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E.O. 12598: N/A 
TAGS: ECON ELTN BEXP BTIO IR RU AJ
SUBJECT: AZERBAIJAN PLANS A MAJOR OVERHAUL OF THE RAILWAY SYSTEM 
 
 
SENSITIVE BUT UNCLASSIFIED; NOT FOR INTERNET DISTRIBUTION 
 
¶1. (U) SUMMARY:  The Government of Azerbaijan plans a five-year, USD 
1.5 billion overhaul of the state railway system, expected to be 
launched by the end of the year.  The plan envisions a major 
reorganization of the railway agency, as well as new construction, 
reconstruction, and procurement efforts to bring the railway system, 
which had seen no public investments since 1985, up to modern 
standards.  The Ministry of Transportation believes specific 
opportunities exist for U.S. companies in upgrading the 
electrification, signaling and communications systems, and 
overhauling of diesel locomotives.   END SUMMARY 
 
¶2. (U) In an April 4 meeting, Deputy Minister of Transportation Musa 
Panahov provided an overview of Azerbaijan's five-year, USD 1.5 
billion planned overhaul of the state railway system.  Panahov noted 
that final costs for the project could be higher, as the USD 1.5 
billion estimate is based on 2007 figures.  Panahov said the 
Ministry had submitted the plan to the Presidential Apparat for 
approval, and believes the project will be launched by the end of 
this year.  He added that the railway modernization plans tie into 
other transportation infrastructure reforms, including the 
relocation of Baku's commercial port to the settlement of Alat, 
roughly 45 minutes south of Baku. 
 
¶2. (U) Panahov stressed that the GOAJ plans a complete overhaul of 
the railway system, which had not received any public investment 
since 1985.  The project includes a complete overhaul of the 
system's software and hardware, with plans to:  build new railroad 
tracks, build new electrical, signaling, and communications systems, 
buy new electrical locomotives and overhaul the outdated diesel 
ones, and buy new passenger wagons.  The Government also plans to 
outsource non-operational services, such as healthcare, electrical 
power generation and management, security, cleaning services and 
others. 
 
¶3. (U) The project also includes reform of the railway 
administration, with plans to incorporate the State Railroad Agency 
with the Government as the initial primary shareholder.  The current 
management of the State Railways admitted earlier this year that the 
railways can function effectively with just ten thousand people, 
instead of the current staff of twenty seven thousand.  However, 
laying off such a large number of people off has difficult social 
implications, and the Government does not want to rush with 
downsizing. 
 
¶4. (U) Deputy Minister Panahov believes specific opportunities exist 
for U.S. companies in upgrading the electrification, signaling and 
communications systems and overhauling of diesel locomotives. 
Panahov was aware of GE's locomotive project in Kazakhstan but said 
he did not believe a similar project would be feasible in 
Azerbaijan, as GE does not produce electric locomotives. 
 
¶5. (U) The GOAJ is looking to international financial institutions 
and private banks to finance the project.  Panahov confirmed press 
reports that the he World Bank had approved a 450 million USD loan 
to finance a part of the project; the GOAJ is in talks with the 
European Bank of Reconstruction and Development, the Asian 
Development Bank, the Islamic Development Bank, BNP Paribas and 
Societe General to finance other areas of the program. 
 
¶6. (SBU) Azerbaijan's railway upgrades are taking place in the 
context of other regional initiatives.  Panahov noted that 
construction of the Baku-Tbilisi-Kars (BTK) railroad already had 
begun and that similar upgrades would take place in Georgia as part 
of the BTK program.  Panahov said the GOAJ seeks a partner in 
southeastern Europe (Bulgaria, Hungary, or Romania) that could lend 
political support to the project and help expand it further to 
Europe.  The Government believes that political and commercial 
support from a European country could trigger a bigger commitment 
from Central Asian countries to help turn BTK into a truly 
cross-continent project.  Panahov commented that, although Russia 
and Iran are encouraging Azerbaijan to expand its north-south 
transportation links, the GOAJ believes that east-west 
transportation links are more important and is focusing its efforts 
in that direction. 
 
DERSE