The civil works component of the project will rehabilitate and modernize 94 km of the East-West Highway from Ganja to the town of Gazakh. It will include five small rural road pilot contracts designed to find optimal solutions for rural road maintenance operations. The East-West road link from Baku through Alyat to the Georgian border is one of the main access routes for goods to and from Azerbaijan, and is supported by the European Union's TRACECA as a main link in the proposed revival of the Silk Route.
Azerbaijan, with a population estimated at about eight million people, lies on the southeastern flanks of the Caucasus mountains. The country is endowed with fertile agricultural land and natural resources, in particular substantial underdeveloped petroleum reserves. It is heavily dependent on transport links through its neighboring countries of Georgia, Iran, Russia and Turkey. The border with Armenia remains closed.
Since 1996, the economy has grown by about 10 percent a year, thanks mainly through inflows of foreign investment in the oil sector. With investments in oil exploration and development, traffic levels are forecast to increase in line with growth in real GDP. The road network of Azerbaijan comprises 24,000 km, of which 4,689 km are main roads.
While the basic road network is adequate to meet foreseeable needs, a shortage of budget resources since 1990 has resulted in a large backlog of deferred maintenance. A road condition survey undertaken in 1996 estimated that 56 percent of the main road network was in a poor state of repair. This same study estimated that roads in poor or very bad condition raised vehicle operating costs between 28 and 44 percent. The inadequate condition of the road network is thus becoming a major impediment to private sector development.
The institutional strengthening component of the project includes technical support to restructure and modernize the Azeravtoyol road agency (Azyol) which owns and maintains all roads in the country and will be responsible for the implementation of the Highway Project.
"A strong institution responsible for road planning and management, and adequate budgetary resources for road maintenance are key requirements for the sustainability of the project," explained Task Manager in the World Bank team Antti Talvitie. "Azyol's operational efficiency therefore needs to improve, and an adequate and reliable source of financing for road maintenance established." The latter will be addressed through a condition in the Credit Agreement that will provide for regular increases in Azyol's budget during the life of the project.
The total cost of the project is estimated at US$48 million equivalent, of which about 64 percent (US$30.73 million) are foreign costs. The Kuwait Fund and the Islamic Development Bank have agreed to finance the upgrading of the 40 km of the East-West road from Alyat to Gazi Mammad, while the EBRD is considering financing the 80 km road section from Gazi Mammad to Khurdamir. An IDA credit of US$40 million would finance about 83 percent of the estimated total project costs. The EU would finance technical support for the project costing US$1.5 million. The government would finance the remaining US$6.5 million, or about 14 percent of the total project costs.
Azerbaijan has been a member of the World Bank and International Development Association (IDA) since 1992. Including the Highway project approved Tuesday, the Bank has committed US$451.2 million equivalent for 14 projects in the country.
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