Roads Reconstruction and Upgrading Project

Translated version of this PSD: Azerbaijani

Project Description

The Government of Azerbaijan (GoAz) continues to give priority to the rehabilitation and reconstruction of its principal road corridors and key regional roads, in order to facilitate trade and regional co-operation with its neighbours and facilitate economic development across the country as a whole.

The Project, originally approved by the Bank’s Board of Directors in December 2011, consists of three loan tranches, USD 250 million each, with separate due diligence and Board approval required for each tranche to be committed and disbursed. Tranche 1 in the amount of USD 250 million was approved and committed upon signing of the loan agreement in December 2011 for the rehabilitation of the R18 Mingachevir - Bahramtapa road section. This component is currently under implementation. A portion of Tranche 2 for the rehabilitation of R42 Bahramtapa - Bilasuvar road section was approved and committed in December 2013, but has not been disbursed.

In December 2015, the GoAz requested the Bank to commit the remainder of the loan and reallocate all of the funds under Tranches 2 and 3 for the completion of the dualisation of 130km of road on the M2 highway between Ganja, the second largest city in Azerbaijan, and the Georgian border.  This request is subject to formal approval by EBRD's management and Board of Directors, expected in October or November 2016.

Project Objectives

M2/E60 highway is part of the TRACECA corridor and a key international trade route for Azerbaijan.  This highway is part of the Government’s priority programme to upgrade the national road network to support the economic growth of the regions outside Baku and increase international trade, connectivity and integration into the global economy. 

The key objective of the Project is to contribute to the upgrading of the key regional and international road connections to facilitate economic growth.  The Project will build on the reform progress achieved in the road sector to date and, alongside the World Bank and Asian Development Bank, will allow the Bank to strengthen its long-term co-operation with the authorities in Azerbaijan and encourage further reform in the road sector.

Transition Impact

The proposed Project will continue to advance institutional strengthening of the sector by further advancing of the cost recovery principle and by supporting the involvement of the private sector in operation and maintenance of the road network, as well as the strengthening of the standards of procurement and implementation supervision for non-IFI funded investment programmes by assisting in the revision of the procurement and implementation manuals for Azeravtoyol.

A number of transition covenants apply to each loan tranche, which also serve as conditions precedent for the subsequent loan tranches.  This structure seeks to encourage sector reform, which builds as the facility progresses, and focuses on rebalancing the financing and management of the road sector to bring the management, operation and maintenance of the regional road network to the required level.  The transition objectives of the Project which are covenanted in the loan agreement, support institutional reform in the road sector in Azerbaijan and create a gradual shift towards greater private sector participation starting with performance-based maintenance contracts. 

The Client

AzerAvtoYol (formerly known as AzerYolService, AYS), the state owned road agency.

EBRD Finance

USD 750 million sovereign loan in three tranches, USD 250 million each.

Project Cost

Up to USD 900 million.

Environmental Impact

The first tranche involves the rehabilitation of the 156 km long section of the R18 Mingachevir to Bahramtapa road. EBRD reviewed the Environmental Assessment and the Poverty and Social Assessment. This review and a site visit by the Bank’s environmental specialist showed that almost all of the road rehabilitation work will take place within the current corridor, the environmental and social impacts are site-specific and can be addressed through conventional mitigation and management measures. Tranche 1 was categorised B in accordance with the Bank’s Environmental and Social Policy 2008.  The rehabilitation of the R18 will have significant benefits for local communities and businesses. Much of the road is currently in a very poor condition and which reduces access and increases journey times. The rehabilitation will improve this situation and will introduce new road safety features such as warning signs, road markings, passing lanes and appropriate speed limits. The main environmental and social impacts will occur during the construction phase and will be managed by the construction contractor, although overall responsibility will rest with the client, Azeravtoyol. Contractor management is therefore important for successful project implementation. Environmental and social requirements are included in the project tender documents, in the construction contracts and in an Environmental and Social Action Plan (ESAP), which combines the management plan developed by Azeravtoyol’s consultants and additional actions to achieve compliance with the EBRD’s Performance Requirements.

The Ganja - Gazakh - Georgian Border highway is Categorised A (2014 ESP). Due to the length of the road widening and the construction of several new bypasses, this project has been categorised A, requiring a full Environmental and Social Impact Assessment.  An EIA was prepared for the project in 2014 for national approval purposes and this received a positive decision from the Azerbaijan Ministry of Ecology and Natural Resources in September 2015. EBRD engaged environmental and social consultants to review the EIA against EBRD requirements, carry out project site visits and prepare a Non-Technical Summary (NTS), Stakeholder Engagement Plan (SEP) and Environmental and Social Action Plan (ESAP). Along with the EIA, these have been made available on EBRD’s and Azeravtoyol’s website and at locations along the project route.

Implementation of the Project will allow for easier and safer journeys. In particular, the dualisation and separation of traffic flows will significantly reduce the number of head-on collisions, currently a main cause of road traffic accidents and fatalities. A road safety audit will be carried out to ensure the project design meets bet practice safety standards. Introducing bypasses will reduce traffic flow through the centre of towns and villages with resulting reductions in noise and congestion and improved air quality.

The project route has been selected following an analysis of alternatives and gives proper consideration to minimising impacts. The route runs through developed agricultural land and environmental impacts are expected to be minimal or can be readily identified and managed. There will be no impact on sensitive habitats or protected areas.

Land acquisition is required for the road widening and construction of the bypasses and several households and businesses will need to be resettled or relocated. Data collection for land acquisition is complete for three of the four Rayons that the Project passes through, and is on-going for the fourth. A Resettlement Action Plan (RAP) is being prepared. An initial round of public consultation was completed in 2011 and more recent discussions have taken place with directly affected households about the resettlement and compensation process. There is a need to carry out a more structured round of public consultation ahead of the start of project construction.

Implementation of the ESAP and SEP will enable the project to meet EBRD Performance Requirements.  In addition to the requirement for the RAP and public consultation, the ESAP sets out measures to ensure that Azeravtoyol and the contractors develop and implement appropriate environmental, safety and social management plans. EBRD will monitor implementation of the Project through regular reports provided by the project implementation unit.

There is an Environmental and Social Impact Assessment available for this project.

Technical Cooperation

Technical cooperation support is provided by (i) the EU Neighbourhood Investment Facility (NIF) to assist with project implementation and (ii) the Shareholder Special Fund to support the Project’s sector reform components. 

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