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 Press release - Ida Supports Improved Efficiency Of Gas System In Azerbaijan (WB)

 Press release date: 18.09.1996

The World Bank
Europe and Central Asia Region
News Release No. 97/1131 ECA

Contact: Jan Pakulski
Tel: (202) 473-1797
Fax: (202) 522-3362


WASHINGTON, September 19, 1996 - The 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.

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 assets;
  • support the commercialization of Azerigaz and further development of the sector through technical assistance, training programs and the acquisition of modern office equipment; and
  • 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 period.

Since joining the Bank in 1992, Azerbaijan has received a total of US$185 million equivalent in Bank commitments for 5 projects.

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