Wednesday, 18 February 2015

Azerbaijan Invests in Upgrading Its Transport Infrastructure

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By John C.K. Daly (02/18/2015 issue of the CACI Analyst)

The Caucasian post-Soviet nations, led by oil-rich Azerbaijan, are expanding their rail, road and air networks to attract rising Eurasian trade. Speaking at Davos, Georgia’s Prime Minister Irakli Gharibashvili underlined the importance of the joint projects being implemented with Turkey and Azerbaijan, particularly the just opened Baku-Tbilisi-Kars (BTK) railway. Gharibashvili told his audience, “Once operational, it will reduce the period for shipment from China to European markets by more than half and shorten the distance by almost 7,500 km.” Given its energy revenues, Azerbaijan is the driving force behind these changes.

BACKGROUND: Last year Azerbaijan’s President Ilham Aliyev, addressing a meeting of the Cabinet of Ministers told them, “The construction of a marine trade port and the construction of the Baku-Tbilisi-Kars railway are closely related issues. We must expand these corridors. The North-South and East-West corridors run through Azerbaijan. The transport infrastructure that has been and is being created in Azerbaijan will serve both our country and neighbors.” Expanding on the theme of integrating Azerbaijan into new patterns of East-West trade, Aliyev told the “Baku-Tbilisi-Kars railway line: new opportunities in the development of the Silk Road” conference, held on October 16, 2014, in Baku, “This railway is effective from an economic point of view; stable, secure and fully compliant with environmental standards. It marks the beginning of a new stage in the transport development. This railway line will expand Azerbaijan’s multi-modal transportation opportunities and ensure the growth of passenger and freight transportation.” Cementing its position as the Caucasus’ most important transport node, Azerbaijan has over the past decade built 6,835 miles of new roads, about 300 bridges and has reconstructed all its main roads connecting the country with Georgia, Russia and Iran.

On January 26 during the conference “The use of new technologies and innovations in the construction and reconstruction of road infrastructure”, Azerbaijani Transport Minister Ziya Mammadov told his audience that in 2014 alone, Azerbaijan invested US$ 2.5 billion in its transportation sector and that out of the total, US$ 1.9 billion was being spent on the development of road and transport infrastructure. According to Mammadov, over the past 10 years, the volume of cargo moved by the Azerbaijani transport sector increased by 5.7 percent, passenger use grew by 3.7 percent, and transit cargoes increased by 3.4 percent.

According to Azerbaijani Railways CJSC (ADY) head Arif Asgarov, between January and November 2014, ADY transported 19.9 million metric tons of cargo, of which roughly 5.9 million metric tons was domestic freight transportation and 3.8 million metric tons was export cargo transportation. ADY main rail lines total 1,800 miles, of which 500 miles are double tracked. Approximately 60 percent of ADY rail lines are electrified.

Azerbaijan is also upgrading its maritime infrastructure. The state of the art new Baku International Sea Trade Port ferry terminal in Alat, 40 miles south of Baku, has begun operations, while the Baku Sea Port has begun upgrades which will be ready for commissioning later this year. Baku Sea Port’s cargo transportation capacity will be gradually increased to 25 million metric tons and one million containers per year.

The implications of these initiatives extend beyond Azerbaijan’s borders; as the sole petro-state in the Caucasus, it has the money both to borrow and to finance these projects. The Azerbaijani manat remains the most stable currency in the CIS and Eastern Europe. Last year, while European currencies, including the euro, weakened against the growing dollar, only Azerbaijan prevented devaluation of its currency, with the manat even strengthening against the US$ by 0.01 percent.

IMPLICATIONS: Other Caspian nations are increasingly interested in using Azerbaijan as a transit corridor. In November 2013, an agreement creating a coordinating committee to develop a Trans-Caspian International Transport Route (TITR) was signed by Kazakh, Georgian and Azerbaijani representatives during the 2nd International Transport and Logistics Business Forum “New Silk Road.” On January 19, the working group of the TITR Coordination Committee met in Astana to review progress. In a measure of the importance attached to the development of the TITR the meeting, chaired by Kazakhstan’s national railway company Kazakhstan Temir Zholy President Askar Mamin, was attended by delegations from the railway companies of Kazakhstan, Azerbaijan, Georgia, and Turkey, the directors of Aktau, Baku, and Batumi sea ports, and a delegation from the Azerbaijan Caspian Shipping Company. Topics reviewed during the meeting included fixing competitive tariffs for cargo shipment and the formulation of a comprehensive tariff rate for container trains along the TITR. The delegations agreed to organize later in the year container shipments along the China-Kazakhstan-Azerbaijan-Georgia-Turkey railway route by utilizing Kazakhstan’s new Zhezkazgan-Beineu rail line to Aktau port in conjunction with the BTK rail line. Participants predict that TITR in its initial operations will be able to transport up to 5.5 million tons of cargo annually, rising to 13.5 million tons per year by 2020.

Kazakhstan is interested in Azerbaijan’s transport potential. In 2013 Kazakhstan transported approximately 3.5 million tons of oil, the majority of it via railway. Once the development of Kazakhstan’s Caspian Kashagan offshore field is resumed by mid-2016, the transportation of Kazakh oil through Azerbaijan will increase. Since Kazakhstan has its own terminal in Azerbaijan’s Batumi Black Sea port, it will need to transport oil through Azerbaijan in order to load the terminal.

Azerbaijan is seeking outside funding for some of its transport initiatives. Azerbaijan's Transport Ministry and the Asian Development Bank (ADB) are working on a project for creating a high-speed railway between Baku and Sumgait. Azerbaijani Railways stated that the project will include reconstruction of nearly 30 miles of the railroad track bed, renewal and modernization of the power supply and signaling systems and the purchase of 10 passenger cars. The ADB plans to allocate US$ 752 million by 2018 for implementing transport, energy and water infrastructure projects in Azerbaijan, with 46.5 percent of the funds financing road projects. Since 1999 the ADB has allocated US$ 1.7 billion in projects in Azerbaijan.

Another transport initiative in which Azerbaijan plays an integral part is the 4,500 mile-long “North-South” international transport corridor, stretching from St. Petersburg to Mumbai. The North-South corridor was created to transit cargo from India, Iran and other Persian Gulf countries northwards through Russia via the Caspian before proceeding to Europe.

Russia has expressed interest in the “North-South” corridor. On September 29, speaking at the fourth Caspian Summit in Astrakhan, Russian President Vladimir Putin said, “Priority is given here to the North-South corridor that would link Western and Northwestern Europe to South Asia through Russia, the Caspian basin and Iran,” adding that Azerbaijan, Russia, Kazakhstan, Turkmenistan and Iran were discussing the possibility of setting up a five-party body to promote transportation projects.

Russia is not the sole great power interested in Caucasian transportation. Last year the U.S. stated its intention to use both ADY and the BTK railways for logistical operations supporting the International Security Assistance Force (ISAF) presence in Afghanistan, along the “Caucasian corridor” it established with Azerbaijan for this purpose.

Azerbaijan is also upgrading its facilities to become a major Eurasian air hub. A new passenger terminal has opened at Heydar Aliyev International Airport (GYD), located 12 miles north-east of Baku, the busiest airport in Azerbaijan and the Caucasus, and home of the national flag carrier Azerbaijan Airlines. Heydar Aliyev International Airport currently handles approximately 1 million passengers a year. Described as “a new door to the Caucasus,” with a total area 65,000 square meters, the new terminal is capable of transiting 6 million passengers annually. Azerbaijan’s aerial network is already extensive, with more than 35 international routes worldwide.

CONCLUSIONS: Azerbaijan’s determination to upgrade its rail, maritime, road and air networks mark it as the major Caucasian participant in the growing north-south and east-west Eurasian transit trade. These efforts are not free from political pressures, as Russia’s interest in north-south routes does not parallel U.S. interest in east-west routes, to say nothing of Chinese and Iranian interest in using Azerbaijan to export their goods to Europe. In such a fluid environment, it will require considerable Azerbaijani diplomatic skill to maintain focus on its own transit agenda as its highest priority and avoid “taking sides.”

AUTHOR’S BIO: Dr. John C.K. Daly is a non-resident senior scholar at the Central Asia-Caucasus institute and is writing a study of the emergence of a new “Iron Silk Road” of Eurasian rail networks.

Image Attribution: Wikimedia Commons

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