EBRD: Green finance, infrastructure & digitalization among co-op priorities with Azerbaijan

EBRD Vice President for Policy and Partnerships Mark Bowman in an exclusive interview with Report spoke about the main priorities of the EBRD in its cooperation with Azerbaijan in the short and medium term, about the possibilities of issuing bonds on international financial markets and continuing to support small and medium-sized enterprises in Azerbaijan.

What will be the main short and mid-term priorities of EBRD in Azerbaijan?

Our current focus in Azerbaijan is to support in diversifying the economy, providing better access to finance for small and medium-sized enterprises (SMEs) and supporting the country's efforts to reduce carbon emissions. The year 2022 has been a year of several milestones, both in terms of policy and investment.

Last year, we co-financed the first utility-scale solar power plant in Garadagh. We also signed two agreements within the framework of our Green Cities program. The first agreement aims to assist Ganja in improving its solid waste management, while the second agreement aims to enhance the city's energy efficiency. In terms of digitalization, we supported a loan of up to $50 million to Aztelecom in partnership with the European Union to bring reliable internet access to more than 280,000 households in various regions of Azerbaijan.

We also launched IT hubs, which is the first project to be funded through a bilateral donor agreement between us and the government. Through this project, we aim to support the training of students in the regions and help them secure remote jobs with international ICT companies.

We have also had a productive start to 2023 in Azerbaijan. During my visit we signed our first circular economy project to support an Azerbaijani secondary lead producer in expanding its end-of-lifecycle battery recycling capacity in partnership with the European Union.

Looking at these achievements, I am confident that our productive cooperation with Azerbaijan will continue in sustainable infrastructure, green finance, economic inclusion, and digitalization. We will carry this momentum into 2023 and beyond.

EBRD is actively engaged in discussions with the Central Bank of Azerbaijan to improve the conditions in Financial Markets for IFI Bond issuance, Green bonds and derivatives/securities. At what point are these discussions now? What else is being discussed with Azerbaijani Central Bank?

Indeed, EBRD has been part of a community of experts who actively participated in the review and assessment of the legislative changes in securities and derivative legislation. These changes are expected to enable the issuances of local IFI bonds, Green bonds as well as a more active use of derivatives.

Overall, we have an active and fruitful ongoing dialogue with the Central Bank to further strengthen the resilience of Azerbaijan’s banking sector and we are looking forward to continuing the same way in the future.

In particular, we are cooperating with the Central Bank in assessing several practical tools how to improve access of SMEs to credit in the country. We are also cooperating on the Environmental, Social, and Governance (ESG) front and are ready to assist the Central Bank in terms of providing advice and training in this area.

What’s EBRD’s position regarding the development of renewable energy in Azerbaijan? Are there any plans to provide financial support to the development of this sector? If so, is the amount defined?

The cost of using fossil fuels in Azerbaijan has risen and the use of renewable energy sources has become more financially attractive, in addition to the environmental benefits of renewables.

Therefore, we are now actively supporting Azerbaijan's efforts to reduce carbon reliance through investments and policy development. We have recently co-invested in the construction of the first privately-owned solar power plant in the country, and we are also considering financing the construction of a wind power plant on the Absheron peninsula.

On the policy side, we have helped the Ministry of Energy conduct a study to strengthen the grid and have signed a memorandum of understanding to continue supporting the development of a low-carbon and climate-resilient power sector in Azerbaijan, in line with the country's commitments to the Paris Agreement.

This includes further development of renewable energy, grid enhancements, improved energy efficiency, and the gradual introduction of new technologies such as hydrogen.

Unfortunately we cannot comment on the financial details of the upcoming projects just yet. But as the information becomes available, our team in Baku will keep you updated.

How EBRD will increase the support to Azerbaijan’s SMEs?

MB: One of our main objectives in Azerbaijan is to enhance the capacity of local financial institutions, which will in turn increase access to finance for the private sector. We are actively promoting the growth of financial markets here. There are a number of banks that the EBRD is currently exploring collaboration in 2023 and beyond.

We are also willing to expand our involvement in trade finance and lending to micro, small, and medium-sized enterprises (MSMEs), particularly in terms of supporting SME competitiveness, green finance, Women in business, and youth employment. There is still a lot to be done to help SMEs flourish in Azerbaijan.