EBRD to provide Azerbaijan with first loan for green transition

The Board of Directors of the European Bank for Reconstruction and Development (EBRD) on May 1 plans to consider the provision of a sovereign loan of up to $30 million to finance the purchase of autotransformer equipment for reinforcing works at four operational substations in Azerbaijan, Report informs referring to the EBRD.

The Republic of Azerbaijan represented by the Ministry of Finance will act as the borrower. Azerenerji OJSC – the state-owned enterprise responsible for the production and transmission of electricity in the country - will act as the implementing entity for the project.

“The project will support the purchase of autotransformer equipment for reinforcing works at four operational substations in Azerbaijan. The Project will help to improve the flexibility of the power system in Azerbaijan required to integrate renewable energy capacities. The successful implementation of the Project would set an example for further grid strengthening projects that are important for the integration of renewable energy projects in the country,” reads the message.

The project will promote the "resilient" transition quality by allowing the connection of planned renewable energy installations which currently are not possible due to inadequacy of the grid or lead to a decrease in the curtailment of existing renewable energy installations.

The project will also promote the "green" transition quality by entailing a policy engagement, which aims to deliver institutional reform and lead to structural changes across sectors/markets.

“The Bank is actively involved in the development of policy dialogue in Azerbaijan. The Project will be the first engagement of the Bank focused on the modernization of the power system required to improve the flexibility of the power system and integrate renewable energy capacities in Azerbaijan. Therefore, the successful implementation of the Project would set an example and a replicable standard for further grid strengthening projects that are important for the integration of future renewable energy projects,” the EBRD noted.

The environmental and social risks associated with the purchase and replacement of transformers at four substations are expected to be site-specific, readily identifiable and can be mitigated through good industry practice. The Environmental and Social Due Diligence (ESDD) will be carried out by an independent consultant and include assessment of the Client's Environmental and Social management systems, a site visit and a review of the Client's current operations and the proposed Project.

The Project is expected to have indirect environmental benefits by upgrading substation capacity to support the transition to renewable energy integration. Key environmental and social impacts related to the proposed investment include labor and working conditions, occupational health and safety including electrical and road safety, contractor management during replacement and maintenance, pollution prevention issues such as hazardous waste management and grievances from the project stakeholders. Impacts on biodiversity, cultural heritage or economic displacement are not expected as installation works will take place at the existing substation sites. At this stage, no associated facilities have been identified. Due diligence will also review E&S risks in the project supply chain and arrangements for the old transformers being replaced.

Based on the ESDD, an Environmental and Social Action Plan (ESAP) will be developed to structure the Client's existing operations and the Project to align with the Bank's Performance Requirements (PR's) and good industry practice.

The Bank will monitor compliance with the PR's by reviewing annual reports prepared by the Client on environmental and social matters. The Bank will also undertake monitoring site visits, as needed.

The project does not exclude the possibility of providing grant funding, the source of which is being clarified.