Baku, Budapest counting on their commercial relations
Analysis by Caliber.Az

ANALYTICS  22 August 2023 - 15:48

The steadily developing Azerbaijan-Hungary trade and economic relations have received an additional impetus on their energy track: key agreements have been reached on the supply of 1 billion cubic metres of Azerbaijani gas to Hungary. These and other aspects of the bilateral business agenda were discussed within the framework of President Ilham Aliyev’s working visit to Budapest on August 20.

Last year marked the 30th anniversary of the establishment of diplomatic relations between Azerbaijan and Hungary, and for many years Budapest has been a very close and friendly partner of Baku, assisting our country in promoting various EU initiatives. The business rapprochement between the two countries started in 2010-2011 with the natural result of the mutually beneficial relations being the signing of a joint declaration on strategic partnership at the end of 2014. During the same period, the work of the "Azerbaijan-Hungary Intergovernmental Commission on Economic Cooperation" gained activity with over fifty interstate and intergovernmental documents having been signed between Baku and Budapest to date.

The high level of political ties between the two countries has a positive impact on the business discourse, both bilaterally and multilaterally. Hungary, being a state in Central Europe and a participant in the Western political, military and economic alliances, is nevertheless an active supporter of cooperation with the countries of the post-Soviet region, especially Azerbaijan and the Central Asian republics, as well as with Türkiye. Budapest implements this policy within the framework of the Organization of Turkic States (OTG), as well as on the platforms of the UN, OSCE, NATO, EU, its Eastern Partnership Program and the Visegrad Group. We are talking in particular about the active participation of Hungarian companies and state institutions in various projects aimed at the development of the transportation route "Middle Corridor", as well as the cooperation within the framework of the regional energy agenda.

Thus, on 20 August this year, the representatives of Hungary and Turkmenistan reached an agreement on prospective gas supplies through the Trans-Caspian Gas Pipeline during the talks in Budapest, which length is 300 kilometres with a capacity of 30 billion m³ a year. Budapest is actively promoting the implementation of this project, and is also a proponent of increasing the pipeline capacity in South-Eastern Europe, hoping to start commercial negotiations on the supply of Turkmen gas in the near future. In the case of success of this undertaking, Azerbaijan would be given the role of the main transit hub through which the Turkmen gas will be transferred through the pipeline system "Southern Gas Corridor" (SGC) to countries in Southern Europe, including Hungary.

In any case, the potential stakeholders of the Trans-Caspian Gas Pipeline project have still not decided on the format of its financing, and the commencement of the laying of its submarine pipeline part is an even more distant prospect. So far, Budapest and Baku have been very successful in promoting energy, transport and other economic projects in a bilateral format. Let's recall, that the key breakthrough in Azerbaijan-Hungary business relations occurred in 2019, when the Hungarian MOL Group became the third most important investor in the consortium for the development of the "Azeri-Chirag-Gunashli" (ACG) oilfield with $1.57 billion, acquiring a 9.57 per cent stake in ACG from Chevron. In April 2020, MOL Group also acquired a stake in the Baku-Tbilisi-Ceyhan (BTC) oil pipeline.

The largest Hungarian wholesale trader of natural gas, MVM CEEnergy Zrt., is currently implementing a project in partnership with the State Oil Company of Azerbaijan (SOCAR) of a comparable scale to supply Azerbaijani "blue fuel" to the Hungarian market. On June 2, 2023, a contract was signed between SOCAR and MVM CEEnergy for the transportation of 100 million m³ of gas. As part of this one-off deal, deliveries will be made using the already existing gas transport infrastructure in the region, with SOCAR having already started pumping the first 50 million m³ of gas into Hungarian gas storage facilities in the last days of July.

As a next step, the signing of a long-term contract for the supply of one, and later two billion m³ of gas per year is expected. The relevant agreements were recently reached, as the Minister of Foreign Affairs and External Economic Relations of Hungary Péter Szijjártó stated on his Facebook page. "Currently we have an agreement according to which we plan to purchase 100 million m³ of gas from Azerbaijan in the fourth quarter of this year. At the same time, political agreements were reached to expand this volume to about 1 billion m³ of gas in the future", said the head of the Hungarian foreign ministry. That is, the implementation of a large-scale contract will be possible in the near future, after the completion of the Nis-Dimitrovgrad - Bulgaria-Serbia Interconnector Gas Pipeline, which will provide a connection between the Serbian-Bulgarian gas transport systems, having created a technical opportunity to export larger volumes of Azerbaijani gas to Hungary.

In order to optimize the supply of gas through the SGC system to South and Central Europe, a memorandum of understanding was signed in April this year to facilitate the cooperation between SOCAR and its partners, namely the operators of gas transportation systems: Bulgaria's Bulgartransgaz, Romania's Transgas, Hungary's FGSZ and Slovakia's Eustream. The memorandum defines the directions of cooperation on the delivery of additional volumes of gas from Azerbaijan to Europe through the modernized "Solidarity Ring" (STRING). The STRING system was initiated by Bulgaria, and all the countries involved in the STRING project (primarily Hungary) have large underground gas storage and an extensive pipeline network.

Agreements on the gas track were discussed on August 20 and during the working visit of President Ilham Aliyev to Budapest, the Azerbaijani leader and Hungarian Prime Minister Viktor Orbán considered a wide range of areas of bilateral cooperation. According to the information on the website of the Head of State of Azerbaijan, the positive dynamics of Hungarian investments in the food industry of Azerbaijan and the bilateral cooperation in the sector of pharmaceuticals were highlighted during the talks in Budapest. The heads of state also touched upon the development of air traffic between Baku and Budapest. Special attention was given to the joint efforts for the development of the "Middle Corridor" and the increase of freight traffic between the countries. In particular, a memorandum of understanding between the Alata Free Economic Zone and the Hungarian Export Promotion Agency was signed in 2022 to enhance transit and logistics cooperation.

The most important topic of the talks in Budapest was the prospects of implementation of the “Agreement on a strategic partnership in the field of green energy development and transmission between the Governments of the Republic of Azerbaijan, Georgia, Romania and Hungary”. In particular, the matter of how to take further steps to implement the project of laying the transmission line on the bottom of the Black Sea with the aim of supplying renewable energy sources from Azerbaijan was discussed.

The very successful bilateral agenda of cooperation in the humanitarian sphere was also discussed in Budapest, especially the beginning of activities of Hungarian organizations in the reconstruction and construction works carried out in the liberated territories of Azerbaijan, including the revival of the village of Soltanly by 2024. Baku and Budapest actively cooperate in science and education. The Hungarian Government is, to give an example, funding the 'Stipendium Hungaricum' scholarship program, which provides scholarships to 200 Azerbaijani students to study at Hungarian universities every year.

Azerbaijan-Hungary trade and investment relations are developing quite successfully: according to the results of 2022, trade turnover reached $47.4 million, which is 34.81 per cent more than in the previous year, and this positive trend is being maintained in the current year.

At the same time, at the beginning of last year, the volume of foreign direct investment (FDI) from Hungarian private companies in the economy of our republic exceeded $340 million, with the level of capitalization of the Azerbaijani economy by Hungarian investors increasing dynamically: the Hungarian EXIM Bank opened a special $120 million credit line in early 2021 to finance joint projects of Hungarian companies for the export of services and technologies or the establishment of a joint venture in Azerbaijan.

Caliber.Az