(World Bank News Release No. 97/1131 ECA)
WASHINGTON, September 19, 1996The World Bank today approved a US$20.2
million equivalent credit to Azerbaijan to help finance a Gas System Rehabilitation
Project. The project, financed by funds from the International Development Association
(IDA), will assist in the Governments efforts to rehabilitate Azerbaijans
natural gas distribution network and improve the efficiency of gas delivery, and use.
Because natural gas is the main fuel used in Azerbaijan, its availability is crucial to
all aspects of economic activity. Therefore, the government has placed a high priority on
upgrading the countrys natural gas infrastructure and improving the efficiency of
gas use. Azerbaijan is rich in oil resources and has been a substantial oil exporter since
the beginning of this century. As a result of heavy investment during the Soviet era,
Azerbaijan is one of the most widely gasified countries in the world. Its gas
transmission/distribution network extends to over 80 percent of the population, and
comprises 4,500 km of high pressure transmission lines, 7 compressor stations and over
31,000 km of medium and slow pressure distribution lines. While the country was at one
time self-sufficient in gas, declining oil and gas production in recent years has led to a
need for substantial gas imports to meet increasing supply shortfalls. As in many
countries of the Former Soviet Union, the gas transmission and distribution sub-sectors in
Azerbaijan are in need of substantial investment for modernization and rehabilitation.
Many commercial and industrial customers do not have meters, household metering is
non-existent, and installed meters have questionable accuracy. Technical and non-technical
losses result in at least 15 percent of the gas supply not being accounted for or billed
to customers. Parts of the system suffer from severe corrosion, and it is estimated that
substantial volumes, as much as 5 percent, are lost through leaky pipes, with adverse
impacts on the environment and public safety. Gas use throughout the country is
inefficient, due to a combination of low prices, lack of meters, and a stock of
inefficient gas-using equipment. The national gas company, Azerigaz, which controls all
transmission and distribution, has experienced financial difficulties due to low gas
selling prices for residential consumers and large payment arrears. The rapid increase in
the cost of imported gas since the break-up of the Soviet Union has also reinforced the
priority of reducing consumption through improved efficiency.
The Bank-assisted project will result in substantial economic benefits to Azerbaijan by
reducing expenditure on pipeline replace-ment through the restoration of cathodic
protection systems. In addition, it will increase efficiency of gas use because of
incentives created by the introduction of effective metering, and reduction of gas leakage
due to replacement of corroded or damaged pipe.
The project will also facilitate Azerigazs transition to a commercially based
operation and will support the development of a legal and regulatory framework in the
sector. These are important first steps in introducing a market based-sector organization,
as well as attracting future private sector participation.
The principal objectives of the project are to:
promote more efficient use of gas and reduce non-technical losses by expanding
and upgrading gas metering at major customer and city gate stations;
improve the physical accounting of gas and encourage an improved commercial
basis for gas trading through upgrading of gas measurement;
ensure the efficient operation and preserve the value of the existing pipeline
support the commercialization of Azerigaz and further development of the sector
through technical assistance, training programs and the acquisition of modern office
reduce distortions in gas pricing to bring prices toward economic levels through
pricing reforms, supplemented by metering for residential customers.
The project consists of the following four main components:
Metering (US$13.9 million)
This component includes:
rehabilitating the city gate meter stations throughout Azerbaijan by replacing
the existing instrumentation or by replacing the entire meter at some stations;
installing new meters at industrial and large commercial enterprises which
currently have no meters; and
rehabilitating the metering of industrial consumers who currently have meters by
either replacing the meters or replacing the measuring instrumentation.
Cathodic Protection (CP) System Rehabilitation (US$5.1 million)
This component will:
focus on the Apsheron peninsula and cover about 2,700 km of pipeline serving the
area. It is where most of the gas is currently transported and consumed , and it is also
the area of highest population density;
electrically isolate the pipelines into discrete sections, designing the
detailed CP requirements for each section and installing the required CP equipment; and
replace seriously corroded pipe which is discovered during implementation.
Analytical Equipment (US$1.7 million)
This component includes three sub-components that provide:
gas quality test equipment to upgrade Azerigazs gas analysis capability
and would include gas sampling and analysis equipment to verify gas quality and heat
content, and improve gas accounting;
leak detection equipment to replace the existing equipment which is obsolete and
in many cases, not working; and
network modeling tools to assist Azerigaz in carrying out engineering analysis
for system capacity and design.
Corporatization Support (US$3.9 million)
This component will provide:
training in management and technical skills for Azerigaz staff;
upgrading of office computing equipment; and
implementation assistance which will include assistance in procurement,
engineering, project management and accounting and implementation supervision.
The project will be implemented by a project implementation unit within Azerigaz. The
core staff of the unit will be drawn from the existing project preparation team, which has
been responsible for liaison with the consultants and with IDA missions during the project
preparation. Total project costs are US$24.6 million. The IDA credit of US$20.2 million
equivalent will cover approximately 82 percent of the total costs. Azerigaz will finance
US$4.4 million to cover local costs which make up 17.7 percent of total costs.
The credit will be on the standard IDA terms of 35 years for repayment, including a 10
year grace period. The government will onlend the full IDA credit in dollar equivalents to
Azerigaz at an interest rate equal to the IBRD variable rate on currency pool loans,
adjusted every six months. Repayment terms will be over 20 years, including a 5 year grace
Since joining the Bank in 1992, Azerbaijan has received a total of US$185 million
equivalent in Bank commitments for 5 projects.
Contact: Jan Pakulskii; Email: JPakulski@worldbank.org;
Tel: (202) 473-1797; Tel: (202) 473-1797