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The Japan Bank for International Cooperation (JBIC) has signed an ODA loan agreement totalling up to ¥29.28bn (US$273.4mn) with the government of the Republic of Azerbaijan. This ODA loan will finance the Shimal gas combined-cycle power plant construction project in Baku, the country’s capital.

Under the project, a gas combined-cycle power plant, a 400MW unit, will be constructed in the Shimal thermal power station located near Baku. The proceeds of the loan will be used for the procurement of materials and equipment, the related transmission and substation facilities, construction works, civil works and consulting services. When completed, the project is expected to increase the country’s power supply capacity, thereby minimising power shortages and contributing to the overall development of infrastructure that is integral for economic development.

It is vital to increase the power supply in the Baku area that is situated in the eastern region, which is the main industrial centre in the country and is heavily populated. As currently 80% of the existing power generation facilities are located in the western region.

Azerbaijan, which gained independence from the Soviet Union in 1991, has achieved an almost 10% annual growth in recent years, driven by oil and natural gas development. It is foreseen that expanding oil production will lead to further growth in the years to come.

Meanwhile, a number of domestic power stations built during the Soviet era have been operating for more than 30 years and their antiquated facilities have significantly lowered the capacity and reliability of power supplies.

Thus, even though the potential power capacity of the country’s power facilities totalled 5,556MW in 2003, the available power supply remained 4,240MW, which is unable to meet the current peak demand of 4,500MW.
Given the prospect of increasing power demand in parallel with rapid economic growth (as attested by the annual average 6.5% growth of power demand from 2000 to 2003), and considering the need for an additional reserve margin, strengthening the power supply capacity is an urgent challenge.

Azerbaijan has also been focusing its effort on developing offshore oil and natural gas fields in the Caspian Sea. Japanese firms have participated, on their own, in the development of the Azer-Chirag-Gunashli oil fields. JBIC, in its part, has financed not only their development but also the construction of the pipelines necessary for transporting crude oil.