Azerbaijan steps up cooperation with ADB, CAREC Analysis by Khazar Akhundov

The realities of the post-pandemic world have made humanity face serious challenges that require concerted, coordinated efforts. It is necessary to overcome the global energy and food crises, diversify transport routes, take into account new trade vectors, strengthen measures on the climate programme, and modernize the economy in the context of the global energy transition by 2030.

Azerbaijan, which is strengthening cooperation with the countries of the region and international donor structures, will also have to solve all these tasks. The 6th Central Asia Regional Economic Cooperation (CAREC) Programme Forum on "Recalibrating Growth Dynamics for an Inclusive and Sustainable Economy" held in Baku was another step in this direction.

CAREC is a consultative forum, established in 1996 on the initiative of the Asian Development Bank (ADB) in order to create a database and build financial capacity and regional cooperation to accelerate economic growth in China, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Mongolia, as well as in Azerbaijan, participating in this program since 2003. Key areas of CAREC activity are the implementation of joint projects for the development of trade, energy, and transport infrastructure.

Over the years of cooperation, about $6 billion has been invested in Azerbaijan's economy through both domestic budget investments and ADB loans as part of projects implemented jointly with CAREC. The bulk of the financing was earmarked for the construction of the Alat port, procurement of tankers, the extension of the highway to the border with Georgia, modernisation of the Azerbaijani railway infrastructure, and construction of the Baku-Tbilisi-Kars railway corridor.

The transport component of ADB is one of the important and promising areas for Azerbaijan, which was confirmed by CAREC Institute Director Syed Shakeel Shah at the two-day forum in Baku: "The main goal of CAREC is to develop the economies of the region, and Azerbaijan is a key partner in our development program. Azerbaijan, with its strategically important geographic location, has made great progress in the development of the Middle Corridor, and today is a bridge linking Europe and Asia. The Director of the institute said that due to the disruption of a number of transport and logistics routes in Eurasia, the so-called "Middle Corridor", the development of which Azerbaijan invested a lot, has now taken a leading position here. According to Syed Shah, the transport policy pursued by Baku today made it possible to transfer additional volumes of cargo to this route, which benefits not only the country itself but the entire region.

At the same time, along with transport diversification and the reformatting of trade and logistics relations, Azerbaijan and its partners in Central Asia (CA) have to solve a number of other problems associated with the introduction of new technologies in the field of "green" energy and energy efficiency technologies in the global energy transition of 2030. With regard to Azerbaijan, these tasks will have to be implemented taking into account the program for the revival of the Karabakh region.

It is obvious that the optimal implementation of the mentioned directions is the cooperation of China, Central Asian countries, and Azerbaijan for joint research, the formation of analytical centres, and the implementation of investment policy. One of the steps in solving this problem was the sixth forum organized in Baku with the support of ADB and with the participation of CAREC Institute, the Economic Research Institute (ESRI), and the Ministry of Economy of Azerbaijan, aimed at the development of analytical centres of the outlined program. During the forum a Memorandum of Understanding was signed between CAREC Institute and ESRI Azerbaijan: the agreement envisages expansion of international cooperation in the digitalisation of industry, logistics, cargo transportation, creation of programs on sustainable economic development, etc. "Among other things, it is planned to conduct joint research with the staff of CAREC member countries. We have received a number of offers from the think tanks of the member countries, and soon we will witness the signing of other memorandums of understanding," said Mahir Humbatov, chairman of the ESRİ board.

Judging by the speeches of the forum participants, the key area of joint activity of the CAREC member countries in the long term will be the fight against the effects of climate change. "ADB is committed to achieving its ambition of $100 billion in climate finance reforms from 2019 to 2030," said CAREC Institute Director Syed Shakeel Shah. He stressed that ADB has been providing and will continue to provide technical and financial support in the areas of environmental sustainability, economic development, and decarbonisation to member countries, including Azerbaijan, through CAREC initiatives and other undertakings in the Central and West Asia region.

It should be noted that in recent years Azerbaijan has intensified its participation in the 2030 global energy transition processes and our country has received considerable support from the World Bank (WB), the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC) and other donor agencies. The basic principles of new country programmes of the leading international financial institutions (IFIs) are now based on support for Azerbaijan through projects in the field of renewable energy and climate change, the use of technologies of the Fourth Industrial Revolution, and support for the digitalisation of industry and the agricultural sector, which also provides for the extensive use of the "green" component. In particular, these IFI programmes finance research and pilot projects for the development of renewable energy sources (RES), including the construction of solar and wind power plants in the Absheron Peninsula, East Zangazur, and Karabakh economic regions.

CAREC initiator, the Asian Development Bank (its key donor China) is also involved in the mainstream green agenda, trying to keep up with the European and US IFIs - WB, EBRD, and IFC. In particular, ADB and the Ministry of Energy of Azerbaijan continue to work on the pilot project "Technical Support and Knowledge Sharing for Development of Floating Solar Panels Systems", implemented under the Bank-financed regional project "Development of Floating Solar Energy Systems". The project involves the construction of a 100kW floating solar power plant on Lake Beyukshor in Baku.

And this is just the beginning: in the near future our country's cooperation with the ADB in the field of renewable energy will be significantly expanded, so currently, the energy community and relevant agencies of Azerbaijan are working on the concept of the CAREC alliance on "green energy". "The Azerbaijani government and the CAREC energy community have started developing the concept of the Alliance for Green Energy, and this structure will soon create a platform to make green energy projects available to investors," ADB Vice President Shixin Chen said at the Baku Forum.

Another promising area of Azerbaijan's cooperation with ADB and CAREC could be energy efficiency. The Azerbaijani parliament is preparing to adopt the draft law "On rational use of energy resources and energy efficiency", which suggests the implementation of a large-scale program aimed at replacing inefficient equipment with energy-saving technologies that eventually contribute to long-term reduction of energy costs, reducing heat or cold losses in utilities and saving up to a third of all energy consumed today. This includes the mass use of energy-saving lamps and the computerisation of street lighting control systems in cities. This also includes the implementation of automated control systems for heating and air conditioning systems, the use of new insulating materials and reflective films on windows of houses and offices, the introduction of temperature sensors and smart electricity meters, etc.

The need to increase investments in this direction was stressed by ADB Director General for Private Sector Operations Susan Gabur, a participant in the Baku Forum. According to her, current global investments in energy efficiency are about $240 billion per year, which is much less than investments in the renewable energy sector: in the future, financing for energy efficiency will consistently increase, as this area is linked to almost all sectors of the economy, including transport, utilities, industry, etc.