The main credit institution of the European Union is one of Azerbaijan’s top foreign donors, and the EBRD is ready to expand lending to the non-oil sector and green economy within its country strategy for Azerbaijan until 2024.
According to the year-end results of 2021 disclosed yesterday, the EBRD has doubled the financing of projects in Azerbaijan. In the future, the bank plans to implement large-scale initiatives in Ganja, and it is possible that investment projects in Karabakh and Eastern Zangezur will be included in the range of its interests.
Over nearly thirty years of cooperation with the leading credit institution of the European Union, 178 projects have been implemented in Azerbaijan, in which the EBRD invested about 3.3 billion euros. In 2017-2021, the EBRD also allocated loans in the amount of about 828 million euros for the implementation of 33 various projects.
Notably, in the new century the activity of the bank has been focused primarily on lending to the extraction, energy and transport sectors, as well as infrastructure projects, where about two-thirds of all the funds invested in our country went. For instance, one of the largest loans was the financing for the completion of the Trans-Anatolian gas pipeline in the amount of $500 million and for the Stage II development of the Shah Deniz 2 gas condensate field in the amount of $1 billion. Those loans were provided under the Southern Gas Corridor project and were aimed at supporting energy security in Europe. At the same time, about a quarter of the ЕBRD loans went to the corporate and private sector, while the rest was given to the banking sector and for institutionalization and reforms in the public administration system.
Experts believe that due to the completion of almost all major energy and infrastructure projects financed by the EBRD, no new agreements are expected in these areas in the coming years. In recent years, the EBRD has begun to formulate a new country strategy for 2019-2024, but the subsequent pandemic crisis somewhat adjusted the scale and amount of investment in the projects. In 2020, the Bank financed only six projects in Azerbaijan, allocating €17 million for this purpose.
The situation began to change in the period of the post-crisis economic recovery in 2021: against the background of the growth of non-oil production, especially in industrial clusters, as well as the expansion of non-oil exports in Azerbaijan, the demand for concessional funds, including through external borrowing, significantly increased. Accordingly, the EBRD invested a total of €34 million in the implementation of eight projects in our country last year. Moreover, this is not just a doubling of the financing for Azerbaijan. All of the implemented ventures were not associated with government projects, but involved only the private sector of the country. It is noteworthy that the new projects encompass a wide range of areas, from support of leather industry to investments in the production of pasta and confectionery goods, as well as expanding the production capacity of industrial innovation companies.
This is a rather rare situation in the relations with the EBRD, and, apparently, it will usher in a new phase of our dealings with the bank, when the role of the beneficiary will be dominated by private business. The portfolio of the projects currently being implemented in Azerbaijan amounts to €801 million and, according to the country strategy, the bulk of the financing for the coming years is focused on supporting projects in sectors other than the conventional energy sector. It appears that in the year 2022 and onwards, the EBRD intends to expand cooperation in the development of non-oil industry, as well as support for innovative and environmental projects in the national economy.
In particular, in line with the global trend of fossil fuel phase-out and the expected energy transition by 2035 with the subsequent dominance of the green economy, the EBRD has increased lending for environmental projects to 40% of its total annual financing. This approach is fully applicable to the oil and gas producing Azerbaijan, which, taking into account global trends, is also in the risk group. In fact, that is why today our country has stepped up the efforts to develop renewable energy sources (RES), improve energy efficiency (reducing energy consumption by heating and lighting, as well as reducing carbon emissions) in the utilities and industrial sectors and form urban infrastructure. For example, a number of Azerbaijani cities have joined the international Green Cities Initiative, and the EBRD is involved in the financing of projects to improve solid waste management and introduce more efficient street lighting in Ganja. It is expected that as early as this year Ganja’s Housing and Public Utilities PA will receive a €10 million loan to modernize the infrastructure for waste collection, street cleaning, etc. Another €12.5 million from the EBRD (in the form of loan and grant) will be used to improve the system of street lighting in Ganja: the project includes the introduction of energy-saving light sources, automated lighting control and monitoring systems, replacement of lamp posts, power cables, which will result in significant energy savings, reduce the grid maintenance costs and improve the safety of road users.
Significantly, the EBRD may also be interested in the plans for the development of RES capacities in the liberated territories, transforming the Karabakh and East Zangezur economic regions into a green energy zone. A 100-megawatt wind power plant is to be built in the Lachin-Kalbajar zone in the near future, and projects to upgrade small hydroelectric power plants and build new ones on mountain rivers in the Lesser Caucasus are already underway.
It looks like the Azerbaijani government has plans to involve the EBRD in investment projects in the Karabakh region, and last September this topic was discussed by Minister of Economy Mikayil Jabbarov at a meeting with Matteo Patrone, EBRD Managing Director for Eastern Europe and the Caucasus. EBRD experts also expressed readiness in the past to support pilot auctions to attract RES producers, in particular to provide financing from the EBRD’s Technical Cooperation Funds.
The vector of the EBRD activity until 2024 will also be directed at the development of two more key areas: increasing access to financing for local businesses by providing targeted preferential credit lines to banks and non-bank credit institutions, as well as diversifying the economy of Azerbaijan by supporting the development of private enterprises in the non-oil sector, and strengthen the management of private and state-owned companies.
Translated from Caliber.Az