The 25-year loan will help build a double-circuit 220 kilovolt transmission line and associated substation facilities, replacing two existing lines which have been in use for about 60 years by state-owned power company, Azerenergy.
Over 20% of the country’s energy equipment and more than half of its network facilities are well beyond their useful life, resulting in frequent power failures, system losses, and the threat of a collapse of the energy grid.
“An unreliable and inefficient power network is a bottleneck to sustained economic growth,” said Tianhua Luo, an Energy Specialist with ADB’s Central and West Asia Department.
The upgrade will remove transmission choke points, lower system losses, and provide a more stable power supply, especially in the key Azeri industrial hub, near the capital city of Baku.
It will also cut the need for imported electricity, optimize the country’s hydropower resource, and reduce fossil fuel consumption and pollution. The gas and oil saved will be exported, giving a boost to government coffers.
“The social impacts will include increased industrial production, opportunities to expand small and medium–sized enterprises, higher living standards, and new job opportunities for local residents,” Mr. Luo said.
Improved power supply will be particularly beneficial to rural dwellers who make up nearly 50% of the 8.5 million population suffering from unreliable supply of basic services, hindering economic growth and employment opportunities.
The energy sector plays a central role in Azerbaijan’s economy, contributing one-third of the country’s gross domestic product in 2007. But unlike oil and gas, the power transmission and distribution industry has suffered from a major lack of investment in the past.
ADB’s loan will support the Government’s priority program of reforming and developing the power industry to protect its energy security. It will also act as a potential catalyst for attracting private sector investment.