ADB Ready to Act as Guarantor of Shah Deniz-2

Over the last few years Azerbaijan, on average, borrowed from 150 million to 200 million USD from the Asian Development Bank annually. However, this year the amount of borrowing may increase significantly and amount to 825 million USD, the Director of the ADB representative office Nariman Mannapbekov said in his interview with Turan Information Agency.

At present, the total volume of investments in Azerbaijan by the ADB is 2.35 billion USD. Of this, 738 million USD is investment in the private sector, including 7 commercial banks.

Mannapbekov said the strategy for Azerbaijan includes three key areas, in which the ADB cooperates with the government: public utilities, transport and energy.

“On the first point, we work with Azersu on the reconstruction of water networks, sewerage and treatment plants, as well as with the State Agency of Land Reclamation and Water Resources of the Nakhchivan Autonomous Republic,” he said.

Further, the Director said six projects are implemented in the road sector due to financing from the ADB. In the field of energy, the ADB has financed the construction of two power lines. Besides that, the consideration of a large project for the development and reconstruction of power distribution grids is scheduled for June 14. The total amount of the ADB credit resources in this sector will be 750 million USD over the next five years. The money will be provided in three tranches of 250 million USD each. The amount for this year will be $ 250 million. In particular, it is planned to build several transformer substations, which will let provide uninterrupted electricity supply to many localities in the country outside Baku.

In addition to these major sectors, the ADB also works in the area of financial sector development. In particular, the ADB has provided lines to commercial banks of Azerbaijan for the development of micro crediting and small business. "We have plans to develop partnerships in new sectors such as rail transport and education," the head of the ADB representative office said.

Referring to guarantees of the return of funds allocated to the sphere of power distribution grids, Mannapbekov said the ADB loans are provided to the Government of Azerbaijan, and the basic loan terms are made public after their approval by the ADB Board of Directors. In drafting a project its every step is agreed with the Government. For example, it recently took place in respect of the first tranche of 250 million USD of the project totaling 750 million USD. The transformer stations and substations, which will be invested this money, were determined jointly with the ADB engineers.

"The first tranche will show the level of efficiency and sustainability of the project and will allow giving more precise evaluations. However, given that the money is borrowed by the Government that is strong enough and the service of the previous loans was exemplary, we have no concerns or doubts that the ADB loan funds will be returned in a timely manner," he said.

Mannapbekov considers the water supply of the city of Nakhchivan as one of the successfully completed projects. Due to this, Nakhchivan receives high quality drinking water that can be drunk from the tap 24 hours a day. "This is due to the introduction of modern technology for water treatment, which was funded by the ADB," he said.

Today, 80% of the population of Nakhchivan uses sewerage services, but before the end of the year the index should reach 100%. A wastewater treatment plant has been built at 60-65% there, staffed with European experts and local contractors. This facility will allow cleaning wastewater to a level, where the water can again be used for drinking, in accordance with the most advanced world technologies and standards. Similar projects are also implemented in other regions, where there are some failures.

Referring to the poverty reduction strategy, the Director said this is the main objective of the ADB. It includes the development of infrastructure projects, such as improving roads, irrigation systems, etc. in settlements. It also includes micro crediting for small and micro enterprises.

The ADB also advises the Government on certain structural issues. For example, it advises how to solve the issue of access to finance for the rural population and how to deal with mobile banking or debit cards.

"And another trend that we have recently discussed is the creation of technological parks and free trade zones, where entrepreneurs can enjoy a preferential regime. Here are the directions we intend to maintain, at least intellectually, if not financially," the Director said.

Regarding the impact of the devaluation of the national currency of Azerbaijan on the ADB projects, Mannapbekov said that 1.5 billion USD of the 2 billion 350 million USD, which the ADB has invested in Azerbaijan, was given to the Government of Azerbaijan, which regularly repays the loans. There are savings for a number of road projects. Operations could quite expectedly become cheaper in USD terms.

He did not rule out that private loan borrowers could suffer. "Our evaluation of the state of affairs in this area is not yet complete. It will be possible to say more in detail six months or a year after the examination of the situation by our experts, Mannapbekov said.

On the question of lowering the ratings of the financial and banking system of Azerbaijan by the rating agencies Moody`s, Fitch, and Standard and Poor's, the head of the representative office replied that, to some extent, some of these processes are observed not only in Azerbaijan, but also in the neighboring countries. However, these processes do not mean that if the trend is negative, the projects should be turned off or the strategy should be changed.

"In particular, for the ADB the strategy remains stable, although we are aware that in the near future the country will experience some challenges. But we also recognize that the Government takes certain measures, and we support them," Mannapbekov said, noting that today the ADB has no reason to say that the Azerbaijani government is doing anything wrong.

Explaining the ADB’s interest in financing the second stage of the Shah Deniz project, Mannapbekov said the ADB has already provided a loan in the amount of 250 million USD for the development of the gas condensate field Shah Deniz, but now there is a question about the second stage, which involves a huge amount of work. "The government has requested support and the ADB is considering the matter," he said, noting that "the ADB Board of Directors has not yet taken the decision." The ADB's participation in this project will be discussed soon. It is possible that the discussions will affect not only the issue of crediting, but also the ADB guarantees. According to him, several leading foreign commercial banks are interested in financing the project. "Credit conditions can be mitigated for these banks, if the repayment of their loans is guaranteed by an organization, which has the highest credit rating - AAA, and this is the very rating the ADB has. Therefore, the ADB may be involved in this project also as a guarantor," Nariman Mannapbekov said.