Financing areas to upgrade Azerbaijan’s railway through foreign sources determined

Business Materials 8 January 2009 18:45 (UTC +04:00)

Azerbaijan, Baku, Jan. 8 / Trend , I.Khalilova/ Azerbaijani Ministry of Transport determined initial areas and a list of international financial institutions, whose loans may be involved to improve the railway in the country, the office said on Jan. 8. The Ministry chose the World Bank (WB), the Asian Development Bank (ADB) and the European Bank for Reconstruction and Development (EBRD).

The initial agreement was achieved only with the WB, which will allot up to 450 million dollars (with Azerbaijan's share the project is estimated at 673.8 million dollars). The total cost of the state program on development of railways is 1.4 billion dollars. Although the WB Board of Directors has already approved the loan, the loan agreement will be signed only after the President approves the program. The Ministry said the program is expected to be approved in near future.

WB funds will be spent to electrify the railway between Baku and the Georgian border, as well as to purchase locomotives.

EBRD has stated its willingness to allocate 200-250 million dollars, and together with the European Investment Bank (EIB) - 500 million dollars. Typically, each party at co-funded projects owns 50 percent. That simplifies the conditions of a consolidated loan.

EIB grants loans at the rate of libor+0.5 percent, and the EBRD - libor+1 per cent. The funds allocated by EBRD will be spent to purchase locomotives and carriages for the railway economy of the country.

The Asian Development Bank (ADB) offered 550 million dollars to improve the railway infrastructure and has already allocated a grant of one million dollars to develop the projects. In its proposals, ADB expressed readiness even to soften financing conditions from libor+0.6% to libor+0.2%. Loan on the new conditions are proposed concretely for the railway project. They can be provided for a period of 25 years, with period of grace of eight years. In addition, Asian Bank proposes to decrease commission for the service (from 0.35% to 0.25%).

It is not definitely that Azerbaijan will involve in full the loans offered by the international organizations, because in addition to external borrowings, the state program identifies the state budget and the funds of the State Railway as other sources of financing to improve the railway. Moreover, Azerbaijan has received proposals from Korea and Japan. They have already developed a feasibility study for a number of railway sections in the country.

On Jan. 8, the official exchange rate totalled 0.802 AZN/USD. 

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