From energy cooperation to investment expansion
Baku, Budapest forge stronger business ties

ANALYTICS  26 April 2024 - 15:45

The steadily developing Azerbaijani-Hungarian cooperation in the energy sector was supplemented last year by agreements on the gas track. At the same time, the two friendly states seek to diversify trade and economic ties by expanding the investment component. Thus, Hungarian companies plan to expand participation in joint projects in air transportation, food sector, bus assembly, are ready to implement projects in the field of "green" energy, participate in the revival of Karabakh. These and other aspects of the bilateral business agenda were discussed in Baku during the 10th meeting of the Azerbaijan-Hungary Joint Intergovernmental Commission.

The high level of political ties between Azerbaijan and Hungary also has a positive impact on the business discourse, both in bilateral and multilateral formats. Hungary, being a Central European state and a member of Western political, military and economic alliances, is at the same time an active supporter of cooperation with the countries of the post-Soviet region, especially with Azerbaijan and the Central Asian republics, as well as with Türkiye. In particular, Budapest implements this political course under the Organization of Turkic States (OTS). Hungarian companies and state structures are most actively involved in various projects aimed at the development of the Middle Corridor, as well as in the energy sector.

It should be reminded that the most important breakthrough in Azerbaijani-Hungarian business ties occurred in 2019, when Hungarian MOL Group became the third most important investor in the consortium for the development of Azeri-Chirag-Gunashli (ACG) field block by acquiring 9.57 per cent stake in ACG from multinational Chevron. And in April 2020, MOL Group also acquired a corresponding stake in the Baku-Tbilisi-Ceyhan oil pipeline.

MOL Hungary's total investment in Azerbaijan's energy sector has now reached $2 billion: we are committed to long-term cooperation and expect to increase the volume of our investments," MOL Azerbaijan Managing Director Attila Somfai said during the 10th intergovernmental commission’s meeting in Baku. Our company has established effective cooperation with the State Oil Company of Azerbaijan (SOCAR) under the project of development of the ACG block of fields, as well as in the field of supply of lubricating oils and in the work on oil recovery enhancement".

Baku and Budapest are very successfully promoting energy projects on the gas track, Hungarian Minister of Foreign Affairs and Trade Péter Szijjártó said at the commission’s meeting. According to him, the first 50 million cubic meters of Azerbaijani natural gas have been delivered to Hungary since April this year. It should be reminded that last June, the largest Hungarian wholesale trader of natural gas - MVM CEEnergy Company and its partner - SOCAR signed a contract for transportation of 100 million cubic meters of gas using the existing gas transportation infrastructure in the region.

As a next step it is planned to conclude a long-term contract for the supply of one and then two billion cubic meters of gas per year. The implementation of this contract will become possible in the near future, after the commissioning of the Niš-Dimitrovgrad-Bulgaria-Serbia Gas Interconnector (IBS), which will link the Serbian-Bulgarian gas transmission system, creating a technical possibility for exporting larger volumes of Azerbaijani gas to Hungary.

“We intend to expand our cooperation in the energy sector, it has made a great contribution to Hungary's energy security, which is essential in the current circumstances," Foreign Minister Szijjártó emphasized.

It is noteworthy that Baku and Budapest do not limit themselves to cooperation on the production and supply of hydrocarbons and diversify the energy track with new vectors: in particular, the two states are active participants in the project of laying the Back Sea Energy Transmission Line under the Black Sea. The project with an initial budget of $2.3 billion is expected to be ready by 2029: the 1,195-kilometer-long, 1,000-MW power cable is scheduled to supply Azerbaijan's "green" electricity to Europe, including Hungary.

Another participant of the intergovernmental commission meeting, Azerbaijani Deputy Energy Minister Kamal Abbasov noted that strategic energy cooperation between the two friendly countries will also be developed in the field of joint projects on renewable energy sources (RES). "During the 4th meeting of the Azerbaijani-Hungarian Working Group on Energy, Hungarian companies were invited to participate in the auction for the construction of a solar energy facility with a capacity of 100 MW in one of the districts of Baku," Abbasov noted.

During the Working Group meeting the partners also agreed to share experience in the field of energy efficiency and management of energy efficiency funds. It is noteworthy that the activity of the Azerbaijan-Hungary Intergovernmental Commission on Economic Cooperation, which has intensified in recent years, contributes to the expansion of the legal framework: over 50 interstate and intergovernmental documents have been signed between the two countries. The expanding trade and investment activity of the two countries is built on this solid foundation.

Thus, according to the results of 2022, Azerbaijan-Hungary trade turnover increased by 34.81 per cent and amounted to $47.4 million. As Hungarian Foreign Minister Szijjártó noted, last year it was possible to ensure a record growth of mutual trade, which reached $200 million.

This dynamics can be maintained in the current year, believes co-chair of the intergovernmental commission, Azerbaijan’s Minister of Labor and Social Protection of Population Sahil Babayev, according to whom in January-February 2024 trade turnover between the countries increased by 40.49 per cent. Trade relations between Azerbaijan and Hungary are developing dynamically, but their level does not fully reflect the potential of the two states, according to Minister Babayev.

Accordingly, diversification of business ties to expand the investment component, formation of joint ventures in the non-oil sector of the economy has been the key objective of the forums, meetings of the commission and specialized working groups recently held between the countries. "Investments of Hungarian companies in the economy of Azerbaijan have exceeded $1 billion: Hungarian companies are very active in such spheres as trade and services, transportation and industry, and today 18 companies are actively working in Azerbaijan," Deputy Economy Minister Samad Bashirli noted at the commission meeting.

In particular, Hungarian freight forwarders consider it promising to develop cooperation to increase cargo transportation along the Middle Corridor, and Hungarian companies are also considering projects in the food industry, pharmaceutical industry, financial and banking sector of Azerbaijan. In 2022, a Memorandum of Understanding was signed between the Alat Free Economic Zone (AFEZ) and the Hungarian Export Promotion Agency, and today AFEZ is implementing a joint project. The Hungarian group of companies Hell Energy with the involvement of the Azerbaijan Investment Company (AIC) is building a plant in Alat to produce 700-800 million pieces per year of aluminum cans for beverages: the project worth $211 million will create more than 300 jobs.

Another Azerbaijani-Hungarian production endeavor may soon become realization of a project on bus assembly. The two states are actively cooperating in tourism and together with Hungarian air carrier Wizz Air plan to increase the number of flights between Baku and Budapest, as well as other cities.

In its turn, Hungary is developing its own plan to participate in the reconstruction and rehabilitation of Karabakh, and, according to Szijjártó, by this November this document will be finalized and the sectors in which Hungarian companies plan to participate will be defined. The Foreign Minister also recalled that under the project of the Hungarian KESZ holding, last year the foundation of the first house was laid on the territory of the liberated from occupation Soltanli village of Jabrayil district.

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