ADB to Decide SGCC Loan this Year

The Asian Development Bank board will consider approving a $1bn loan for Shah Deniz stage 2 development in Azerbaijan later this year, the bank vice president Wencai Zhang told a press conference in Baku November 15.

“We have conducted due diligence and an audit of the environmental and social impact in determining the amount of loan. We hope the board will approve it in its next meeting later this year,” he said.

The proposed investment plan will support the Azerbaijani government's efforts to finance Shah Deniz 2 and is aimed at improving the country's fiscal position by increasing revenues from natural gas exports from the expanded field and creating additional jobs.

The total lending will be provided in two equal parts, one half done through the private sector and the other through the public sector, with a partial credit guarantee (PCG).

ADB will provide a guarantee to support commercial bank financing of Azerbaijan government shares in the amount of 16.67% of the project's cost, the bank's director for Azerbaijan, Nariman Manapbekov, told NGW.

The Southern Gas Corridor route

(Credit: Tanap)

The loan beneficiary will be the Southern Gas Corridor Company (SGCC), the state entity set up for realising the government's share in Shah Deniz 2 and the chain of export pipelines to carry the gas to Turkey and to Europe.

During the talks the parties agreed to drop the earlier planned loan of $2bn. “We agreed to simplify the process in order to expedite the funding and get the board approval this year. Now the two loan agreements worth a total amount of $1bn are ready for board approval,” SGCC sources said.

According to Manapbekov, once approved the loans will meet finance calls on the government from 2017 to  2018 years. The further funding beyond 2018 for Shah Deniz 2 and the Southern gas corridor will be discussed later. 

He also expressed confidence with Azerbaijan’s improvement in Extractive industry transparency initiative (EITI). “After the October 26 EITE meeting, our concerns over the country status in it were addressed. Moreover, it allowed us to accelerate the work on loans agreements and to present it for board approval this year,” he said.

The EITI, an anti-corruption watchdog that brings together governments, companies and NGOs, downgraded Azerbaijan’s membership in 2015 amid a crackdown on civil society. At the latest meeting in Astana the EITI  board decided not to suspend Azerbaijan’s membership and give the government more time for further improvement in regulations for NGOs operations in the country. 

The ADB board will consider also a separate  $500mn loan for the government to support economic growth,  Zhang said. The government applied for so called countercyclical support loan from ADB after it was hit by a sharp drop in oil prices and the resulting decline in government income that relies heavily on energy exports.

Kama Mustafayeva