Office of German KfW bank may close in Azerbaijan - EXCLUSIVE

By mid-2020 the only project of the German development bank KfW in Azerbaijan, which is currently in progress, will be completed, said Natig Abdullayev, head of the bank’s Baku office. This is a project for the reconstruction of the water supply and sewerage system in Ganja and Sheki, which is being carried out jointly with the Government of Azerbaijan within the framework of the Open Communal Infrastructure Program.

“The Azerbaijani government has decided to continue the reconstruction of the water and sewage system of Ganja and Sheki at the expense of internal funds and work in this direction is carried out in parallel,” Abdullayev said.

President Ilham Aliyev has instructed the government to limit the attraction of foreign borrowing and take loans for a certain amount only for technology-intensive projects. Thus, Azerbaijan plans to reduce the amount of foreign debt to $ 6.5 billion, or 12% of the country's GDP by 2025 in contrast to 19% last year.

In this regard, the country's government refused KfW loans for the development of alternative energy sources (130 million euros), for additional funding (250 million euros) of a water project, for business development (5 million euros). According to Abdullayev, no new loans were raised from KfW after 2012. All the same, the Azerbaijani side repays the loans ahead of schedule, as in the case of the Azerbaijan Deposit Insurance Fund (ADIF). A loan of 5 million euros was raised from KfW in 2010 as part of the ADIF capitalization program for a period of 40 years at 0.75% per annum.

“If there are no negotiations on new projects and new agreements by the end of 2020, the Baku office of the German bank may be closed,” said the head of KfW’s office.

According to him, 50 million euros are currently being spent on work in both cities as part of the water project. With the funds allocated from the bank’s loan, up to 60% of drinking water needs will be provided in Shaki and 40-50% in Ganja. The rest of the work to bring the level of water supply to 100% will be carried out from public funds.

As part of the water project, KfW allocated two loans to Azerbaijan totaling 137 million euros. The first KfW loan, in line with the EUR 37 million agreement signed in October 2006 in Bern, was granted for a period of 40 years with a grace period of 10 years and a rate of 0.75% per annum, and the second loan of 100 million euros (agreement signed in December 2012) for 12 years with a grace period of three years and a rate of 1.96% per annum.

During the period of cooperation, since 1994, the German bank has allocated loans worth over 240 million euros for the implementation of projects in various economic sectors in Azerbaijan.