World Bank invests big in Azerbaijan’s green energy, digital leap Caliber.Az review

The series of crises observed in recent years, along with significantly changing global economic trends, have notably reduced the activity of international financial organizations (IFOs) in the post-Soviet space. Timely assessing the challenges, Azerbaijan has also shifted its focus on cooperation programs with donor organizations. Today, the main efforts are directed at attracting concessional finance for "green" energy, energy efficiency, digitalization, innovative industries, and projects in the Karabakh region. The World Bank (WB) is highly active in these areas: recently, the World Bank Group's Board of Directors approved a new five-year Country Partnership Framework (CPF) with Azerbaijan.

Azerbaijan has been a full-fledged member of the World Bank Group since 1992. Over the past three decades, the country has received around $4 billion in concessional loans, guaranteed by the state, for 52 investment projects, as well as $30 million in technical assistance and grants for 115 initiatives. With the financial support of the World Bank, numerous initiatives have been implemented aimed at developing the agricultural sector and rural communities, water management infrastructure, transport, the extractive sector, and energy. Additionally, assistance has been provided for the implementation of various institutional reforms in the government, the adoption of advanced legislation, and administrative experience, among others.

However, in recent years, given a series of global crises and the changing market conditions, most international financial organizations (IFOs) have begun altering their funding structures, diversifying credit flows in the post-Soviet space. With regard to Azerbaijan, the new priorities of international donor organizations are partly based on a reduced demand for long-term financing of capital and infrastructure projects, including in traditional energy and oil and gas logistics. Accordingly, in the medium term, IFOs are shifting their financial focus toward projects in alternative energy and energy efficiency, solid waste management, creating industries for eco-friendly recycling of secondary raw materials, restoring polluted areas, and diversifying the economy to promote "green" innovations, while supporting projects in digital transformation and building the foundations for Industry 4.0.

In a similar direction, the World Bank's country policy for Azerbaijan is transforming, with its basic funding and technical assistance priorities aimed at supporting the country’s transition to a "green" economy, which opens new opportunities for economic diversification. Specifically, for several years now, specialists from the World Bank’s International Finance Corporation (IFC) have been assisting the Ministry of Energy of Azerbaijan in developing relevant roadmaps and preparing for the production and export of low-carbon hydrogen fuel, as well as the development of wind energy in the Caspian Sea.

In turn, the World Bank intends to support Azerbaijan in the development of a roadmap for expanding "green" finance capabilities: the development of "green" investment tools can bring stability to local capital markets and financial institutions, playing a key role in addressing social and environmental issues in the short term. Over two years ago, the World Bank specialists, together with relevant EU organizations, signed the Administrative Agreement for the Azerbaijan Rapid Technical Assistance Facility (AZTAF), allocating grant aid to the Azerbaijani government with a total budget of €5.25 million. Among other things, the program includes components focused on developing "green" energy, including pilot studies in the Karabakh region.

As part of the AZTAF program’s component on Energy Efficiency and Climate, the World Bank participated in supporting the Energy Efficiency Fund and the National Renovation Program in Azerbaijan. This included collecting data on dozens of public buildings in Ganja, Shaki, and Gakh, categorizing these objects by type and climate zone, and subjecting them to energy audits.

On a broader scale, the World Bank’s "green" initiatives in Azerbaijan are being implemented under the Azerbaijan Scaling-Up Renewable Energy Project (AZURE). Recently, a meeting was held at the Energy Regulation Agency under the Ministry of Energy of Azerbaijan with a World Bank delegation, during which the evaluation of the AZURE project was discussed, taking into account a number of changes, aspects of technical assistance aimed at supporting the energy sector, and tariff policy issues.

World Bank specialists are ready to assist Azerbaijan in improving the efficiency of heating systems in the municipal sector, where significant challenges are currently observed. In the future, the World Bank also intends to support priority projects for the development of "green" industries, IT startups, the implementation of Internet of Things (IoT) technologies, and the use of digital technologies as part of the development of "smart" villages and cities.

In the next five years, the aforementioned projects under the World Bank’s framework are planned to be implemented within a unified country policy, as part of the newly approved Country Partnership Framework (CPF) with Azerbaijan by the World Bank Group’s Board of Directors. The document outlines the provision of support to Azerbaijan in its transition to a more competitive, "green," and inclusive economy, with the core goals of this strategy focusing on achieving three key outcomes: improving productivity, enhancing economic resilience, and improving employment.

Accordingly, in the next five years, the World Bank has prioritized attracting private investors to the renewable energy sector (RES), developing energy storage (battery) systems in the sector, and creating "green" energy corridors. Loans will also be issued for the development of sustainable urban ecosystems, the implementation of eco-friendly and energy-efficient buildings, climate-smart agricultural practices, and improving water use efficiency. Significant volumes of World Bank funding and technical assistance will be directed at improving the business environment and expanding access to quality jobs—fostering the development of micro, small, and medium-sized businesses, simplifying access to financing with a focus on sustainable and "green" finance, and supporting entrepreneurship among women and vulnerable groups. An important focus in the CPF is the development of transport infrastructure and the digitalization of transit operations, including the modernization of the Middle Corridor and the implementation of advanced technologies, including artificial intelligence (AI).

"The new five-year country program of the World Bank reflects our commitment to supporting Azerbaijan's transformational path towards a more sustainable and prosperous future. We are confident that our partnership will help the country fully unlock its economic potential," said World Bank Director for Azerbaijan, Stefanie Stallmeister. As noted, the implementation of the five-year CPF program will rely on cooperation with all the entities of the World Bank Group: the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA) using a combination of investments and advisory support.