ADB to Extend $500 Million to Armenia to Upgrade Key Road Corridor

News Release | 29 September 2009

MANILA, PHILIPPINES - The Asian Development Bank (ADB) will extend up to $500 million to Armenia to upgrade its main corridor road as part of a broader thrust to improve connectivity, and boost trade, growth and livelihood opportunities in the Caucasus and Central Asia subregions.

The ADB Board of Directors today approved funding for the North-South Road Corridor Investment Program. Funds will be released periodically through a multitranche financing facility, with an initial loan of $60 million earmarked to reconstruct an 18 kilometer section of the road corridor between the capital city Yerevan, and Ashtarak to the north, and improve safety of Yerevan to Ararat road to the south. The total investment cost for the seven-year program is $962 million, with the Government and other development partners providing $462 million.

The Caucasus connects Central Asia to Europe and is a major transit route for crude oil and other exports from Central Asia. The potential for turning the Caucasus into a business and logistics hub is now well recognized, and a number of investment programs, supported by ADB, are planned or underway to upgrade transport systems in both subregions. In the case of Armenia, the focus is on upgrading the Agarak-Kapan-Yerevan-Bavra road which links with Georgia's southern corridor, providing a connection to the Black Sea ports of Poti and Batumi, key shipment points for Central Asia's exports.

Many of the road and rail systems around the region were built during the Soviet era and are now in poor condition because of a lack of maintenance and sharp increases in traffic. Along with physical upgrades, including border facilities, the programs in Armenia and elsewhere will strengthen institutions responsible for planning, operating and maintaining roads, and improve road safety standards, amidst a rise in serious road accidents.

"Rehabilitating the road network is a top priority for Armenia as it can increase trade, investment flows, and jobs, while aiding regional cooperation and integration and increasing the country's competitiveness," said Rustam Ishenaliev, Transport Specialist for ADB's Central and West Asia Department.

Among the key beneficiaries will be poor rural communities, including three million people who live in six provinces which the corridor road traverses. Armenia has a number of historic tourist sites dating back to the fourth and fifth centuries that attract visitors from around the world, and this sector is also likely to gain.

The multitranche financing facility provides major advantages to both Armenia and ADB as it provides a long-term financing platform that offers more flexibility and continuity than other modes of financing. In addition, program features such as advance contracting and retroactive financing for works and consulting services will help speed up project implementation.

For the first tranche, ADB's loan from its concessional Asian Development Fund will cover 86% of the total cost of $70 million, with the government providing the balance of $10 million. The loan has a 32-year term with an 8-year grace period carrying a 1% per annum interest charge, rising to 1.5% for the remainder of the period. The Ministry of Transport and Communication is the executing agency for the program, which is due for completion by December 2016.