Azerbaijan: Preparing a Power Sector Financial Recovery Plan

Sovereign Project | 50079-001

The TA is structured with a sequential program of tasks. The TA includes four outputs: (i) calculating the real cost of electricity supply (power generation, transmission, and distribution); (ii) designing a new tariff structure for power generation, transmission, and distribution, with differentiating tariffs for different customers and different generation sources (hydro, solar, water, gas) in existence and in development, to replace the current single tariff for all customers and thereby allow cross-subsidization between customer classes; (iii) developing a financial recovery road map for gradual increase in tariff, to achieve a full cost recovery level by 2022; and (iv) undertaking a public information campaign on tariff reform, case studies of good practices in other countries, and institutional strengthening.

Project Details

  • Project Officer
    Tareen, Adnan
    Central and West Asia Department
    Request for information
  • Country/Economy
    Azerbaijan
  • Modality
    • Technical Assistance
  • Sector
    • Energy
Project Name Preparing a Power Sector Financial Recovery Plan
Project Number 50079-001
Country / Economy Azerbaijan
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 9151-AZE: Preparing a Power Sector Financial Recovery Plan
Technical Assistance Special Fund US$ 1.20 million
TA 9151-AZE: Preparing a Power Sector Financial Recovery Plan (Supplementary)
Technical Assistance Special Fund US$ 100,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Knowledge solutions
Sector / Subsector

Energy / Electricity transmission and distribution - Energy sector development and institutional reform
Gender Equity and Mainstreaming No gender elements
Description The TA is structured with a sequential program of tasks. The TA includes four outputs: (i) calculating the real cost of electricity supply (power generation, transmission, and distribution); (ii) designing a new tariff structure for power generation, transmission, and distribution, with differentiating tariffs for different customers and different generation sources (hydro, solar, water, gas) in existence and in development, to replace the current single tariff for all customers and thereby allow cross-subsidization between customer classes; (iii) developing a financial recovery road map for gradual increase in tariff, to achieve a full cost recovery level by 2022; and (iv) undertaking a public information campaign on tariff reform, case studies of good practices in other countries, and institutional strengthening. Such a road map will take into consideration an increase in operational efficiency, targeting subsidies from the government to benefit poorer segment of consumers selected using a suitable rationale. In parallel, a detailed review of the existing policy, legal, and regulatory framework will be undertaken and recommendations will be provided to the government for consideration. The TA will refer to international best practice in cost recovery tariff design in the power sector, and assess the potential application and benefits specific to Azerbaijan's power sector.
Project Rationale and Linkage to Country/Regional Strategy The main objective of the TA is to establish an appropriate electricity tariff mechanism along with supportive policies, rules, and regulations to help the power sector achieve full cost recovery by 2022. The full cost recovery tariff shall be a dynamic mechanism with a clear structure of tariffs for the generation, transmission, and distribution subsectors. Such a full cost recovery tariff will take into account the (i) recovery of power production costs (including operation and maintenance costs, and capital costs); (ii) efficient signaling of future power production costs; (iii) affordability to low-income households; and (iv) distributional equity of power supply services. The tariffs will also be subject to the country's macroeconomic factors, including domestic price inflation, currency depreciation, taxes, and levies.
Impact Improved financial performance and sustainability of the power sector of Azerbaijan
Project Outcome
Description of Outcome Power sector financial recovery plan developed
Progress Toward Outcome All four project outputs have been delivered and accepted by the Ministry of Finance who is the beneficiary of the TA.
Implementation Progress
Description of Project Outputs

Real cost of electricity supply (power generation, transmission, and distribution) calculated

New tariff structure for power generation, transmission, and distribution with differentiating tariff for different customers developed

Financial recovery road map for gradual increase in tariff, to achieve a full cost recovery by 2022

Public information campaign, case studies of good practices in other countries, and institutional strengthening undertaken
Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation

A consulting firm was selected in Jan 2017 to implement the project. The Inception Mission was conducted in March 2017 to discuss with Ministry of Finance about the work program, TA outputs and TA administration and implementation.

Output 1 - Cost Assessment Report was delivered in Jun 2017. The report was discussed with MOF and stakeholders in Jun 2017

Output 2 - Tariff Assessment and Proposed Tariff Structure (draft report) was delivered in Sep 2017.

An additional $100,000 for affordability study has been approved in Sep 2017. The study will help the TA to identify an appropriate financial recovery plan and mitigate social impact (if any) due to change in tariff structure.

Output 3 Financial Recovery Plan and Roadmap was discussed and submitted to MOF in June 2018

Output 4 Public Information Campaign Plan was submitted to MOF in June 2018

Implementation is on track
Business Opportunities
Consulting Services A consulting firm will provide a team of international and national consultants to deliver the TA outputs. The consultant team should propose and adopt appropriate methodologies and approaches in delivering the expected outputs.
Responsible ADB Officer Tareen, Adnan
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Energy Division, CWRD
Executing Agencies
Ministry of Finance
83, Same Vurgun Street AZ1022 Baku, Azerbaijan
Timetable
Concept Clearance 02 Jun 2016
Fact Finding -
MRM -
Approval 05 Aug 2016
Last Review Mission -
Last PDS Update 01 Oct 2018

TA 9151-AZE

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
05 Aug 2016 30 Aug 2016 30 Aug 2016 30 Jun 2019 31 Dec 2019 30 Jun 2020
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
1,300,000.00 0.00 300,000.00 0.00 0.00 0.00 1,600,000.00 17 Jun 2022 1,274,518.97

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Safeguard Documents See also: Safeguards
Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

None currently available.

Related Publications

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Tenders

Tender Title Type Status Posting Date Deadline
Preparing a Power Sector Financial Recovery Plan - Power Sector Tariff and Regulatory Expert Individual - Consulting Closed 30 Jun 2018 06 Jul 2018

Contracts Awarded

Contract Title Approval Number Contract Date Contractor | Address Executing Agency Total Contract Amount (US$) Contract Amount Financed by ADB (US$)
Policy and Advisory Technical Assistance 9151 16 Jan 2017 Corporate Solutions Consulting Ltd. (United Kingdom) in Association with Det Norske Veritas Pte. Ltd. (Singapore) | Church House, 36 Byron Hill Road Harrow-On-The-Hill, Middlesex Ha2 Ohy United Kingdom Ministry of Finance 1,199,570.00 —

Procurement Plan

None currently available.