Azerbaijan: Railway Sector Development Program

Sovereign Project | 48386-004 Status: Proposed


The Government of Azerbaijan is endeavoring to transform Azerbaijan Railways (ADY) into a profitable company and to improve railway service delivery. It has requested the Asian Development Bank (ADB) to finance (i) railway sector and corporate reforms and ADY financial restructuring; and (ii) improvements to railway infrastructure, particularly along the north-south railway corridor.

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Project Name Railway Sector Development Program
Project Number 48386-004
Country Azerbaijan
Project Status Proposed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan: Railway Sector Development Program
Ordinary capital resources US$ 200.00 million
Ordinary capital resources US$ 200.00 million
Strategic Agendas Inclusive economic growth
Regional integration
Drivers of Change Governance and capacity development
Knowledge solutions
Sector / Subsector

Transport - Rail transport (non-urban)

Gender Equity and Mainstreaming No gender elements
Description The Government of Azerbaijan is endeavoring to transform Azerbaijan Railways (ADY) into a profitable company and to improve railway service delivery. It has requested the Asian Development Bank (ADB) to finance (i) railway sector and corporate reforms and ADY financial restructuring; and (ii) improvements to railway infrastructure, particularly along the north-south railway corridor. This program preparatory technical assistance (PPTA) will prepare (i) a comprehensive policy matrix for the policy-based loan covering institutional and operational changes at ADY, financial restructuring at ADY, and other policy areas as needed in full consultation with all key railway stakeholders; (ii) a feasibility study for repair and rehabilitation of the double-track section between Baku and Yalama (border with Russia); and (iii) ADB loan processing documents, including a sector assessment; technical, economic, and financial appraisals; environmental, social, and poverty impact assessments; procurement preparation and project implementation arrangements.
Project Rationale and Linkage to Country/Regional Strategy

Recent economic growth in Azerbaijan has declined from 13% during 2002 -2013 to 2.8% in 2014 and 1.1% in 2015. As a result, gross expenditure on railway services decreased substantially. Azerbaijan Railways Ltd (ADY), a government-owned, closed joint stock company, manages the country's railway and has been operating for more than 100 years. Current traffic is only about one third of the peak rail traffic in late 1980s. Traffic volumes declined as inter-republic trade and public investment dropped, sector policy stagnated, competition from highways and pipelines grew, and management remained inefficient.

ADY is vertically integrated and organized by functions such as infrastructure, rolling stock, and freight/passenger operations. Most of its revenues come from freight; passenger services lose money but are socially important. ADY struggles to maintain market share and to finance system upgrades: half of the country's rail tracks need reconstruction or rehabilitation; about 57% of locomotives are operational, but old; and power and signaling systems need urgent replacement. The lack of supporting policy and institutional reforms and the fact that tariffs are centrally controlled have aggravated ADY's current financial situation. Financing future infrastructure investments, maintaining existing infrastructure, and servicing legacy debt are challenges for ADY. In order to improve efficiency, reduce costs, and invite private sector participation, concrete institutional, financial and corporate reforms are necessary.

Railway rehabilitation and modernization on the east-west rail line has been underway since 2009, largely financed by the World Bank and the Czech Export-Import Bank. The Baku-Tbilisi-Kars rail corridor is expected to connect Azerbaijan to the Turkish network, linking countries on the Caspian Sea to the Black Sea and to Europe beyond. Railway sector prospects will be further enhanced if the north-south rail corridor from Yalama (on Azerbaijan's Russian border) to Astara (on the Iranian border) is also completed (8.8 km are missing in Azerbaijan and another 150 km inside Iran). These improvements will enable the railway to capitalize on the country's crossroads location and provide safer, more energy-efficient, cheaper, and less land-intensive transport services, thus regaining the important role it once played in supporting the economy.

The proposed railway sector development program is a government priority and a part of the Azerbaijan State Program for the Development of Railways 2016 -2020, which is now being finalized. The program fits with ADB's Midterm Review of Strategy 2020 and 2010 Sustainable Transport Initiative. It also supports the Central Asia Regional Economic Cooperation (CAREC) Transport and Trade Facilitation Strategy 2020 and forms part of the CAREC-designated railway corridor under the CAREC Railway Strategy 2030.

Impact Sustainable railway development in Azerbaijan
Outcome Sustainable railway operations in Azerbaijan

Enhanced management autonomy of ADY and transport sector governance

Effective financial restructuring of ADY's debt liabilities

Enhanced financial and management control, efficiency and reporting at ADY

Business development and corporate restructuring

Infrastructure updated and modernized for the Baku-Yalama (border with Russia) rail line

Geographical Location

Safeguard Categories

Environment B
Involuntary Resettlement B
Indigenous Peoples C

Summary of Environmental and Social Aspects

Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design

The stakeholders include the ADY, the Ministry of Finance, railway users, local people living in the project area (men and women), affected people, and people who have the opportunity of getting employment during railway station construction with the contractor firm and during railway maintenance activities after the completion of the Project. Other stakeholders would include the State Committee on Land Resources, Geodesy, Cartography and State Cadastre, and the Ministry of Public Health. The main project stakeholders outside ADY will be duly consulted, through meetings and briefings, during the project design. Also, a human resource management plan for ADY employee retrenchment as part of the sector and institutional reform will be developed with full involvement of all concerned ADY employee.

Meetings with local governments, NGOs and/or community-based organizations, and focus group consultations with local communities and/or affected people, supplemented by surveys, will be conducted. Issues to be discussed include, but are not limited to, resettlement compensation of affected persons (if any), protection of communities from construction and environmental disturbances, and of safety hazards to workers and the public during construction, temporary employment opportunities, minimizing the impact of any ADY staff retrenchment program under the sector and organization reform, and how villages along and off the railway can benefit from the proposed program.

During Project Implementation Consultation with stakeholders will be conducted during implementation, as may be needed.

Business Opportunities

Procurement The project procurement classification is category B.

Responsible Staff

Responsible ADB Officer Wu, Zheng
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Transport and Communications Division, CWRD
Executing Agencies
Azerbaijan Railways LTD
Dilara Aliyeva Str. 230, Baku, AZ1010


Concept Clearance 04 Jul 2016
Fact Finding 01 Aug 2017 to 11 Aug 2017
MRM 13 Sep 2017
Approval -
Last Review Mission -
Last PDS Update 29 Mar 2017

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