturing, Call Center service, Mobile, cable and transformer centers maintenance and testing possibilities, Load Adjustment techniques, development of the Master Plan, measuring technologies of technical and non-technical losses, Payment Collection improvement methods, Automatic Meter Reading technologies, which were effectively implemented within a short period, allowed to improve the process management in power transmission and distribution.

This application is very important for power purchase and sale, and began a new period in this field for Azerbaijan.

In Turkey, many efforts were made to privatize the electricity distribution networks, but, unfortunately, they failed. Today, only Kaiseri city power distribution system is managed by a private company.

The model which has been chosen recently for implementation in Turkey, is similar to the model working in Azerbaijan now. Barmek began its activities in Azerbaijan at 24.00 December 31, 2001 - just two months after the signing of the Agreement on November 7, 2001. Within those two months, the distribution license, electricity purchase agreement, and agreement about the fixed energy tariff were made. Due diligence was conducted during the first year of the operation, which helped to determine the levels of losses and status of equipment. A feasibility study including 3 years investment program was prepared and came into effect after the approval from the Ministry of Economic Development. Each year Barmek updates its investment programs for the next three years. The required investment programs and operational information is provided to the Ministry as necessary. Barmek maintains corporate transparency and reports to the public and relevant state organs and institutions via monthly press-conferences.

Our customers may learn their due charges and pay for the energy through internet and phone, as well as get diverse information about the electricity distribution at www.barmek.az.

What are the company's achievements in Azerbaijan and what are your prospective plans about the future?

It is our fourth year in Azerbaijan. Last year we achieved a strong performance increase in all the fields of our operations. For comparison, in 2002 the energy consumption for Baku was 5.3 bln kWh and collection was 321.63 bln AZM, while in 2004 these figures approached 6.4 bln kWh and 496.4 bln AZM, respectively. Along with these, the number of the registered customers (subscribers) increased from 438,623 in 2001 to 540,500 in 2004, and average salaries of our employees increased by 2.5 and reached $225. The company's investments to Baku Electricity Distribution Network were AZM 40.5 bln in 2002, 62.5 bln in 2003 and 68.3 bln in 2004. The number of 6-10 kV substations was reached 3254 units, which means 405 substations or 12.45% increase, the number of 20-35 kV substations increased to 144 units (20 units or 13.89% increase), and the number of 110 kV substations rose to 30 units (8 units, or 26.67% increase). Additionally, the company replaced hundreds kilometers of cables, upgraded and assembled hundreds of transformers and carried out many other operations.

For the years of operation in Azerbaijan Barmek managed to familiarize with the social situation, culture, and positive and negative habits of the customers. The Company will not stop on the achievements, and is going to implement other innovations related with the power distribution.

Energy distribution is a public activity. It is very important to create appropriate conditions for energy generation, transmission and distribution, fair and transparent work, provision of regular and stable electricity and, by doing so, winning our customer' satisfaction.

It is noteworthy that the reduction of electricity cost in Azerbaijan is one of the paramount problems of the power system. We should remember that 1 kWh of electricity in Azerbaijan costs 380-400 gr of fuel, which is twice more than similar European standards.

In future, we are planning to bring into discussion such matters as energy price reduction for industrial consumers in case this sector passes to the multitariff system; using various types of standardizations; necessity of the equipment, complying with all the international standards; establishment of the National commission for the prudent use of electricity and National Energy Council, consisting of the persons involved in this field; joining the World Energy Council and others.

Which actions are necessary to ensure no-failure operation of Baku electricity network?

It is accepted, that the variation of energy consumption between winter and summer seasons is normally about 25-30%. But it is absurd when this variation reaches 97% as it is in Baku. 70% of this variation is due to drastic fall of temperature and deficit of natural gas that cause inoperation of heating systems, the most part of the energy being consumed by the rural areas. If even Baku electricity network sustains the required load next winter, it is not the same about the substations and transmission lines of "Azerenerji" JSC.

In 2004, Barmek issued specifications for 170,392 kWt, and in the early 2005 for 75,038 kWt. Considering this and noting that 2005 and 2006 winter will bring more problems than in 2004, it is necessary to develop a plan of co-operation between the energy generating and energy distributing companies. It would be useful to submit this plan to the attention of consumers.

Fulfillment of engagements from Barmek can not solve the energy problems of Baku. In this relation, we think that our investment program for Baku distribution network should be implemented alongside with the development program for gas distribution system, and Baku's Development Plan for 25 years should be developed, based on which Energy Supply Master Plan can be prepared. In future, illegal use of energy should be penalized stricter than now. Besides, licenses for civil construction should not be issued before appropriate energy use specifications are obtained. Each consumer should use energy in close compliance with the issued specifications, otherwise we can fail to implement effective investment program. Today, it became necessary to toughen punitive measures for non-payment and violation of energy use policy. Also, special instructions and other legal and reference documents should be prepared as soon as possible, which would define the rights, responsibilities and relations between energy generating, transmitting, distributing agencies and consumers.

We all know how much support President Ilham Aliyev gives to the development of private business in the country. But, new working places require stable and high-quality energy supply. Considering the existing potential of Azerbaijan, problems with the energy supply are unacceptable. If correct attitude to the energy management is created, 21 bln kWhs energy per year at rated voltage and 50 Hz frequency may be sufficient to meet the energy need of Azerbaijan. High cost of energy generation is the subject for a separate discussion. Now this energy sector is subsidized by the Government.

Today, our main problems concern dispatching, transmission, transformation and distribution of energy, and load management. To cope with those, Azerbaijan government should pursue uniform energy policy, especially in the power industry. The parties should base their activity on that policy, civil code and transparency principles.

To assist the development and implementation of national energy policy, the Azerbaijan National Energy Council should be established with involvement of power generating, transmitting and distributing agencies, private companies, appropriate state organs, universities, scientific research institutes, scientific-and-production companies and professionals. It would be more useful to arrange this work together with the authoritative organs of the energy sector. An official Order is needed to approve establishment of working groups and assignment of the Council members.

The Council should meet once a year during first 5 years, and twice a year in future. The Council should be entitled to discuss all problems of energy sector independently from the Cabinet, and plan its work prospectively. The decisions and conclusions of the Council should serve as guidance for the decision-makers. The Council should join the World Energy Council. This model has been successfully implemented in Turkey since 1949, for instance, the decisions of the Turkish National Energy Council vectored the development of Turkey's energy sector.

Thanks for your interview.