VZCZCXRO3006
RR RUEHDBU
DE RUEHKB #0039 0091235
ZNY CCCCC ZZH
R 091235Z JAN 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 2152
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1933
RHMFISS/CDR USEUCOM VAIHINGEN GE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L BAKU 00039 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/CARC AND EUR/IO/EX 
E.O. 12958: DECL: 01/10/2017 
TAGS: ECON AMGT EID EFIN ETRD EPET ENRG AFIN AJ
SUBJECT: AZEBAIJAN: GOVERNMENT RAISES PRICES ON FUEL AND 
KEYGOODS AND SERVICES BY MORE THAN FIFTY PERCENT 
 
Classified By: Charge D'Affaires Jason Hyland per reasons 1.4 (B, D) 
 
¶1. (U)  On January 7 the Government of Azerbaijan (GOAJ) 
increased prices for fuel (gasoline and diesel oil), 
electricity, water, sewage and industrial use of gas.  The 
new fuel tariffs are on average 50 percent higher.  The new 
prices are as follows (USD 1 equals 0.88 manats): 
 
-Gasoline 95 octane (one liter) costs 60 qapiks, an increase 
of 48 percent (USD 69 cents, up from 46.5 cents) 
-Gasoline 92 octane costs 55 qapiks, an increase of 50 
percent (USD 63 cents, up from 41 cents) 
-Gasoline 80 octane costs 55 qapiks, an increase of 50 
percent (USD 63 cents, up from 41 cents) 
-Diesel oil costs 45 qapiks, an increase of 27 percent (USD 
52 cents, up from 41 cents) 
-Kerosene costs 45 qapiks (USD 55 cents, up from 31 cents) 
-The price of electricity was also raised to 6 qapiks, an 
increase of 200 percent (USD 6.9 cents per 1 kWh, up from 2.3 
cents per 1 kWh) 
-The price of water increased to 1.32 qapik per six cubic 
meters (USD 2.6 cents, up from 2.2 cents per 12 cubic meters) 
 
¶2. (U) Oqtay Akhverdiyev, the head of the Economic Department 
at the Cabinet of Ministers told the local press that by 
increasing the prices for utilities, the GOAJ made a very 
strategic decision trying to apply international standards in 
Azerbaijan. He also told the press that  because the price 
hike will raise the CPI index, the GOAJ will most probably 
increase its average salary level at least 50 percent in the 
near future. 
 
¶3. (U) Local think-tank economic analyst Ingilab Akhmedov 
considers that the GOAJ's decision to raise utility prices 
had a "price-shock" effect on population, since prices for 
all the basic and essential household components will 
increase as a result of the increased fuel and electricity 
costs.  Akhemdov believes the increased fuel and electricity 
costs also will result in a hike in  prices for other goods 
and services.  He worried that the impact will be 
particularly difficult on the poor, especially people living 
on pensions. Akhmedov indicated that the GOAJ will probably 
introduce some compensation mechanisms through salary and 
social payments increases, in order to maintain some standard 
of living for the population.  The price hikes are the number 
one topic of discussion among Azerbaijanis now. 
 
¶4. (C) COMMENT: This recent price increase, a long pending 
policy recommendation by the International Monetary Fund, 
will ripple through the economy in the coming months as 
general prices increase for a variety of consumer goods and 
services.  For other price-controlled goods, such as bread, 
that will now have higher input costs, producers will be 
forced to accept some of the costs, reducing profitability. 
In mid-2006 Minister of Economic Development Heydar Babayev 
began talking about improving collection of public utility 
fees from consumers. It is unsure whether the GOAJ has the 
means to collect the tariffs.  In addition, some opposition 
politicians have called for public demonstrations protesting 
the price increase.  To date, there has been no public 
protests. 
 
¶5. (C)  COMMENT CONTINUED: Possibly to deflect public 
criticism, government officials have already publicly linked 
the increase to Russia's decision to raise the price of 
natural gas sold to Azerbaijan to USD 235 per thousand 
meters.  The increase in prices most likely occurred in early 
2007 more for domestic political reasons than economic. 
Unlike 2006 (re-run Parliamentary and municipal elections) 
and 2008 (Presidential elections), 2007 does not have any 
politically sensitive events that would make the GOAJ rethink 
any major policy changes.  By blaming the recent natural gas 
increase by Gazprom for the gasoline and utility price 
increases, the GOAJ finds a generally acceptable and 
believable scapegoat. END COMMENT. 
HYLAND