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EBRD loan to relieve Baku water supply system
Environmental conditions in Azerbaijan’s capital city, Baku, are to benefit significantly from an ECU 17.6 million (US$ 23 million) loan signed today in London by the European Bank for Reconstruction and Development (EBRD). The project will improve the quality and reliability of water supplies to 2.5 million people and will carry important environmental benefits.
At the signing Ron Freeman, First Vice President of the EBRD, said: “The EBRD is particularly pleased to be involved in this project as it helps to create the conditions for Azerbaijan’s economic growth. The adequate provision of basic public services, such as water supply, is essential to the economic transition process. With the country’s economic prospects improving as a result of the Government’s economic policies and the signing of agreements that will allow Azerbaijan to exploit its mineral wealth, the country is now able to give increased attention to improving environmental conditions.”
Fikret Yusifov, Minister of Finance of Azerbaijan, said: “The project will no doubt help improve living conditions in the Baku metropolitan area. It will also address the problem of water-borne diseases, including cholera, that Baku has faced in recent years.”
A key component of the project is the corporatisation of the government department that was responsible for Baku’s water supply. As a first step, this department has been converted into a joint-stock company named Apsheron Regional Water Company (ARWC). This company will establish a corporate partnership with an experienced Western company, strengthening ARWC's financial and operational performance and bringing improved services to water consumers while keeping tariff increases affordable.
The total project cost is ECU 72.6 million (US$ 95 million), of which the EBRD will finance ECU 17.6 million (US$ 23 million) and the Government of Azerbaijan ECU 8.3 million (US$ 11 million). The World Bank is contributing ECU 46.7 million (US$ 60 million) in the form of a credit from the International Development Association (IDA).
The project creates an investment programme focusing on three separate areas: water demand management; operations and maintenance strengthening; and water production and supplies improvement. The investments will significantly improve revenue generation, decrease operating costs, and increase the proportion of revenue water, thus enhancing financial returns on existing assets. The project will enable ARWC to establish water balances, develop leakage control strategies, and improve investment programming, planning and budgeting.
This loan agreement forms an important landmark for the EBRD and for the region. It is the first project in the water sector in Central Asia to be supported by an international financial institution. It is also the first time that the EBRD and IDA have co-financed an investment programme; as such, it provides a model for cooperation between these two institutions.
The Baku Water Rehabilitation project is the EBRD's second signed investment operation in Azerbaijan. The first, the Yenikend Renewable Energy project in the hydropower sector, was signed in December 1994.
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