The objectives of the TA are to assist the government of Azerbaijan to develop a financial recovery plan, establish a cost recovery tariff, and optimize tariff structure which will help the government meet the financial needs for independently and efficiently running the power sector utilities. The aim is to help the Azeri power sector achieve full cost recovery by 2022.
The current electricity tariffs in Azerbaijan are considerably lower than other countries in the region and the electricity sector relies heavily on government support. As of July 2016, the tariff was increased slightly but the increase is not enough to make the electricity sector financially sustainable. The PATA will ensure an adequate phased increase in the tariffs to meet the stated objectives of this Technical Assistance (TA) whilst also considering the limitations of the most vulnerable group of electricity consumers in Azerbaijan.
The expected outputs of the project are described below:
1. Calculate the real cost of electricity supply (power generation, transmission, and distribution).;
2. Design new tariff structure for power generation (including options for carbon pricing for thermal generation), transmission, and distribution, with differentiating tariffs for different customers and different generation sources;
3. Develop a financial recovery road map for a gradual increase in tariff, to achieve full cost recovery by 2022;
4. Undertake a public information campaign on tariff reform, case studies of good practices in other countries, and institutional strengthening.
- Review the efficiency and effectiveness of operational and administrative functions as determine cost of power generation, transmission and distribution
- Review and detail the capital investment requirements of generation, transmission and distribution businesses for the period 2016-2025
- Review the current tariff setting policies and methods as input to developing a new tariff methodology and tariff levels for different categories of consumers and for transfer pricing
- Prepare financial projections for the supply of electricity to consumers during the period 2016-2025 based on existing tariffs
- Conduct an analysis of the revenue requirements and efficiency measures needed to meet the projected cost of electricity supply
- Develop options for a tariff structure and tariffs for different categories of consumers
- Propose changes to the regulatory framework to enable the introduction of the proposed tariff structure
- Set specific targets and develop a Financial Recovery Plan including a roadmap and an implementation plan for the power sector of Azerbaijan
- Support the implementation of tariff reforms through a public information campaign, education, a study tour and on the job training and support.