The Asian Development Bank (ADB) and Government of Azerbaijan have signed a Memorandum of Understanding for a $1 billion investment programme to rehabilitate and expand the country’s power distribution network.
The agreement was signed at ADB’s Annual Meeting which took place in Baku from 2-5 May. The signatories include Baba Rzayev, chairman of state-owned Azerishig Open Joint Stock Company, which will carry out the programme, Azerbaijan’s Finance Minister Samir Sharifov and ADB Vice President Wencai Zhang.
New programme to improve power supply
The programme is to deliver more reliable power supplies, reduced distribution losses and higher quality customer service.
ADB is supporting the programme through a $750 million multitranche financing facility with a $250 million loan earmarked for the first phase. The funds will be used to upgrade and expand the power distribution lines, substations and customer service lines, and to replace the existing electric meter devices with digital electric meters. Capacity building support will also be given to Azerishig Open Joint Stock Company to enhance its operational and financial performance.
The Government of Azerbaijan will provide counterpart funds of $250 million.
ADB has been supporting Azerbaijan since 1999- the total approved assistance is close to $2.1 billion (public and private sector), much of which has been earmarked for infrastructure to help the country diversify and expand economic opportunities.
In the energy sector, cumulative approved assistance, including co-finance, equals about 9% of ADB’s total country operations. ADB’s support for power improvements includes a $160 million loan completed in 2014 to strengthen the country’s main power transmission network, a private sector energy efficiency project and a biomass renewable energy project.
Solving Azerbaijan’s distribution problems
Electricity is the current real commodity for Azerbaijani export.
Azerbaijan’s electric energy industry has achieved significant results for the last decade-the power grid capacity increased by 40%, exceeding 7,100MW. This has increased the export potential of the country. Increasing the power grid capacity was made possible due to the construction and commissioning of new power stations and power facilities over recent years.
Despite this progress in the establishment of new energy generating facilities, it is still necessary to carry out various reforms to develop the export potential of the country and to increase the energy system’s efficiency. There are still issues when it comes to the obsolete infrastructure in the districts and electricity losses in transmission and distribution.
There are plans to reduce these losses. A single operator of electricity distribution network, Azerishig JSC, has been established. The new organization has obtained the electricity distribution powers in all districts of the country. It is up to Azerishig JSC to implement reforms needed to resolve the country’s energy issues.
The technical loss level in Azerbaijan’s electricity distribution networks is planned to be reduced from 16.5% to 6.5% by 2020. The level of losses of energy transmission lines is planned to be reduced from 4.3% to 2.8% by 2020. To do this, several billion dollars is needed to restore and upgrade critical infrastructure.
New structural changes help increase the capacity of the energy system and its export potential, reduce losses in transmission and distribution of electricity, thereby strengthening Azerbaijan’s energy security.