ADB to Extend $600 Million Urban Services Investment Program to Azerbaijan

News Release | 23 September 2009

MANILA, PHILIPPINES - The Asian Development Bank (ADB) will extend up to $600 million in loans to Azerbaijan for water and sanitation improvements in towns that have suffered from decades of neglect and underinvestment in infrastructure.

The Board of Directors today approved a multitranche financing facility that will release loans periodically to support the Government of Azerbaijan's Water Supply and Sanitation Investment Program. The Government has earmarked up to $200 million for the 8-year investment program, with ADB financing up to $600 million from its ordinary capital resources. In the first tranche, ADB will provide a $75 million loan.

Azerbaijan's water and sanitation system is over 50 years old, and has fallen into decline following the dissolution of the Soviet Union and the country's independence in 1991. Services in many secondary towns are bad, with poor piped water quality, broken or clogged sewage pipes, and wastewater discharged directly into waterways. Water purchased from private vendors to augment supply is expensive, imposing a burden on the poor.

"The investment program will improve the quality and coverage of water and sanitation for about 500,000 people in secondary towns and semi-urban areas outside the capital Baku. It will raise the quality and capacity of agencies tasked with planning, managing and operating services," said Matthew Westfall, Director of Urban Services for ADB's Central and West Asia Department.

The multitranche financing facility establishes the foundation for an 8-year partnership between ADB and the government, allows for phased investments, and is backed by a clear strategy and program of reforms. The first tranche funds will reconstruct and build water and sewage infrastructure, expand the planning, technical and financial management capabilities of oversight agencies, and set up project management offices in the towns of Goychay and Nakhchivan. Subsequent tranches will carry out similar activities in other towns.

The investment program has special features: advance detailed design for the first tranche project, and completion of due diligence for the second tranche project. Ongoing advance procurement actions will ensure timely project preparation and loan release.

"The investment program emphasizes changing the business culture and management practices for water and sanitation services. Introducing water meters will in turn improve the financial viability of the service providers and support conservation," said Shakeel Khan, the ADB project officer. "The program will improve public health and reduce waterborne diseases and medical treatment costs."

ADB's first tranche loan of $75 million has a 24-year term with a 4-year grace period and interest set according to its LIBOR-based lending facility. The Government of Azerbaijan is providing $25 million. The Azersu Joint Stock Company will act as the executing agency for all project activities except those in Nakhchivan Autonomous Republic, where the State Amelioration and Water Management Agency will be the executing agency.