The European Bank for Reconstruction and Development (EBRD) is making a US$100mn sovereign loan to Azerbaijan to rehabilitate and upgrade a section of the main north-south road that links Russia and Iran with the capital, Baku.

The loan follows the bank’s first road project with Azerbaijan – signed in July last year – to finance improvements to the main east-west highway across the country, which forms part of the historic east-west Silk Road to Central Asia.

Both projects will also help restructure the road sector, run by the ministry of transport’s road transport services department. First steps in this programme, already being implemented following the 2004 agreement, have significantly enhanced the road maintenance budget and clearly defined the respective roles of the ministry of transport and road transport services department.

About half the country’s freight is transported by road, and 86% of passengers use road rather than rail. With its oil industry, sea access and geographical position between Russia, Central Asia and Iran, Azerbaijan is a natural transit corridor linking regions and cultures, says Riccardo Puliti, the EBRD’s director for transport.

“Developing the country’s road network is a priority for the government of Azerbaijan, with the long-term benefits being enhanced trade and regional development,” says Azerbaijan’s transport minister, Ziya Mamadov.

Azerbaijan asked the EBRD and a number of other financiers to participate in financing the north-south road corridor from Astara (on the border with Iran) to Samur (on the border with Russia).

EBRD finance will be used to improve the north-south road between Sumgait, 28km north of Baku, and Zarat, 89km north of Baku. The first 28km of the road are being rehabilitated using budgetary funds, while the final section, between Zarat and Samur, is being financed by a Czech export bank.