Azerbaijan's refusal from financing by the International Monetary Fund and payments on credits of the World Bank made the European Bank for Reconstruction and Development (EBRD) the major creditor of Azerbaijan among the international financial institutions.
According to the EBRD, currently the portfolio of the bank includes 60 projects worth €3.7bln, including €738mln presented by the bank. The share of the private sector projects in the bank's portfolio reached 51%. In 2006 the EBRD presented €119.5mln for 11 projects with the total budget of €138.4mln. The biggest project was a €87.3mln credit for the reconstruction of 7 energy blocs of the Azerbaijani heating power grid (the total cost of the project is €97.3mln).
The bank's activities are characterized with the participation in the projects covering different spheres of economy, ranging from oil and transport sectors to investing in the diary company Milk Pro. The EBRD is also a shareholder of many credit and insurance companies in Azerbaijan, offers financing to banks, leasing companies and other financial institutions. Particularly, it is shareholder of Unibank, Bank Respublika, Bank of Baku, Azerigazbank, Bank of Azerbaijan, Azerdemiryolbank, Microfinance Bank, which makes these banks prestigious at the financial market and more reliable. The participation in the EBRD's capital can attract other foreign investors as well.
In 2007 no cut is expected in EBRD's financial investments and the bank is in search of new facilities for capital investing, mainly in the country's oil sector. Line in 2006, the bank intends to finance the projects in different sectors (private and banking sectors), and plans to allocate considerable sum," Head of Baku office of the EBRD, Igen Yaikoglu, said. In September the Board of Directors of the EBRD intends to adopt a new strategy on operations in Azerbaijan in exchange to a document which has been effective since 17 May 2006. The renewed strategy will cover the subsequent two years and its major direction will be support to the non-oil sector.
The EBRD does not credit the Government, but is involved in concrete projects. In this case the quality of a debtor, in particular, experience and reputation of company's or projects leadership, represents defining significance while consideration of projects at the EBRD. Thus, while realizing projects in the oil and gas sector the attention is paid to corporate governance at recipient companies, economic efficiency and financial management, as well as environmental security. In this case the EBRD guides the standards and rules adopted in the country, the European Union and the International Bank for Reconstruction and Development (IBRD or the World).
The projects in the sphere of the fuel and energy complex are financed at market principles, which means that they should be commercial feasible and bring profits to participants in the project. In this case risks are distributed among the participants responsible for definite part of the project.
The EBRD attracts considerable volume of additional funds. The EBRD's major partners are commercial banks and different investment organizations. Holding a higher rating of ААА, the EBRD has an opportunity of attracting the funds at the international capital markets on most favorable terms, as well as other investors to the joint projects. For instance, to minimize the risk at the beginning of its activities the Azerbaijani Investment Company stated its will on participation in a big project of Garadag Cement, where the EBRD holds 20% stake, while the first agreement on joint investing in Milk-Pro was signed in May.
The investment project, where the EBRD participates, targeted re construction of a new diary factory on collection and refinery of natural milk, increase of the production capacity of the exiting diary factory in Goychay, establishment of relevant production in Georgia and expansion of production.
It is necessary to note that the bank does not submit privileged loan, or subsidies, all projects are carried out on the basis of analysis of their investment attractiveness. With this respect the bank carries out researches into the economic situation in the recipient countries. Thus, in its updated report on countries with transition economy the EBRD noted that the growth of the EBRD in 2006 comprised 36.6% as a result of development of the industrial production, with over three thirds comprised of oil sector. Major source of increase was the additional increase of oil production and high world oil prices, as well as appearance of new export opportunities in connection with the commissioning of the Baku-Tbilisi-Ceyhan export oil pipeline.
The document notes that growth of the non-oil sector in 2006 made up 7.5%, which is indirectly linked with the oil sector and growth of machine-building, chemical, construction and telecommunications fields. However, rise in agriculture sector was only 1%.
In 2007 the EBRD forecasts 25% increase of the GDP in Azerbaijan as compared to 34.5% in 2006. At the same time in 2007 the consumer prices in Azerbaijan will increase 16% as compared 8.5% in 2006. At the end of 2007 rise of inflation is forecasted at the level of 14% as compared to 11% as the end of 2006. According to the EBRD experts, considerable rise in oil export and continued increase in salaries affected the money mass. As a result, inflation reached 11.4% at the end of 2006 from 5.4% at the end of 2005.
In general the EBRD states its satisfaction with the cooperation with Azerbaijan and is prepared to continue it. For instance last week Azerbaijan Government and Kazakh conclude in Kazakh a memorandum on support to the Baku - Tbilisi - Kars railway route.
The EBRD was established in 1991 to support the market transition period in the Central Europe countries and former Soviet Union. Since that period the total amount of investments put by the EBRD made up €33.3bln. With the consideration of attracting joint commercial financing, the aggregate amount of investments in the region made up €94.4bln a t the end of 2005, whereas at the end of 2006it attained €102.9mln.
EBRD's incomes from investments in securities last year made up €2.4bln as compared to €1.5bln obtained from earlier investments. As a result, funds were obtained for support to business in future. Approximately €800mln falls on a package of bonds, while their incomes were still unrealized. They are part of incomes. €1.6bln falls on realized incomes.
As compared to previous year (€4.7bln), at the end of 2006 income rose to €7bln amid EBRD's undertaking of financial risks, market risks, political risks on the national and international levels.