Japanese Bank Refuses Tax Privileges for Water Project in Azerbaijan

Azerbaijan, Baku, 2 June /corr. Trend I.Khalilova / By the end of June, the Azerbaijan Government and the Japanese Bank for International Cooperation (JBIC) plan to define finally the budget of the project to improve water supply and sewerage system of 10 Azerbaijani cities, the Government said.

During the recent visit of the JBIC mission to Baku, the bank voiced its readiness to allot $200mln instead of $260mln announced earlier.

By the end of June, the Government of Azerbaijan and Japan Bank for International Co-operation (JBIC) intend to finally determine the cost of the project

Drop in the amount of financing is linked with the plans of Azersu water company to exclude one of the regions - Shamakhi, due to its inclusion in the World Bank's water project.

Meanwhile, the Government and the bank have agreed upon the terms of taxation, specified within the credit agreement. In the previous version, the Japanese bank had offered to release the deliveries and work under the project from VAT payment, whilst this requirement was not accepted at Azerbaijan's insistence. This condition portrayed problems in the talks, but it contradicted the national legislation. [From 2008 onwards, all work, services and goods under the international loan were attracted to VAT payment.]

The Japanese bank is prepared to allocate loan on three conditions. Part of the project is directed at the rehabilitation of water supply system and will be financed at the rate of 1.3%a year (with the consideration that loan is indicated in yens), sewerage - 0.4%, whilst the consultation services and training at 0.1% a year. Generally, the funds are offered for 40 years with 10-year grace period. During the talks, the Government also appealed to soften the loan rate for water section of the project, because these funds will cost 7-8% a year for the country.

Feasibility study of the project was developed by the consortium of Tokio Engineering/ASPI on six cities - Shamakhi, Salyan, Neftchala, Barda, Guba and Ali Bayramli (present Shirvan), whilst the bank agreed to expand this list to 10 cities.

Improvement of water supply system stipulates construction of water fence, treatment, transportation to city, distribution as well as transportation, treatment and throwing under the sewerage system.

It is planned to set up a physical work under the project in October.

On 2 June, the official rate of USD was AZN 0.8201.

The correspondent can be contacted at [email protected]

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