Azerbaijan: MFF Power Distribution Enhancement Investment Program

Sovereign Project | 42401-014 Status: Proposed

Summary

The Power Distribution Enhancement Investment Program (the Investment Program) aims to improve efficiency of the power distribution subsector in Azerbaijan through rehabilitation and augmentation of the aged power distribution network. The Investment Program will (i) improve power supply reliability, (ii) reduce distribution network losses, (iii) improve customer service, (iv) improve operational and financial performance of Azerishiq, and (v) promote commercialization, and institutional strengthening of Azerishiq. To be implemented through 3 tranches in all 7 regional distribution networks, all 3 tranches will have identical structure with different geographic areas (Aran, Baku, Canub, Garb, Markazi Aran, Shimal, and Shimal Garb).

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Project Name MFF Power Distribution Enhancement Investment Program
Project Number 42401-014
Country Azerbaijan
Project Status Proposed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
MFF Facility Concept: MFF Power Distribution Enhancement Investment Program
Ordinary capital resources US$ 750.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector

Energy - Electricity transmission and distribution - Energy efficiency and conservation

Gender Equity and Mainstreaming Some gender elements
Description

The Power Distribution Enhancement Investment Program (the Investment Program) aims to improve efficiency of the power distribution subsector in Azerbaijan through rehabilitation and augmentation of the aged power distribution network. The Investment Program will (i) improve power supply reliability, (ii) reduce distribution network losses, (iii) improve customer service, (iv) improve operational and financial performance of Azerishiq, and (v) promote commercialization, and institutional strengthening of Azerishiq. To be implemented through 3 tranches in all 7 regional distribution networks, all 3 tranches will have identical structure with different geographic areas (Aran, Baku, Canub, Garb, Markazi Aran, Shimal, and Shimal Garb).

The Government of Azerbaijan and Azerishiq are committed to improve power infrastructure and services in the country. The Investment Program aims to improve efficiency of the power distribution subsector in Azerbaijan through rehabilitation and expansion of an aged power distribution network. The Investment Program will (i) improve power supply reliability, (ii) reduce distribution network losses, (iii) improve customer service efficiency and quality, and (iv) improve operational and financial performance and institutional development.

The investment program's impact will benefit all domestic consumers through increased availability and reliability of electricity supply. The outcome will be improved efficiency and reliability of the power distribution networks. The investment program comprises three components, which is expected to be implemented through 3 tranches in all 7 regional distribution networks. All three tranches will have similar features but covering different geographic areas within the areas covered by the 7 regional distribution networks: (i)rehabilitation of distribution networks, (ii) rehabilitation of customer service lines and installation of smart meters, and (iii) support for institutional development and capacity building.

Project Rationale and Linkage to Country/Regional Strategy

The power sector, along with the oil and gas sectors, play a leading role in Azerbaijan's socio-economic growth. The total electricity production in 2014 reached 22,700 million kilowatt-hour (kWh), of which 94% was generated from thermal power and 6% from hydropower. At present, electricity production is sufficient to cover domestic demand and allow the surplus to be exported to neighboring countries, taking advantage of regional synergies. With stable and modest economic growth, domestic electricity sales are expected to grow at 3.0% annually between 2015 and 2020.

The key challenges facing the power sector are (i) the need to improve operational and financial efficiency of power utilities; and (ii) to restore and maintain high levels of services throughout the country. Despite significant investments made in generation and transmission facilities in recent years, supply of reliable electricity to customers is a constraint due to bottlenecks in the distribution network where relatively little investment has been made due to budget constraints. In 2014, the technical and commercial distribution losses were 18.8% and revenue collection was at 70%. The existing distribution networks outside of Baku and its suburban areas, particularly in secondary cities and rural areas, are in poor condition and cannot provide constant, high-quality services to customers affecting the living conditions of households and discouraging new economic activities. The majority of power distribution facilities in the districts were built during the Soviet Union era and have been in operation for 30 years or more. The equipment has reached the end of its service life, and have become less reliable with more frequent outages occurring and increasing losses. The unreliable power supply and inefficient utilization of resources has been undermining industrial competitiveness and constraining economic growth. Without a stable and reliable distribution system, any additional generated power will not be delivered to customers efficiently. Rehabilitation and expansion of the distribution network is now considered as the priority for future sector investments.

The investment program is in line with ADB's country partnership strategy (2014 2018), and is included in the approved ADB's Country Operations Business Plan for Azerbaijan (2015- 2017). ADB is committed to support improving energy efficiency and operation performance to provide adequate and reliable energy supply throughout the country, which can stimulate new, non-oil economic activities and promote inclusive growth and reduce urban-rural disparities. The investment program contributes to achieving ADB's Energy Policy objectives of promoting energy efficiency, access to energy for all, and capacity building and governance.

Impact increased availability of reliable electricity supply to all domestic consumers.
Outcome improved efficiency and reliability of the power distribution networks.
Outputs

customer services lines rehabilitated and smart meters installed and operational

distribution network including distribution lines and substations rehabilitated, augmented, and functional

institutional capacity improved and corporate reform achieved.

Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects No major environmental safeguards issues are envisaged under the investment program.
Involuntary Resettlement No major social safeguards issues are envisaged under the investment program.
Indigenous Peoples No indigenous peoples will be affected by the investment program.
Stakeholder Communication, Participation, and Consultation
During Project Design Series of public consultation including focus group discussions covering 6 districts of Soumgayit regency were conducted in the months of February to April 2010 in the strategic locations covered by the investment program. The objectives of C&P were: (i) disseminate project information; (ii) create awareness among the affected persons (APs) and elicit response from the public; (iii) seek the opinions of the public; and (iv) resolve the potential issues that would affect the common property and religious structures. Different categories of stakeholders have attended in focus group discussions at the village level like the project affected persons (APs) government officials, opinion leaders, among others. Informed and explained to them were the project features, about operational and safety requirements to the people in the locality, concerns and perceptions on the adverse impacts on their property and assets, livelihood, access to public facilities and common property resources, etc. Disclosed during the consultations were the social and environmental impacts and resettlement and rehabilitation issues.
During Project Implementation Public consultations
Business Opportunities
Consulting Services Azerishiq will recruit all consulting services to be financed under the Investment Program in compliance with Guidelines on the Use of Consultants (April 2010, as amended from time to time). Consultants will be recruited following the quality- and cost-based selection method using a quality:cost ratio of 90:10.
Procurement Azerishiq will carry out all procurements to be financed under the Investment Program in compliance with ADB's Procurement Guidelines (April 2010, as amended from time to time). Azerishiq will follow international competitive bidding (ICB) procedure for works contracts estimated to cost the equivalent of US$10 million or more, and goods contracts estimated to cost the equivalent of US$ 500,000 or more. Azerishiq will use national competitive bidding (NCB) procedure for works contracts estimated to cost less than US$10 million and for goods contracts estimated to cost less than US$500,000. ADB's standard bidding documents (SBD) will be used for all procurements.
Responsible ADB Officer Tianhua Luo
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Energy Division, CWRD
Executing Agencies
Azerishig OJSC
13, A. Bakikhanov Street
AZ1065 Baku, Azerbaijan
Timetable
Concept Clearance 04 May 2015
Fact Finding 25 Aug 2015 to 04 Sep 2015
MRM 11 Dec 2015
Approval 05 Apr 2016
Last Review Mission -
Last PDS Update 29 Oct 2015

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