OREANDA-NEWS. December 16, 2009. Azerbaijani government informs that Arab countries’ funds also propose their loans for the project in 2010.

“Abu Dhabi Fund for Development, OPEC for International Development (OFID), and Kuwaiti Fund for Arab Economic Development are among them. Having so many profitable proposals the Azerbaijani sides, in particular the Ministry of Finance and project customer Azerenerji OJSC (country’s national energy operator), needs only to choose the most comfortable,” a government source said.

Financing of works in 2009 will be covered at the expense of the IDB loan of 134 million euro.

“Unfortunately, we are lacking expenditure estimates on plant construction for 2010 that keeps back the process of choice of financing parties,” the source said.

The WBG is ready to grant a loan of up to US150 million or ensure a loan in a form of guarantee if the government finds it more profitable.

Earlier the IDB approved allocation of 130 million euro for the project, while ADB keeps on preparing guarantee support for the project.

Currently Pil-Bae Song, the director for energy & natural resources of thre ADB Central & Western Asia Department, is visiting Baku.

This week he is expected to meet with finance minister Samir Sharifov to clarify the issue when the ADB loan guarantees can be inquired.

ADB intends to provide them and gives consulting support to Azerenerji OJSC in the process of choice of commercial banks from which financing will be drawn under ADB guarantees. The current process of selection of the banks is being conducted Azerenerji and the Ministry of Finance.

The ADB representative’s visit takes from 14 to 18 December.

The guarantee support is a pilot project of private sector support for both the ADB itself and other banks with rating of no less than AAA.

Guarantee support for Azerenerji OJSC (Azerbaijan State Electric Company) is going to be the first experience of such kind for the ADB in the region of the South Caucasus.

The guarantees given by the ADB without governmental guarantee will allow Azerenerji to raise finances for its station project under rates to be less than even if the Company received guarantees of the Azerbaijani government. Another advantage for Azerenerji is a fact that guarantees relate to out-balance commitments, i.e they will not tell on Azerenerji’s balance and its credit burden.

ADB’s guarantees along with a loan of the Islamic Development Bank (IDB) will allow full financing of Canub project.

ADB scheduled approval of Guarantee Support Project on Canub the third week of December 2009. Guarantee support is estimated at US 124 million as ordinary credit resources of the bank.

ADB points out that energy is a vitally important contribution to support of economic growth in Azerbaijani non-oil sector of manufacture and services. The power sector, along with the oil sector, plays a leading role in Azerbaijani social and economic growth forming one third of gross domestic product (data for 2007).

At the same time efficiency of power generation capacities reduced because of shortage of funds for rehabilitation and creation of additional capacities.

Low power efficiency of generation and high losses of transmission and distribution lead to wastage of fossil fuels that could be exported, and nearly double emissions of greenhouse gas and other pollutants that damage to regional and global environment.

Shirvan thermal power plant is the second biggest plant in Azerbaijan. Commercial operation of the plant started in 1962. The installed capacity is 1,050 megawatts (MW) but available capacity 800 MW and average operational efficiency is 27%.

The replacement of Shirvan thermal power plant is one of the highest priorities of the power generation program of the Azerbaijani government. The new plant will increase significantly efficiency and achieve in saving funds. Taking into account considerable benefits from saving fuel consumption, the government wishes to complete the project at a growing rate and started realizing the project in 2007.

The Canub Thermal Power Plant (Project) will be located close to the existing facility to take advantage of the existing infrastructure. The plant is expected to have installed capacity of 760 MW and average efficiency of 42%. The Project is financially and economically viable.

Azerenerji, the state-owned enterprise responsible for power sector development in Azerbaijan, carried out half of the Project cost through commercial bank loans with state guarantee in 2008 (Phase 1 financing).

The project has been launched, however, because of the global financial crisis, long-term financing needed to complete the Project (Phase 2 financing) is no longer available. Additional funds are needed by January 2010 to complete the project.

Thus, Azerbaijan has asked for an ADB partial credit guarantee (with a direct sovereign counter-guarantee to ADB) so that it can raise long-term financing needed to match the cash flow of the project and maintain its financial viability. ADB’s guarantee will also promote return of Azerenerji to the commercial market of project financing under the conditions of competition and transparency as well as attract new commercial banks to diversify funding sources.