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 digital 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.
Distribution network including distribution lines and substations rehabilitated, expanded, and functional
Customer services lines and digital electric meters installed and operational
Institutional capacity improved and corporate reform achieved