EBRD works on sustainable transport links dev't in Central Asia - managing director (Interview)
BAKU, Azerbaijan, April 17. The European Bank for Reconstruction and Development (EBRD) invested $1.5 billion (1.4 billion euros) through 79 projects in Central Asia in 2022, Zsuzsanna Hargitai, EBRD Managing Director for Central Asia, told Trend in an exclusive interview.
According to the managing director, Uzbekistan became the leading funding recipient of the EBRD in 2022 for the third year running with $900 million in 26 projects in sectors ranging from renewable energy to banking sector.
"The Bank facilitated the first plenary session of the Uzbekistan Foreign Investors’ Council, which will serve as a platform for dialogue between foreign investors and the authorities to help shape further economic reforms," she said.
Hargitai pointed out that, in 2022, the EBRD arranged two syndicated loans collectively worth $520 million to help construct and put into operation two wind power plants with a total installed capacity of 1 GW in the Bukhara region of Uzbekistan. According to the managing director, this financing is the EBRD’s largest renewable energy project to date across all countries, where the Bank invests.
Moreover, a financing package of $74 million, organized by the Bank, will help develop, construct and put into operation a 500 MW greenfield wind power plant in the Navoi region of Uzbekistan. "This was the first project in Central Asia to use the IdentiFlight [bird detection system] able to detect and monitor species at risk of collision and trigger an automatic curtailment of selected turbines," she added.
As Hargitai noted, EBRD together with the Ministry of Energy of Uzbekistan has developed low-carbon development pathway for the electricity sector of Uzbekistan, which aims to decarbonize the sector by 2050.
"Outside the energy sector the EBRD extended long-term sovereign loans collectively worth up to $120 million for the regional utility companies responsible for solid waste management in Khorezm and Karakalpakstan," she added.
Further speaking, the managing director said that the EBRD's annual investment in Kazakhstan stood at $525 million (480 million euros) through 14 projects.
According to Hargitai, one of the bank's missions in the country includes support in hazardous emissions reduction. In 2022, the EBRD has signed a 15-year loan of 130 billion Kazakh tenge (260 million euros) to Almaty Power Plants for the modernization of its Combined Heat and Power Plant 2 (CHP 2) by indicate year of completion.
"It will facilitate full replacement of coal by natural gas. The coal-fired CHP 2 is the largest heat provider in the city responsible for approximately one third of hazardous emissions in Almaty," she said.
As Hargitai explained, the modernization will help to completely eliminate dust containing atmospheric particulate matter and sulphur oxides, reduce emissions of nitrogen oxides by more than 86 percent, and annual CO2 emissions by 55 percent.
Also, in 2022, the EBRD made its first ever investment in a local currency bond issued by Kazakhstan Temir Zholy (Kazakhstan Railways - KTZ). The loan amounted to 50 billion Kazakh tenge (almost 100 million euros).
"The investment will boost the financial and operational resilience of KTZ and help Kazakhstan’s state-owned railway operator restructure its balance sheet and implement a range of measures, including the reorganization of its transit freight operations, required to cope with after effects of the pandemic and the ongoing geopolitical turmoil," she explained.
The managing director also touched upon several projects in Tajikistan and Kyrgyzstan implemented over the last year. Mainly, in Tajikistan, the EBRD financed the first green taxi project in the Bank's history.
"The investment will enable a local taxi company to reduce its CO2 emissions and environmental impact. 2022 was a record year for the EBRD investments in Tajikistan’s banking sector. We signed 12 projects supporting green financing, agribusiness, women's entrepreneurship and risk-sharing and co-financing mechanisms with local partner banks," she explained.
In Kyrgyzstan, the EBRD launched the Green Cities Action Plan to address municipal environmental challenges of country’s capital Bishkek.
"We expect first new compressed natural gas buses to be delivered to Bishkek under this Plan by the end of 2023. The Bank also unveiled a $50 million package under the Kyrgyz Republic Green Economy Financing Facility III. The new facility aims to introduce inclusive financial products to support climate resilience and adaptation, reduce pollution and promote the sustainable use of water. The EBRD continued supporting critical infrastructure in the country by providing a $14.1 million loan to upgrade the irrigation system in the Osh region. An 11 million euros financing package provided by the EBRD to the Kyrgyz Railways will enable the national rail operator restore critical railway infrastructure, such as the avalanche protection gallery in the Boom Gorge," she added.
Hargitai once again emphasized that The EBRD, which became fully aligned with the Paris Agreement, continued providing support for Central Asia’s green transition.
"We have already mentioned projects such as 1 GW wind power plants in Uzbekistan's Bukhara and a 500 MW greenfield wind power plant in the Navoi region. The modernization of solid waste management facilities in Uzbekistan’s Khorezm and Karakalpakstan regions will contribute to Uzbekistan’s decarbonisation strategy. Last year the EBRD and the Ministry of Economic Development and Poverty Reduction of Uzbekistan agreed to jointly develop a national methane emissions program," she said.
Moreover, Kazakhstan's largest municipality, Almaty, approved the Green City Action Plan (GCAP) developed jointly with the EBRD.
"The city’s GCAP, the trigger project for which was the modernization of its Combined Heat and Power Plant 2, is a crucial tool that will help the municipality set out its sustainable development vision and strategic objectives, as well as the actions and investments required to address high-priority environmental issues. The EBRD and Kazakhstan also agreed to work towards Kazakhstan joining the Global Methane Pledge and so collectively help to reduce global methane emissions by 30 percent by 2030," she added.
As the managing director pointed out, the EBRD is conducting a study of Sustainable Transport Connections between Asia and Europe funded by the European Commission, which should be finalized by summer 2023.
"The study is aiming to identify the most sustainable transport connections between the Central Asian states and the extended Trans-European Transport Network (TEN-T). It has two objectives: to identify the most sustainable transport corridors connecting the five Central Asian states with the EU's TEN-T, including the Caucasus, and to propose actions for their development, including the actual infrastructure investments and necessary enabling environment," she explained.
She noted that, until recently, the main route linking North-East Asia with Europe was the Eurasian Northern Corridor. It was using Trans-Siberian railway from Russia’s Far East with its branches going through Kazakhstan and Mongolia.
"The Trans-Caspian International Transport Route (TITR), or the so-called Middle Corridor, running through the territory of Kazakhstan is generally considered to be the second-best land-based option, despite not being a complete alternative to the Northern one. Should this corridor become a more preferred new route for freight companies, a diversion of transit cargo exceeding 10 percent of the Northern Corridor’s tonnage will require large investment across the entire corridor and its economic efficiency is yet to be assessed," she said.
At the same time, the EBRD is already working with transport and logistical companies along the Middle Corridor such as Temirservice Astana. This is an operator of the first private railway station in Kazakhstan. Last year the Bank also signed a memorandum of understanding with a sea port of Aktau. The EBRD is considering a loan, which will support the modernization of cargo handling equipment and related port infrastructure.
Further speaking, Hargitai noted that the EBRD is using various financial tools in order to support private sector development in Central Asian economies.
"Central Asian economies are dominated by state-owned companies and we at the EBRD believe that private sector should play a greater role across the region, help create new sustainable jobs, increase competitiveness of the economies and its contribution to GDP in all countries should become more significant," she said.
According to the managing director, the EBRD is facilitating Foreign Direct Investment (FDI), which brings knowledge, technologies and builds value chains.
"Our Bank has various financial tools to support local private businesses. Credit lines and risk sharing arrangements with our partner-banks help us reach small businesses particularly in rural areas. We support their working capital needs, promote their trade and give them access to advanced technologies," she explained.
Moreover, the Bank’s Women in Business Program in Central Asia and Mongolia is implemented with local banks and helping promote local women’s entrepreneurship and business activity by assisting with access to finance, know-how and technical advice, the managing director said.
"Currently, the program is being implemented in hundreds of local micro businesses owned by women, which are now able to identify necessary growth opportunities and develop their sustainability," she added.
Also, the EBRD’s Green Economy Financing Facility program is supporting domestic individuals and businesses willing to invest in climate mitigation and adaptation technologies and services, Hargitai concluded.
Besides, Hargitai mentioned that the EBRD is expecting Central Asia’s GDP to grow by 4.9 percent in 2023.
"Central Asian states, such as Kazakhstan and Turkmenistan, are enjoying record high oil and gas revenues as a result of elevated prices and increased export volumes," she noted.
At the same time, according to the managing director, Kyrgyzstan, Tajikistan, as well as Uzbekistan continue to receive substantial remittances from Russia, where the demand for migrant workers is growing dramatically.
"The region is also experiencing very strong growth in real wages and public revenues. Many countries in Central Asia are benefiting from Russian households seeking to obtain international payment cards and place their foreign currency savings in Central Asia, as well as businesses relocating to Central Asia, taking advantage of special economic zones, such as Uzbekistan’s IT Park, created to capture digital nomads and exporters of IT services," she explained.
As a result, the region’s capital cities are experiencing a real estate boom, as well as strong expansion in hospitality and catering, Hargitai noted.
Regional economies, such as Kazakhstan and Kyrgyzstan, are also benefiting from re-exports of computers, consumer electronics and home appliances, spare auto parts, and electrical and electronic components, to Russia, often facilitated by small shuttle traders, the managing director said.
Meanwhile, she pointed out that regional currencies weakened after war in Ukraine started, but they have largely reverted to their pre-war values.
"Financial sector regulators brought in tougher compliance measures to reduce the risk of further collapses from any secondary sanctions. The most urgent challenge all Central Asian economies are facing today is inflation and, in the slightly longer term, debt service costs. CPI inflation is in the 10-16 per cent range, way above the target corridors, which jeopardizes the wellbeing of many households and puts structural reforms and fiscal consolidation measures at risk," she said.
In conclusion, the managing director noted that the EBRD has 5-year operational strategies for all the economies in the region.
"They concentrate on climate finance and climate action, including renewable energy and water management, support for local private businesses, including women/youth entrepreneurship and start- up ventures, access to finance and knowledge, digitalization and digital international connections, as well as better regional and external integration with support to supply chains and infrastructure," she said.
Last but not least, Hargitai mentioned that Uzbekistan's Samarkand will hold the Bank's 32nd Annual Meeting and Business Forum in the near future.
"The event, largest of its kind for the region, which will take place in Samarkand on 16 to 18 May 2023. The EBRD Business Forum, themed Investing in Resilience and highlighting the investment potential of Central Asia, will be an opportunity to exchange knowledge, promote business activity and take part in a dynamic program of events attracting prominent participants from around the world, ranging from leading government officials, financial and corporate executives to entrepreneurs, civil society, and international media. Both the EBRD’s and international experts will take part in expert discussion panels on the macroeconomic landscape, the role of the private sector and policymakers in boosting renewables and sustainable energy, interregional connectivity, skills development for higher employability, food security, digitalization to name a few. The program will also include country- and region-specific sessions, including investment outlook presentation from Uzbekistan, Kazakhstan, the Kyrgyz republic and Mongolia," she concluded.
