Analysis Materials 27 March 2006 11:05 (UTC +04:00)

They are right regarding the territory of Azerbaijan as favorable transport corridor, which unites the strategic routes. Azerbaijan hosts many transport corridors, including the West-South, North-South and the Great Silk Route (TRACECA). The country possesses tremendous natural resources, which are transported in different directions. The government takes an urgent care of transport security.

Indeed, Azerbaijan face numerous problems in the sphere of transport security, which along with the political issues, also include unsettled conflicts, as well underdevelopment of infrastructure in need of considerable investments.

Azerbaijans current policy targets minimizing the foreign crediting for the implementation of transport projects. Still domestic capacities are insufficient, while delay of the implementation of the infrastructure projects is also economically inexpedient. Why not to use the funds provided today to resolve timely the important issues enhancing the development of transport system and return them after many years? Moreover, for the time being the country receives privileged loan. Taking into consideration the increased solvency of the country, the international organizations will not mind allotting Azerbaijan credits.

Nevertheless, the Board of Directors of the EBRD has delayed for many months approval of $50m for improvement of the locomotive economy the Azerbaijan State Railway Department (ASRD), originally scheduled for 21 March. Though the Azerbaijani government and the EBRD have reached a principle agreement, the ASRD representatives intend to visit EBRD headquarters in London to coordinate the terms of credit.

The consideration of the issue at the EBRD initially was delayed in connection with the unsettlement of state guarantees. The Finances Ministry said that state guarantees will be granted for this loan. In 2000 EBRD granted $20.2m loan to ASRD. These funds were spent on purchase of track machines, construction of sleeper plant, purchase of rails and reconstruction of flush-steam station in Bilajari. The loan was allocated for 15 years with 3-year grace period under Libor+1%. From 2003 the loan is being returned. ASRD annually carries out two payments per $800,000.

Besides, the government does not agree with the terms put forward by the EBRD and relevant proposals have been sent to the bank. The Azerbaijani Transport Ministry considers inexpedient the rise of tariffs for cargo and passenger transportation by rail, the Ministry told Trend.

Requirements on increase of tariffs and some others do not suit Azerbaijan, so the EBRD was proposed to abandon them. In the opposite the country can refuse from the loan.

At present the tariffs for cargo and passenger transportation by rail are higher than many CIS countries. However, tariffs are the state policy and their increase in the current situation is almost impossible. We, as the central executive body, do not recommend the Azerbaijan State Railway Department (ASRD) to increase tariffs, an official of the Ministry said.

Earlier the ASRD presented to the Transport Ministry proposals regarding the opportunities for increase of prices. Following rise in tariffs for some types of oil products, including the diesel fuel, which is used by diesel locomotives, the ASRD states the necessity of increasing the transportation tariffs. The ASRD regards as expedient the increase of tariffs in the first half-year.

As it seems, the sides mutually laid requirements, while several years ago Azerbaijan silently accepted all terms of crediting. The fact is that the country can make them count with its interests. After the resolution of all questions, the EBRD is supposed to allocate the loan for updating, rehabilitation, and renewal of the ASR locomotive stock for 15 years with the privileged first four years. The loan interest rate will be Libor +1%. Though there is probability for cut in interests in the course of the forthcoming talks. Even the cut is not more than 0.15%, again it is favor of Azerbaijan. So, the EBRD refused from approval of commercial credit, which was stated earlier. The commercial credits are expenses 2%-3% than the ordinary one. It was rejected through offering state guarantees. The funds will be spent for establishing two depots for the locomotives repair.

The EBRD credit of $50 will be issued in two installments and the first credit will be spent on purchase of locomotives. The EBRD plans to approve $27m in this respect, while the second tranche of $23m is allocated for service to locomotives at the Bilajari and Boyuk-Shor depots, as well as purchase of spare parts. It is also planned to carry out repair of 60 electric and diesel locomotives.

The project with the total budget of $70m targets delivery of assistance to railways roads in Azerbaijan in purchase if electric cargo locomotives and equipment for four storages of the locomotive. It will enable to improve the transportation of oil and oil products of high demand in the direction east-west direction via the Caucasus railway line. The project will also increase security and efficacy of railway operations by the ASRD and decrease the risk of oil-spills, as 75% of oil and oil products are transported via the railway.

At present the World Bank and the Asian Bank for Development voice their interested in approval of funds for railway in Azerbaijan. The WB is ready to allocate $100m, while the sum of the ABD loan is still to be publicized. Moreover, the EBRD is ready to approve grants for financing the development of technical document on other railway projects.

In 2006 ASRD intends to increase expenses on service loans by around 1.3%. The government set 1.5m manat from 7.6m manats envisaged for payment of major debt on EBRDs loan, received under the state guarantee. ASRD envisaged 5,041m manats for payment of interest rates on loans.

If to view the estimate of expenditure and incomes of the Azerbaijani State Railway Department (ASRD) for 2006, one can see that in accordance with the approved budget, the incomes of ASRD in 2006 are planned at 137,872m new manats, or 9.32% more as compared 2005. ASRD will gain 13.2m manats from passenger transportation, freight transportation - 107,272m manats.

In the future the expenses of ASRD will grow by 9.31% and makes up 137,871,6m manats, while the expenses on budgetary transfer are envisaged at 13.8% less as compared 2005 and comprise 20m manats. It is planned through the expense reduction on payment of VAT, property tax, as well as wages transferring to the State Fund for Social Security of Population.

Meanwhile, the expenses on purchase of raw materials, including, fuel will comprise 26,510m manats. The expenses on communal services are planned to increase only on electric energy. The 8,299m manats funds, envisaged for capital and financial investment, are envisaged for only construction and repair work.

Thus, the forecasts are so optimistic that even there is assurance for achievement of incomes. However, big funds are required for full reformation of the transport system. As the government to today in condition to ensure entire financing, the loan of the international financial organizations is very important for the national transport sector.