Energy / Electricity transmission and distribution

Azerbaijan has established a power sector capable of providing essential power supply service to all domestic consumers and the network was integrated with neighboring countries. However, an extended period of under-investment and limited maintenance has resulted in significant deterioration in the quality of the sector?s infrastructure, mainly reflects on unreliable and inadequate power supply and high losses of the transmission and distribution networks.

In order to establish a sustainable and financially viable power sector, the Government will need to address a number of key challenges: (i) develop a power sector road map and optimized development master plan, and identify the sector development priorities and policies; (ii) increase investment in the infrastructure and secure adequate funding; (iii) improve financial performance and governance of power utility, including transparency and accountability through institutional restructuring, commercialization and private sector participation; and (iv) improve legislative and regulatory framework with market principles and establish financial discipline.

The State Program on the Development of the Fuel and Energy Sector of the Republic of Azerbaijan (2005?2015) sets out the Government's investment program. The power sector will require an estimated investment of $3.8 billion during 2005?2015 for the construction of new generation plants and modernization of existing generation facilities, and strengthening of the power transmission grid. With the increase of Government budget and financing resources secured from other donors, adequate investment in the power generation and transmission subsectors are envisaged. However, the distribution sector has suffered from deterioration of facilities and outdated technology, resulting to excessive losses, frequent breakdowns during peak demand months, and poor quality of service.

Azerenergy Joint Stock Company (Azerenergy), the state-owned enterprise responsible for power sector development and operation in Azerbaijan, requested ADB to support the power sector development, particularly on the enhancement and rehabilitation of power distribution networks. Azerenergy has requested ADB to provide a multitranche financing modality (MFF) in the amount of up to $500 million for Power Distribution Development Investment Program (the Program).

ADB?s Country Strategy and Program Update 2006 for Azerbaijan indicates that ADB will address areas of the energy sector where other development partners are not active and that are consistent with ADB's environmental assessment. The proposed Program intends to enhance and upgrade the distribution networks' cover of about 40 administration districts under Azerenergy's managed power system, to improve reliability of power supply, reduce distribution losses, enhance energy efficiency, and improve Azerenergy's financial performance.