||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.
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