Azerbaijan Railways (ADY) and the Asian Development Bank (ADB) have signed a loan agreement worth $131.5 million to rehabilitate a crucial section of the International North-South Transport Corridor (INSTC) in Azerbaijan, aiming to strengthen regional connectivity, Report informs, citing the text of the loan agreement.
The agreement was signed by Rovshan Rustamov, Chairman of ADY, and Sunniya Durrani-Jamal, ADB’s Country Director for Azerbaijan. The total project cost is estimated at $160.5 million, with the Azerbaijani government contributing $29 million.
The loan, provided under ADB's flexible lending product, will have a term of 22 years, including a 2-year grace period, at a determined interest rate. Interest payments and other charges will be made twice a year, on May 15 and November 15.
The funds will be allocated towards completing the rehabilitation of a 166-kilometer mainline between Sumgayit and Yalama, including civil structures and railway crossings. This loan is additional financing for the Railway Sector Development Program, approved in 2017, which aims to modernize the country's railway operations. ADB initially allocated $150 million to Azerbaijan Railways.
The additional financing will allow for the expansion of the original project and the overall rehabilitation of the approximately 333-kilometer main route from Sumgayit to Yalama. The project is expected to be completed by December 31, 2025.
According to the agreement, the borrower must regularly adjust freight and passenger tariffs to maintain financial sustainability, covering market risks such as adequate debt service coverage, inflation, currency, and interest rate risks. Azerbaijan Railways must maintain a debt service coverage ratio above 1.1 after the approved financial restructuring plan is completed in 2024.
Azerbaijan Railways has also committed to ensuring satisfactory maintenance of the structure and condition of the rails and other project facilities to ensure safe and efficient operation of freight and passenger trains.
Since joining ADB in 1999, Azerbaijan has received over $5 billion in funding to support sovereign and private projects in sectors such as transport, energy, health, and agriculture. ADB, established in 1966, has 68 members, 49 of which are from the region.