Preparation of a concept note and a road map for the setup of an independent energy regulator, towards the development of the country's energy market (CWP.01.AZ)

Objective

INOGATE  assists the Ministry of Energy of the Republic of Azerbaijan in preparing the necessary amendments to existing legislation for the setup of a national regulatory authority for energy, in the context of implementation of its strategy for the effective development of the country's energy sector based on competitive market principles.

The national energy strategy as approved by the Minister of Energy on July 23, 2015 aims to introduce market-based relations in the electricity and natural gas sectors, with a view to attracting private investment. In addition market reforms aim to allow competitive market forces to act in order for energy product and service prices to reflect true costs and thereby increase economic benefits for the whole country.

A fundamental factor for the successful implementation of the national strategy is the introduction of a regulatory authority for energy. Alongside the required commitment of the state to the restructuring of the sector, a regulatory entity equipped with the appropriate multidisciplinary capacity both in terms of powers vested to it by legislation, as well as in terms of the expertise of its core staff, is the key factor for both the design and operation of the restructured energy sector.

Regulation intervenes where markets have to be designed and structured and where market forces are yet incapable of acting effectively, so as to avoid risky arrangements and provide safety valves and precautions until markets become mature and able to provide security for participants through competitive relations. Moreover, independent regulation provides the needed regulatory stability so as to attract investment, and ensure that the long restructuring process is uninterrupted by political or commercial intentions, and implemented in accordance with the adopted plan.

Setup of a regulator early in the restructuring process, vesting it with a set of important obligations and powers, so as to act as the “project manager” of the restructuring, will ensure that both the market will be structured effectively and the regulator will grow into the expert authority needed for the market’s efficient operation and development.

Clearly, implementation of the restructuring requires eventual revision of the existing legal framework and development of new pieces of legislation. At least major amendments will be required for the existing law on Energy, the Law on Electric and Thermal Power, and the Law on Energy Resources Organisation, while new legislation will need to be prepared governing the independent energy regulator.