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Implementing Energy Subsidy Reforms
Due to strong oil exports in 2007, the Azerbaijani economy still grew by a staggering 23 percent, yet the power consumption decreased by 5 percent. In 2008, power consumption decreased by another 4 percent (see figure 12A.8). The drop in electricity demand was due to the price increases in January 2007 as well as the abrupt cessation of Russian gas imports at the end of 2006. Price reforms were accompanied by comprehensive electricity sector rehabilitation. After years of underinvestment, the authorities have now started to use export revenue to upgrade the electricity generating and distribution networks. The sector is already showing improvements. A comprehensive electricity metering program for all energy users was implemented in 2007, aimed at enhancing collection rates and improving energy efficiency (IEA 2010).
Poverty Alleviation Measures Electricity Azerbaijan is one of the few countries that did not adopt increasing block tariffs. There have been in place some discounts to special customer categories, including internally displaced persons (IDPs) in Azerbaijan. Although there are conflicting data on the incidence of poverty within this group of the population, mitigating the potential blow from tariff increases is a government priority. Currently IDPs receive an allowance, paid by the State Refugee Committee to Barmek and Bayva, of 150 kilowatt-hours per person per month (Lampietti, Banerjee, and Branczik 2007). Collection rates are significantly higher for the top income quintile (see figure 12A.9).
Evidence from Household Surveys The availability of two household surveys in 2001 and 2008 allows us to compare the impact of price reforms on household expenditure. After the price hikes of 2006 and 2007, the poorest households spent a considerably higher percentage of their incomes on utilities, which indicates that consumption did not sharply decline, whereas the top quintile kept spending the same percentage of income, which may also reflect some reduction in consumption (see figure 12A.10).
Social Safety Nets Azerbaijan has a good track record of reforming its social protection system and policies. Ongoing reforms aim to put in place an improved social