Armenia : Resilient and Inclusive Economic Corridor Improvement Project

Project Name

Resilient and Inclusive Economic Corridor Improvement Project

Project Number

56317-001

Country / Economy

• Armenia

Project Status

Proposed

Project Type / Modality of Assistance

• Loan

Source of Funding / Amount

Loan: Resilient and Inclusive Economic Corridor Improvement Project: Northern Section of Sisian-Kajaran Road

Source	Amount
Ordinary capital resources	US$ 255.00 million

Operational Priorities

• OP3: Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability
• OP5: Promoting rural development and food security
• OP6: Strengthening governance and institutional capacity
• OP7: Fostering regional cooperation and integration

Sector / Subsector

• Transport / Road transport (non-urban) - Transport policies and institutional development

Gender

Effective gender mainstreaming

Description

The Resilient and Inclusive Economic Corridor Improvement Project has a length of 27.2 km and is a green field alignment traversing mountainous terrain and includes 16 bridges and 3 tunnels. The estimated cost is $400 million with ADB's share of financing to be $255 mil and cofinancing by EIB in the amount of $107 mil. The proposed project is designed to (i) address inefficiencies in transport and logistics to and from one of the only two open borders in the country, (ii) alleviate emerging regional socio-economic disparities, (iii) provide safety, sustainability, and climate resilience of road assets, and (iv) expand the economic benefit of infrastructure investment to the region.

Project Rationale and Linkage to Country/Regional Strategy

Context. Armenia is a landlocked country in the South Caucasus region of the Caucasus. Armenia is bordered on the north and east by Georgia and Azerbaijan and on the south and west by Iran, Azerbaijan's exclave Nakhchivan, and T

rkiye. The borders with Azerbaijan and T

rkiye have been closed since 1993 and only two open borders provide access to the neighboring countries and international markets. To improve connectivity with external markets, the Government of Armenia established the NorthSouth Corridor Improvement Program in 2009 connecting the northern and southern borders with a modern, high-speed road. Since 2009, ADB has supported the government to construct the NorthSouth Road Corridor. The ADB-funded NorthSouth Road Corridor Investment Program (NSRCIP) is a flagship investment program for the government, European Investment Bank (EIB), and the Eurasian Development Bank (EDB) also parallelly financed sections of the NSRCIP.

Regional disparities. Armenia has experienced significant sociopolitical and economic shocks in recent years. These events have included the 2018 Velvet Revolution, the 2020 twin shocks of the coronavirus disease (COVID-19) pandemic and geopolitical events, and more than 100,000 ethnic Armenians fleeing into the territory of Armenia in 2023. The Resilient and Inclusive Economic Corridor Improvement Project (RIECIP) is in Syunik region which is the southernmost province of Armenia. It is bordered by Armenia's Vayots Dzor region to the north, Azerbaijan's Nakhchivan Autonomous Republic exclave to the west, Azerbaijan to the east, and Iran to the south. Syunik is the second-largest Armenian province by land area and is predominantly mountainous with the highest peaks reaching almost 4,000 m above sea level. Its city center and largest city is the town of Kapan with a population of 41,293 (2023).1 Syunik province has a very low population density compared with the rest of Armenia and a declining population. This is partially due to the large distances to the capital Yerevan and remainder of the country and the insufficient provision of transport options. The low population density and declining population, the lack of diversification of the economy, and indicators such as the relatively low number of institutions providing primary health care service point to the emergence of regional disparities. The recent geopolitical events made the previously used roads unusable for Armenian citizens, as the road crosses in and out of Azerbaijan territory and now requires border formalities. To address the limited accessibility, the government reconstructed a third-level local road from Sisian via Tatev to Kapan. This road is currently used for all traffic to and from the southern region of Armenia and the border with Iran. Traffic on the route has substantially increased in recent years (with around 2,500 average annual daily traffic in 2022) and horizontal and vertical alignment of the road is not suitable for the amount and composition of the traffic using it. This poses a severe road safety hazard and increases greenhouse gas (GHG) emissions.

Resilient and Inclusive Economic Corridor Improvement Project. The completion of the southern leg of the NorthSouth Road Corridor (NSRC) is the largest infrastructure investment in Armenia. Syunik Marz is the center of Armenian mining activities, accounting for 79% of sector turnover in 2019.2 Mining and quarrying accounted for 3% of GDP in 2017 and direct and indirect employment of 42,000 people.3 It is the country's principal earner of foreign exchange. The mining industry is the cornerstone of Syunik's economy, while other sectors'contribution to the overall economic growth is below the average. However, given its insufficient access, Syunik Marz will experience limited regional development. Besides providing necessary access, the project aims to provide an inclusive road ensuring that the infrastructure project will benefit all communities, including marginalized groups. The project aims to support the economic diversification of the region through the promotion of regional development, enhancement of human capital, encouragement of woman-owned local businesses, equitable access to opportunities, digital connectivity, and gender equality. Better and safer roads, reduced travel time, and increased connectivity will have a strong positive impact on private sector development in the southern part of Armenia and will also help to develop the tourism potential of Syunik, which is home to many natural and cultural attractions.

Climate and disaster resilience. As a landlocked country with vulnerable mountainous ecosystems, the country is facing the negative impacts of climate change. Using the Notre Dame GAIN Index,4 Armenia ranks 57th most vulnerable to climate change and 101st in terms of disaster risks5 due to its high exposure to natural hazards. With temperatures rising faster than the global average,6 Armenia faces increased vulnerability to frequent droughts and a higher risk of floods and mudflows. The road infrastructure is not adapted and requires additional investments in climate and disaster resilience. The project incorporates measures for climate and disaster resilience and adaptation measures, aiming to enhance the road's resilience to growing extreme weather conditions and disasters.

Sector experiences and lessons learned. ADB has supported NSRCIP with financing three tranches for a combined $350 million, of which two have been completed and one to be substantially completed in 2024. In addition, ADB financed two tranches under the Sustainable Urban Development Investment Program ($123 million) and the ArmeniaGeorgia Border Regional Road (M6) ($60 million). The implementation of the projects faced severe challenges related to (i) attracting qualified bidders, (ii) land acquisition, (iii) archeological finds, and (iv) capacity constraints in implementing agency, among others. The project will incorporate lessons learned through insurance of project readiness, capacity development, and a solid procurement process.

Private sector development. There is growing interest in using well-structured publicprivate partnerships in Armenia, especially as the country's infrastructure investment needs are substantial and require attention to stimulate economic growth and resilience. During fact finding, the project team will explore the potential for mobilizing the private sector to provide operations and maintenance.

Project objectives. The project aims to (i) provide a disaster-resilient, high-quality road link from Sisian to Kajaran and more broadly with the southern neighbor of Armenia, (ii) support the trade and economy and country cohesiveness of Armenia, (iii) address the emerging regional socio-economic disparity, and (iv) introduce climate and disaster resilience in the road sector. ADB will finance the northern section of Sisian-Kajaran (S-K) road.

Impact

Addressing regional disparities, improving road safety, and improved regional and international connectivity.

Improved resilience to climate change (Nationally Determined Contribution 20212030 of the Republic of Armenia to Paris Agreement)

Outcome

Regional and international mobility improved and accessibility between Sisian and Kajaran increased.

Outputs

A greenfield alignment along Ishkhanasar to Shenatagh road constructed.

Capacity of Road Department Fund improved.

Increased entrepreneurial capacity of women, and access to finance in the Syunik region.

Geographical Location

Nation-wide, Kajaran, Sisian

Safeguard Categories

Environment

A

Involuntary Resettlement

A

Indigenous Peoples

C

Summary of Environmental and Social Aspects

Environmental Aspects

Involuntary Resettlement

Indigenous Peoples

Stakeholder Communication, Participation, and Consultation

During Project Design

During Project Implementation

Contact

Responsible ADB Officer

Herz, Thomas

Responsible ADB Department

Sectors Group

Responsible ADB Division

Transport Sector Office (SG-TRA)

Executing Agencies

Ministry of Territorial Administration and Infrastructure

Timetable

Concept Clearance

24 May 2024

Fact Finding

29 Jul 2024 to 02 Aug 2024

MRM

-

Approval

-

Last Review Mission

-

Last PDS Update

31 May 2024

Funding