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FM AMEMBASSY YEREVAN
TO RUEHC/SECSTATE WASHDC PRIORITY 0045
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000087 
 
SIPDIS 
 
E.O. 12958: DECL: 02/17/2020 
TAGS: PGOV EAID ECON GA AM
SUBJECT: AMBASSADOR'S MEETING WITH ASIAN DEVELOPMENT BANK 
 
REF: YEREVAN 71 
 
YEREVAN 00000087  001.2 OF 002 
 
 
Classified By: Ambassador Marie L. Yovanovitch.  Reason 1.4 (b/d) 
 
SUMMARY 
 ------- 
 
¶1. (C) During a meeting with the Ambassador on February 11 
Areg Barseghian, the head of the Asian Development Bank's 
Armenia office, outlined for the Ambassador the ADB's current 
projects in Armenia.  The GOAM plans to manage the largest 
road project -- the North-South Corridor -- through a 
parallel structure that would bypass the dysfunctional 
Ministry of Transport, one of several recent instances where 
the GOAM's response to poor governance has been to create a 
workaround rather than reforming the institution.  Barseghian 
said he had not heard of rumored plans by the Government of 
Georgia to cancel a planned road that would connect the 
North-South Corridor to the Georgian port of Batumi, and 
insisted that ADB remains committed to the project. 
Separately, the Georgian Ambassador told us that the GoG will 
build the road, but does not want to term to project 
"regional." End Summary. 
 
ADB PROJECTS 
------------ 
 
¶2. (C) Meeting with the Ambassador on February 11, ADB Senior 
Country Coordination Officer Areg Barseghian outlined some of 
the ADB's current projects in Armenia, which will amount to 
nearly $1 billion spread over about seven years.  These 
include $40 million in co-financing (with the EBRD and 
Germany's DEG) of a new terminal at Zvartnots Airport and $48 
million for construction of 220 km of rural roads, a project 
which Barseghian said is now 
95 percent complete and should be finished this year (Note: 
Construction on the Zvartnots facility is well under way, 
though the ADB board has yet to formally approve its part of 
the financing. End Note).  ADB is also providing $36 million 
for water infrastructure, and smaller amounts for regional 
development projects and technical assistance. 
 
¶3. (SBU) ADB is also financing the Yerevan Urban Transport 
Project, a total of $200-300 million over 7-10 years.  This 
would consist of new roads, an extension of the metro and new 
parking facilities.  The main feature would be three bypass 
roads that would allow freight to avoid having to pass 
through Yerevan, where it currently must often negotiate 
narrow and congested streets not properly designed for large 
vehicles.  Financing will be provided through a multi-tranche 
facility, and Barseghian said ADB may disburse a first 
tranche of $50 million by the end of 2010. 
 
 
NORTH-SOUTH ROAD 
---------------- 
 
¶4. (C) ADB's current major project is the North-South 
Corridor, a road that will run from Iran to the Georgian 
border, and has an estimated price tag of $900 million, of 
which ADB is financing approximately $500 million.  This 
project envisions the creation of a "Class A" four-lane (in 
most cases), dual-carriage road.  This is about a seven-year 
project that will be done in phases:  The first stage will 
upgrade the existing highway north from Yerevan to Ashtarak, 
then to Gyumri, and eventually to Bavra, near the Georgian 
border.  South of Yerevan, it would connect to Kapan, near 
the Iranian border, and would 
be built largely in a new corridor, with fewer curves, in 
order to facilitate cargo traffic.  Bargseghian said that 
work on the road north from Yerevan will be done first, due 
to greater near-term economic potential along that route, 
even though it is in much better shape than the roads south 
to the Iranian border. 
 
¶5. (C) The project will be financed in tranches - the first 
one, for Yerevan-Ashtarak, will be about $70 million.  The 
parliament recently voted to approve the multi-tranche 
financing facility and to accept the first tranche, which 
carries a concessional interest rate (subsequent tranches 
will carry commercial rates).  ADB will make subsequent 
tranches available as the projects are ready; 
Yerevan-Ashtarak is projected to take three years to 
complete.  ADB expects to lend about $150 million for the 
Ashtarak-Gyumri leg, construction on which could run 
concurrently with the Yerevan-Ashtarak segment.  Barseghian 
says it could be approved before the end of 2010. 
 
¶6. (C) In order to oversee the North-South corridor, the GOAM 
plans to bypass the Ministry of Transport, which has recently 
come in for serious criticism for mismanaging various 
projects.  Instead, the current plan is to create a new 
 
YEREVAN 00000087  002.2 OF 002 
 
 
Governance Council, chaired by the Prime Minister, to oversee 
the project, and a Project Management Unit to implement it. 
The GOAM has delayed approval of this unit, causing a delay 
in the start of work on the corridor's first phase. 
 
¶7. (C) Appearing to contradict the recent assertions of 
Deputy Foreign Minister Shavarsh Kocharian (reftel), 
Barseghian indicated that he has not heard of any plans by 
the Georgian government to withdraw its support for 
construction of the road from Bavra to Batumi, which would 
connect the North-South Corridor to a more direct route to 
Georgian ports.  Kocharian believed that the GOG's lack of 
support could endanger ADB funding for the North-South 
Corridor as the project would no longer be considered 
"regional."  Barseghian confirmed that ADB remains fully 
committed to the North-South corridor, and separately, the 
Georgian Amassador told us that the GoG will do "all that is 
required" to build their portion of the road.  He said that 
the GoG does not want to call the road a "regional project" 
because it will then become the highest priority, limiting 
Georgian flexibility on allocation of funds. 
 
IF THE BORDER OPENS 
------------------- 
 
¶8. (C) According to Barseghian, there is flexibility in the 
ADB's $500 million loan for the North-South corridor that 
would allow the GOAM to divert funds toward roads connecting 
to Turkey in the event of a border opening.  Instead of the 
Gyumri-Bavra road, for example, the GOAM would be free to 
construct or upgrade a road to the Turkish border, connecting 
most likely to Kars. 
 
COMMENT 
------- 
 
¶9. (C) Armenia is in desperate need of the infrastructure 
these projects will provide, and the construction activity 
will provide some helpful economic stimulus during a severe 
economic crisis.  While the nearly $1 billion of borrowing 
these projects will entail will combine with loans from the 
World Bank, IMF and Russia to increase significantly the 
GOAM's indebtedness, many of these loans are concessional and 
the ADB so far appears confident that servicing the debts 
will not cripple the country's budget; the IMF, however, has 
characterized the ADB loans as "reckless."  Perhaps more 
worrisome is that, in the case of the North-South Corridor, 
the GOAM yet again seems to be addressing problems of 
corruption and inept governance not by reforming a 
problematic agency (or dismissing its head), but by creating 
a parallel structure or process to bypass the problem.  The 
solution to every governance or corruption problem cannot be 
to create a committee chaired by the Prime Minister. END 
COMMENT. 
YOVANOVITCH