EBRD explores expansion of SGC project And boosts lending to Azerbaijan's green economy

The European Bank for Reconstruction and Development (EBRD) has provided considerable support for thirty years of cooperation with Azerbaijan to reform the economy, and develop transport and energy infrastructure and the extractive industry of the country. The main credit body of the European Union ranks first-line among foreign donors of Azerbaijan, and within the framework of the new country strategy calculated until 2024, Eurobank is ready to expand the volume of lending to SMEs, "green" energy, as well as startups, and the IT sector.

However, amid the gas crisis in Europe, energy cooperation, including the prospects for expanding the Southern Gas Corridor (SGC), remains an area of focus for the EBRD. The new vectors of cooperation were discussed during the visit of EBRD President Odile Renaud-Basso to Baku and her talks with Azerbaijani President Ilham Aliyev.

High gas prices in Europe against the background of the closed Nord Stream, and half-empty gas storage in Germany, France, and other states in the region remain an existential threat to the Old World. According to Bloomberg, due to gas shortages and rising energy costs, the total bill to save the European energy market likely to exceed $200 billion as early as this winter. Here, Azerbaijan and the EU are becoming even more relevant in their cooperation to ensure energy security in Europe. In July a "Memorandum of Understanding on Strategic Energy Partnership between the EU and Azerbaijan" was signed to increase Azerbaijan's natural gas production and exports from 10 to 20 bcm by 2027 and increase the capacity of the South Caucasus pipeline system. These prospects were also discussed in detail during the working visit of Azerbaijani President Ilham Aliyev to Italy. In this regard, negotiations are underway to attract financial institutions and investors from the EU to expand the SGC pipeline infrastructure and agreements are to be concluded with European partners willing to participate in projects to increase gas production from Azerbaijani fields.

Azerbaijani Energy Minister Parviz Shahbazov stressed during the Baku meeting with EBRD President Odile Renaud-Basso that the memorandum of understanding on strategic cooperation signed between Azerbaijan and the EU creates a basis for the expansion of the SGC, and today over a dozen countries are interested in a partnership with Baku in the field of natural gas supply. "Financing the expansion of the SGC is important to increase the supply of natural gas to European countries and to mitigate the effects of the energy crisis. At the same time, the SGC will diversify its sources by transporting hydrogen," Shahbazov said.

Here it's appropriate to remind that in the past the EBRD actively financed initiatives within the Southern Gas Corridor projects, having provided 1.7 billion euro funding for the implementation of Shah Deniz-2, TANAP and TAP projects.

It is possible that the EBRD will also participate in the expansion projects of the Southern Gas Corridor. At the same time, the bank conditions its participation in these undertakings on bringing the project in line with the objectives of the Paris Agreement and the EBRD's policy on the use of fossil fuels, including reducing the risk of carbon lock by ensuring the transportation of low-carbon gas. In general, the involvement of EU donor agencies in projects to increase the supply of Azerbaijani gas to Europe is feasible and Baku and Brussels will have to agree on a set of issues in this area in the near future.

"The participation of the EBRD in SGC expansion projects is important", EBRD president Odile Renaud-Basso confirmed.

Prospects for expansion of cooperation between Azerbaijan and the EBRD in various areas were discussed during the meeting of EBRD president Odile Renaud-Basso with Azerbaijani President Ilham Aliyev. Among other things, the sides exchanged views on the possible participation of the European Bank in the expansion of the Southern Gas Corridor project, as well as other aspects of energy security in Europe. Brussels in turn plans to boost cooperation with Baku in other areas of the energy sector and it is expected that the Ministry of Energy of Azerbaijan and the EBRD will sign a memorandum of understanding on technical support for the development of the country's energy sector.

Over the thirty years of cooperation with the European Union's leading lending institution, 181 projects have been implemented in Azerbaijan, for the financing of which the EBRD has allocated some €3.6 billion. As of the end of July 2022, the Bank's active portfolio in Azerbaijan includes 32 lending projects valued at €844 million. However, cooperation in the energy sector has not been the only mainstay of EBRD policy in Azerbaijan for quite some time. In recent years, the EBRD has started to form a new country strategy. Its implementation covers 2019-2024 and envisages new vectors of cooperation in the field of green economy, alternative energy, support for SMEs and start-ups, and so on. Alas, the recent pandemic crisis has somewhat adjusted the scale and scope of capitalisation of projects involving the EU's main lending institution. The situation started to change for the better during the post-crisis economic recovery last year, and it seems that in 2022 and beyond, the EBRD intends to expand cooperation in the development of the non-oil sector, which includes the implementation of joint projects in the Karabakh region.

This is evidenced by the results of the negotiations held recently in Baku. In particular, two loan agreements were signed following the meetings: EBRD will provide a large loan (without guarantees) to renew the fleet of the Caspian Shipping Company (ASCO) and development of the shipyard in the amount of $100 million. A €10 million loan was also provided for a project to improve street lighting in Ganja. The project includes the introduction of energy-efficient light sources, automated control, and monitoring of lighting, and replacement of poles, and power cables, which will provide substantial energy savings, reduce maintenance costs of networks and improve safety for road users.

Here it should be recalled that the loaning of projects in Ganja is comprehensive in nature and is implemented in the framework of the European Union's Green Cities Programme (GCAP). Earlier, in May of this year, in the framework of the GCAP project, a loan agreement was signed with the EBRD, which provided the Executive Authority of the city of Ganja with a loan of €10 million for the project of modernisation of solid waste collection infrastructure (waste collection, street cleaning), as well as to improve the operational and financial efficiency of "Housing and Communal Services of the city of Ganja".

The GCAP could continue in the Karabakh region as settlements there are revitalised. The EBRD believes that Azerbaijan has significant potential to lead the transition to a green economy, as the government appreciates the potential of renewable energy sources and the importance of building appropriate sustainable infrastructure. For example, the EBRD is preparing to invest in the first wind farm on the Absheron peninsula.

The EBRD's new country strategy for Azerbaijan includes ample opportunities for financing energy efficiency and renewable energy (RE) generation capacity, and recent data show that liberated areas are also included in the EBRD's coverage. "We discussed energy, in particular renewables, SME support, improving the business environment and also improving the information technology ecosystem. We also exchanged views on the prospects of EBRD involvement in the projects implemented in the liberated territories of Azerbaijan", Economy Minister Mikail Jabbarov said on Facebook, who highly appreciated the results of negotiations with the EBRD delegation.

It is also obvious that at the new stage of relations with the EBRD private business will be widely represented as key beneficiaries, for lending of which cooperation projects with Azerbaijani banks will be continued. "We are currently working on several projects in line with our main strategic objectives, such as promoting international trade, supporting micro, small and medium-sized enterprises, including start-ups, and green and inclusive finance. Eurobank focuses on providing financing in local currency wherever possible, which is very important," said EBRD President Odile Renaud-Basso.