Energy breakthrough: Baku, Budapest develop future-oriented strategy
Summing up the results of President Aliyev's visit to Hungary

ANALYTICS  31 January 2023 - 15:00

The steadily developing Azerbaijani-Hungarian trade and economic ties have gained momentum in the last few years. Today, Hungary's MOL Group is the biggest Eastern European investor in the oil industry of our country, plans for the organisation of the export of Azerbaijani gas, as well as "green" energy in the framework of the recent agreement on strategic partnership are being implemented. Budapest, which consistently supports Azerbaijan's territorial integrity and sovereignty, has been one of the first countries in the Old World to initiate the participation of its business circles in the rebirth of the Karabakh region. Prospects for enhancing business cooperation between the two countries were discussed on Monday, January 30, during an official visit to Hungary by Azerbaijani President Ilham Aliyev.

Hungary, as a Central European country and member of western political, military, and economic alliances, is nevertheless an active supporter of cooperation with former Soviet republics, especially Azerbaijan and the Central Asian republics. Budapest participates in the work of the Organisation of Turkic States as an observer and facilitated the opening of its European office in 2019, and today Hungarian companies and organisations are consistently integrated into business and all other formats of Turkic cooperation.

For many years Hungary has been a close and friendly state to Azerbaijan, helping our country to promote various initiatives in the EU format. The logical outcome of this trusting relationship was the signing of a joint declaration on strategic partnership at the end of 2014. Nearly fifty interstate and intergovernmental documents have been signed within the framework of the Azerbaijan-Hungary Intergovernmental Commission on Economic Cooperation between the countries. The high level of bilateral political ties also has a positive impact on business discourse.

A key breakthrough in Azeri-Hungarian business ties came in 2019, when Hungary's MOL Group became the third largest investor in the consortium to develop the Azeri-Chirag-Guneshli (ACG) block of fields, acquiring a 9.57% stake in ACG from multinational Chevron for $1.57 billion. In April 2020, MOL Group also acquired a corresponding stake in the Baku-Tbilisi-Ceyhan oil pipeline.

Cooperation in the energy sector and in general aspects of further development of bilateral economic relations was discussed during one-on-one and expanded talks between Presidents Ilham Aliyev and Katalin Novak in Budapest on January 30. According to the information distributed by the Office of the Hungarian head of state, during the meeting Katalin Novak stressed the value for Hungary of such an important partner as Azerbaijan, describing the relations between the two states as excellent. "Azerbaijan is a key strategic partner of Hungary and plays a great role in the diversification of energy sources in Europe," the Hungarian president said. President Ilham Aliyev also praised Azerbaijani-Hungarian relations, expressing hope for strengthening cooperation in energy and other economic spheres.

"According to the strategic agreement signed last year with the European Commission, we are planning to double our gas supply, maybe even more. There are resources for this, there is also the political will, and there are contacts with our partners. Hungary will not only be a consumer of Azerbaijani gas, but also a transit country for our gas to other European countries," the Azerbaijani leader said.

It should be noted that the State Oil Company of Azerbaijan (SOCAR) and Hungarian energy companies MOL and MVM have been actively cooperating with the "Southern Gas Corridor" project. It is expected that this year the construction of the Nis-Dimitrovgrad - Bulgaria-Serbia Interconnector Gas Pipeline (IGS) will be completed and after linking Serbian and Bulgarian gas transmission systems it will be technically possible to export Azerbaijani gas to Hungary whose gas pipeline system is also modernized in the south and will soon be ready to receive Azerbaijani gas via SGC.

Another equally important area of cooperation between Baku and Budapest is the implementation of a project to generate electricity at wind turbines in the Caspian Sea with its subsequent transmission via a submarine cable to southern Europe. In this regard, an agreement on strategic partnership for the development and transmission of green energy was signed between the governments of Azerbaijan, Georgia, Romania, and Hungary on December 17, 2022 - a visionary undertaking that will strengthen Hungarian-Azerbaijani ties even further. "The recently discovered huge potential of green energy has also raised Azerbaijan's profile, bringing us even closer to Europe. This project requires considerable investment: the production, transmission, delivery to markets of green energy, and at the same time the laying of a cable under the Black Sea - all these projects require a major financial source, as well as the most serious coordination. The countries involved in this project – Azerbaijan, Georgia, Hungary, and Romania – will gather for the first steering committee meeting on February 3 and begin work on the concept of future activities," Ilham Aliyev said, making a statement to the press after a meeting with Hungarian Prime Minister Viktor Orban.

At the same time, a number of Azerbaijani-Hungarian documents were signed, including those covering economic cooperation. First of all, it is a "Memorandum of Understanding on cooperation in the field of natural gas" signed by the heads of the Ministry of Economy of Azerbaijan and the Ministry of Foreign Affairs and Trade of Hungary and the "Memorandum of Understanding between the Food Security Agency of Azerbaijan and the Hungarian Ministry of Agriculture on cooperation in the field of plant protection". Memorandums were also signed on cooperation in the field of space research and space activities for peaceful purposes, on cooperation in the field of migration, on establishing friendly relations between the cities of Shusha (Azerbaijan) and Veszprém (Hungary), and on cooperation in culture, tourism, urban development, science, economy, etc.

"Although a significant part of our cooperation is related to energy, it is not limited to those issues. We are also implementing our big plans in the sphere of transportation, and we have already started transportation of cargo between Hungary and Azerbaijan by railway. This project also has great potential, as with the beginning of the Russian-Ukrainian war, the volume of cargo passing through our territory has increased dramatically, and Azerbaijan could become one of the important transport and logistics centres of Eurasia", President Ilham Aliyev said.

During the talks, Hungary has also expressed interest in cooperation in the transport sector, including the Middle Corridor logistics projects. At the same time, Hungarian entrepreneurs are also interested in cooperation in non-oil sectors of the economy. So, according to data from the Ministry of Labor and Social Protection of Azerbaijan, at the beginning of the last year, the volume of direct foreign investments (DFIs) by Hungarian private companies in the Azerbaijani economy exceeded $340 million. As a whole, in terms of attracting DFIs to the Azerbaijani economy today, the Hungarian state energy sector and private business (mainly non-oil business) occupy leading positions among the states of Eastern and Southern Europe. In particular, our countries cooperate very successfully in the civil aviation and tourism sectors: the Hungarian airline Wizz Air has plans to increase the number of flights from Budapest to Baku and regions of the country, and also plans to expand the geography of flights via Azerbaijan's main airport to the Middle East, Pakistan, India, Poland, Germany, etc.

Joint initiatives in industry and agribusiness are also on the agenda today: for example, the construction of a large greenhouse complex in the Khizi district, and joint development of high-tech livestock and breeding stock. There are also proposals on organisation of pharmaceutical products in the portfolio of discussed joint initiatives. A number of Hungarian companies have already offered themselves as contractors and investors in the revival of the Karabakh and East-Zangazur economic regions of Azerbaijan. The Hungarian EXIM Bank has already opened a special credit line of $120 million at the beginning of 2021 to finance joint projects of interested Hungarian companies to export services and technologies or create joint ventures in Azerbaijan.

Hungarian businesses actively participated in the Rebuild Karabakh EXPO in October 2021 and 2022, identifying potential areas for cooperation, including in the implementation of innovative technologies and various types of know-how. In particular, these include "smart" and "green" solutions for towns and villages, energy efficiency and water management projects, and the introduction of modern technologies in irrigation. By the way, there is already a similar experience of cooperation, for instance, between Azerbaijani water operator Azersu and Hungarian water companies. Hungary has also donated 25,000 euros as a voluntary contribution to support demining activities in the liberated territories.

At the same time, in the post-pandemic period, Baku and Budapest are making efforts to increase mutual trade: in 2022, trade turnover reached $47.4 million, 34.81% more than in the previous year. However, despite the tangible momentum, the trade between the countries is still much smaller than the existing economic potential. But there is no doubt that this gap will soon be bridged as Azerbaijan and Hungary implement new energy, transport, and agro-industrial projects.

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