Weekly economic review

Last week, Azerbaijan's Ministry of Transport drew an outline list of international financial organizations, credit from which can be drawn in to finance country's railway economy. The World Bank (WB), Asian Development Bank and European Bank for Reconstruction and Development, which will allot a syndicated credit jointly with European Investment Bank (EIB), were selected.

Cooperation with foreign investors in the field of railway economy is envisaged in the State Program on development of railways in 2008-2011, which is expected to be adopted this year. The program envisages reconstruction of locomotive and carriage fleet, improvement of energy economy and signalization and communication systems, reconstruction of railway economy and restoration of other infrastructures. Fifty locomotives are to be purchased (technical consultant is being selected). A section ( 240 km) of the Baku-Boyuk Kasik railway line to Georgia ( 503 km) will be completely reconstructed during the first stage of the project costing AZN 759.

Total cost of the program is $1.4bln, with 40-50% to be allotted from state budget and remaining funds from foreign investors and banks.

At the initial stage, Azerbaijani Government agreed with WB, which can allot up to $450mln on the basis of a protocol on intentions (jointly with Azerbaijan's share the project costs $673.8mln). Though WB has already approved of allocation of a credit, a credit agreement will be signed after President approves the state program.

After that, gross volume of foreign borrowings intended for improvement of railway will be determined, since state program stipulates state budget and Azerbaijan State Railway's own funds as other financing sources.

European Bank stated it can allot $500mln jointly with EIB. Usually, when a project is financed jointly, every side's share comprises 50%-50% and the terms of consolidated credit are simplified. EIB allots credits under libor+0.5% and European Bank under libor+1%.

Asian Development Bank (ADB) offered $550mln for improvement of railway infrastructure. In its proposals, ADB expressed readiness even to soften financing conditions from libor+0.6% to libor+0.2%. Credit resources 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%).

Renewal of locomotive fleet is required due to annual increase in transportations via TRACECA transport corridor, as well as fast beginning of implementation of Kars-Akhalkalaki-Tbilisi-Baku project within North-South transport corridor.

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