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Cablegate: Azerbaijan Plans a Major Overhaul of the Railway System

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RUEHAK/AMEMBASSY ANKARA 2758
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UNCLAS BAKU 000348

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DEPT FOR EUR/CARC
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COMMERCE FOR 4231 ITA/MAC/ORUE FOR DSTARKS
COMMERCE FOR 3004 ITA/FCS/ ADVOCACY FOR ACHAMS-EDDINE

SENSITIVE
SIPDIS

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buy new electrical locomotives and overhaul the outdated diesel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

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