Azernews.Az

By Sara Israfilbayova

Nariman Mannapbekov, head of the Asian Development Bank (ADB) Azerbaijan office, tells AzerNews about ADB-Azerbaijan cooperation, current and future plans

Question: What is the current status of cooperation between the ADB and Azerbaijan?

Answer: ADB and the Government of Azerbaijan have agreed to a five-year country partnership strategy (CPS) for 2014-2018, which focuses on infrastructure in transport, energy, and water, and other urban infrastructure and services. As this is the last year of the current strategy, we are in the process of assessing how our partnership evolved over the last years.

In our preliminary view, we have done well, but there are things that can be improved. Overall, our lending and non-lending operations have grown compared with the last CPS period. Our cooperation not only broadened but also deepened. We have entered into productive collaborations in the new spheres, like railway, power distribution, and education sector. We are working together in implementing reforms, especially on public sector efficiency and governance.

All of our experiences in the past years will be independently evaluated, and will be taken into consideration as we devise our new CPS for 2019-2023. It will be fully aligned with the country’s Strategic Roadmap on National Economy Perspectives and other relevant policies. It will contribute in promoting inclusive growth in Azerbaijan based on the country diagnostic study currently on-going in close coordination with the Government.

Q.: Earlier, it was reported that the ADB has approved $250 million to support the government of Azerbaijan in its efforts to strengthen governance in the public sector and diversify the economy. How the work in this area is proceeding?

A.: The ADB’s Board of Directors approved the Improving Governance and Public Sector Efficiency Program on December 6, 2017. This flagship program supports a wide range of policy reforms in areas such as public expenditure, state-owned enterprises, and the financial sector. Examples of support provided are developing of fiscal policy statements, preparing expenditure programs, and recording and analysis of relevant data.

ADB is encouraged by the strong commitment of the Ministry of Finance and other government agencies to move forward with the policy reforms to make the public sector more efficient and productive. An international consulting company provides daily support to the Government in the preparation and implementation of the agreed policy reform measures. We expect that the majority, if not all, of these measures can be completed by the end of 2018.

Q.: The ADB is investing in such projects as the North-South Corridor and Southern Gas Corridor. What expectations does the ADB have from the implementation of these projects?

A.: One of ADB’s key mandates is to support the development of regional cooperation among its members, including those with energy security issues. The Southern Gas Corridor (SGC) project perfectly espouses this mandate, as it will help promote regional cooperation and will help diversify gas import sources of several ADB member-countries.

During the 4th Ministerial Meeting of the Southern Gas Corridor Advisory Council, we have underscored the multiregional and social aspects of the project. We believe that the project can generate additional revenue for the government. This can be used to implement social programs or new measures for economic diversification. It will also provide employment for many people – at least 1,800 permanent jobs are expected upon the project’s completion.

ADB also sees great potential in the railway sector. We supported a regional study under our CAREC program – the “Railway Strategy for CAREC, 2017-2030: Unlocking the Potential of Railways”. In the study, ADB saw the benefits of the North–South rail corridor, which will be more evident once the network from Yalama (nothern border) to Astara (southern border) is upgraded, and the planned Rasht–Astara section is completed. We firmly believe that the two corridors (East-West and North-South) will enable ADY (Azerbaijan Railway Company) to capitalize on the country's crossroads location and provide safer, cheaper, more energy-efficient, and less road-intensive freight and passenger transportation services.

ADB is financing the first phase of this corridor, rehabilitating about 333 kilometers of mainline track from Sumgayit to Yalama, including civil structures and level crossings. The project is expected to be completed by December 31, 2021.

With the railway infrastructure installations in all strategic locations of Azerbaijan (border cross points, ports, oil production and agricultural regions), railways competitiveness will be enhanced which is essential to the country’s production, trade, and distribution of bulk materials such as agricultural and other products.

Q.: How many projects has the bank implemented in each sector, so far?

A.: Since the start of our operations in Azerbaijan in 2003, ADB has approved:

• 21 public-sector (sovereign) loans amounting to $ 3.12 billion
• 10 private-sector (nonsovereign) loans for $1.21 billion
• 45 technical assistance projects on a grant basis amounting to $27.8 million

ADB’s total approvals by the end of 2017 reached $4.35 billion. Majority of the projects were successfully implemented and loans are closed. To date, our public-sector loan portfolio consists of 10 projects in 4 sectors: transport-$1.301 billion (39 percent), public sector management-$750 million (23 percent), energy-$748 million (22 percent), water and urban infrastructure-$524 million (16 percent).

Q.: What are the ADB’s future investment plans, considering Azerbaijan’s eagerness to diversify its economy?

A.: ADB has a three-year Country Operational Business Plan, which operationalizes the CPS. The plan is updated annually, in agreement with the Government. ADB’s financial and technical assistance is aligned with the country’s Strategic Roadmap on the National Economy Perspectives. During 2018-2020, ADB’s public sector operations will focus on public sector management, transport, and energy sectors.

In public sector management, the focus will be on strengthening the country’s public expenditure framework, governance of state-owned enterprises, and expanding the financial sector. In the transport and energy sectors, we will continue to implement relevant programs. ADB’s indicative sovereign lending volume for this period amounts $900 million.

ADB’s private sector operations will also continue to support the development of the financial sector and industries, including engagement with commercial banks with regard to lending to SMEs. ADB has also started the technical assistance project that will prepare pilot PPP projects in higher education and strengthen the PPP capacity of relevant government agencies.

Q.: Which sector the ADB regards as a priority for investing?

A.: ADB stands ready to expand its lending and non-lending products. Our public-sector lending is based on the government’s priorities and demands. During frank and productive discussions, we take notes and provide our views – where ADB could provide its utmost value addition. We welcome the Government’s conservative foreign borrowing policy and a few recent decisions such as: (i) halting the external borrowings by state-owned enterprises; (ii) setting the ceilings for the external borrowing and provision of government guarantees to foreign loans. The public debt taking should be smart, intelligent, and for development purposes.

The State can support projects with the external financing if it sees the clear end results with the “win-win” outcome. For example, the ADB-funded power distribution project helps to: (i) reduce the technical and commercial losses in the network; (ii) increase the collection rate; (iii) lessen the fiscal burden and strengthen the financial sustainability of the distribution company including improvement of corporate governance and transparency; (iv) foster innovation through new technologies; (v) meet country’s growing energy needs for inclusive development, especially in secondary cities and rural areas. ADB can continue the support of the second phase of this project and other projects with the multiple “wins”. The tenor of ADB’s loans for infrastructure projects (in agriculture, energy, transport, or urban sectors) is 25 years with 5-year grace period and interest of LIBOR+0,6 percent. If such loans are attracted, the Government can expand the fiscal space in dealing with other challenges, including in the social sector. We try to combine ADB’s long-term finance with technical assistance, knowledge creation and sharing, and use our experience to deliver better, faster, stronger results.

There are many of public-sector projects which can be quite beneficial to the economy; and there are also plenty of private-sector projects which can also contribute to the economic development with no debt burden to the State. In this respect, the Government is rightly aiming at addressing the current infrastructure bottlenecks via public-sector investments while taking measures to create conducive environment for private sector participation in large infrastructure projects. ADB is privileged with the opportunity to support the Government with the roll-out of the first PPP projects and strengthen the capacity of agencies in PPPs.

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