Amount of power distribution enhancement investment in Azerbaijan for 8 years announced

The total capital investment in the Azerishiq’s AIP from 2016 to 2022, including ADB support under tranche 1, was about AZN1.58 billion ($938 million), or about 22% of the planned $4.6 billion, Report informs, citing a document of Asian Development Bank (ADB) on Azerbaijan: Power Distribution Enhancement Investment Program (Multitranche Financing Facility).

"The investment program impact, as stated in the design and monitoring framework (DMF), was aligned with the 2012 government strategy to increase the availability of reliable electricity supply to all domestic consumers. As per the DMF, the investment program outcome was to improve the efficiency and reliability of the power distribution networks. The DMF set three performance indicators with corresponding targets for the entire investment program: (i) to reduce average annual unserved energy from 7% of energy sales in 2014 to less than 1% by 2022; (ii) to reduce nationwide distribution network losses from 16% in 2014 to 8% by 2022; and (iii) to increase revenue collection in the distribution companies from 70% of billed energy in 2014 to 95% by 2022. For tranche 1, the targets for the three outcome indicators were to (i) reduce annual unserved energy to below 5% of energy sales by 2019; (ii) reduce nationwide network losses to 13% by 2019; and (iii) improve revenue collection to 80% by 2019. All these targets were achieved and even exceeded. By 2019, annual unserved energy was 4.9% of energy sales, nationwide network losses totaled 11.6%, and revenue collection had risen to 93%.

"Out of the three outcome targets, the one relating to revenue collection efficiency was fully achieved (collection improved to 96% as of December 2022), while the other two fell somewhat short—annual unserved energy below 5% (target: 1%) and distribution losses reduced to about 10% (target: 8%). Although the targets set were quite tough, the results achieved with limited funding availability are appreciable and show that Azerishiq not only invested in network rehabilitation but also improved service delivery and theft control," the document reads.

According to ADB, most importantly, the distribution system performance did not deteriorate after tranche 1 closed, despite the fact that higher investments were required in 2021–2022 to meet the rehabilitation requirements after the 2020 conflict between Armenia and Azerbaijan and the need to extend the distribution network to areas not previously covered by Azerishiq:

"With no external borrowing during 2020–2022, Azerishiq had to rely mostly on budgetary support and capital infusions from the government, and with this limited annual capital expenditure continued its development program to the extent possible.

"Azerishiq showed that it can continually improve the performance of its distribution system and that it has the wherewithal to smartly prioritize investments and maximize benefits. It focused first on the high-loss areas of the distribution system (i.e., mostly the 0.4 kV–10 kV levels). It conducted a cost–benefit analysis and studied the legal aspects of each project to understand the financial and other implications. The DMF shows progress in rehabilitation and replacement of distribution substations and lines under the AIP since 2015. Overall, the AIP called for an investment that was much higher than actually achieved across the distribution network. Azerishiq is fully aware of this situation and formulated the ASDP 2023–2027 for this reason. The government is also aware of it and is reviewing the ASDP as part of its approval process."