It is necessary to change property form of Azerbaijani State Railway: representative of Azerbaijani State Railway

Business Materials 21 July 2009 15:29 (UTC +04:00)

Azerbaijan, Baku, July 21 / Trend E. Ismayilov /

Change to the property form of the Azerbaijani State Railway for CJSC was stipulated by WB terms to allocate a loan necessary to complete the Azerbaijani Railway Development Program, the head of Azerbaijani Railways press-service Nadir Azmammadov said on July 21. The Azerbaijani President Ilham Aliyev signed a decree to change the property form of the Azerbaijani State Railway for CJSC on July 21.    

"The property form is one of the WB terms. A loan will be granted to realize the development program of railway after fulfillment of these terms," Azmammadov said. 

Azmammadov said that operations on carrying out structural changes must be realized within two months. The railway development program is expected to be approved after making structural changes in CJSC.

The Azerbaijani President's administration returned the project of the State Railway Development Program to the Cabinet of Ministers for correction, a source in the Azerbaijani Ministry of Transport said.  

Not only the terms of completing the program (the program covers 5 years but its launch date was changed repeatedly) will be changed but operations and investments required for their implementation with the planned corrections will be changed also.

Several operations were launched due to a delay in approving the state program. These operations must be excluded from the program or replaced by new ones. But it will change the total amount of financing needed. Moreover, at present, changes have been made in a loan agreement in the WB proposal. The agreement, drawing on $450 million was reached with WB to improve railway projects, is estimated to be $673.8 million together with the Azerbaijani contribution.

These changes will allow the signing of the loan agreement needed to fulfill the project without waiting for the approval of the state program.

Despite the Ministry of Transport's preliminary planned operations and a list of international financial organizations, loans can be drawn on to improve railways. There may be appeals after the program is approved. WB, the Asian Development Bank and the European Bank for Reconstruction and Development were chosen. Presently, talks are being held with Czech Eksimbank to draw on loans to finance activity within the state program, the ministry said.    

WB funds are planned to be spent on providing electricity for the railway from Baku to the Georgian border and for the purchase of locomotives.

The European Bank for Reconstruction and Development expressed its readiness to allocate $200-250 million, or together with the European Investment Bank (EIB) - $500 million. Usually each side's participation is 50/50 in the joint financing of a project. The terms of the consolidated loan have been simplified. According to EIB terms, the loans are being given on libor+0.5 percent but the European Bank - libor+1 percent. Railway locomotives and carriages are planned to be bought with EBRD funds.

The Asian Development Bank offered $550 million to improve the railway infrastructure and has already allocated a grant to the amount of $1 million to development projects. But the bank directors' board planned to approve $200 million in November. ADB expressed readiness to soften financial terms of lending from libor+0.6 percent to libor+0.2 percent. Loans can be given for 25 years with a given  8-year-preferential period. Besides the percentage on lending, ADB suggested reducing commission rates for the service (from 0.35 to 0.25 percent). ADB funds can be drawn on for reconstructing railways.    

The country will not necessarily draw completely on the loans given by international organizations, as other financing sources allocate funds from the state budget and the railway's own resources can be used to improve the railway instead of foreign borrowings. Moreover, Azerbaijan has offers from Korean and Japanese sectors who have prepared a feasibility study of certain railway plots. 

At first, the cost of the state program was estimated to come to $1.4 billion.

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