TRANSPORT SECTOR REVIEW OF ARMENIA, AZERBAIJAN AND
GEORGIA
Final Report
Lauri Ojala
lauri.ojala@tukkk.fi
June 28, 2002
1
CONTENTS
ACRONYMS
4
A. ABSTRACT
7
B. INTRODUCTION 8
C. THE SOUTH-CAUCASUS STATES’ SOCIO-ECONOMIC PROFILES ................................ 9
C.1. ARMENIA ................................................................................................................................... 12
C.2. AZERBAIJAN .............................................................................................................................. 17
C.3. GEORGIA ................................................................................................................................... 20
D. TRADE AND FOREIGN INVESTMENT HIGHLIGHTS ...................................................... 24
D.1. MERCHANDISE TRADE ............................................................................................................... 24
D.1.1. Armenian Trade performance 1996-2001 ....................................................................... 25
D.1.2. Azerbaijan trade performance ......................................................................................... 28
D.1.3. Georgian Trade developments ......................................................................................... 30
D.2. FOREIGN DIRECT INVESTMENT ................................................................................................. 32
E. TRANSPORT SECTOR HIGHLIGHTS.................................................................................... 35
E.1. GLOBAL TRENDS IN THE TRANSPORT SECTOR ............................................................................ 35
E.2. PUBLIC SECTOR RESTRUCTURING IN THE TRANSPORT SECTOR ................................................. 37
E.3. TRANSPORT SECTOR POLICIES OF THE SOUTH-CAUCASUS STATES ........................................... 39
E.3.1. Armenia ............................................................................................................................ 39
E.3.2. Azerbaijan ........................................................................................................................ 40
E.3.3. Georgia ............................................................................................................................ 43
E.4. MEMBERSHIP IN INTERNATIONAL TRANSPORT ORGANIZATIONS AND CONVENTIONS ................. 44
E.6. ENVIRONMENTAL SUSTAINABILITY IN THE TRANSPORT SECTOR IN THE REGION ........................ 47
E.7. TRANSPORT SECTOR PROJECTS AND IFIS, THE EU AND UN/ESCAP ......................................... 50
E.7.1. World Bank finance in the transport sector in the South-Caucasus States ...................... 51
E.7.2. EBRD finance in the transport sector in the South-Caucasus States ............................... 53
E.7.3. European Union assistance in South Caucasus ............................................................... 54
E.7.4. UN/ESCAP ........................................................................................................................ 58
F. ROADS AND ROAD TRANSPORT ........................................................................................... 59
F.1. ROAD NETWORKS AND VEHICLE STATISTICS .............................................................................. 59
F.1.1. Armenia ............................................................................................................................ 59
F.1.2. Azerbaijan ........................................................................................................................ 61
F.1.3. Georgia ............................................................................................................................ 62
F.2. ORGANIZATION OF THE ROAD SUBSECTOR ................................................................................. 63
F.3. SAFETY ISSUES ........................................................................................................................... 64
F.4. ECONOMIC AND TECHNICAL ANALYSIS ON ROAD WORKS ........................................................... 66
F.5. ROAD FINANCING ....................................................................................................................... 66
F.5.1. Armenia ............................................................................................................................ 67
F.5.2. Azerbaijan ........................................................................................................................ 69
F.5.3. Georgia ............................................................................................................................ 70
F.6. ROAD TRANSPORT SERVICES ...................................................................................................... 71
F.6.1. Freight transport services ................................................................................................ 71
F.6.2. Long-distance passenger services .................................................................................... 73
F.7. URBAN TRANSPORT ................................................................................................................... 73
2
G. RAILWAYS
......................................................................................................................... 74
G.1. ARMENIA .................................................................................................................................. 78
G.2. AZERBAIJAN .............................................................................................................................. 81
G.3. GEORGIA ................................................................................................................................... 83
G.4. RAIL INFRASTRUCTURE MAINTENANCE ..................................................................................... 84
G.5. REGIONAL RAILWAY DEVELOPMENTS ...................................................................................... 84
G.5.1. International rail agreements .......................................................................................... 84
G.5.2. Trans-Asian Railway North-South Corridor ................................................................... 86
G.6. CONCLUSION ....................................................................... ERROR! BOOKMARK NOT DEFINED.
H. PIPELINE TRANSPORT ............................................................................................................ 88
I. PORTS AND MARITIME TRANSPORT ................................................................................... 91
I.1. THE PORT OF BAKU IN AZERBAIJAN ........................................................................................... 92
I.2. PORT OF POTI IN GEORGIA .......................................................................................................... 93
I.3. PORT OF BATUMI IN GEORGIA .................................................................................................... 95
J. CIVIL AVIATION ........................................................................................................................ 96
J.1. ARMENIA .................................................................................................................................... 96
J.2. AZERBAIJAN ............................................................................................................................... 97
J.3. GEORGIA .................................................................................................................................... 99
K. GENERAL TRANSPORT SUPPORT SERVICES ................................................................ 101
K.1. TRADE AND TRANSPORT FACILITATION .................................................................................. 101
K.2. LOGISTICS AND BUSINESS FRIENDLINESS OF THE SOUTH-CAUCASUS STATES ......................... 103
K.3. THE ROLE OF FREIGHT FORWARDERS AND CUSTOMS BROKERS ................................................ 106
K.4. CUSTOMS SERVICES................................................................................................................. 107
K.5. TRANSIT TRAFFIC COSTS AND PROCEDURES ............................................................................ 110
K.5. FREE TRADE ZONE AND LOGISTICS CENTER DEVELOPMENTS................................................. 113
K.5.1. Sumgait Special Economic Zone (SEZ) Project .............................................................. 113
K.5.2. First Logistics Center for Road Transport in Azerbaijan ............................................... 114
K.5.3. Free Trade Zone at Bina Airport, Baku .......................................................................... 114
K.5.4. Bonded Warehouse in Baku ............................................................................................ 114
K.5.5. Free Trade Zones near the Iranian Border .................................................................... 115
K.5.6. Free Trade Zones within the framework of CIS .............................................................. 115
K.6. FINANCIAL MARKETS AND SERVICES ....................................................................................... 115
L. SUMMARY AND CONCLUSION ............................................................................................ 117
REFERENCES
....................................................................................................................... 120
ATTACHMENT C.1. ARMENIA AT A GLANCE....................................................................... 123
ATTACHMENT C.2. AZERBAIJAN AT A GLANCE ................................................................ 125
ATTACHMENT C.3. GEORGIA AT A GLANCE ...................................................................... 127
ATTACHMENT E.1. ARMENIAN EXPORT AND IMPORT BY MODE AND COMMODITY
IN 2000, IN THOUSAND TONS................................................................ 129
ATTACHMENT F.1. VEHICLE AND OVERWEIGHT FEES FOR CROSSING THE
GEORGIAN BORDER IN 2002 IN GEORGIAN LARIS ....................... 130
ATTACHMENT K.1. DATA OF THE ”LOGISTICAL FRIENDLINESS” SURVEY ............. 131
3
Acronyms
ADDY
Azerbaijan Dovlet Demir Yolu, the State Railways of Azerbaijan
AMD
Armenian Dram, 1 USD was approximately 575 Dram in April 2002
AR
Armenian Road; The Road Administration of Armenia
ARD
Armenian Railways
ASYCUDA
Automated SYstem of CUstoms Data management developed by UNCTAD
AZM
Azerbaijan Manat, 1 USD was approximately 4,800 Manat in April 2002
BASA
Bilateral Air Services Agreements, an international aviation convention
b/d
Barrels per day; one petroleum barrel is 42 gallons, i.e. 190.68 liters
CAA
Civil Aviation Authority
CEE
Central and Eastern Europe
CIM
International Consignment Note for rail transport under COTIF
CIS
Commonwealth of Independent States
COTIF
Convention Concerning the International Transport of Goods by Rail, 1980
DEM
German mark
EBRD
European Bank for Reconstruction and Development
EC
European Commission
ECA
Europe and Central Asia, a World Bank region
ECHO
European Community Humanitarian Office
ECMT
European Conference for Ministers of Transport (part of OECD)
EDI
Electronic Data Interchange
EEA
European Economic Area
EIB
European Investment Bank
EU
European Union
EUR
Euro(s), currency unit of the Euro countries within the EU
FDI
Foreign Direct Investment
FSU
Former Soviet Union Republics
FTL
Full truck load (cf. LTL and FCL for Full container load)
FWD
Falling Weight Deflector
GEL
Georgian Lari, 1 USD was approximately 2.23 Lari in April 2002
GDP
Gross Domestic Product
GFP
Global Facilitation Partnership for Transport and Trade by the World Bank
GNP
Gross National Product
HDM.4
Highway Development and Management System (version 4)
HIPC
Heavily Indebted Poor Countries, IMF classification for the poorest countries
IATA
International Air Transport Association
IBRD
International Bank for Reconstruction and Development; World Bank Group
ICAO
International Civil Aviation Organization
IDA
International Development Agency, part of the World Bank Group
4
IFI
International Financial Institutions
IMF
International Monetary Fund
INOGATE
IRI
Interstate Oil and Gas Transport to Europe initiative
International (Road) Roughness Indicator
IRU
International Road Transport Union
ISO 9001,2002
Quality standards of the International Standardization Organization
JAA
Joint Aviation Authority
JAR
Joint Aviation Regulations
JSC
Joint-stock company
LTL
Less-than-truckload
MOT
Ministry of Transport
MOTC
Ministry of Transport and Communications
MWh
Megawatt hours
NACE
International classification system used in sectoral statistics
NGO
Non-governmental organizations
NIS
Newly Independent States, typically former Soviet Union republics
OECD
Organization of Economic Co-operation and Development
OSJD
Organization for Railways Cooperation, comprises CIS countries
SGMS
Agreement on International Railway Freight Communications, used in OSJD
PAX
Passengers
PMS
Pavement Management Systems
PRGF
Poverty Reduction and Growth Facility of the IMF
PSO
Public Service Obligation
Ro-ro
Roll-on – roll-off ship
SDRG
Georgian State Department of Roads
SOE
State-owned enterprise
SME
Small and medium-sized enterprises
TACIS
EU’s development program for CIS countries
TEU
Twenty feet equivalent unit, a measurement for unitized cargo
TRACECA
EU-funded Inter-Governmental Group TRAnsport Corridor Europe Caucasus Asia
UIC
International Organization of Railways
UNCTAD
United Nations Conference for Trade and Development
UN-ECE
United Nations / Economic Commission for Europe
UN-ESCAP
United Nations / Economic and Social Commission for Asia and the Pacific
UNDP
United Nations Development Program
USD
American dollar
WTO
World Trade Organization
WWW
World Wide Web
XML
Extensible Mark-up Language; used for making www-sites
5
ACKNOWLEDGEMENTS
The report also draws on a multitude of available reports on the three South-Caucasus
States shown in the list of references. The study also relies heavily on official sources
of information and statistics as well as interviews and meetings with Government
ministries and officials.
The report is also relying on findings of several World Bank missions and projects,
which have visited the three South-Caucasus States in numerous occasions between
the years 2000 and 2002. This includes the work of Mr. Antti Talvitie (Task Team
Leader), and that of Mr. Gerald Ollivier (Trade and Transport Facilitation), Mr.
Wojciech Paczynski, (Short-term consultant), and Mr. Martin Humphreys (Short
Term Consultant). Other contributors to the report include Ms. Eva Molnar
(Transport Sector Manager) and Mr. Gevorg Sargsyan (Local Task Manager).
The joint transport sector seminar by ECMT and The World Bank on April 18-19,
2002 in Tbilisi provided valuable input to the report. Seminar participants comprised
senior-level delegations from Armenia, Azerbaijan and Georgia joined by
authoritative representation from the following international organizations (in
alphabetical order): EBRD, ECMT, EU COMMISSION, IRU, TRACECA IGC,
TACIS/TRACECA, UIC, UN/ECE and The World Bank.
Prior to the seminar, a questionnaire outlining in some detail what has been done in
each mode in each country was sent out by ECMT. The material obtained through it
was also used when compiling this report. A special thanks goes to Mr. Jack Short,
Secretary General of ECMT for supervising the questionnaire procedure and for Ms.
Elene Shatberashvili of the practical arrangements and translation of the questionnaire
and reply.
6
A. Abstract
The report is based on public sources on the transport sector in Armenia, Azerbaijan and
Georgia, reports of World Bank missions and material obtained from the South-Caucasus
States Seminar on Restructuring of the Transport Sector, held on April 18-19, 2002 in Tbilisi.
Some of the main problems affecting the transport sector in the Region include:





a severe shortage of funds, to maintain and improve infrastructure as well as a lack
of long term budget planning
a lack of confidence by shippers in using routes through the region, partly caused by
the unresolved political and border disputes in the region
difficulties in defining a coherent national and international transport infrastructure
network
a weak legal framework for transport and trade
the lack of management skills across the transport sector
Significant progress has been made to clarify the roles of government and private sector, and
there are several examples of effective private sector participation in transport operations.
Bureaucratic border crossing and customs procedures are a major cause of delays and expense
(both formal and informal).
In the Road sector, the most significant problems are the backlog in maintenance; very low
budget financing combined with low direct user charges, and poor traffic safety record. In
the freight dominated Railways sector, the most significant problems are the old age and poor
condition of track and rolling stock, absence of modern information systems, and lack of
management skills. Bottlenecks are often created in ports through customs and other
bureaucratic processes. The key problem in Urban public transport is lack of financial
resources, coupled with increasing car ownership and problems related to air pollution
especially major cities.
The region’s industrial sectors with most growth potential rely heavily on affordable and
reliable transport. For Armenia, these include mining and construction. For Azerbaijan the
main sector is oil and gas. For all three, agriculture and food processing have large export
potential. There is also a viable potential to revive the tourism industry in certain parts of the
region. Radically improved transport infrastructure and logistics services, and, for tourism,
upgraded facilities and transport and hospitality services are needed to activate this potential.
Improved co-ordination of international bodies (ECMT, UN ECE, EC, UIC, WB, EBRD, and
others), is needed to maximizing synergy and minimizing overlapping activities in the region.
The three South-Caucasus States have made progress both in terms of transport infrastructure
improvement and creation of markets and private sector participation in provision of transport
services. Substantial investment is still needed in the three states to improve the road and rail
infrastructure in particular.
Considerable work remains to be done to strengthen the institutional capability and processes
on all levels of public administration. The governance of transport sector is underdeveloped,
but there are signs for improvement. The creation of a Ministry of Transport in Azerbaijan
and Armenia’s membership in ECMT could be singled out as important next steps.
Finally, transport sector development, together with trade facilitation are effective means to
achieve sustainable economic growth in the region to alleviate the pervasive poverty in the
three countries.
7
B. Introduction
The main objective of this review is to define the Bank's support to the Governments
of the South Caucasus countries on policy and institutional reforms in transport.
To the extent it has been possible to gather material for this purpose, the review will
include

an up-date on the progress of reforms in the transport sector with regard to policy,
regulatory, institutional and organizational changes in sector management, the
level of competition, privatization of transport service provisions, the efficiency
improvements or existing shortcomings of the public entities and SOEs;

a review of the policy and regulatory functions with regard to the transport sector:
MOT; other ministries and government agencies and transport companies;

the review of the organization and the structure of MOT, its relations with
transport infrastructure managers and operators, like ports, airports, railways,
roads;

an analysis of the road sector, with special attention to (i) national road
expenditure needs; (ii) the existing road financing schemes (source of road
funding, the existence, structure and level of road user charges, the fund
allocation mechanisms overall and to the different level of the road network:
national, urban, rural roads); (iii) road management: role and organization of the
State Road Administration; (iv) construction industry and needs for reform and
(vi) road safety management;

the relationship between the national and regional and local (rural and urban)
transport network and services;

NGOs and business interest groups active in transport;

the issue of sustainable development with regard to social sustainability in terms
of poverty reduction through improvements in transport infrastructure, and with
regard to environmental sustainability in terms of transport sector emissions
The focus of the report will be mainly on transport and only to a lesser extent on trade
and transport facilitation. In the beginning, a short review of the socio-economic and
trade profiles of the three South Caucasus states is given in order to discuss the
potential of transport sector development in poverty alleviation. The main industrial
sectors that are dependent on improved transport infrastructure and transport and
logistics services are also identified.
8
C. The South-Caucasus States’ socio-economic profiles
This section gives a brief introduction to the socio-economic profiles of the three
South-Caucasus States. Extensive reports on this can also be found elsewhere, and as
this report aims at presenting the key, and general country profiles are kept to a
minimum1. The aim of the treatment is to identify the sectors where transport
potential is largest or which are most dependent on well-functioning transport
infrastructure and services. The impact of improved transport and trade operations is
crucial in poverty reduction, which is an area of high importance in the region.
Main economic indicators for each country are included in the attached “Country at a
glance” tables in Attachments C.1. through C.3.
This chapter draws extensively on official statistics and government sources. It should
be noted that the accuracy of the available statistics for example on economic factors
is often less than satisfactory. This reflects the widespread so-called shadow
economy2 in these countries.
According to Schneider and Enste (2002), among the states of the former Soviet
Union in 1998–99, Georgia's shadow economy was the largest, at 64 percent of GDP;
that of Russia was 44 percent of GDP; and that of Uzbekistan was the smallest, at 9
percent. In OECD countries, the shadow economy typically represents 14-16 per cent
of GDP.
Table C.1. Gross Domestic Product and Inflation in Armenia, Azerbaijan and
Georgia, 1990-2001
Source: Poverty reduction…(2002), IMF and The World Bank; based on World Bank staff estimates
Nominal GDP per
capita in USD
PPP GDP per capita
in USD
Real GDP Index
1989 = 100
Armenia
505
2,713
51
Azerbaijan
652
2,602
52
Georgia
567
4,285
32
In U.S. Dollar terms, the three countries are among the poorest in the world, and all
are eligible for IDA loans, as well as for the PRGF Poverty Reduction and Growth
Facility of the IMF. Georgia obtained the new IMF PRGF in January 2001. Armenia
1
See e.g. World Bank, IMF and EBRD reports indicated in the list of references
Shadow Economy includes not only illegal activities but also unreported income from the production
of legal goods and services, either from monetary or barter transactions. Hence, the shadow economy
comprises all economic activities that would generally be taxable were they reported to the tax
authorities (Schneider and Enste 2002).
2
9
and Georgia can also be classified as heavily indebted poor countries (HIPC).
Armenia and Azerbaijan have reached barely half of the real GDP level of 1989,
where Georgia has reached a mere third of that level. Some key indicators of the
three countries’ economic development are summarized in Tables C.1. and C.2.
Table C.2. Gross Domestic Product and inflation in Armenia, Azerbaijan and
Georgia, 1990-2001
Source: Poverty reduction…(2002), IMF and The World Bank; based on World Bank staff estimates
Gross Domestic Product
Inflation
1990-95
average in
per cent
1996-2000
average in
per cent
2001
forecast in
per cent
1990-95
average in
per cent
1996-2000
average
2001
forecast
Armenia
-11.5
5.2
7.5
1,685.4
8.3
3.4
Azerbaijan
-14.9
7.1
8.5
705.2
3.2
2.5
Georgia
-19.7
5.8
3.9
3,310.6
14.6
4.8
A major problem facing all three South Caucasus states - as well as the rest of lowincome CIS states - is the significant increase of poverty. A sizeable proportion of the
population now lives in absolute poverty, and available physical indicators – such as
malnutrition – have steadily worsened, and the social safety net has deteriorated
greatly, mainly because of the limited resources to poverty reduction (Table C.3.). In
addition, income inequality has increased sharply in these countries.
Table C.3. Income-based poverty indicators, per cent of population, and estimated
income-based Gini coefficients.
Source: Poverty reduction…(2002), IMF and The World Bank; based on World Bank staff estimates
Below the national poverty line*)
1988
1999
Below USD 2.15 per
capita per day 1999
Income distribution
Gini coefficient
1988 (est.)
Gini coefficient
1996-99 (est.)
Armenia
18
55
44
0.25
0.59
Azerbaijan
33
62
24
0.29
0.43**)
Georgia
16
60
19
0.28
0.43
*) The national poverty line is defined as percentage of population earning a per capita income lower
than the minimum consumption basket. For 1988, a per capita income of 75 rubles per month was used
as the conventional poverty line.
**) The 1996-99 data for Azerbaijan is consumption based
10
While definitive information is not available, national poverty lines suggest that more
than half of the population lived in poverty in 1999. Social infrastructure, access to
health care and the quality of education are especially poor in villages and small
towns.
The data on employment and wages is shown in Table C.4. While the official data
shows a fairly high level of employment, the actual earnings remain low. Even the
official data for average wages is very low. The data provided for average wages in
the transport sector is 1.3 to 1.6 times higher than the national average of all sectors.
Given the size and population of the countries, the official number of people
employed in the transport sector is fairly small, from about 2.1 (Armenia) to about 3.7
per cent (Georgia) of total employment.
Table C.4. Population, employment and average wages in Armenia, Azerbaijan and
Georgia in 2000
Source: IMF 2001c and d, IMF 2002b
Armenia
Azerbaijan
Georgia
Population, millions
3.2
8.0
5.1
Persons employed *), millions
1.3
3.7
1.8
Persons officially unemployed
153,900
48,000
116,900
47,500
N/A **)
36,700
Average wages, all sectors in USD/month #)
38.9
48.0
39.2
Average wages, transport sector USD/month #)
61.5
63.6
64.6
Employed in the transport sector
*) Armenia: preliminary data for 2000; Azerbaijan data for end-September 2001.
**) The transport and communications sector contributed 14.4 per cent of GDP in 2000, market prices.
#) Source data for Armenia in USD, Azerbaijan data converted 1 USD = 4,600 AZM, and Georgian
data converted 1 USD = 2.0 GEL.
Financially and socially sustainable economic growth is imperative for these countries
to alleviate the serious problem of poverty. Economic growth, in turn, is directly
linked to the preconditions for trade in these countries. Access to affordable and safe
transport, both for passengers and goods, is a central prerequisite for economic growth
to materialize. However, among the main impediments to economic growth in the
Caucasus region – as in Central Asia - are the high transportation costs and the lack of
security for trade flows.
The linkage between better transportation and poverty reduction in this region has
been studied in more detail e.g. in the forthcoming Armenia Trade Diagnostic Study
prepared by World Bank (2002). The simulation modeling in the report indicate that
a 25 % reduction in transport costs results on average to 0.95 percent increase of
welfare in rural areas, and a 0.1 percent increase in urban areas. The biggest
11
beneficiaries tend to be the households in the lowest income deciles and the ones in
the upper deciles. The report also concludes that the industries with the highest
potential for poverty alleviation in Armenia include Construction, Mining,
Agriculture and Food, Jewelry and Information Technology. Except for Construction
and Mining, the three latter industries also have a high export potential.
Economic activity in this region remains severely affected by civil and ethnic
conflicts that have lingered since independence. The border between Azerbaijan and
Armenia remains closed, as does Armenia’s border with Turkey, leaving Armenia
only two corridors, through Iran and Georgia. In Georgia, the conflict between the
central government and its constituent republics of Abkhazia and South Ossetia has
led to disruptions in domestic and international trade flows and movement of people.
Also the war in Chechnya has made regional trade more difficult and expensive for all
parties. These conflicts are politically sensitive and involve a number of countries in
the region, but they have severely undermined prospects for trade and private
investment in the region.
The unresolved security issues impose a heavy cost on the three South Caucasus
states in terms of forgone or diverted trade. For example, Armenia has ample power
generation capacity, and could export electricity to Turkey, if trade relations were
normalized. Significant differences in agricultural prices between the three South
Caucasian states suggest considerable potential for regional trade. According to a
recent World Bank study (Polyakov 2001), Armenia could double its exports and
halve its trade deficit, and Azerbaijan could increase its exports by about 11 per cent,
if the economic blockade were to be lifted. Georgia could face some reduction in
transit fees in the short term, but would eventually gain from increased cooperation
and stability in the region.
C.1. Armenia3
Armenia is a landlocked country bordering Georgia, Iran, Azerbaijan and Turkey.
Border with Azerbaijan is closed following the conflict on Nagorno Karabakh region.
For the same reason combined with Armenia’s claims on the genocide (1915-1922)
border with Turkey is also virtually closed. Russia remains Armenia’s strongest
political ally in the region. (Figure C.1.)
GDP growth between 1994 and 2001 has been between 4 to 6 percent. Because of the
dramatic downturn of economic activity especially during 1990-1992, the real GDP in
2001 is still less than 60 per cent of the level in 1989. The change of consumer prices
has been less than 5 per cent during 1999-2001. The country suffered from
hyperinflation during 1992-1994, with the annual inflation rate reaching almost 5,000
per cent in 1994. (Poverty reduction 2002)
3
The section is in part based on EBRD 2001b and The World Bank/IMF report on Poverty reduction
(2002), ECSPE (2002) and UN (2001), Armenia: Staff Report (2001) as well as notes by Wojciech
Paczynski, CASE Foundation, March 2002, drawing on data from e.g. EIU (2002) and CES (2001)
12
Armenia’s trading system has been liberal and stable for the last few years. Under the
IMF's trade restrictiveness classification scheme, Armenia's trade regime is rated "1",
the most liberal category.
Armenia applied for membership in the WTO in 1993, and is expected to eventually
finish the accession negotiations in the second half of 2002. However, certain
unresolved issues remain e.g. with agricultural products and markets for
telecommunication services.
Figure C.1. A schematic illustration of Armenia’s and its main transport routes
Source: EBRD 2001b
Armenia specializes in high-tech industries such as diamond cutting, electronic
production and software development. The mining and metallurgy sectors are also
important and have been undergoing restructuring. The chemicals sector offers
potential, with a strong pharmaceuticals sector. The infrastructure sectors are in need
of investment and will gain a boost with the forthcoming privatization of energy
distribution companies. The main sectors of the economy are described below.
Jewelry and diamond processing
In 2000, precious or semiprecious stones and precious metals accounted for about 40
per cent of all Armenian exports. A large proportion of these exports is polished
13
diamonds. Diamond cutting is one of Armenia’s most successful sectors, with total
production worth USD 110 million in 2000.
Electronics and Information Technology
In the Soviet era Armenia specialized in high-tech defense industries, and has a
wealth of highly trained engineers and well equipped plants. The larger electronics
factories are being privatized through international tender. There exists a base for the
assembly of electronic and consumer goods, for subsequent export to third countries.
The low start-up costs and availability of highly skilled but inexpensive labor make
the IT industry a strong prospect for investors and for the country’s future economic
growth. Contemporary production in this field is truly global, and it is often
organized through specific contract manufacturing arrangements and outsourcing of
routine manufacturing, which rely heavily on advanced logistics solutions.
Electronics manufacturing is capital intensive due to high level of automation. This
translates to high capital costs relative to labor costs. Consequently, the optimal
location is not determined by the lowest labor costs. Instead, predictable deliveries
and logistics costs of inbound components and outbound products are crucial.
Poor logistics quickly eradicate the competitive advantage a region may have in its
availability of skilled labor at relatively low cost. The potential of Armenia in this
field is very difficult to materialize without a well-functioning logistics environment.
Natural resources
Armenia is rich in copper, molybdenum, gold, silver, lead and zinc. There are also
substantial deposits of iron, marble, porous stones and salt. Work is under way to
revive the mining and metallurgy sectors. Substantial investment is needed to bring
the industry up to its potential capacity.
Chemicals and pharmaceuticals
Armenia has a well developed and growing chemical industry. The main products are
plastics, chemical fibers, caustic soda, paints, coatings, rubber and latex. There are a
number of successful companies producing pharmaceuticals and vitamins, an area that
has attracted foreign investment. There is a well-established countrywide distribution
network for pharmaceuticals, almost entirely in private hands.
Agriculture and agribusiness
Agriculture is the largest employer in the country and accounts for about one quarter
of GDP. However, only 17 per cent of Armenian land are arable, and the sector does
not contribute significantly to exports. The agricultural sector suffers from a lack of
investment and a lack of availability of long-term credits.
The country produces grain crops, vegetables and a variety of superior quality fruits,
tobacco, cotton, grains, essential oils, rose, peppermint and tea. In the Soviet era,
14
fruits and grapes provided 25-30 per cent of budgetary revenues, but in the early
transition years they were partly replaced with cereal crops.
In 2000 the entire region was hit by a severe drought, leading to a substantial drop in
agricultural output and an estimated loss of income of USD 40 million, which had a
negative effect on GDP.
The development of the agricultural sector is constrained by land fragmentation, the
lack of adequate distribution and transport infrastructure, inadequate irrigation and an
as yet underdeveloped food processing industry.
Food processing
With modern processing and packaging technologies, Armenia’s fruit and vegetable
products will have the potential to enter international markets. Joint ventures produce
tomato paste, fruit juice, and packaging for domestic and export markets. New
packaging technologies and capital for long term investment are needed to unlock the
sector’s potential.
Energy
Armenia’s installed generation capacity in year 2001 was 3,200 megawatt hours
(MWh), of which 1,750 MWh is thermal, 1,000 MWh is hydropower, and the rest
(450 MW) is from the Medzamor nuclear power station, which is to be
decommissioned by 2004. About one third of total capacity is currently in operation.
The country has been a pioneer in the Caucasus region for energy sector reform,
which is now well advanced.
The new Energy Law was adopted by parliament in March 2001. It defines the main
concepts of the electricity market and responsibilities for its development and the
principles of state policy in the sector.
Telecommunications
Average telephone density is about 17.7 per 100 persons. International connections to
other FSU republics are by landline or microwave and to other countries by satellite
and by leased connection via the Moscow international gateway switch. Private TV
broadcasting stations, cable networks and Internet providers are increasing in number.
In 1997, a 90 per cent share of ArmenTel, the state telecommunications company, was
sold to OTE of Greece for USD 142 million. The government retains 10 per cent.
However, the company has faced difficulties ever since. The 15-year monopoly in
international telecommunications services enjoyed by ArmenTel has also affected
Armenia’s negotiations to join the WTO.
ArmenTel is the main provider of Armenia’s long distance, cellular and paging
services, and has engaged in an ambitious project to modernize the country’s entire
telecom network. This involves extensive installation of fiber optic cable, digital
telephone switches and cellular and paging services. Work to digitalise 70 per cent of
the telephone network is proceeding.
15
The discussion above can be summarized as follows. Based on the analysis in World
Bank (2002) the industries that hold the most potential for export and job creation are
as follows. Their reliance on transport sector developments is briefly commented too.

Jewelry/Diamond Processing – This is an industry with considerable foreign
investment. There is great potential for Armenia to exploit its comparative
advantage of highly skilled, low paid labor as well as the country’s natural semiprecious stone resources. If this industry can be successful, its has large potential
for poverty reduction. It can also reduce Armenia’s trade deficit through its
exports. The transport impact of this industry is, however, small.

Information Technology – Armenia has a relatively large base of software
programmers that are low paid relative to their Western counterparts. The need
for physical transport is limited, but the sector relies heavily on well-functioning
telecommunications networks and related infrastructure and services.

Electronics industry - The availability of highly skilled but inexpensive labor and
the existence of a strong electronics industry base gives Armenia a potential in
this sector. However, poor logistics quickly eradicate these competitive
advantages. The potential of Armenia in this field is very difficult to materialize
without a well-functioning logistics environment.

Agriculture/Food Processing – Armenia has a history of high-quality agriculture
production as well as agricultural products that are produced with little or no
pesticides or fertilizers. Therefore, Armenia has an opportunity to expand into the
profitable organic food products markets that is gaining momentum in the West.
This requires reliable and affordable transport services including access to
climatized or refrigerated equipment. Therefore, improved transportation both
domestically and internationally are fundamental to this industry sector.
These industries rated highly on both their potential to expand exports as well as
create jobs. Therefore, these are the industries around which planning should be
completed to make the industry environment as favorable as possible.
Other industries that could be considered after these industries for strategic
investments include:

Energy – This industry rated relatively high export potential but low job potential.
Therefore, the industry should be examined to see whether it is possible to
increase its job potential. The transport impact of the sector is large in terms of
needed equipment in both pipeline and surface transport equipment and services.

Mining – This industry rated relatively high for job potential and in the middle of
the scale for export potential. Therefore, the industry should be researched to
determine ways of boosting its export potential. The transport impact of mining is
large since it typically involves movement of large quantities of goods mainly by
rail, and possibly for a subsequent maritime transport to near-by ports.
16
C.2. Azerbaijan4
Azerbaijan is a landlocked country bordering Russia, Georgia, Armenia, Turkey
(Nakhichevan enclave) and Iran. (Figure C.2.)
Real GDP growth between 1996 and 2000 has been 7.1 percent. Because of the
dramatic downturn of economic activity especially during 1990-1995, the real GDP in
2000 was 52 per cent of the level in 1989. The change of consumer prices has been on
average 3.2 per cent during 1996-2000, and was forecast at 2.5 per cent for 2001. The
country suffered from very high inflation during 1992-1995, with the average annual
inflation rate reaching 705 per cent for that period (Tables C.1. and C.2.).
Relations to Georgia have remained good, but the border with Armenia is closed
following the Nagorno-Karabakh conflict between the two countries. Relations with
Russia have been affected by its support rendered to Armenia, which has complicated
cooperation between Azerbaijan and Russia in the transport sector too.
Figure C.2. A schematic illustration of Azerbaijan and its main transport routes
Source: EBRD 2001c
4
Based on EBRD 2001c, IMF 2002b, US (2001)and notes by Wojciech Paczynski, CASE Foundation,
March 2002.
17
Azerbaijan has an approximately 800 km long coastal line on the Caspian Sea. The
rights to the Caspian Sea remain hotly disputed between the countries surrounding the
Sea. In particular Azeri-Iranian relations have been tense, and relations with
Turkmenistan are strained partly due to preparations of an oil pipeline involving the
two countries.
The very important problem affecting the state performance in general and trade and
investment related issues in particular are administrative and organizational weakness
of the state. AmCham (2001) lists it among the major issues creating difficulties for
investors. Coordination and even communication between different government
agencies and within bigger agencies is absent. Moreover, there is some times rivalry
between various institutions. Strategic thinking at the state level is missing. Also,
donors actions seem to be often ill targeted. They sometimes concentrate on specific
solutions disregarding the existing limitations to their functioning in the local
environment. The bankruptcy law passed as a result of the IMF push exemplifies this.
According to AmCham (2001), the law is difficult to understand, and there has been
no single bankruptcy since the introduction of the law.
The main sectors of the economy are described below.
Oil and gas
Azerbaijan is on the way to becoming a major oil and gas producer. In year 2000, oil
and gas extraction accounted for 24 per cent of the official GDP at market prices, and
processing of oil and gas contributed a further 1.5 per cent to the GDP (IMF 2002).
The year 2000 saw record oil and gas condensate production of about 14.5 million
tons, a 5 per cent increase over 1999. Natural gas production in 2000 was 6.0 billion
cubic meters. According to SOCAR, the state-owned oil company, oil production in
Azerbaijan could increase to 50 million tons per year and gas production to 25 billion
cubic meters per year by 2008.
Restructuring of the state-owned oil company SOCAR would be important for further
development and opening up of this sector. Although there are plans to privatize a
number of non-core assets of SOCAR during the second privatization program and to
sell minority interests in SOCAR’s refineries to private investors there are no plans to
privatize or break up SOCAR at this point in time.
A national oil fund has been established and substantial amounts of revenues from the
oil and gas sector have already been accumulated in the oil fund.
Development of the oil industry is closely connected with available capacity of the
pipelines, terminals, vehicles, vessels and other transport equipment. If the
anticipated increases of oil and gas volumes materialize, they will have a major
impact on future transport infrastructure needs not only in Azerbaijan but also in the
Region as a whole.
18
Agriculture
Agriculture is Azerbaijan’s second largest sector after oil and gas. The sector has
been growing since the partial reform in 1997, and it accounts for 22 per cent of GDP
and employs more than 35 per cent of the total work force. Favorable climate and
fertile territory contribute to a rich variety of products, including cotton, grain,
tobacco, tea, nuts, fruits and vegetables. Most farming activity has traditionally been
concentrated in the fertile lowlands of central Azerbaijan.
Between January and August 2000, Azerbaijan harvested 1.5 million tons of grain, of
which 1.2 million tons was wheat, a 43 per cent increase over 1999. Cotton is one of
the most important cash crops, but output in 2000 was less than 100,000 tons. Almost
all the cotton processing, spinning and weaving are now in private hands, and various
foreign investors are operating in the sector.
Azerbaijan has strong export potential in food and food products to other CIS
countries and to Western Europe. However, it needs machinery for food processing.
Telecommunications
The telecommunications sector is affected by Azerbaijan’s underdeveloped
infrastructure and a poor regulatory framework. A law on telecommunications passed
in 1997 falls short of providing the necessary policy guidelines for successful
privatization of the sector. The Ministry of Telecommunications does not only
regulate the sector but also dominates the sector’s commercial activities as the main
shareholder in most telecommunication enterprises. The sector contributed about 2.9
per cent of GDP in 1999. Insufficient capacity, low call completion rates and absence
of modern equipment and services impede the industry.
The fixed line telecommunications infrastructure needs urgent modernization.
Current fixed line penetration corresponds to only 20 per cent of the population.
Progress has been made in the installation and use of cellular mobile phones.
Demand for mobile communications has arisen due to the poor state of fixed lines,
and the needs of oil-related economic activities. The current principal providers are
Azercell and Bakcell. Azercell is a joint venture between the state-owned
Azertelecom and Turkcell of Turkey. Bakcell is a joint venture between Azertelecom
and Motorola.
Power
The power sector in Azerbaijan is controlled by the state-owned company Azerenerji
and has yet to be fully unbundled into separate units for generation, transmission and
distribution. Total power generating capacity is 23,000 MW produced by nine
thermal and five hydroelectric power stations. Imports from Russia and Georgia,
whose power grids are still connected with Azerbaijan as part of the Soviet era
network, make up the shortfall. The transmission and distribution network consists of
more than 110,000 kilometers of transmission lines connecting 40 sub-networks from
the central grid system.
19
The power sector in Azerbaijan is in urgent need of structural reforms and
modernization, with about 30 per cent of the power generation equipment in need of
immediate replacement. Shortages and rationing are common, with electricity
blackouts during peak consumption outside the capital. Various IFIs have been
involved in modernizing the power sector.
C.3. Georgia5
Georgia’s geographical position makes it an important transport link between the
Black and Caspian Seas and between Russia and Turkey. The country’s east-west
transport links follow the route of the ancient “Silk Road” and include roads,
railways, pipeline infrastructure and shipping routes. (Figure C.3.)
Figure C.3. A schematic illustration of Georgia and its main transport routes
Source: EBRD 2001d
5
Based on EBRD 2001d, E&Y 2001, EIU 2001, EU Country Strategy 2001, IMF 2001a and b, and
notes by Wojciech Paczynski, CASE Foundation, March 2002; see also:
http://www.bisnis.doc.gov/bisnis/country/georgia.cfm; and the
20
Real GDP growth between 1996 and 2000 has been 5.8 per cent. Because of the
dramatic downturn of economic activity especially during 1990-1994, the real GDP in
2000 was merely 32 per cent of the level in 1989. The change of consumer prices has
been fairly high, on average 14.6 per cent during 1996-2000, but was forecast at 4.8
per cent for 2001. During the 1992-95 hyperinflation the average annual inflation rate
exceeded 3,310 per cent (Tables C.1. and C.2.).
The most promising opportunities for developing Georgia’s economy continue to be
in natural resources and agribusiness. The country’s role as an important oil and gas
transit center is rapidly increasing, while several foreign companies are already
successfully exploiting Georgia’s own oil and gas reserves. Privatization is planned in
the energy and telecommunications sectors, and potential exists for the development
of Georgia’s tourist industry. Main sectors are described in short below.
Oil and gas
Georgia’s proven oil reserves are around 5 million tons, while total estimated inland
and offshore oil reserves are 580 million tons. Operations under production sharing
agreements (PSAs) and joint ventures are under way in the Kura Basin to the east of
Tbilisi, and also in the Black Sea region to the west.
The Georgian state oil and gas company Saknavtobi, in association with foreign oil
companies operating in the country, plans to produce over 4 million tons of oil and up
to 2 billion cubic meters (bcm) of gas over 2001-05. This would have a direct impact
on oil pipeline transports as well as port and maritime activities.
There is an oil refinery at Sartichala, 25 kilometers from Tbilisi, producing fuel oil,
diesel and low octane gasoline. An agreement was reached in 2000 to increase
processing at the refinery from 100,000 to 400,000 tons of oil per year.
Georgia’s strategic regional location for the transit of oil and gas from the Caspian
Sea has made it of vital importance to world energy markets. The EU-sponsored
TRACECA and INOGATE (Interstate Oil and Gas Transport to Europe) programs
have invested in Georgia’s oil and gas pipeline infrastructure.
The Georgian International Oil Corporation (GIOC), which is responsible for all
pipelines running through Georgia, is constructing a petrochemical complex at the
port of Supsa. The total cost of the project is estimated at USD 1 billion. The
complex will initially have an annual crude oil capacity of 3 million tons, to be
increased to 7 million tons. The main products will be diesel fuel, fuel oil and highoctane gasoline.
Georgia has proven gas reserves close to 8.5 billion cubic meters (bcm) and estimated
reserves of 125 bcm. With energy debts to Turkmenistan (USD 400 million) and
Russia (USD 100 million), Georgia is interested in developing its own resources in
order to achieve greater energy independence. The Georgia International Gas
Corporation (GIGC) has held negotiations with various international bodies on
projects to develop Georgia’s gas sector.
21
Energy
Georgia has the capacity to produce 100-160 million MWh of hydroelectric power per
year, but it is presently only generating around 10 per cent of its potential.
Hydropower accounts for around 78 per cent of electricity generation. Thermal power
generation is also a very important source of electricity, particularly in the winter
months when hydropower generation declines.
During the winter of 2000-01 Georgia suffered an energy crisis, leading to public
protest in a number of regions over restricted power usage. The World Bank
identified corruption, particularly the problem of vested interests interfering in energy
sector reform, as the main reason at the root of the energy crisis. It called for
enforcement of tough penalties for non-payers, including large industrial companies,
and for a strong commitment to the speedy implementation of privatization plans.
Telecommunications
Telecommunications is one of the fastest growing sectors of the Georgian economy.
Between 1997 and 2001, USD 170 million, mostly from foreign sources, has been
invested into this sector. Service provided to customers is fairly advanced. Today
Georgia has a relatively high level of telephone density with 25 fixed lines per 100
people in urban areas and 10 lines per 100 people in rural areas.
Poor line quality and frequent line disconnection have promoted the development of
four major cellular telephone systems, which provide better service, but at a much
higher cost. By the end of 2000 there were 76,500 mobile phone users in Georgia,
representing 12 per cent of the population.
Mining
Georgia has one of the richest manganese deposits in the world, estimated at 200
million tons and located about 130 kilometers northwest of Tbilisi. The estimated
copper reserves are 400,000 tons, mainly found in the Madneuli deposit. A Swiss
investor is redeveloping this copper mining complex, which is one of the largest
copper traders in the world. Total gold reserves are estimated at almost 55 tons. The
only gold mine in operation is the country’s largest exporter, which is run as a 50:50
joint venture between an Australian firm and a Georgian partner.
Agribusiness
Georgia’s agricultural sector traditionally accounts for almost a third of GDP and half
of employment. Agricultural production in Georgia has recovered significantly from
its decline following independence when there was a move away from traditional to
cereal crops. Several multilateral and bilateral agencies are involved in projects to
assist agricultural development in Georgia. For example, The World Bank is
providing credits for up to USD 30 million for new technology, training and
irrigation.
Citrus and deciduous fruits are cultivated in western Georgia. Investment is needed to
help develop cultivation to pre-independence volumes for export. Nuts accounted for
7.5 per cent of exports in the first half of 2000.
22
In the Soviet era, Georgia supplied almost 95 per cent of all the tea produced in the
USSR. Georgia harvested around 20,000 tons of sorted leaves in 2000, only enough
for 5,000 tons of processed tea and three times less than in 1999. The tea industry is
being revived through joint ventures. The previously strong wine industry declined in
the early years of transition, and the industry is now being revived with plenty of
potential for development. Georgia’s natural and medicinal water springs are
estimated to yield approximately 130 million liters of mineral water per day. These
have potential for export especially in the NIS countries.
Tourism
During Soviet times, Georgia was a popular tourist destination, attracting 4 million
visitors each year to its health resorts and beaches. Apart from numerous cultural
attractions, the beaches on Black Sea coast and its many health resorts also have
enormous tourist potential, but some of them are not readily accessible at present,
given that they. Skiing has also great potential.
Georgia lacks hotel accommodation outside Tbilisi and road infrastructure is poor.
Georgia received around 390,000 foreigners in 2000, which contributed about USD
413.4 million to the state budget. The government hopes to increase the number of
tourists to 1 million by 2005 and is seeking foreign investment in the sector.
Improvement in both transport infrastructure and services are vital for these plans to
materialize.
C.4. Conclusion
The region’s industrial sectors with most growth potential rely heavily on affordable
and reliable transport. For Armenia, these include mining and construction. For
Azerbaijan the main sector is oil and gas. For all three, agriculture and food
processing have large export potential.
There is also a viable potential to revive the tourism industry in certain parts of the
region. These regions include the Black Sea Coast of Georgia, major cities such as
Tbilisi, Yerevan and Baku, and a number of health spas and mountain resorts.
Radically improved transport infrastructure and logistics services are fundamental for
industrial sectors’ revival. For the tourism industry, upgraded facilities and transport
and hospitality services are needed to activate its potential.
The reduction of domestic transport costs both for goods and passengers would have a
positive impact on welfare, especially on lowest income groups. The improved
competitiveness of the region’s industries would have a direct impact on employment,
wage levels, which in turn would directly alleviate poverty.
23
D. Trade and Foreign Investment Highlights
This chapter presents comparative data on the merchandise trade of the SouthCaucasus States. Merchandise trade is shown both in monetary and volume terms,
and the major trading partners at the end of the 1990s are identified. Foreign trade
data for 2000 indicate the structure and orientation of trade.
The availability of statistical data on trade and transport and its accuracy constitute a
problem. Hence, the data presented should be interpreted with caution.
D.1. Merchandise trade
Each of the three South-Caucasus States has shown substantially higher figures for
merchandise import than export. Throughout the 1990s, the trade balance has been
substantially negative in all three states. Only Azerbaijan showed a positive trade
balance in 2000 (Table D.1.).
Table D.1. Merchandise Foreign Trade of Armenia, Azerbaijan, and Georgia in 2000
in millions of USD.
Source: The World Bank, IMF, and national statistical offices
Armenia
Azerbaijan
Georgia
Merchandise exports
300
1,877
645
Merchandise imports
760
1,539
1,006
-460
338
-361
Trade Balance
A breakdown of trade relations with the most important trading partners clearly
illustrates differences in trade orientation of the three countries in 2000 (Table D.2.).
As a result, the current account balance (CAB) of Armenia in year 2000 was –14.6
per cent of GDP (IMF 2001c) For Azerbaijan, CAB for 1999 was –13.1, but the
preliminary data for the first nine months in 2002 was –2.2 per cent of GDP (IMF
2002b). For Georgia, the CAB data for 1999 and 2000 was –8.3 per cent and –4.3 per
cent, respectively (World Bank, Country at a Glance).
Based on trade flows measured in tons, Armenia is closely linked with Russia,
Western Europe, North America and Georgia (in order of magnitude), Azerbaijan
trades with Western Europe, Russia, Turkey and Georgia; most Georgian trade is with
Turkey, followed by Western Europe, Russia, Armenia and Azerbaijan.
24
Table D.2. Merchandise Trade Directions of Armenia, Azerbaijan, and Georgia in
2000 in per cent of total export and import.
Source: The World Bank, IMF, and national statistical offices
Armenia
Azerbaijan
Georgia
Export
Import
Export
EU
35
33
Over 56*)
Russia
15
15
6
21
--
--
Armenia
Azerbaijan
--
--
Georgia
5
2
US
12
11
Iran
9
9
24
Export
Import
21
24
21
13
6
11
9
2
4
11
23
16
4
1
Turkey
Others
Import
30
*) Data for Azerbaijans export and import to EU comprise trade with France and Italy
alone; hence, the overall trade with EU is more than this figure.
For political reasons, there is no official trade between Armenia and Azerbaijan.
Georgia, however, has relatively close trading relations with both Armenia and
Azerbaijan. This notwithstanding, trade between the three South-Caucasus States is
relatively limited compared to their total trade with countries outside the region.
D.1.1. Armenian Trade performance 1996-20016
Armenian exports are exceptionally small in relation to GDP given the size of the
country. In 2000 they accounted for only 16% of GDP. Since 1995 there has been no
revival of exports, that fluctuated between 220 and 300 million USD. Imports have
risen substantially in 1996 and remained broadly stable afterwards at levels exceeding
exports up to three times. As a result Armenia was running exceptionally large trade
6
Note on the quality of existing trade statistics; according to IMF (2002) several components of
balance of payment data face significant deficiencies. In particular this refers to goods in informal
trade, travel, workers’ remittances and migrants’ transfers. Weak source data constitute a major
problem in this sphere. Some improvement was expected following an introduction of new survey
forms in May 2001. Among major recommendations the IMF listed developing a unified computerized
database for external trade data.
25
and balance of payment deficits that accounted to 31% and 20% of GDP, respectively,
in 2000. 2001 brought some improvement in this sphere (Table D.3.).
There are only two import duty rates – either 0% or 10%. The simple average tariff is
just below 4%7. Transit goods as well as goods temporarily imported into Armenia
and exported for the purpose of processing or re-processing are not subject to customs
duties. In principle there are no export restrictions and export taxes and there is no
system of minimum export prices. Most exports are free of any prohibitions or quotas.
The significant share of unrecorded trade create a situation where businesses are
treated unequally and those obeying the rules often find themselves in an unfavorable
position. In such a situation some voices (including officials at ministerial level)
suggest that it might be useful to experiment with the Armenian trade and tax
systems, including creating a free trade zone in the whole country.
Table D.3. Armenian Trade in goods, 1995-2001 (USD million)
1995
1996
1997
1998
1999
Merchandise exports
271
290
232
221
232
300
240
Merchandise imports
674
757
779
794
697
760
618
-403
-566
-660
-682
-580
-588
-378
-15.7
-13.8
-17.6
-21.2
-16.6
-14.6
-13.5
-31
-25.3
-27.1
-27.1
-21.7
-19.9
17.2%*
Trade balance
Current account balance
in % of GDP
Current account balance
in % of GDP (exc.
official transfers)
2000 2001 (1-3Q)
Notes: Imports are presented in f.o.b. terms. Sources differ in treatment of humanitarian imports that
amounted to 150 million USD in 1995 and around 50-80 million USD in 1996-2001.
2001 BoP data refer to 1H01 only. Central Bank of Armenia forecast current account deficit
(including official transfers) at slightly above 9% for the whole 2001, a major improvement
over 2000.
Sources: Armenia Economic Trends database IMF (2001). Original source – National Statistical Service.
The commodity structure of Armenian exports is concentrated on a few categories of
intermediate products, with diamonds constituting the single biggest item (exports of
diamonds accounted for 36% of total exports in 1999 and only slightly less in
subsequent periods). The recovery of exports in 1999 was led by almost doubling of
diamond sales following the sale of a diamond cutting enterprise to a British investor.
Exports excluding precious stones and metals amounted to 14% of GDP in 1995 and
fell to only around 10% of GDP in 1996-2000. World Bank (2001) notes three
categories of exports the coverage of which may lead to an overestimation of
Armenian export potential. Apart from diamonds, these include metal scrap (mostly
old equipment and other parts from Soviet times) and electricity (swap transactions
with Iran). A positive development during 2001 was an increase in exports of
prepared foodstuffs. (Table D.4.)
7
According to Paczynski’s calculations based on tariff list available at www.export.am.
26
Table D.4. Composition of Armenia’s Exports and Imports by Commodity Groups,
1997-2001 (% of total)
Exports
1997
1998
1999
2000
24
24
43
40
1-3Q
2001
34
25
11
8
14
18
8
14
19
11
7
16
8
15
9
1
10
14
14
13
8
1997
1998
1999
2000
24
18
23
18
22
14
20
15
1-3Q
2001
22
14
5
5
11
13
11
11
10
9
8
11
9
13
9
9
7
Precious and semiprecious
stones, precious metals
Base metals
Prepared foodstuffs
Mineral products
Machinery and equipment
Imports
Mineral products
Vegetable and animal food
products
Precious and semiprecious
stones, precious metals
Machinery and equipment
Products of chemical industry
Source: Armenia Economic Trends (based on National Statistical Service data).
Table D.5. Merchandise Trade Directions of Armenian 1995-2000 in per cent of total
export and import.
Exports (% of total)
EU countries
Incl. Belgium
CIS
Incl. Russia
Incl. Georgia
Iran
US
Imports (% of total)
EU countries
Incl. Belgium
CIS
Incl. Russia
Incl. Georgia
Iran
US
1995
18
11
63
34
1
13
0
1996
22
15
44
33
2
15
2
1997
28
20
41
27
5
18
3
1998
34
22
35
17
4
14
5
1999
43
34
23
14
4
14
6
2000 1-3Q 2001
35
25
24
14
24
27
15
18
5
5
9
11
12
14
1995
13
2
50
20
9
13
17
1996
15
6
32
15
6
17
12
1997
19
5
33
24
4
10
13
1998
29
6
25
21
3
7
11
1999
30
10
22
18
3
9
10
2000 1-3Q 2001
33
29
9
5
19
24
15
18
2
2
9
9
11
10
Sources: IMF (2001) and Armenia Economic Trends (based on National Statistical Service data).
27
Imports of mineral and food products and precious stones (mainly diamonds sent for
processing) retain broadly stable shares since 1999. Despite some fluctuations since
1995, the structure did not change substantially. Imports of agricultural products were
mostly declining. Machinery and equipment imports have remained low. (Table D.4.)
Since 1995 the share of the EU countries in trade turnover has generally grown while
the share of the CIS countries has declined. Iran has remained an important partner.
However, this picture is somewhat blurred by the fact that most of trade with the EU
is concentrated on Belgium only and consists of diamonds (brought from Belgium for
processing and later re-exported). The process of re-orientation of Armenian exports
to the more demanding non-CIS markets appears rather slow. (Table D.5.)
D.1.2. Azerbaijan trade performance
Merchandise exports, after stagnating in 1995-1998 period grew rapidly in 19992001. However, this can be solely attributed to the growth of oil extraction and export
volumes coupled with a strong increase of world oil prices.
Registered merchandise imports were influenced by substantial imports carried by oil
companies operating in Azerbaijan. Imports were growing rapidly till 1998 to ease
somewhat in the subsequent period. (Table D.6.)
Oil and oil products dominate in Azerbaijan exports. Moreover, their share has been
steadily increasing over the studied period, rising from 46% in 1995 to as much as
84% in 2000 and 90% in the first nine months of 2001. Non-oil exports have
fluctuated during the period under consideration with 2000-2001 level substantially
below 1995 level. Cotton industry that accounted for substantial share of imports as
recently as in mid-1990s has virtually collapsed.
Table D.6. Azerbaijan Trade in goods 1995-2001, with non-oil exports shown
separately (USD million)
Merchandise export
Merchandise import
Non-oil exports
1995 1996 1997
680
789
808
955 1,338 1,375
345
236
329
1998
678
1,724
1999
1,025
1,433
215
228
2000 1H 2001
1,877
980
1,539
651
280
151*)
Source: IMF Country report, various issues.
*) Three Quarters of 2001
Note: The IMF data are believed to be the best available estimates of total trade flows. Figures based
on customs data (used in following tables on commodity and geographic composition) are significantly
lower. Exports and imports are presented in f.o.b. terms.
The high concentration of the economy on the oil sector is also visible in imports.
Machinery and equipment (primarily related to oil and gas sectors) constitute the
major item on the imports side. Food is the second largest item. (Table D.7.)
28
Table D.7. Composition of Azerbaijan Exports and Imports by Commodity Groups,
1995-2001 (% of total)
Exports
Oil and oil products
Cotton
Imports
Machinery and equipment
Food
Metals
1995
46
18
1995
18
41
6
1996
63
9
1997
58
16
1996
24
40
9
1997
22
23
14
1998
65
8
1998
35
16
12
1999 2000 1-3Q 2001
75
84
90
2
2
1
1999
35
20
11
2000 1-3Q 2001
34
30
19
18
10
10
Note: Figures are based on customs data and differ substantially (are lower) from the BoP data.
Source: IMF country reports, various issues. Original source: Azerbaijan State Committee on
Statistics.
There has been a substantial geographical reorientation of trade over the studied
period. The share of CIS countries has been declining steadily and gradually the EU
has emerged as the biggest partner. (Table D.8.)
Table D.8. Merchandise Trade Directions of Azerbaijan 1995-2000 in per cent of
total export and import.
Exports (% of total)
CIS
Incl. Russia
Incl. Georgia
Non-CIS
Incl. Italy
Incl. France
Incl. Iran
Imports (% of total)
CIS
Incl. Russia
Incl. Kazakhstan
Non-CIS
Incl. Turkey
Incl. US
1995
45
22
3
55
N/A
N/A
30
1995
34
13
3
66
21
N/A
1996
46
16
7
54
2
0
36
1996
35
16
2
65
22
2
1997
48
23
17
52
4
0
24
1997
44
19
4
56
23
3
1998
38
18
13
62
7
2
7
1998
38
18
4
62
20
4
1999
23
9
8
77
34
6
2
1999
31
22
2
69
14
8
2000 1-3Q 2001
14
11
6
3
4
5
86
89
44
N/A
12
N/A
1
1
2000 1-3Q 2001
32
35
21
11
5
9
68
65
11
12
9
N/A
Note:
Figures are based on customs data and differ substantially (are lower) from the BoP data.
Trade flows with some countries (e.g. imports from Turkey and Iran) are likely significantly
underestimated, thus distorting the real picture.
Source: IMF country reports, various issues and EIU (2001). Original data: Azerbaijan State
Committee on Statistics.
On the side of exports, CIS share dropped from 45% in 1995 to 23% in 1999, 14% in
2000 and perhaps even a lower figure in 2001. Among CIS countries Russia, Georgia
have been the biggest export markets. In 1999 and 2000, Italy emerged as the biggest
export partner (43.7% share) followed by France (11.8% in 2000).
29
On the side of imports, CIS share has remained broadly stable, generally oscillating in
the range 31-38%. Compared to other countries, Russia’s share has been increasing
(to above 20% in 1999 and 2000). This trend was reversed in 2001. Among non-CIS
countries, Turkey lost some of its share in 1999-2001 (drop from above 20% to above
10%). The share of the US has been on the rise – up to 9% in 2000. (Table D.8.)
D.1.3. Georgian Trade developments
Export performance was generally weak during 1995-1999. In 2000 the situation
improved on the back of increased demand from Turkey and Russia. The crisis in
Turkey was one of the main factors behind slowdown in exports in 2001. Imports
were rising steadily during 1995-1998 to ease in the later period. (Table D.9.)
Table D.9. Georgian trade of goods, 1995-2001, USD million
1995
1996
1997
1998
1999
2000
Merchandise exports
363
417
493
478
477
645
Merchandise imports
700
768
Trade balance
-337
-351
-559
-685
-549
-361
Current account balance in % of
GDP (including transfers)
N/A
N/A
-10.5
-10.7
-8.5
-5.4
1052 1,164 1,026 1,006
Notes: There have been changes in trade statistics methodology throughout the period and figures
may not be fully comparable. Data involve IMF staff estimates and differ significantly with
official data (both Statistics Department [customs] and National Bank of Georgia (BoP) believed to be substantially underestimated).
No data for 2001 in the above presentation are available. State Department of Statistics data
(customs) point at a slight lowering of registered exports and imports in 2001 compared with
2000 with increasing negative trade balance.
Sources: IMF, Country reports (various issues).
Geographical reorientation of registered trade has been slow in Georgia, and it is
mostly visible in exports. The share of CIS countries in total exports decreased from
above 60% in 1996-1997 to 40-45% in 1999-2001. At the same time Turkey doubled
its share, now at par with Russia (both countries with shares of 21-23% in 20002001). Also, exports to the EU increased visibly; Germany accounted for 10.3 and
10.4 per cent of exports in 1999 and 2000, respectively. (Table D.10)
On the side of imports, CIS share has remained broadly stable (30-40%) throughout
the studied period, largely due to reliance on energy imports. The share of EU also
remained broadly stable; Turkey slightly increased its share, while imports from the
US were volatile.
30
Table D.10. Merchandise Trade Directions of Georgia 1995-2000 in per cent of total
export and import.
Exports (% of total)
EU countries
CIS
Incl. Russia
Incl. Azerbaijan
Turkey
US
1996
8
65
29
12
11
5
1997
N/A
60
30
11
12
6
1998
N/A
N/A
29
10
10
6
1999
N/A
45
19
8
16
4
2000
21
41
21
6
23
2
2001
18
45
23
3
22
3
Import (% of total)
EU countries
CIS
Incl. Russia
Incl. Azerbaijan
Turkey
US
1996
24
39
17
10
11
6
1997
N/A
36
13
12
12
7
1998
N/A
N/A
15
8
11
9
1999
N/A
46
19
7
12
12
2000
24
32
14
8
16
10
2001
28
37
13
11
15
4
Notes: Original source of data is State Department of Statistics, implying that these are basically
customs data. The above figures draw from various sources and there apparently have been some
changes to original figures. Consequently, results should be treated with caution.
Sources: IMF, Country reports (various issues), Georgian Economic Trends, EIU (2001), and UN
(2001).
Available data on commodity breakdown of trade flows cover only a portion of total
trade. Due to restrictions on trade transactions involving certain product groups, some
commodities do not show up in statistics or the volume of trade involving them is
significantly underestimated. (Table D.11)
Scrap metals and timber are two important export categories. Both were subject to
export restriction in the past and are likely to be subject to restrictions in 2002 (in late
a December 2001 export of non-ferrous scrap metals was banned till end-2003). As
for timber, recorded exports are low and no estimates of real flows are available (the
ban on exports was in place during the second half of 2001). Exports of wine and
other alcoholic beverage were on the rise throughout most of the analyzed period.
Georgian wines are currently destined almost exclusively to CIS markets. The
emergence of aircraft as the biggest export category in 2001 (11% share) was a result
of misclassification by the State Department of Statistics of a debt transaction with
Turkmenistan.
On the side of imports, crude oil, gas and products thereof constituting around 20% of
registered imports in the last 4 years mirror country’s dependence on foreign energy
resources. Imports of machinery and mechanical appliances have been rather low and
in 2001 accounted for around 12%. Slow reduction of share of food products’ imports
has been observed.
31
Table D.11. Composition of Georgian registered exports and imports by commodity
groups, 1995-2001 (% share of total trade)
Exports (% of total)
Scrap metals
Wine and related products
Ferro alloys
Oil and oil products
Tea
1995
0
2
16
6
6
1996
0
6
4
9
8
1997
0
5
6
6
8
1998
1
8
12
3
5
1999
10
6
8
2
5
2000
11
9
4
4
2
2001
10
10
5
5
2
Import (% of total)
Oil and oil products (ex-crude)
Oil, gas and related products
Medicaments
Sugar
Cigars and cigarettes
1995
29
19
0
7
6
1996
23
13
2
5
4
1997
16
8
4
4
11
1998
15
7
4
2
15
1999
10
10
7
3
6
2000
11
7
5
4
5
2001
13
7
6
4
4
Notes: Original source of all data is State Department of Statistics, implying that these are basically
customs data. Significant flows of certain commodities are not recorded (due to official bans on foreign
trade transactions, high taxes, etc.) and consequently the above figures should be treated with caution.
Source: IMF, Country reports (various issues) and Georgian Economic Trends.
D.2. Foreign Direct Investment
The level of Foreign Direct Investment (FDI) indicates the economic potential that a
certain country possesses, but it also reflects the confidence that outside investors –
mainly firms – have in a country’s political and social stability.
Through growing FDI the firms and industries in the receiving country also usually
receive new technological and management know-how which is difficult or
impossible to gain in other ways. Furthermore, because FDI tends to accumulate into
profitable industries, industries or firms with a high level of FDI tend to be more
profitable than firms or industries with less FDI8.
The development of the FDI stock in the South-Caucasus States demonstrates vividly
the austere business environment and economic potential within these countries.
Among issues affecting investment climate is the widespread corruption. As noted by
several sources, bribes are commonly used to obtain certain approvals or clearances
and this way of doing business has become a widely accepted standard. Potential
political instability internally and externally in the region also plays a role in
assessment of the investment climate by potential investors. In addition, AmCham
(2001) presents a long list of issues hindering the investment climate falling into
several broad categories – consistency, clarity and fairness of implementation of the
legal framework, objectivity of enforcement, contract laws and security, accounting
8
On this, see e.g. Kalotay and Hunya (2000)
32
standards, lack of coordination between (government) agencies, customs
harmonization (regional coordination) and market liberalization. (Table D.12.)
When comparing with other countries in the region, Armenia has the lowest level of
foreign direct investments over the last decade (Table D.12.). Total cumulative FDI
in the period from 1995 to 2000 is USD 590 million. The significant increase of FDI
to Armenia in 1998 was mainly due to large-scale privatizations of state-run
enterprises such as the telecom operator that was privatized to a Greek firm. FDI to
Georgia in 1995-2000 amounts to USD 837 million. Azerbaijan and mainly its oil
and gas industry have attracted a total of USD 4,470 million in FDI in 1995-2000.
Table D.12. FDI inflows by selected host country, 1995-2000 in USD millions
Source: Armenia Trade Diagnostic Study, The World Bank 2002
Country
1995
1996
1997
1998
1999
2000
Cumul.
1995-2000
Armenia
Azerbaijan
Georgia
Ireland
Poland
Czech Republic
Hungary
Kazakhstan
Slovakia
Belarus
25
330
5
1,447
3,659
2,562
4,453
964
195
15
18
627
45
2,618
4,498
1,428
2,275
1,137
251
105
52
1,115
243
2,743
4,908
1,300
2,173
1,321
206
352
232
1,023
265
11,035
6,365
3,718
2,036
1,152
631
203
130
510
82
14,929
7,270
6,324
1,994
1,587
356
444
133
883
197
16,320
10,000
4,595
1,957
1,249
2,075
90
590
4,488
837
49,092
36,700
19,927
14,888
7,410
3,714
1,209
As a consequence, the FDI stock has remained extremely low with the petrochemical
sector, mainly in the oil rich Azerbaijan, as the only exemption. FDI towards the
transport sector has been negligible in all three states.
In Armenia, the legal framework for investment is in principle good, but
implementation and enforcement of laws remains an issue. It should be noted that
given the size of the local market and high transportation costs and other problems in
access to other markets, Armenia does not have too many advantages making it the
attractive location for FDI. One of the best resources is perhaps Armenia's human
capital. The labor force is highly educated and well trained, particularly in
engineering and technology.
In June 2001, the Government announced the formation of Armenia Foreign
Investment Fund (AFIF), reportedly with a USD 30 million funding provided to the
Government by the Lincy Foundation, a California based charitable foundation9.
AFIF is offering financing in form of working capital or project finance loans and
equity investments to eligible foreign businesses that intend to establish or expand
operations in Armenia with an emphasis on new job creation
(http://www.bisnis.doc.gov/bisnis/COUNTRY/010619armfi.htm).
9
The Lincy Foundation has also made substantial donations for the road sector; see section for roads.
33
In Azerbaijan, the oil and gas sector is the main target of FDI. Together with the
construction sector it is attracting FDI at a rate of over USD 1 billion per year (Singh
2001). Government bureaucracy, weak legal institutions and predatory behavior by
politically connected monopoly interests have severely hindered investment outside of
the energy sector (US 2001). Effective means of protecting property and contractual
rights are not yet assured and the courts seem weak in enforcing these.
In Georgia, the legal framework for foreign investment is generally positively
perceived10. WTO entry should theoretically constitute a further boost to the
investment climate. However, the major problems related to pervasive corruption and
the arbitrary implementation of laws and regulations have inhibited foreign
investment in Georgia. (E&Y 2001)
Also the potential political instability has an adverse effect on FDI. The political
status of the provinces of Abkhazia and South Ossetia is unresolved and there are
sporadic outbreaks of violence in Abkhazia. Renewed fighting in the Russian republic
of Chechnya has generated concerns that the conflicts will spillover into Georgia.
10
See US Department of State (2001).
34
E. Transport Sector Highlights
E.1. Global trends in the transport sector
In an international comparison, the value added by transport lies within the range
between 3 and 5%, and public investment in transport typically amounts to 2-2.5% of
GDP. Demand for transport in developing and transition countries grows faster than
GDP (typically 1.5 to 2.0 as much).
The main macro level factors defining the transportation trends include (i) the
changing trade patterns and globalization, (ii) the evolving role of the private sector,
and (iii) sustainability concerns. The main micro level factors include (i) the
changing traffic patterns and behavior for passenger transport and mobility, and (ii)
the changing logistical patterns and the impact of technological developments. In
addition to these, a number of subnational challenges also need to be addressed.
Globalization and changing trade patterns mean, inter alia, that the value of trade in
manufactured goods increases faster than that of raw materials. During the 1990s,
there has also been very strong economic growth in most OECD countries, especially
in the US. A further feature of globalization is that trade in services grows rapidly.
The evolving roles of the private and public sectors draw attention to the importance
of allowing the private sector to operate efficiently, and of finding better ways of
implementing good governance. This has led to the identification of separate roles for
public authorities and commercial operators, especially in infrastructure management
and in transport service provision. One of the measures taken is to “unbundle” the
ownership of infrastructure from the operations. This procedure, and the related
regulatory issues, needs to be planned carefully, irrespective of whether the service
provider is a public or a private entity, or a combination of the two (Figures E.1.).
Privatization has been widely used as a vehicle to restructure transport and transport
infrastructure markets. Consequently, public-private partnerships (PPPs) have been
introduced as a mechanism for providing good quality transport and infrastructure
services at a reasonable cost. The World Bank experience of PPPs and transport
sector governance include the following:





Government support is essential to mitigate the start-up risk for cautious
investors/lenders.
Private capital works best when leveraged with public funds for highway development.
An integrated transport policy approach includes the liberalization of trucking
Toll roads are not a substitute for a well-funded and managed public highway program.
Private toll roads can exist only because of commercial revenue potential in specific
highway corridors.
35
Competition
in the market
with entry of
new firms
Competitive
activities
Competition
Competition
from
substitutes
Monopoly
facility
Competition for
the market via
concession or
lease
Monopoly
activities
Monopoly
Integrated
state-owned
monopoly
Integrated
monopoly
Initial status
Industry structure
Integrated
monopoly
Business
practices,
environment,
safety, and
antitrust
Right of access
to monopoly
facility and
access price
Prices, quality,
and service
obligation,
via contract
Prices, quality,
and service
obligation,
via statute
Options for competition Object of regulation
Unbundling
No Unbundling
Figure E.1. Unbundling of activities and the options for competition and private
sector involvement.
Source: World Development Report 1994, Infrastructure for Development, and The World
Bank
Sustainability concerns comprise11, inter alia, (i) social sustainability such as traffic
safety issues, and general work conditions, and safety at work; (ii) environmental
sustainability, such as minimizing the negative external effects of transport, e.g.
accidents, emissions, noise, congestion, land use; and (iii) financial sustainability both
within the public and the private sector. Environmental sustainability issues are
discussed in more detail in a separate section in this Chapter.
The key points of the public sector’s financial sustainability comprise the following:
•
•
•
•
•
reduction of fiscal deficit,
enhancement of public savings,
fiscal consolidation/restructuring of public finances,
achievement of the Maastricht target for government fiscal deficit;
reform of the revenue system, strengthening of tax administration, lowering of
taxes etc.
11
See also : Sustainable Transport (1996) The World Bank; and Sustainable Transport Policies (2000),
ECMT, OECD. In general, it is difficult to find broadly accepted ways to cost the external effects of
transport. It may be even more difficult to find ways to internalise these costs, that is, to make the
transport sector or, ultimately, the transport users pay for such (previously) external costs.
36
Furthermore, the cross subsidies from freight and/or inter-city operations (road, rail)
become increasingly difficult to maintain. In Public Service Obligation (PSO)
agreements transparency is very important. In PSOs, governments and municipalities
are to pay for uneconomic services and for privileged passengers. Capital subsidies
(i.e. money transfusions) need to be re-considered across transport subsectors.
The unprecedented development of information and communication technologies has
also profoundly changed the transport sector, both in passenger and goods transport.
Vehicle and equipment technology has also developed rapidly during recent decades.
E.2. Public Sector Restructuring in the Transport Sector
In the setting described above, the role of the government in the transport sector needs
to be reconsidered. At the same time, the subnational (i.e. regional or local) challenge
involves issues such as increased motorization (with its attendant congestion,
pollution, and accidents), and an intensifying polarization between the more
developed and less developed regions in the country.
The government is also expected to offer – or let somebody else offer - a good quality
yet affordable passenger transport or mail delivery service throughout the country. In
many cases, there is limited local – or national - government capacity to deal with the
social, technical and environmental issues and with the financial demands. Often
there is also limited access to external financing.
In short, the international experience on the role of a transport ministry could be
summarized to the following:
(1) Government creates institutional framework to support growth, equity and
stability through policies, regulation and incorporating public voice in the
decision-making;
(2) Government is not a supplier of services, and
(3) Government is not a manager/operator, and
(4) There should be a single ministry: MOT or MOTC.
This contrasts the past experience that was epitomized in modal ministries, few
incentives to do better little communication between modes and centralized planning
and policymaking. Planning was also assuming a given travel and transport demand.
An effective organizational structure of a Ministry of Transport is presented in Figure
E.2., which highlights a clear division of responsibilities between the Ministry and the
separate agencies or administrations within its control. The overall responsibility of
the MOT is to shape the transport policy as part of Government, and to manage the
implementation of the regulations and legislation through the subordinated
administrations and authorites in their respective modes. This regards both the
national legislation and adherence to international conventions.
37
A single ministry, either as a MOT or a MOTC, has proven effective in creating and
promoting a balanced policy across transport modes and in combining the related
societal, environmental and technical issues. This is particularly important in view of
the choices every Government needs to make within the given budgetary constraints.
It is important to distinguish between administrations that are funded directly and
mainly through budget, and agencies or authorities that are funded fully or to a
considerable degree through revenues from user fees, operational charges and the like.
The Ministry is also the part of the Government that makes binding national or
international commitments, joins sector-specific conventions and is responsible for
their implementation as public administration. This responsibility exists regardless of
the changes of government, or changes of individuals assuming various positions
within the ministry.
Minister of Transport
Ministry of Transport
Policies, Regulations,
International Agreements,
Legislation.
Civil
Aviation
Adm
Airport
Authority
Land Transport
Safety Authority
Maritime
Authority
Safety Rules, Licensing,
Safety Rules Licensing
Safety Rules
Enforcement. Aviation Security
and Standards
Licensing and
Service. Airport Management
Enforcement
Standards
Transport
Road
Enforcement.
Accident
Railways
Administrat
Investigation Port Landlord
ion
Commission
Railway Infrastructure,
Road Infrastructure
Independent
Operations, Rosco
Management
Investigation of Major
Transport Accidents
Vehicle
Registration
and
Licensing
Agency
Figure E.2. Proposed organizational structure of a Ministry of Transport
In the South-Caucasus States, the internal organization of MOTs still needs
clarification, and in the case of Azerbaijan, a separate MOT or MOTC needs to be
created. Furthermore, the continuity of commitments made by ministries or Ministers
when cabinets or officials change is an issue that needs improvement.
38
E.3. Transport Sector Policies of the South-Caucasus States
E.3.1. Armenia
As a landlocked country, Armenia is vitally dependent on transport links through its
neighboring countries for imports and exports. Until the Nagorno-Karabakh dispute is
resolved, only links through Georgia and Iran are open. The land connections rely on
a few low-capacity main roads and railways via Georgia and Iran. The main modes
are road and rail transport. The share of aviation has been reducing and is very small.
Since the independence, Armenian overall industrial output fell dramatically due to
the disruption of economic links and the subsequent transport blockade. As a
consequence, passenger and goods transport volumes declined substantially.
Armenia's transport and communications infrastructure is in a poor state of repair.
There is 7,800 km of paved roads, although a high percentage of these are in a state of
disrepair. Transport of goods and passengers by all means of transport were
dramatically reduced from 1991 to 1994, but both have picked up slightly in 1995 and
1996 (The World Bank 1997). After that, both goods and passenger volumes have
declined in 1997-2000.
Table E.1. Armenian import and export in 2000 by rail or road transport with major
trading partners, in thousand tons
Source: TRACECA database
By road
Georgia
Iran
Russia
Turkey
Europe
W&S
Middle
East
North
America
Total by
mode
543
83,829
10,763
16,347
7,776
Import
Export
By rail
Sum road
By road
By rail
Sum road
and rail
and rail
63,480
64,023
1,897
48,926
50,823
0
83,829
33,476
0
33,476
4,607
15,370
9,739
2,912
12,651
31,977
48,324
91
0
91
31,625
39,401
1,207
68,319
69,526
12,446
37
12,483
5,203
2,360
7,563
16,979
19,171
36,150
210
2,486
2,696
148,683
150,897
299,580
51,823
125,003
176,826
The Georgian City of Poti is the nearest seaport, and is a primary gateway for
Armenia, for both imports and exports. Both road and railway routes are gradually
undergoing much-needed upgrading, with the financial help of the World Bank and
also of wealthy Armenians in Diaspora.
Armenia’s problematic relations with most of its neighbors affect directly the choice
of route and transport mode in foreign trade. This is illustrated in Table E.1., which
show that road and rail transports are used equally much in imports (measured in
39
tons), whereas rail transport dominate export movement that cross the Armenian
border. These are mainly shipments to Georgia or to Georgian ports for subsequent
transport mainly to European markets. A more detailed breakdown of the data by
commodities is shown in Attachment E.1.
Table E.1. also illustrates the realignment of Armenian international trade, as Armenia
has been withdrawing gradually from Russian and other CIS markets, while
increasing its trade with Western Europe and Iran. The latter buys scrap metal,
copper concentrate and electric power (on a swap basis).
All export movements by rail, for both imports and exports, are transported by the
northern route, via Georgia, together with a significant proportion of consignment
movements by road, underlined the importance of that corridor for Armenia, with all
the inherent disadvantages in terms of higher transport costs as identified by Polyakov
(2001) and as discussed later in this report.
Currently, the main strategic points of the state transport policy are: (i) establishment
of a transport system capable to ensure transport of goods and passengers, while
fulfilling environmental and safety requirements, (ii) structural adjustments of the
transport system and ensuring state regulatory functions for existing transport
monopolies, (iii) reducing the transport component in the prices on goods through the
establishment of economically justified tariffs, which ensure conditions for fair
competition.
In order to strengthen international trade links, to develop and strengthen position of
national carriers and transport undertakings on the international transport markets, for
step-by-step integration of Armenian Transport system in the world transport system,
it is essential to improve and develop co-operation with international transport
organizations. It is also important to substantially increase the adherence to the
international, multilateral and bilateral transport agreements, which set the rules for
foreign vehicles in Armenia, and Armenian vehicles abroad.
The important international developments include the IV pan-European transport
corridor (connection Istanbul -Armenia, with further link to Azerbaijan) and increased
activities along TRACECA corridor. It is also important to extend transport link
between Armenia and Iran towards the Persian Gulf, towards Black Sea ports and to
Turkmenistan. The separate important issue is resuming of rail links TurkeyArmenia - Nakhichevan- Iran and Armenia-Azerbaijan.
E.3.2. Azerbaijan
The transport sector in Azerbaijan includes aviation, railways, maritime transport and
roads. In 2000, transport and communications accounted for 14.4 per cent of the
official GDP (IMF 2002).
All transport matters are handled within the Cabinet of Ministers. A technical
assistance project, funded by EU-TACIS, aims to establish a Ministry of Transport
and thereby a legal and regulatory framework for the transport sector. The World
40
Bank has also strongly pushed forward the creation of a Transport Ministry in order to
facilitate and streamline transport sector administration.
Table E.2. Transport work in Azerbaijan 1989-2000 in millions of ton-kilometers for
freight, and millions of passenger-kilometers
Source: ECMT; original data gathered from Azerbaijan authorities
YEAR
Freight Transport
Million ton-kilometers
Railways
Roads
Passenger
transport
Million
passenger-km
Pipelines
For hire & reward
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
5,677
5,052
4,702
3,515
2,777
2,409
3,312
7,300
13,882
30,479
37,076
41,833
3,485
2,968
1,392
902
480
527
569
685
1,278
3,003
3,287
10,165
R
a
i
l
w
a
y
s
Buses
and
coaches
10,000
8,137
5,735
5,050
4,864
5,630
519
608
759
1,230
1,252
1,408
9,294
424
533
489
558
791
1,081
1,330
1,629
1,973
1,827
2,022
Out of Azerbaijan's three routes to the high seas the shortest is through Georgia to the
Black Sea, the second shortest through Russia to the Black Sea. The longest route is
south through Iran to the Persian Gulf. The Russian and Georgian routes have been
periodically disrupted by political instability. Road and rail links with Russia were
disrupted by a Russian blockade and the Chechen war until 1996 and then again
during the latest war in Chechnya in 1999. Azerbaijans economic blockade of
Armenia has cut the shortest route to Turkey.
Travel between Azerbaijan and the detached enclave of Nakhichevan is by air or by
road through Iran. Nakhichevan has a strategically important 33-km border with
41
Turkey. There is 2,090 km of railways, the main source of freight transport. Much of
the rail track and rolling stock needs repair or replacement.
Azerbaijan has direct maritime connections to other Caspian littoral states but can
reach the high seas only through the Volga-Don canal, a Russian waterway. The Port
of Baku is the largest port on the Caspian Sea, but is in need of repair. Freight
transportation by road and rail increased by 8.7 and 12 per cent respectively in 1999.
The sector is in crucial need of institutional restructuring and substantial investments.
Table E.3. Balance of Services of Azerbaijan 1997-2000 in USD millions
Source: IMF 2002, based on Azerbaijan National Bank data and World Bank staff estimates
1997
1998
1999
2000
-394
-382
-273
-535
Credit
365
370
291
316
Debit
758
752
564
850
-384
-369
-228
-225
342
332
257
260
Freight
67
90
90
88
Other transport
30
39
24
31
Travel
162
125
81
63
Other
83
78
62
77
726
701
485
485
Freight
77
150
39
101
Other transport
32
44
0
43
Travel
186
170
139
132
Other
431
337
307
209
Services and Income
Nonfactor services
…of which
Credit
Debit
The services trade based on the official Balance of Services data show a consistent net
flow of payments abroad. The balance of services payments for freight and other
transport indicate relatively large fluctuations, and there is no consistent pattern of
whether Azerbaijan is a net payer or receiver of freight related payments. In the travel
services, the country has been a net payer in the tune of USD 50 to 70 million per
annum. The net income is the sum of freight credits (earnings) received from abroad,
less freight service debits paid to other countries. (Table E.3.)
42
A few general remarks on the structure and background of services trade data are
required. The data includes all forms of international freight services such as sea,
road, rail, pipeline and air transport. However, the data is sensitive to the way in
which certain debits and credits are accounted for in the national accounts. This
means that the nationality of the carrier, e.g. the ship or truck, is the deciding factor in
whether a payment is recorded as a credit or a debit – irrespective of the route of the
vehicle or vessel. This means, for example, that a flagging out of ships or aircraft
offsets the services balance, even if the ownership of the vehicles or vessels remain
practically unchanged.
E.3.3. Georgia
According to available statistics, the demand for freight and passenger transport all
but collapsed after the independence. The downturn also reflects the unstable political
and economic environment, even if data quality is affected by deteriorated data
gathering and statistics methods in the early 1990s. (Table E.4.)
Freight transport data in Table E.4. and E.5. indicate a rapidly recovering transport
demand towards the end 1990s. Especially passenger transport by road has also
markedly. Rail transport carries about 10 per cent of the passenger-kilometers
compared to road transport. The relationship is the opposite with freight: road
transport work is roughly 10 per cent of the transport work performed by rail (Table
E.4.). ECMT data does not cover air transport, but EBRD (2001) indicates that
passenger air transport has not grown much during 1999-2000.
New investments in Georgia’s transportation sector are helping to modernize old and
deteriorating infrastructure. Particularly promising are new projects to upgrade
Georgia’s road and port infrastructure.
Table E.4. Transport work in Georgia 1989-2000 in millions of ton-kilometers for
freight, and millions of passenger-kilometers
Source: ECMT; original data gathered from MoT of Georgia
YEAR
2000
1999
1998
1997
1996
1995
Freight Transport
(Million ton-kms)
Railways
Roads
For hire, Reward
Buses and
Own account
and
coaches
3,913
475
3,138
420
2,574
385
2,006
304
1,350
131
1,246
130
43
Pipelines
4,953
3,213
Passenger Transport
(Million passenger-kms)
Railways
Roads
Private
Cars and Buses
453
349
397
294
380
371
4,510
4,310
3,910
3,400
1,615
1,607
1994
1993
1992
1991
1990
1989
955
1,554
2,985
8,482
10,834
11,989
84
121
388
1,653
2,577
2,601
1,165
1,003
1,031
1,718
1,969
2,267
1,135
954
2,147
7,110
8,335
8,545
Strengthening the institutional capability of the Georgian MOTC has been an integral
part of the World Bank transport credit to the Government of Georgia. The law
authorizing the new structure for the Ministry of Transport and Communications
(MOTC) has been passed by Parliament, including the authorization of an improved
salary structure. The budgets for the operation of the regulatory bodies under the
MOTC have been prepared and submitted to the Ministry of Finance.
The definite Closing Date of these arrangements has been extended to December 31,
2002 to allow enough time for the completion of the restructured project activities. In
regulatory bodies under the MOTC, the work to implement the restructuring will
commence as soon as the budgets, including support for the increased salaries, for
these agencies are approved.
Table E.5. Freight Transport Indicators 1997-2001 for Georgia (in thousands of tons)
Source (IMF2001) on Georgia:
1997
1998
1999
2000
2001 Q1-Q2
19,700
24,120
25,911
30,091
14,601
Rail
7,200
8,495
9,492
11,500
5,984
Road
12,200
15,000
16,000
18,500
8,600
300
625
419
…
…
Freight transport
Sea
The Parliamentary Committee on Economic Sectors has expressed their support for
the new legislation. They view the restructured MOTC as a possible model for how
other ministries and Government agencies can be restructured, and therefore have a
keen interest in its progress.
E.4. Membership in international transport organizations and conventions
The three countries are signatory states of International Civil Aviation Organization
(ICAO), the international regulatory organization. (Table E.6.). Georgia joined the
International Maritime Organization (IMO) in 1993 and Azerbaijan in 1995. As a
landlocked country, Armenia has not joined IMO. IMO is the United Nations'
44
specialized agency responsible for improving maritime safety and preventing
pollution from ships. All three states are also members of World Customs
Organization (WCO), which is listed here because of its significance to transport
operations in the region.
Only Azerbaijan and Georgia are members of the European Conference of Ministers
of Transport (ECMT). The membership application of Armenia has been vetoed by
Azerbaijan. However, Armenias admittance to ECMT would greatly facilitate the
regional transport sector development. The issue should be resolved as soon as
possible.
Table E.6. Membership in international transport-related organizations in 2002
Armenia
Azerbaijan
Georgia
ICAO www.icao.org
Yes
Yes
Yes
IMO www.imo.org
No
Yes
Yes
ECMT
www1.oecd.org/cem
No
Yes
Yes
WCO
www.wcoomd.org
Yes
Yes
Yes
IATA www.iata.org
Armenian Airlines
Azerbaijan Airlines
No
UIC www.uic.org
Armenian Railways
Azerbaijan Railways
Georgian Railways
FIATA
Association of
Armenian Freight
Forwarders (AAFF)
Association of Freight
Forwarders of
Azerbaijan (AEA)
National Association of
Freight Forwarders of
Georgia (AFG)
Industry associations
www.fiata.org
The national railways of Armenia, Azerbaijan and Georgia are so-called active
members of International Railways Organization (UIC). All national associations of
freight forwarders are members of FIATA, a non-governmental organization that
represents approximately 40,000 forwarding firms in 150 countries. Only Armenian
Airlines and Azerbaijan Airlines are members of International Air Transport
Association (IATA), which is an association of world’s airlines.
The UNECE maintains a list of 55 international transport agreements and conventions
under seven categories mainly within road, rail and inland waterway transport. These
are shown in Table E.7. with the exception of inland waterway agreements and
conventions, since the three South-Caucasus States had ratified none of them.
45
As per February 15, 2002, Georgia had ratified thirteen (13) and was a signatory party
to one of the 48 remaining conventions in principle applicable to the three states.
Azerbaijan had ratified seven (7) and Armenia only two (UNECE 2002).
The number of conventions ratified is modest in Georgia and Azerbaijan, and almost
non-existing in Armenia. The relevant ministries and authorities need to consider a
rapid improvement in adhering to the central international framework in traffic safety
and movement of goods.
This work is closely associated with the institutional strengthening of the public
administration in the transport sector. The case in point is to build up sufficient
capability and resources within the Ministries of Transport and the subordinated
administrations and authorities to cope with the issues. A successful ratification of
conventions means also that they become effective thorough adequate control and
enforcement. This requires close cooperation both internationally and nationally
between, for example, the transport authorities, the customs and the law enforcement
authorities.
Table E.7. International road and rail transport agreements and conventions ratified
(X) or signed (S) by Armenia, Azerbaijan and Georgia as per February
15, 2002
Source: UNECE 2002
Category (No. Convention or agreement with the year Armenia
of conventions) of establishment
Infrastructure
networks (6)
E Road network (AGR), 1975
Azerbaijan
Georgia
X
X
E Combined transport network (AGTC), 1991
Road Traffic (11)
X
Road Traffic, 1949 and 1968
Road Signs
Supplements
&
signals,
X, X
1968,
with
1971
X, X
Protocol Road Markings, 1973
X
Vehicles (3)
Technical inspection of vehicles, 1997
S
Road transport (9)
Work of Crews Int. Road Transport (AETR) 1970
X
Contract Road Goods transport (CMR), 1956, with
Protocol to CMR, 1978
Border
crossing
facilitation (14)
TIR Convention, 1975
X, X
X
Temporary imported commercial vehicles, 1956
X
X
Customs Container convention, 1972
Harmonization of Frontier Control of Goods, 1982
46
X
X
X
X
X
Dangerous goods
and special cargoes
(5)
Dangerous goods by roads (ADR), 1957
X
Perishable Foodstuffs (ATP), 1970
X
E.6. Environmental sustainability in the transport sector in the region
As discussed earlier, sustainability is a broad set of issues comprising social, financial
and environmental concerns that affect the whole society in multitude ways.
Countries in Central Asia and the Caucasus suffer from many of the same issues as
the Western NIS countries, but this region has a larger share of rural population. The
Caucasus faces coastal and land degradation issues, as well, and oil-rich Azerbaijan is
concerned with oil drilling, pipeline construction, degradation, and oil spill prevention
and cleanups12.
In agriculture, the irrigation system infrastructure is now crumbling as a result of a
chronic lack of maintenance, and poor irrigation practices have led to salinization of
the soils. The result is some of the worst poverty in the region. Safe drinking water is
also an issue in some rural areas, as groundwater is often polluted by runoff from
agriculture and mining. Better price incentives for farmers and restructuring of water
user associations could partially help, but it is likely that only a fraction of the
irrigation system can be made sustainable over the long term. An uneven distribution
of water resources among countries exacerbates these problems and raises
transboundary tensions. Efforts to sustainably link energy supplies with water releases
and to agree on an overall water management system for the riparian countries have
not yet succeeded.
The Caspian Sea is threatened by pollution from the Volga and other rivers, pollution
and accidental spills from the oil industry, and uncontrolled poaching, which threatens
biodiversity, especially the sturgeon fishery. Regional agreements on management of
the Caspian Sea remain difficult, making World Bank- or other IFI- assisted programs
hard to implement.
Environmental sustainability in connection to the transport sector and in particular air
pollution in the South Caucasus is discussed in more detail.
Urban air pollution is a growing concern in many newly independent states (NIS).
Traffic volumes are growing rapidly in the cities, but vehicle registration, inspection,
and maintenance lag behind what is needed to support efforts to improve air quality.
Although certain emissions, such as greenhouse gases, are of global concern, the
greatest costs of air pollution at the local level are to human health. An estimated
40,000 people die prematurely and about 100,000 people fall ill every year in big
See also The World Bank’s website for regional environmental strategy at:
http://lnweb18.worldbank.org/essd/essd.nsf/2f8eec6c436b828385256a290067cab0/5ea0170644da4fc28
5256a8b00786fc5?OpenDocument
12
47
X
cities throughout the NIS as a result to exposure to excessive air pollution. (Kojima et.
al. 2000).
The economic costs of these health impacts are estimated to reach as much as 5 per
cent of city incomes. Of primary importance are fine particulate matter, implicated in
respiratory diseases; and lead, which is injurious to children’s mental development
and is a persistent pollutant that accumulates in the environment. In many cities in
Azerbaijan, for example, transport is said to be the main source of air pollution.
(Kojima et. al. 2000).
In Azerbaijan, the national environmental action plan (NEAP)13 from 1998 lists key
environmental problems and set priorities for actions. The main environmental
problems identified in the NEAP include:

Severe pollution damage caused by industries, oil exploration and production, and energy;

Threat of irreversible collapse of the sturgeon stock triggered by pollution and overfishing;

Deteriorating water quality, especially of drinking water, both in rural and urban areas, causing
increase of water born diseases;

Loss of fertile agricultural land from erosion, salinization, pollution with heavy metals and
chemicals, and deteriorating irrigation systems; loss of forestry cover, mainly in war-affected
areas; and threats to protected areas leading to losses in biodiversity;

Damage to the Caspian coastal zone caused by flooding from sea level rise and pollution.
According to NEAP, industries, oil production, energy and transport sectors have
been the source of severe air, water, and soil pollution in Azerbaijan, particularly in
Sumgait and parts of Baku.
The main reasons are outdated technology,
malfunctioning or even lacking end-of-pipe pollution abatement equipment and use of
low quality raw materials generating high pollution emissions and waste. While
pollution decreased as industries declined, there is evidence that pollution per unit of
output has increased in many enterprises. Thus, pollution may rapidly increase as a
result of industrial recovery if no measures are taken to improve the industries'
environmental performance.
The actions proposed in NEAP to mitigate the industrial damage are based on
country's strategic considerations and include the following: in the industrial sector,
upgrading emission monitoring equipment and leak detection capabilities; investing in
modern technologies such as compressor stations and condensation systems; and
cleaning-up critical public health hazards. In the energy sector, investment in new
equipment and control devices, and introducing new, efficient technologies is
necessary. In the transport sector, investment in new buses and trucks; restricting
passenger car-traffic in central Baku; and increasing taxes on leaded fuel
(www.ecocaucasus.org). Based on air quality measurements in Baku and Tashkent
reported by Kojima et. al. (2000, 9) it appears that at least the level of airborne lead
has been historically underestimated in this region. On the other hand, they also
13
Prepared for the State Committee on Ecology and Control of Natural Resources Utilization. Source:
http://ecocaucasus.org/en/glav.htm
48
mention that gasoline in Azerbaijan has been entirely unleaded since 1997 (Kojima
et.al. 2000, 12).
NEAP records that since 1978, the water level of the Caspian Sea has risen almost 2.5
meters, and extensive flooding damage has occurred along Azerbaijan's coast due to
the relative flatness of the terrain and dense coastal development. Since 1996 the
water level has declined slightly. This has significantly altered the relative order of
priority actions in the NEAP as protection measures are less urgent, and there is some
time to develop a coastal zone protection plan before new areas are flooded.
The potentially rising water level poses problems to shipping and ports too.
According to the port of Baku, the timber terminal that was flooded in 1996 has not
been used since.
Table E.8. Air emissions of CO, NOX, SO2 and particulate pollutants in Georgia
(1000 tons), based on fuel sales.
Source: http://ecocaucasus.org/en/air.htm
Type
1990
1991
1992
1993
1994
1995
1996
1997
Transport
894
584
472
407
363
301
378
395
Industry
354
249
186
80
45
25
15
15
Summary
1248
833
658
487
408
326
393
410
In Georgia, air quality was monitored regularly before the early 1990s. This is not the
case today, and it is necessary to renew the appropriate measurement sites. According
to the non-governmental organization Ecocaucasus14, road and air transport stand for
an overwhelming part of the total air pollution in Georgia. Approximately 500 000
vehicles are officially registered in Georgia. Most of these are between 10-15 years
with exhaust emissions exceeding permitted levels. The majorities have no catalytic
converters. Fuel consumption of cars is about 11.2 liters per 100 km, and of light
trucks 30 liters. (Table E.8.)
During the Soviet times, the main traffic artery was in a North – South direction,
whereas it is now in a West-East direction. The aim of Government of Georgia is to
revive the Silk Route along the TRACECA program. If the traffic volumes increase as
planned, this will have consequences for the air quality along the TRACECA route.
According to the Ecocaucasus, the main source of aerial emissions of CO, NOX, SO2
and particulate pollutants in Georgia is transport. Import and production of leaded
fuel was banned in Georgia as from January 1, 2001 (See also Kojima et.al., 2000, 6).
However, the current national fuel monitoring system does not have the resources to
conduct adequate testing. Furthermore, testing is not being enforced.
14
Source: http://ecocaucasus.org/en/air.htm
49
Large infrastructure projects face environmental concerns beyond air pollution issues.
For example, the environmental impact of oil transit development in Georgia has been
subject to considerable NGO concerns. These relate, among others, to the possible
negative effects on Kolkheti Wetlands and protected areas along the Black Sea
coastline. This particular issue is elaborated for example in the correspondence
between a group of environmental NGOs and The World Bank15. It is evident that the
active participation of and observations by NGOs will carry more weight in transport
and infrastructure project preparation and implementation.
E.7. Transport Sector Projects and IFIs, the EU and UN/ESCAP
The few transport sector projects in the South-Caucasus States have been financed
with exclusive or partial funding through International Financial Institutions (IFIs) or
from other international organizations such as the UN/ECE and EU. The main IFIs in
this respect include Asian Development Bank, EBRD, EIB, and the World Bank (in
alphabetical order). IFIs have typically been involved in the financing of transport
infrastructure projects in road, rail, sea, and air transport.
Table E.9. Approved EBRD, TRACECA, and World Bank lending and aid in
Transport Sector in the South-Caucasus States
Sources: EBRD, www.traceca.org, and The World Bank
Currency
EBRD*)
IGCTraceca
World Bank
EUR
million
EUR
million
USD
million
Armenia
Azerbaijan
Georgia
Total
Period
24.5
50
20+
94.5+
By end 2000
26.4
By end-2001
162
1992-July 2001
71
41
50
*) For Georgia, the indicated EUR 20 million is the minimum of commitments
In the 1990s, the role of private sector finance has been negligible in projects
involving transport operations in the South Caucasus states. During the past few
years, private sector involvement notably from the EU countries has been increasing
in the provision of transport services.
The total transport sector funding through loans and aid from selected institutions is
shown in Table E.9. Except for Azerbaijan, The World Bank lending is mainly
through IDA. IGC TRACECA aid is mainly coming from the EU, and the EUR 26.4
15
The correspondence is available at:
NGO letter to The World Bank on June 5, 2001:
http://lnweb.worldbank.org/ECA/eca.nsf/Attachments/Georgia+Letter+from+NGOs/$File/NGOl
etter.pdf
The World Bank reply to NGOs on July 27, 2001:
http://lnweb.worldbank.org/ECA/eca.nsf/Attachments/Georgia+Letter+to+NGOs/$File/Ltr-NGOSOilTransitDev-072701.pdf
50
million in Table E.6. indicates projects that involve only these three countries.
TRACECA projects involving also other eligible countries alongside Armenia,
Azerbaijan and/or Georgia amount to an additional EUR 14.3 million (see separate
section on TRACECA). EBRD lending is also described in more detail in a separate
section.
E.7.1. World Bank finance in the transport sector in the South-Caucasus States
Data for the World Bank’s program in the South-Caucasus States is shown in
“Country at a glance”-attachments C.1.-3. They show also the total volume of IFI
loans in all sectors. The overall bank lending to the three countries is shown in Table
E.10. The largest single sector is economic policy, followed by agriculture and public
sector management.
The World Bank transport sector portfolio in Europe and Central Asia (ECA) is
dominated by road projects (approximately 65 percent), followed by urban transport
(approximately 20 percent) and rail projects (approximately 8 percent)16.
Table E.10. World Bank Lending to Armenia, Azerbaijan and Georgia by Sector since
1992 (in nearest USD millions as of July 2001)
Economic Policy
Agriculture
Public Sector Management
Transportation
Electric Power & Energy
Social Protection
Water Supply and
Sanitation
Urban Development
Private Sector
Development
Education
Health, Nutrition &
Population
Environment
Total
Total IDA debt
outstanding & disbursed
Armenia
250
84
77
71
35
32
30
Azerbaijan
142
87
61
41
40
20
20
Georgia
277
105
54
50
39
28
26
Sector total
669
276
192
162
114
80
76
28
17
18
18
24
15
70
50
15
10
5
5
14
11
34
26
8
658
388
5
462
216
4
648
347
17
1768
951
In Armenia, the World Bank projects have mainly focused on job creation through the
private sector, public sector reform, education and health sector projects. The Bank
has extended lending totaling USD 658 million by July 2001. Transport sector
projects have involved 10.8 per cent of this.
The Bank’s lending program for Armenia in 2002-2004 is expected to be at USD 65150 million. Transport sector projects include rehabilitation and repair of 630km of
16
For further information, see www.worldbank.org/ecspf/ecsin/transport.htm
51
interstate road and a road tunnel in 1996-2000. In June 2000 the World Bank
approved a USD 40 million IDA credit provision for a national transport program at a
total cost of USD 47 million. The government is contributing about USD 6.4 million
to the program that covers road, rail and urban transport, and strengthening the
transport ministry through technical support and training. As far as roads are
concerned, this includes rehabilitation of interstate trade routes, engineering
supervision for road and bridge upgrades and a road safety program.
Armenia has also been the recipient of many TRACECA studies whose main theme
has been improving transport links northwards to the Trans-Caucasian corridor in
Georgia.
The Bank’s operations in Azerbaijan started in 1995, after which it has extended
credit totaling USD 462 million by July 2001. Transport sector projects have
involved 8.9 per cent of this.
In Georgia, The World Bank’s total lending amounts to USD 648 million. Main areas
include the third Structural Adjustment Credit (SAC III, approx. USD 55 million),
civil service reform, agriculture, energy, environment, public infrastructure, education
and health sector projects. The Bank’s lending program for 2002-2004 is expected to
be at USD 85-240 million. Transport sector projects represent 7.7 per cent of total
lending to Georgia as of July 2001.
In May 2000, the World Bank approved USD 40 million in IDA financing for a USD
55 million project for road construction and rehabilitation in Georgia. The Georgian
government is providing the remaining USD 15 million. USD 50 million will go
towards road rehabilitation, focusing on repairs, modernization of highway design and
safety improvements through road signs and markings. The project targets major
roads between the Azeri border and the Black Sea, the road from Tbilisi to Armenia,
and the Tbilisi-Russia highway.
Remaining project funds will be allocated to improving institutional and professional
management within the transportation sector, by increasing the institutional capacity
of the state roads department, modernizing the road fund and user charges, developing
a traffic safety program, and introducing international standards. It has been
estimated that the five-year project will result in the repair of around 900 kilometers
of road in Georgia. In addition, the Fund for Economic Development of Arab
Countries (Kuwait) is providing a USD 16 million soft loan to help Georgia repair its
roads over the next three years. The project will target roads between Marneuli and
Sadakhlo (a section of the main Tbilisi- Yerevan route), the by-pass around the Black
Sea port of Poti, the bridge across the river Kaparcha, and the roads between
Samtredia, Lanchkhuti, and Grigoleti.
In the South-Caucasus States, the Bank’s transport sector involvement is mainly in the
road and rail subsectors followed by ports. The Bank has also been an advisor or
facilitator in a number of small projects on either trade and transport facilitation or
urban transport in South-Caucasus States.
In 1999, the World Bank Group, together with the private sector and other
international organizations, launched the Global Facilitation Partnership for
Transportation and Trade (GFP). This is an initiative to help in addressing a
52
pervasive issue in numerous countries throughout the world, namely the obstacles to
trade and international transport arising from cumbersome, often redundant,
documentary procedures and controls17.
E.7.2. EBRD finance in the transport sector in the South-Caucasus States
By the end of 2000, EBRD had signed 7 investments in Armenia, with cumulative
commitments amounting to EUR 141.8 million focusing on energy, and private and
financial sector development. The only commitment in the transport sector as at 31
December 2000 is the EUR 24.5 million debt in the Zvartnots Air Cargo Terminal
project with a total cost of EUR 29.9 million (EBRD 2001b).
EBRD assistance to Azerbaijan started in 1995, and has concentrated on SME
development,
municipal
and
environmental
infrastructure,
energy,
telecommunications, natural resources (notably for the exploitation of oil reserves),
transport, privatization and legal reform. Cumulatively, EBRD has allocated some
USD 351.5 million of which USD 220 million have been for the development of oil
and gas projects.
As at December 2000, EBRD had signed three investment projects in Azerbaijan’s
transport sector with total investment commitments of almost USD 50 million. These
investments include (i) a USD 13 million loan for Azerbaijan State Airlines for the
modernization of Azerbaijan’s air navigation systems, (ii) a USD 20.2 million loan for
Azerbaijan State Railways for infrastructure improvements along the main line to
Georgia and (iii) a USD 16.2 million loan for the reconstruction of a ferry terminal at
Baku International Sea Port. An additional project aimed at the rehabilitation of a
road section on the Baku-Georgia highway is awaiting the provision of a sovereign
guarantee. All these projects support the transport corridor linking Eastern Europe,
the Caucasus and Central Asia (TRACECA) and introduce institutional strengthening
and commercialization initiatives (EBRD 2001 c).
By the end of 2000, EBRD had signed 14 investments in Georgia, with total
cumulative commitment amounting to EUR 252 million, of which 60.3 % have been
disbursed. Energy, telecommunications, industry and transport are the main sectors
for prospective projects. Projects that have focussed on removal of transport
bottlenecks include projects at Tbilisi airport, railway rehabilitation, and ports of
Batumi and Poti.
For example, in December 1998, the EBRD provided a loan of USD 20 million to
Georgian Railways alongside USD 7 million from TACIS to finance infrastructure
improvements along the main international rail transit route from Baku to Georgia’s
Black Sea ports. The project has succeeded in promoting a more commercially
oriented organizational structure for Georgia’s railways, as evidenced by the
conversion of Georgian Railways into a limited liability company. Although initially
expected to lead to the enactment of a new railway law, separating policy and
operating responsibilities within the railway sector, the project has yet to achieve this
goal.
17
The GFP Website address: http://wbln0018.worldbank.org/twu/gfp.nsf
53
E.7.3. European Union assistance in South Caucasus
The European Union has taken an active role in assisting the South-Caucasus States in
social, economic and technological development in many sectors. In the transport
sector, the main vehicles or initiatives during the 1990s have been the TACIS
program and the work within the IGC TRACECA and the oil pipeline INOGATE.
A detailed evaluation of the multitude of EU projects lies beyond this report, but some
forms of EU assistance, or relevant programs in the transport sector are highlighted18.
In 1991-2001 the EU has given Armenia EUR 286.1 million of grant-based
assistance19. In addition it has participated in Interstate programs (TRACECA,
INOGATE, Environment, Justice and Home Affairs…). EUR 2.4 million are
reserved in the humanitarian program ECHO in 2000-2001. (http://www.tacis.org)
Since independence (1991 to 2001) the EU has given Georgia EUR 342.9 million in
grants, of which 63 per cent humanitarian and food aid 20. These allocations do not
include shares allocated to Georgia in the framework of regional programs.
The EC assistance to Azerbaijan in 1992-2001 amounts to EUR 333.9 million in the
form of humanitarian aid, food aid and budgetary food security assistance,
exceptional assistance, rehabilitation and technical assistance.
E.7.3.1. TACIS
Launched by the European Communities in 1991, the Tacis Program provides grantfinanced technical assistance to 13 countries of Eastern Europe and Central Asia21,
and mainly aims at enhancing the transition process in these countries.
The Tacis program has had a marked impact on the institutional and technical
development of all three South-Caucasus states, but only a small part of these have
been carried out in transport subsectors. Tacis projects have dealt closely related
fields such as trade and transport facilitation, customs and border guard services
In 2002-2003, the priority areas for Tacis activities in Armenia support institutional,
legal and administrative reforms, and support the social consequences of transition.
The indicative budget for assistance in that period is EUR 10 million. No transport or
infrastructure specific activities are planned for that period (EU Country Strategy,
Armenia).
18
For a review of these, see europa.eu.int/comm/external_relations/ceeca/tacis/
19
For further details, see: http://europa.eu.int/comm/external_relations/armenia/intro/index.htm
See: http://europa.eu.int/comm/external_relations/georgia/intro/index.htm
20
21
Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgystan, Moldova, Mongolia, Russia,
Tajikistan, Turkmenistan, Ukraine and Uzbekistan.
54
Since 1991, Georgia has received over EUR 70 million as Tacis aid. An indicative
budget for assistance for 2002-2003 is EUR 14 million. Apart from supporting
general institutional, legal and administrative reforms, support to Georgian Border
Guards has an indicative budget of EUR 1 million. A feasibility study on the missing
link along the TRACECA road (known as the “Goresha bridges”) needs to be
completed by June 2002, in order to allow for a final timely decision on using Tacis
funds for the 2002-2003 administrative period for Georgia. Should the prerequisites
for such funding be met, equivalent funds up to EUR 2.5 million would be made
available. (EU Country Strategy, Georgia).
The main transport sector involvement of TACIS22 has been through INOGATE and
TRACECA. Other projects include a Feasibility study for improvement of safety in
gas transport management systems (EUR 1 million) for upgrading the a management
and control (SCADA) systems, and the project on Reorganization of the transport
sector administration (EUR 2.4 million), which is preparing the establishment of a
Ministry of Transport and assisting in restructuring processes. This project was started
in November 1999.
E.7.3.2. Inter-Governmental Group TRACECA23
The TRACECA Program was launched at a conference in Brussels in May 1993
which brought together trade and transport ministers from the original eight
TRACECA countries (five Central Asian republics and three Caucasian republics),
where it was agreed to implement a program of European Union (EU) funded
technical assistance to develop a transport corridor on a west - east axis from Europe,
across the Black Sea, through the Caucasus and the Caspian Sea to Central Asia
(Figure E.4.). The program corresponds to the global EU strategy towards these
countries and retains the following objectives:

To support the political and economic independence of the republics by enhancing
their capacity to access European and World markets through alternative transport
routes

To encourage further regional co-operation among the partner states

To increasingly use TRACECA as a catalyst to attract the support of International
Financial Institutions (IFIs) and private investors

To link the TRACECA route with the Trans - European Networks (TENs)
By end-2001, the TRACECA program has financed 25 Technical Assistance projects
(EUR 35 million) and 11 investment projects for the rehabilitation of infrastructure
(EUR 47 million).
22
For EU and TACIS assistance in Azerbaijan, see:
http://web.azerweb.com/Organizations/TacisAZinfo.html and
http://europa.eu.int/comm/external_relations/azerbaidjan/intro/
23
At this stage, based on: http://www.traceca.org/tracecaf.htm
55
The leaders of the partner states consider that the TRACECA route is of strategic
importance, by assuring them of an alternative transport link to Europe. TRACECA
stimulates competition between and with their previously exclusive route to the north,
and newer alternative routes to the south. Furthermore, it is seen as complementary to
their renewed commercial exchanges with the Far East, evoking the possibility of the
ancient Silk Route becoming once again a major trade corridor.
The TRACECA program has resulted in closer co-operation and dialogue among
government authorities, which has led to agreements to keep transit fees at
competitive levels, and efforts to simplify border-crossing formalities. There have
also been agreements to ship large volumes of cargo along the TRACECA corridor,
recognizing that this route is the shortest and potentially the fastest and cheapest route
from Central Asia to deep-water ports linked with world markets.
The technical assistance provided through TRACECA has helped to attract large
transport sector investments from the IFIs, that include the EBRD commitments for
capital projects on ports, railways and roads along the TRACECA route totaling over
USD 250 million, the World Bank who, apart from other projects, have made
commitments on roads in Armenia and Georgia totaling over USD 40 million, and the
Asian Development Bank (AsDB) who have committed substantial funds to road and
railway improvements.
Figure E.4. A schematic illustration of TRACECA routes
Source: EBRD 2001c
56
In addition, EU private investors are engaging in joint ventures with Caucasian and
Central Asian transport companies. The EU is supporting the program with other EC
projects to further enhance regional co-operation and economic sustainability in the
region such as the Southern Ring Air Routes project and the Oil and Gas Pipeline
project (INOGATE). Table E.11. shows a summary of TRACECA- funded projects
involving the three South-Caucasus States.
The east-west corridor from Central Asia through the Caucasus into the Black Sea,
and their linking with European transport networks and other worldwide destinations
is a physically functioning reality, carrying substantial cargo. The integration and
harmonization of the regions transport regulatory environment with European and
international norms are an on-going process. TRACECA is the principal vector of the
European agencies for the introduction of practices to reduce non-physical barriers to
the movement of goods. TRACECA organizes regional conferences and seminars in
close interaction with the IFI programs, with UN-ECE and UN-ESCAP, the activities
of TRACECA consultancy and direct investment projects.
Table E.11. TRACECA- funded projects involving Armenia, Azerbaijan and/or
Georgia with given project budgets in EUR and implementation period.
Source: TRACECA website at : http://www.traceca.org/tracecaf.htm
Rehabilitation of the Caucasian railways (Armenia, Azerbaijan Republic, Georgia)
EUR 5,000,000
October 1995 - June 1996
Rehabilitation of the red bridge and construction of the Traceca bridge (Azerbaijan and Georgia)
EUR 2,500,000
March 1997 - October 1998
Container services between Baku (Azerbaijan), Turkmenbashi (Turkmenistan)
EUR 2,500,000
Feb. 1998 – Feb. 1999
Design and construction of a rail ferry facility in the port of Poti (Georgia)
EUR 3,400,000
Feb. 1998 – Feb. 1999
Establishment of a ferry cargo movement computer system and supply and installation of
computers and communication equipment for the ports of Poti and Iliychevsk (Ukraine)
EUR 1,500,000
December 1997 – Oct. 1998
Cargo and container handling equipment for the cotton export logistics center near Bukhara
(Uzbekistan), and for the seaports of Baku, Turkmenbashi, Poti and Iliychevsk
EUR 5,825,000
February 1998 - August 1999
Rail tank wagon cleaning boilers, Baku
EUR 475,000
June 1999 - December 1999
Intermodal / terminal equipment (Karmir Belur, Chimkent, Aktau, Bishkek)
Geographic Focus: Republics of Armenia, Kazakhstan and Kyrghyzstan
EUR 2,500, 000
August 1999 for 9 months
Optical cable system to the railways of Armenia, Azerbaijan and Georgia
EUR 15,000,000
2001-> 24 months
Supply of navigational aid equipment (in Azerbaijan, Kazakhstan Turkmenistan,)
EUR 2,000,000
2001 -> 12 months
57
E.7.4. UN/ESCAP
The UN Economic and Social Commission for Central Asia and Pacific (ESCAP) has
been promoting a number of transport and infrastructure project connecting its
member countries and other parts of the world since the early 1990s.
In view of the vision of the eventually integrated Asia-Europe transport system and to
facilitate international trade and tourism in the region, the ESCAP endorsed in the
early 1990s the integrated project on Asian land transport infrastructure development
(ALTID), comprising the Asian Highway and Trans-Asian Railway projects as well
as the facilitation of international land transport. At its fifty-third session held in
1997, ESCAP reiterated its support for the ALTID project as a priority item in the
Regional action program for the implementation of the New Delhi Action Plan on
Infrastructure Development in Asia and the Pacific for 1997-2006, in line with its
earlier support provided in 1996 on intra-Asia and Asia-Europe land bridges.
Under the Asian Highway component of the ALTID, routes were identified, and a
network was revised or formulated in a number of ESCAP member countries. An
Asian Highway network was formulated in the seven Central Asian republics, namely
Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and
Uzbekistan. The Asian Highway standards have been revised to constitute a general
guideline for the routes.
The Trans-Asian Railway network includes such important land bridges between Asia
and Europe as: Europe-Russian Federation and/or China-Korean peninsula (northern
Trans-Asian Railway routes); Europe-Islamic Republic of Iran-South Asia-South East
Asia (southern Trans-Asian Railway routes); the "New Silk Railway" (EuropeTurkey-Islamic Republic of Iran-Central Asia-China); and TRACECA corridor
(Europe - across Black Sea - Caucasus - across Caspian Sea - Central Asia).
The work of ESCAP throughout the 1990s and beyond can be seen as providing a
basis to discuss and prepare long term international infrastructure projects, realization
of which are subject to national and international finance.
58
F. Roads and road transport
This Chapter provides an analysis of the road sector, with special attention to (i)
national road expenditure needs; (ii) the existing road financing schemes (source of
road funding, the existence, structure and level of road user charges, the fund
allocation mechanisms overall and to the different level of the road network: national,
urban, rural roads); and (iii) road management: role and organization of the State
Road Administration.
F.1. Road networks and vehicle statistics
In each country, the road network is owned and maintained by the national road
authorities, which are part of central government. The road network is, in general, in
ill repair. The length of the road network and its reach is also poor. (Table F.1.)
Table F.1. Road network and vehicle statistics, 1998
Source: Kojima et.al. 2000, data for no. of Armenian vehicles, World Bank
Paved
roads
Unpaved
roads
8,560
0
8,580
304,000
Azerbaijan
54,188
3,582
57,770
Georgia
19,354
1,346
20,700
Armenia
Total
Total
vehicles
Total light
duty
Total heavy
duty
365,782
272,092
93,690
406,733
340,407
66,326
The vehicle stock is generally overaged, and the number of new registration is small.
According to the data gathered by ECMT, a total of 8,754 new private cars were
registered in Georgia in 2000. The figure for 1999 was 11,336 and 13,961 for 1998.
The corresponding number of newly registered private cars in Azerbaijan was, oddly
enough, only about 300 in 1998-2000, but this may be due to inaccurate statistics or
scale in original data source.
F.1.1. Armenia
Armenia has a relatively well-developed road network, serving all areas of Armenia’s
economy with a road density of 257.6 kilometers per 1,000 square kilometers. The
road network consists of 7,700 kilometers of interstate roads, regional roads and local
59
roads. Of these, 1,400 kilometers are interstate roads, 2,520 kilometers are regional
roads, and 3,780 kilometers are local roads24. (Figure F.1.)
The Armenian government has undertaken to renovate roughly one-third of the 1,500
kilometers of main roads in Armenia. Reconstruction of a bridge over the Araks
River, completed in December 1995, has improved road access to Iran and facilitated
the supply of consumer goods. The World Bank helped to prepare a USD 36.9 million
project to rehabilitate strategic road links to Georgia and to improve road sector cost
recovery, which was funded in 1995 by the IDA together with EU, EBRD and France.
Figure F.1. Main road connections in Armenia (ESCAP 2000)
24
Depending on the source, the data may change: Total road network is 7 700 km, including: 1560 km
interstate roads, 1800 km state roads, 4340 km local roads. A detailed catalogue of Armenian roads
can also be found through the International Road Association PIARC through:
http://www.piarc.org/pub/cd-01-e.htm#contenu
60
The land area of the republic is 30,000 square kilometers, with complex mountainous
landscape. Due to the complexity of landscape road infrastructure is more developed,
compared to the rail - density of rail is 26km per 1000 square km, density of road is
258 km per 1000 square km. Majority of freight and passenger transport is performed
by road.
Country's location is providing a good opportunity for international freight transport
towards North-South and East-West directions. Existing road network enables traffic
in both directions and provides a connection trough the territory of the Republic of
Armenia between Russia and Black Sea Ports on one side, and Iran and countries of
Middle East on the other side (North -South); between Turkey and Azerbaijan (EastWest). Conditional parameters (types of pavement and their width, curves, bridges...)
of main routs are almost fully complying with international standards.
Existing network of interstate roads does not require further extension towards new
directions. The main task is to improve and maintain the existing network.
Due to the WB loans in 1996-2000, 630km of interstate road and a road tunnel (1.8
km) were rehabilitated and repaired. Owing to WB loans and LINT's (Lincy) Charity
Fund these works will be continued and by 2004 another 400 km of interstate road
and several bridges will be rehabilitated. One of the main directions of these works is
an improvement of road safety.
As a result the conditional parameters of main roads will improve substantially and
they will be close to the requirements of European standards.
One of the main directions of the transport policy, including policy in the field of road
infrastructure, is regional co-operation and implementation of joint programs. An
example could be joint maintenance works with Georgian road authorities on roads
connecting Georgia and Armenia, project on the exemption and/or reduction of transit
fees at the borders. Another example of beneficial co-operation is the construction of
a bridge between Armenia and Iran.
F.1.2. Azerbaijan
There are about 25,000 kilometers of roads in the country, serving domestic cargo
traffic and giving access to international main highways. The roads are in poor
condition and in urgent need of upgrading and maintenance. (Figure F.2.)
There are about 300,000 cars and more than 80,000 lorries registered in the country
although the number of lorries fell slightly in 2000 because of a decline in the volume
of external trade and periodical transport disruptions due to border closures in the
region. The number of passenger cars has remained steady since independence and
was 35.6 per 1,000 inhabitants in 1998. The number of trucks, however, fell by 19.7%
between 1990 and 1998, in part a result of the reasons stated above.
Road links are disrupted with Armenia because of the unresolved issue of NagornoKarabakh. Travel between the mainland and detached enclave of Nakhichevan is by
61
air or by road through Iran. Nakhichevan has a 33-kilometer strategic border with
Turkey.
As shown in Table E.5. Azerbaijan has signed seven international conventions related
to road transport. According to the Trade & Transport Facilitation in Caucausus final
report (2002) it has also entered into bilaterla road transport agreements with Georgia
(1997), Kazakhstan (1997), Moldova (1998), Romania (1997), Ukraine (2000), and
Uzbeksitan (1996).
Figure F.2. Main road connections in Azerbaijan (ESCAP 2000)
F.1.3. Georgia
Georgia’s roads consist of international motorways (1,474 kilometers), state highways
(3,326 kilometers), and local roads (15,429 kilometers). The poor condition of roads
in Georgia, caused by a lack of financing and limited private ownership of the road
network, represents a large barrier to investment and growth. According to Georgian
MOTC, 80% of road maintenance and 100% of road construction are privatised.
The government has introduced user charges and a Road Fund, has improved
collection of payments and has undertaken some restructuring of enterprises, but full
enforcement has yet to occur. One source of income for the Road Fund is the vehocle
and overweight fees collected at border crosiing points (See Attachment F.1.) Plans
for road projects funded by IFIs are set to improve road infrastructure in the years
ahead.
62
Table F.2. Breakdown of the road network in Georgia in 2001
Source: Georgian MOTC reply to the seminar questionnaire, 2002
Roads
International
Interstate
Local
Total
Total
length,
km
1474
3326
15429
20229
I
km
13
0
0
13
II
km
765
33
0
798
Category
III
km
180
266
0
446
IV
km
422
1839
3310
5571
V
km
94
1188
12119
13401
F.2. Organization of the road subsector
This section focuses on the ownership, private sector participation, institutional
arrangements, and economic analysis in the road sector.
In the transport sector, the actors can in principle assume four types of role. An
analysis of the road sector actors and operations based on this classification is shown
in Table F.3.
Administrator: Responsible for effecting policy and the political aims of owner.
Owner:
Responsible for funding, policy and the legal framework.
Government.” Responsible for the National Interests.
Manager:
Responsible for specifying activities, supervising, and monitoring.
Supplier:
Normally a private sector firm delivering services and civil works.
63
“The
Table F.3. The governance of road networks in Armenia, Azerbaijan, and Georgia
Source: Antti Talvitie, Tbilisi Seminar , April 18-19, 2002; parenthesis indicate population in millions
Rd Class/km
Actor
Armenia (3.2)
Azerbaijan (8.0)
Georgia (5.4)
Main Roads
Owner
MOT
Government
Government
AR: 4061 km
Administrator
AR JCS
Avtoyol
SDRG
AZ: 4689 km
Manager
AR JCS
Avtoyol
SDRG
GE: 6013 km
Supplier
Private sector
Avtoyol&Private
Private sector
Rural Roads
Owner
Mars
Raion
Raion
AR: 3 727 km
Administrator
Mars
?
SDRG
AZ: 19 311 km
Manager
Mars
?
SDRG
GE: 15 564 km
Supplier
?
?
Private sector
Streets
Owner
Municipality
Municipality
Municipality
AR: 2000 km
Administrator
Municipality
Municipality
Municipality
AZ:
Manager
Municipality
Municipality
Municipality
GE:
Supplier
?
?
Private sector
Private roads
The framework for private, low volume roads does not exists
F.3. Safety issues
Traffic safety is a serious concern in all the three countries and in an international
comparison the number of fatalities in road traffic is extremely high (Table F.4.).
Table F.4. does not cover Armenia, since it is not a member of ECMT, but compared
to international standards the road safety level is very poor there too. In Armenia,
there were 721 road fatalities on public roads in 1990, but the number had declined to
318 fatalities in 1993. This, however, was deemed more attributable to sharply
declining traffic volumes and poor accident reporting than any improvement in basic
safety standards or conditions (World Bank 1997).
One of the tasks facing the public administration is to organize the work to improve
traffic safety through appropriate measures, co-operation with NGOs and through
raising public awareness and skills. This work has merely begun, and the efforts of
Armenia could be mentioned as an example of the way forward.
64
Table F.4. Road accidents in (a) Georgia 1989-2000 and in (b) Azerbaijan 1991-2000
Source: ECMT
YEAR
(a) Road Accidents in
Georgia
Number of
accidents
Number of
(Killed & Injured)
Total
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1,708
1,782
1,752
1,644
1,627
1,567
1,539
1,522
2,054
3,574
2,963
2,621
(b) Road Accidents in
Azerbaijan
2,582
2,711
2,602
2,525
2,455
2,360
2,471
2,477
4,136
5,536
4,561
3,887
of which
Killed
500
539
466
449
437
450
494
542
883
1,145
1,067
797
Number of
accidents
Number of
(Killed & Injured)
Total
1,987
1,996
1,984
1,988
2,185
2,513
2,871
2,829
3,045
3,336
N/A
N/A
2,199
2,870
2,884
2,888
3,183
3,776
4,399
4,376
4,697
4,983
N/A
N/A
of which
Killed
596
554
594
605
763
990
1,107
1,152
1,265
1,281
N/A
N/A
The Armenian Government has recently appointed a Road Safety Council, chaired by
the Minister of Transport and Communications. In 2001, the Government also
established a Secretariat for the Council and appointed its Secretary. The Council is
located in Armenian Roads SSCC. Staffing for the Secretariat will require at least
two additional positions (traffic police expert and expert on campaign for public road
safety awareness), which will be recruited and hired on a consultant basis on one or
two year contracts. The persons will be competitively selected and approved by IDA,
and financed from the Technical Support component of the IDA Credit.
In Georgia, the state road police, who come under the authority of the Ministry of
Internal Affairs, are responsible for maintaining road safety in Georgia. As many
local drivers do not operate their vehicles in accordance with established road rules,
motorists should exercise extreme caution when driving, and pedestrians should be
careful when crossing streets.
Roads in Georgia often lack shoulder markings and centerlines. In addition, traffic
signals may not work as a result of power outages and burned-out bulbs. Undivided
two-lane roads connect most major cities, and motorists attempting to pass other
vehicles may encounter oncoming high-speed traffic. Driving at night can be
especially dangerous. Travel on mountain roads is treacherous in both rain and snow,
and heavy snowfalls may make some roads impassable.
65
F.4. Economic and technical analysis on road works
A widespread use and expertise in economic and technical analysis on road works is a
necessity for well-functioning road sector. Overall, the technical capability of the
road authorities and the local road construction companies is relatively limited, and
there is considerable need for improvement.
In Armenia, for example, local authorities (Maspetarans) provide maintenance of
local roads. The 18 state owned and 20 privatized road-construction and maintenance
undertakings are providing road repair and maintenance in the Republic.
However, advances have been made in this field, as shown with the example of
Armenia below.
The Pavement Management System (PMS) based on the Highway Development and
Management System version 4 (HDM-4) for Armenia is practically completed. All
surveyed data on the state of roads can now be entered into the database and the
system will automatically divide the road network into homogenous sections and
prepare necessary data for the HDM-4.
AR will now complete the calibration of HDM-4. About 2,400-km road survey
results have been introduced into the system in 2001. Armenia is in the forefront of
developing a PMS based on HDM-4 and expects this to become the major tool for
road planning and economic analysis. AR will discuss with Birmingham University
the issue of ownership of the PMS and possibilities of PMS and expertise export to
other countries.
F.5. Road financing
The road budgets in the three states are very limited with respect to the size and
population of the countries. This is exemplified in Tables F.5. and F.6., which
compare the South Caucasus states to the Baltic States as presented by The World
Bank’s Mr. Talvitie in the Tbilisi seminar. Even if direct comparison between these
two regions is not possible, the difference in magnitude is very large. One significant
feature is the very low fuel taxes in the South Caucasus States. Except for Georgia,
Road Funds are currently not used, but they have been operational.
The financial situation of Armenian Roads SSCC (AR) is extremely strained.
Armenia has no Road Fund, but the MOTC has been prepared to set up a working
group to study that option. As can be seen in Table F.7., the level of Armenian road
spending has reduced dramatically after the independence. A similar pattern is found
in Azerbaijan and Georgia too. According to AR, from 1995 onwards, about 90 per
cent of all road investments were financed by World Bank loans.
66
Table F.5. A Comparison of Networks, Budgets, and Fuel Taxes: The Baltic vs. the
South-Caucasus Countries (The values within parentheses indicate the size
of the road budgets using USD/km values in the Baltic States)
Country
Population
(millions)
Road Network
(km, no streets)
Road Budget
(US$m 1999)
Budget
US$/km
Estonia
1.4
16 517
47.0
2845
Latvia
2.4
20 329
64.0
3150
Lithuania
3.7
21 603
135.0
6250
Armenia
3.2
7 788
4.2
(19.5)
540
Azerbaijan
8.0
23 990
11.2
(60.0)
470
Georgia
5.4
21 577
13.5
(54.0)
625
Table F.6. GDP and Fuel Taxes in The Baltic and the South-Caucasus States
Country
GDP/
Capita (US$)
Fuel excise tax
US$/liter
Vehicles/
1000 people
Road
Budget
US$/km
Estonia
3410
Petrol: 0.22
380
2840
Diesel: 0.16
Latvia
2860
Petrol: 0.27
($47m)
260
Diesel: 0.22
Lithuania
2900
Petrol: 0.27
($64m)
320
Diesel: 0.22
Armenia
520
Petrol: 0.185
610
Petrol: 0.135
95
540
(US$4.2)
50
470
Diesel: 0.05
Georgia
F.5.1. Armenia
590
Petrol: 0.09
Diesel: 0.05
67
6250
($135m)
Diesel: 0.005
Azerbaijan
3150
(US$11.2)
60
625
(US$13.5)
AR’s budget for 2001 was sharply reduced since the Ministry of Finance assumed that
the funds available from the World Bank’s Transport Project Credit and from the U.S.
based Lincy Foundation would provide an adequate level of financing for
maintenance of the national road network. Subsequently, the Ministry of Finance
made available AMD 707 million from privatization funds to AR for this purpose, but
most of this money (AMD 540 million) had to be used for periodic maintenance of a
road leading to an historic monument in the northern part of the country.
Table F.7. Road construction, reconstruction and maintenance outlays in Armenia in
millions of USD 1988-2000
Source: Armenian MOTC reply to the seminar questionnaire, 2002
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
All investments
90.6
106.0
110.0
23.0
6.5
5.4
1.5
4.2
7.4
7.4
11.6
12.3
6.2
New construction
7.2
7.0
12.5
3.0
1.5
0.5
-
of which:
Reconstruction
9.7
10.0
15.0
11.0
0.5
3.5
2.0
2.6
2.8
2.5
Repair- maintenance
73.3
89.0
82.5
9.0
6.5
5.4
1.5
2.2
3.4
5.4
9.
9.4
4.2
AR’s operating budget for the year 2002 is only AMD 800 million, and therefore IDA
has reduced the road work program to about USD 5.5 million so that some of the
counterpart funds can be made available for badly needed routine maintenance. If the
Government is able to increase the budget to the previously agreed AMD 2 billion
level, then the original work program will be restored.
The reduced work program for 2002 of about USD 5.5 million will leave about USD
7.0 million remaining to be implemented in 2003, assuming that the Government does
not provide more financing for the program this year. Designs for all of the works
have been completed, but will need to be updated to take into account additional
deterioration. AR’s own budget will be used entirely for winter maintenance (AMD
760 million) and for maintenance of the Pushkin Tunnel (AMD 40 million), with
nothing for routine maintenance from AR’s own budget unless additional funding is
made available.
The Lincy Foundation has greatly increased the size of its road rehabilitation
program. In Spring 2002, the total program for the Armenian road network was USD
73.4 million, plus USD 14.0 million that has been made available for Yerevan city
streets. The road improvements include the mountain road from Yeghegnadzor to
Martuni, and the parallel road from Yerevan to Gyumri. The road component also
includes the replacement of several railway bridges, including the long span near
Alaverdi that is about 100 years old. Lincy has told the Government that all of these
funds must be spent by the end of 2003, and no funds will be released after this date.
68
There is a need to develop a program for providing an adequate level of financing for
road maintenance in 2004 and beyond, when IDA and Lincy financing will no longer
be available. A condition of the Transport Project Credit is that the Government will
make a minimum USD 16 million equivalent available for road maintenance by 2004,
which is substantially higher than the present budget level.
The program of institutional strengthening for AR will consist of further improvement
of the data bank and the Pavement Management System (PMS), continued work on
the technical standards, and implementation of improved quality control
methodology. The work on technical standards would consist of following the similar
EU funded work in Russia and adapting its results in Armenia. Quality control
improvements would be carried out internally in AR, supported by training for AR
road works supervisors designed and delivered together with the international
supervision consultant.
A Plant Pool of road works equipment was created under the completed Highway
Project, and it is now operating as a joint stock company under the jurisdiction of the
MOTC. It has experienced financial problems due to the low rate of equipment
utilization, as the contractors have found the rental rates too high and prefer to use
their own equipment wherever possible. In 2002, the contractors are required to use
the Plant Pool equipment where relevant for all types of works, including routine,
periodic and winter maintenance. It is expected that on this basis, the utilization rate
will be greatly improved.
F.5.2. Azerbaijan
In Azerbaijan, road financing had been provided through a Road Fund until around
year 2000. The Ministry of Finance controlled the Road Fund. The most important
source of revenue to the Road Fund was the fuel excise tax, contributing 87 percent of
the total revenues. The Road Fund has recently been abolished, however, and
Azeravtoyol’s (the road administration) budget now is provided from the central
Government budget. (World Bank’s project document on Azerbaijan Highway
Project: http://www.worldbank.org/pics/pid/az40716.txt)
Azeravtoyol’s budget for 2001 was reportedly at the level of AZM 53 billion,
equivalent to USD 11.0 million. The 2002 budget is AZM 56 billion, equivalent to
USD 11.7 million. This is slightly less than the USD 12.0 million specified in the
Credit Agreement with IDA. The budget includes AZM 14 billion for the
improvement of part of the Baku-Alyat road section, to be carried out by Azeravtoyol.
The total road budget, including road maintenance for Baku and Nakhichevan, is
AZM 75 billion. The counterpart financing for the Project is included in a separate
budget that is additional to these amounts.
A pending World Bank road project of the Shemkir-Gazakh road section contains a
terms of reference for the institutional strengthening (technical assistance) of the
Azerbaijan road administration Azeravtoyol.
69
Azeravtoyol will receive a study of road user charges and the preparation of a Road
Safety Plan will be implemented with the assistance of the consultant selected to carry
out the institutional strengthening contract.
Competitive bidding is applied at least in more substantial road projects. While the
Azerbaijan Government had previously wanted the Shemkir-Gazakh section to be
prepared for bidding as a single contract, it now prefers that this section be divided
into four sections, all to be bid at one time. The division into four sections will make
it more possible for local contractors to qualify as prime contractors for these works.
IDA has no objection to this change.
F.5.3. Georgia
The funds available to the Georgian State Department for Roads (SDRG) for road
maintenance are connected to a Road Fund. The funds available for SDRG have
steadily declined each year since 1999. This development is not in line with the IDA
credit terms for road projects, especially since overall Government revenues have
been increasing, as noted in the Table F.8.
Table F.8. Georgian Road Financing in GEL million
1999
(actual)
Road Fund Revenues
Less Obligations (counterpart,
debt repayment)
Funds Available for Road
Maintenance
Required to meet Credit
Obligation*
Shortfall
2000
(actual)
2001
(actual)
2002
(estimated)
42,592
32,200
38,756
5,475
42,300
14,203
42,592
32,200
33,281
28,097
42,592
46,340
52,178
57,395
14,140
18,897
29,298
* Increase in Total Revenues for 2000 was 8.8%, for 2001 12.6%, and for 2002 is estimated at 10.0%.
Decisive actions need to be taken to remedy the situation. Apart from problems with
loan arrangements, the result is that Georgia is not able to provide even a minimum
amount of maintenance of the road network.
As shown in Table F.8., financing for SDRG’s road maintenance operations in
calendar year 2000 fell below the level required meeting credit obligations. Funds
available for SDRG’s road maintenance operations in 1999 were GEL 36.1 million.
This was reduced to GEL 21.1 million in 2000 in part because the fuel excise taxes
that were normally paid into the Road Fund were paid instead into general revenues
for the last part of the year.
In addition to GEL 6.0 million made available in 2000 for expenses incurred by
SDRG in 1999 for which funds were not available, for a total of GEL 27.13 million.
As overall Government revenues increased by 8.9 percent in 2000 compared to 1999,
70
the SDRG budget should have been at least GEL 39.3 million to comply with the
terms of the Credit Agreement.
The total amount estimated to be available for road maintenance activities in 2001 is
estimated to fall to GEL 11.14 million, plus GEL 4.3 million for debts incurred in
2000, for a total of GEL 15.4 million. This figure is based on estimated collections
for the Road Fund of GEL 41.9 million, reduced by allocations for Adjaria, the
repayment of principal and interest to the Ministry of Finance for funds made
available from the previous IDA Credit, and a portion of the counterpart financing.
Table F.9. Road construction, reconstruction and maintenance outlays in Georgia in
millions of USD 1988-2000
Source: Georgian MOTC reply to the seminar questionnaire, 2002
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
All investments
198,2
240,7
167,2
74,4
27,7
7,3
0,8
4,8
28,4
19,9
27,3
19,9
13,4
New construction
and Reconstruction
73,1
55,3
60,6
44,2
16,9
1,1
4,4
3,6
1,9
1,1
of which:
Repairmaintenance
125,1
185,4
106,6
30,2
10,8
7,3
0,8
4,8
27,3
24,0
23,7
18,0
12,3
credit
2,9
2,4
EU Grant
1,1
1,3
A time-series of Road construction, reconstruction and maintenance outlays is shown
in Table F.9. It shows clearly the dramatically reduced outlays after 1991, which
have resulted in a substantial backlog of road works.
F.6. Road transport services
F.6.1. Freight transport services
Before the independence of Azerbaijan, the road transport State Concern (now:
Azerautonagliyyat) had under its subordination 200 enterprises, with the total fleet of
25000 goods vehicles, buses and taxi-cars. According to Azerbaijan State Statistical
Committee about 1,000 registered establishments were engaged in cargo
transportation and storage in 2001. About 39% of them are public enterprises, 47%
belong to private sector, 5% are mixed and 8% are completely foreign establishments.
71
Azerautonagliyyat has given up its commercial activity and focuses exclusively on the
regulatory functions. All its operative entities have been privatized, which created a
large number of small firms engaged in road transport. However, the lack of
experience, modern equipment and adequate finance pulled most of the firms out of
the market. Currently about 50 transport firms are actually functioning in the country.
From the beginning of 1991, vehicle fleet renewal was suspended, average fleet age
was increasing each year. Due to the financial difficulties, fleet was not maintained
properly and its deterioration continued until 1996. In 1996 a decision was taken to
separate operational functions and to decentralize all transport enterprises while
limiting governmental functions to the implementation of integrated transport policy
in road transport.
During 1996-1999 all transport enterprises were either privatized, or transformed into
joint stock companies. Simultaneously, a legal and regulatory basis for market-based
transport activities was taking shape. As part of the process, the Transport Law of
The Republic of Azerbaijan was issued.
In 1997 Azerbaijan introduced a permit system, which regulates international road
transport in the republic. In 1998 a Licensing System on Transport activities was
introduced, which regulates inter-city and inter-State (internal) transport, and freight
forwarding activities.
According to Azerautonagliyyat, the share of Azerbaijani transport companies in the
total volume of transported goods from and to the territory of Azerbaijan was only
1.5% up to 1999, indicating that their competitiveness in international transport has
been low. This is partly because of the lack of vehicles and equipment that fulfill
high international requirements.
In Georgia, the provision of road transport services required licensing up to the year
1999. The Act on entrepreneurial licensing, adopted in 1999, does not require the
licensing for Road transport activities. In 1998, however, a mandatory system of
certification on transport services was established.
The Georgian Law on State governance and regulation in the sphere of transport and
communications adopted in 2002 defines the role of the MOTC as the state body for
performing the state governance and those of modal Administrations as regulatory
bodies in their respective transport mode. Road Transport undertakings have to pay
regulatory fees to the Road Transport Administration. An amount and payment
procedure of the Fee is defined by the Order of MOTC, subject to the adoption as a
legislative act.
According to the Georgian MOTC, 90% of road transport industry is privatised and
10% is state-owned in 2002. According to Georgian legislation fees on freight and
passenger transport are set by the carrier without any Governmental intervention.
Government is regulating only the inter-urban public transport tariffs.
Vehicle fees for crossing the Georgian border and fees for overweight units are shown
in Attachment F.1.
72
F.6.2. Long-distance passenger services
An extensive intercity bus service is the principal mode of intercity travel in
Azerbaijan. Buses connect Baku and most other major cities, and there are also bus
connections to Turkey and Tbilisi.
In Armenia, long-distance buses service the major centers of population and most
areas in the republic including the locations that trains do not serve. Because fuel is
expensive, bus fares tend to be relatively expensive.
In Azerbaijan, international and inter-city passenger transport are operated by
comparatively new buses, complying with safety requirements, on the determined
itinerary and strictly according to time-tables. At night-time (24:00-05:00)
International and inter-city passenger transport is forbidden. International passenger
transport between the Azerbaijan and Russia, Georgia, and Ukraine are operated on a
bilateral basis.
In 1997, the State Concern Azerautonagliyyat initiated the
construction of a modern Bus Station in Baku which is now operational. The second
phase of the construction of the Station will be completed shortly.
In Georgia, most intercity travel is done by train, but bus lines run from inland cities
to the coast during summer months. The buses are fairly reliable, but not too
comfortable. Routes link most major towns in the country and run regularly between
Tbilisi and regional centers within the country, as well as to Turkey, Russia, Armenia,
and Azerbaijan.
Long-distance bus services are predominantly run by private companies in South
Caucasus states, and the bus companies can apply market-based rates.
F.7. Urban transport
Urban bus and trolley services are offered by local administration in major towns, as
are the subway or metro services available in the capitals. Only a limited number of
private companies are engaged in urban bus services. This is partly because,
generally speaking, no coherent policies for Public Service Obligations exist.
The municipalities set ticket prices, and cost recovery on ticket income is generally
very low, and does not allow for full depreciation and equipment renewal. As a
consequence, lack of funds for maintenance, spare parts and new equipment is a
pervasive problem in each of the three South Caucasus States.
Public transportation in Tbilisi is reasonably priced and generally quite reliable. Most
other urban centers in Georgia also have extensive bus and tram systems. While the
fares are low, so is the level of maintenance, and reliability is not high.
73
Box 1. Urban Transport problems in Baku, Azerbaijan
In the Municipality of Baku, the Transport Department of City Executive Authorities is responsible for
the transport policy in the city of Baku. Transport Department has at his disposal 9 bus enterprises,
tramway and trolley bus depots.
From 1991 to 1996 urban transports fleet was reduced due to the lack of financial sources to purchase
new vehicles. From the year 1997 onwards, private operators were admitted to operate city bus lines.
In year 2002, 348 bus lines, 3 tramway lines and 4 trolley-bus lines are operated.
Currently, 2,700 private buses are operating on existing city bus lanes, which comprises more than
90% of total number of buses. Most of these vehicles are small and medium -size buses.
In 1998, the Japanese International Agency for Co-operation conducted a study on the "City transport
infrastructure development project proposal". A subsequent study, including a technical feasibility
assessment for priority projects, was carried out by the Japanese party in co-operation with Baku
Municipality during September 2000 - February 2002. Its findings were presented on a seminar in
Baku on 26-27 February, 2002. The final report is forthcoming.
The project produced a Transport System Development Master Plan for Baku for the period up to 2020,
including feasibility studies for 45 priority projects with total cost of USD 1.2 billion. These include:
1. Introducing for operation in the center-city large-size busses - 483 units. (IRR -19,1%), alleviating
congestion in the center and reducing air pollution levels.
2. Reconstruction of tramway network (IRR -16,1%), reducing of CO and NOx emissions.
3. Improvement of narrow sections of the roads. (IRR -12%- 116%)
4. Implementation of Road Traffic Central Management System. Results: Reduction of CO and NOx
emissions, and fuel consumption, and alleviation of congestion in Baku center.
5 and 6. Improvement of the interconnections on the square of "20 January" and metro Station
"Azizbecov".
Despite that the introducing of large-size Buses has a low profitability ratio, and reconstruction of
tramway network is not financially feasible under the current conditions, it was recommended to start
the implementation of these projects immediately, in order to improve mobility, eliminate congestion,
improve environmental parameters in the city. The most acute problem with the implementation of
these projects is finance. Recommended way is to attract financial aid from donor countries, long term
credits from international banks and Funds.
Based on the presentation at the Tbilisi Seminar on April 18-19, 2002 by the Deputy-Head of Public
Transport Department of Baku Municipality
In addition, the need to maintain a viable public transport system is confronted with
the rapid growth in car ownership and traffic. This development, together with aging
urban transport fleet with high level of emissions contributes to a significant air
pollution problem at least in the major cities in the region. The private sector is
offering the taxi services and the widespread and efficient minibus services. The
latter services have evolved into regular lines covering large parts of major cities as
well as smaller towns as a form of urban transport.
In Azerbaijan, the bus system is widely considered the best way to get around in the
cities. There are many city buses in Baku and in other major towns. It proves faster
74
than the train and also much safer. The fares for local bus ride are low, generally
about USD 0.07, but given the purchasing power the scope to raise them is very
limited. The minibus services are well developed and affordable. There is also a
modest subway system in Baku (See Box 1.).
In Armenia, buses and minivans offer the most reliable form of transportation. There
is a small metro system in Yerevan, but it is quite limited and not very reliable. The
financial needs to upgrade the metro system are very high compared to its traffic
potential and potential for revenue generation. Also the trolley buses still run in
Yerevan but prove very unreliable due to lack of maintenance and sporadic
disruptions in electricity supply.
In the Georgian capital Tbilisi, there is a small underground metro, buses, trolleys and
a well-developed minibus network. The metro is a three-line system that runs from
6a.m. until 11p.m. The service is efficient for daily business use, and it connects with
bus/tram lines to reach every corner of the city.
75
G. Railways
The three countries’ railways are predominantly freight carriers as shown in Table
G.1. Azerbaijan has the largest passenger and freight volumes of the three with 5,770
million ton-km and 493 million passenger-km. Transport work in Armenia is only
345 million ton-km and 47 million passenger-km. The size of the staff is large
compared to the level of transport performance. As shown in Table
The three states share the same problems of overage rolling stock and the poor
condition of track. Operated as State Railways, they have also had difficulties to
adjust to new demand patterns, both commodity and direction. The level of
management skills should also be raised in order to increase the operational efficiency
of the railways.
Table G.1. Statistical data on South Caucasus states railways in 2000
Source: UIC at: http://www.uic.asso.fr/d_stats/online/synth2000.xls
Armenia Azerbaijan
Georgia
Country area in thousands of km²
Population, millions
Population density, inhabitants/km²
29.8
3.5
118.1
86.6
7.7
89.3
69.7
5.0
71.3
Length of lines worked, km
of which double track or more, km
Total of electrified lines, km
Locomotives (incl. Light Rail motor tractors)
Railcars and multiple unit sets
Railcars and railcar trailers
Railway's own wagons
Average staff in thousands
change from 1999 to 2000 in per cent
842
0
784
181
28
225
4,050
4.9
N/A
2,116
803
1,270
573
77
929
22,644
29.2
11.2 %
1,562
288
1,544
393
84
1078
16,859
15.8
0.0 %
Train performance, millions of km
N/A
11.3
7.3
Passenger carried, millions
change from 1999 to 2000
1.1
N/A
4.3
4.9 %
2.3
19.8 %
Passenger-km, millions
change from 1999 to 2000
Tons carried, millions
change from 1999 to 2000
47
N/A
1.4
493
16.8 %
15.9
8.7 %
453
27.6 %
11.5
21.1 %
345
5,770
3,912
Ton-km carried, millions
76
Table G.2. shows a general characterization of railways’ market positioning and
operating profile. The South Caucasus railways could be positioned as a “ultraconservative” railway, where the ownership of both rolling stock and trains as well as
a multitude of support activities is seen as a core function. Until very lately, railways
have also had an important employment function.
Table G.2. Schematic characterization of railways’ market positioning, rail operators’
profiles, core functions and supporting activities
Source: Brehmer and Ojala (1997)
Market
Characterization
Company Profile
Core Function
(Corporate Mission)
Mobility
Mobility Corporation
To Provide Mobility in
Time and Space
Travelling and
Service
”Modern” Railway
To Provide Rail Service
Travelling and
Transport
”Traditional” Railway
To Operate Trains and
Tracks
Passenger and
Freight Movement
A=>B
”Ultra Conservative”
Railway
To own Trains and
Tracks as well as other
activities related to these
Employment as a goal
Supporting Activities
Only what is necessary,
and in whichever way it is
best provided
These are arranged
according to market needs
and company resources
(with respect to the
regulatory constraints)
”All other activities”
(Personnel, Locomotives,
Wagons, Traffic related
material, Real estate,
Marketing, PR)
Makes no distinction
Between supporting and
Core activities
Based on the presentations in the Tbilisi seminar, the following regulatory and
administrative “checklist” for the region’s railways could be presented









The railways operate under the country’s commercial law.
Board of Directors has broad representation.
The Board of Directors fires and hires the GM.
Annual public audits.
Annual business plans. A strategic medium term plan.
Continuous development and improvement of management systems.
Public Service Obligations (PSOs) priced at full cost.
PSOs replaced by commercially viable services (trucks, buses).
Gradual privatization, start by selling off non-core interests.
77
G.1. Armenia
According to UIC, 842 km of rail lines were operated in 2000. The official figure for
the full length of railways (excluding industrial lines) is 883 km. The volumes of both
freight and passenger movements are small in view of its potential, exploitation of
which is severely hampered by the political problems with neighboring countries. Of
four international rail connections (via Georgia, Azerbaijan, Iran and Turkey) only the
one to Georgia, giving access to the Black Sea ports of Poti and Batumi, is presently
in operation, due to the trade embargoes imposed by Azerbaijan and Turkey.
After the establishment of the Republic of Armenia, Armenian Railways has faced
diverse urgent problems in order to maintain the existing rail system. The operating
environment for the railways deteriorated dramatically during the 1990s: between
1989 and 1999 the Armenian railways lost about 93 percent of its traffic volume
(Table G.3.).
The first task was a creation of independent railway authorities, in charge of
management, maintenance and procurement of railways. Armenian railways (ARD)
were restructured in 1998, when they were divided in three State Closed Joint Stock
Companies: "Rail freight", "Rail rolling stock", and “Rail infrastructures". In parallel,
The World Bank had allocated USD 15 million for the repair and maintenance of the
rail track and rolling stock and re-equipment of depots. Subsequently, the Armenian
Railways remained operational.
None of the operating companies have a Board of Directors that would control the
companies. According to ARD, all powers for controlling the shares of the Joint
Stock Companies were in the hands of the Minister. However, appointing a Board
including representatives of the private sector would be an effective means of keeping
better touch with the needs of ARD’s customers. Such a Board is explicitly allowed
and in some cases required by Armenian legislation but it has proved difficult to
create one for railways.
The Armenian railways are predominantly a freight operator. In 2001, the freight
revenue was estimated at USD 8.7 million compared to USD 0.34 million from
passenger traffic. The revenue of the three companies covered their current expenses.
Government of Armenia deems a close co-operation between the railways of
Armenia, Azerbaijan and Georgia especially important and also attaches a great
emphasis to regional co-operation, including the co-operation with Turkey and Iran as
the pre- condition for the increase of traffic, and in particular for transit flows.
The Government would like the Armenian railways to enhance its competitiveness
towards road transport and to increase railways share to at least 70% of total cargo
turnover, and at least 60% of domestic ore transports. Direct rail connection with
Turkey and Iran railway should become the main mode for transit transport. Despite
financial losses, suburban passenger transport should continue, on the condition that
losses will be covered from state budget.
Means to improve the profitability of railways include, but are not limited, to the
following: (i) improvement of management system, ensuring independence of joint
78
stock companies, (ii) improvement of transport services and reduction of energyconsumption, (iii) diversification of services, (iv) application of flexible tariffs, (v)
creation of fair and even conditions for all freight forwarders and shippers while
providing transport services, and (vi) implementation of procurement only on the
basis of tendering.
The outlays for rail infrastructure maintenance have fallen dramatically since 1991.
This is illustrated by the Cost of maintaining 1 km of rail infrastructure in AMD
million:
 In 1991:
 In 1999:
 In 2000:
 In 2001:
21.30
1.62
2.05
1.37
(42,6 thousand USD)
( 2,96 thousand USD)
( 3,62 thousand USD)
( 2,41 thousand USD)
According to Armenian MOT, the integration of Armenian railways with neighboring
countries and the development of railways system could involve the following new
railway connections: (i) the link to the North involving north territories of Armenia
and providing access to Georgian ports Poti and Batumi, (ii) and the link to the South
(Iran) requiring the construction of 449.6 km of new rail tracks. It is, however, not
clear whether these connections would be viable. From the operational point-of-view,
the best connection is via Nakhichevan.
Table G.3. Transport work in Passenger and cargo transport by rail in Armenia 19892000
Source: Armenian MOTC reply to the seminar questionnaire, 2002
year
Passenger Transport
1,000 passenger/km
Goods transport,
million ton/km
1989
380,500
5,120.5
1990
315,500
4,884.0
1991
319,759
4,179.0
1992
445,989
1,280.0
1993
435,196
450.1
1994
100,107
377.6
1995
98,206
425.9
1996
84,200
351.0
1997
84,000
381.1
1998
52,400
418.5
1999
46,400
323.9
2000
46,800
353.6
79
Other considerations by the MOT include the reconstruction of rail-ferry connection
"Caucasus", a Container block train between Yerevan and Poti, establishing Armenian
rail company offices in the ports of Poti, Novorossisk and Taganrog, the rehabilitation
of Airum border station, and the possibility to introduce fast trains in the main
directions- Yerevan-Erasx, Yerevan-Giumri and Yerevan-Sevan.
Installation works of the optical-fiber cable alongside the whole rail track is being
carried out satisfactorily, and it will give Armenian railways a possibility to introduce
modern signaling and communication systems on railways.
Completion of
installation is expected in July 2002.
The labor force in Armenian Railways was reduced by 252, from 4,445 in 2000 to
4,193 in 2001. The average revenue for passenger service increased by 25 percent
from $0.006 per passenger-km in 2000 to $0.007 per passenger-km in 2001. This,
coupled with a 2 percent growth in traffic volume, increased the passenger revenue
from AMD 144 million ($0.27 million) to AMD 190 million ($0.34 million).
The average revenue for freight service increased by 7 percent from $0.024 per tonkm in 2000 to $0.025 per ton-km in 2001, thanks to the pricing flexibility introduced
in September 2001. Instead of a uniform rate of $0.024 per ton-km, domestic freight
rates are now based on cost-based pricing, resulting in a growth of domestic freight by
nearly 7 percent, from 333,000 tons in 2000 to 355,000 tons in 2001. Domestic
freight accounts for about one fourth of the total freight traffic. As a result, freight
revenue went up 7 percent from AMD 4,517 million ($8.4 million) to AMD 4,822
million ($8.7 million), despite a 3 percent reduction in freight volume. Being a very
short haul carrier, the freight operator in Armenia is facing substantial competition
with road transport, and the reduced tariff structure will impact positively on the
improvement of the financial performance.
The railways are current for their financial obligations, with most of the outstanding
receivables and payables limited to internal transactions among their own three
companies.
As stipulated in the Armenian Transport Law, starting January 1, 2002, losses from
passenger transport services will be covered from the state budget the instead of a
cross-subsidy from the freight service. ARD requested a subsidy of AMD 300 million
(USD 0.54 million) for the year 2002 to compensate for the loss making commuter
services into and out of Yerevan, but it has not been included in the 2002 government
budget. The requested amount was much smaller than the cost of passenger
operations calculated by the assigned consultant during the World Bank project
preparation.
According to the World Bank experience, the government should allow pricing
freedom to freight operators. The long-term dependence on cross subsidies from
freight to passenger services forces rail freight rates to be held above costs, damaging
the competitiveness of rail transport.
80
G.2. Azerbaijan
There are 2,116 kilometers of railways. Much of the rail track and rolling stock is in
need of repair or replacement. The railway network has no repair facilities although a
USD 20.2 million loan from the EBRD will be used for substantial reconstruction of
the railway network.
The main source of income is freight transport, which is operated at a profit.
Passenger services have been operated at a loss, which amounted to USD 16.4 million
in 2000 (Table G.4.).
Azerbaijan Dovlet Demir Yolu (ADDY, the State Railways of Azerbaijan) operates as
an independent economic entity and reports through its Director General to the
Council of Ministers. ADDY has considerable commercial independence, and the
authority to enter into contracts and incur debt denominated in foreign currencies.
The rail network in Azerbaijan consists of three international routes radiating from
Baku to Russia, Georgia, Armenia and Iran. Since the conflict with Armenia, some
260 kilometers of the network are not in operation. ADDY is predominantly a freight
railway, with freight trains comprising 90 per cent of total traffic unit-kilometers
operated, which are dominated by the transportation of oil and refined oil products.
Freight traffic is increasing and is expected to reach 16.5 million tons by 2003, most
of which will be on the Trans- Caucasian line.
The biggest increase is in transit traffic from Kazakhstan. The construction of an oil
transshipment sea terminal and oil filling station in Diubendi in 1998 has had a
substantial impact. In 2001, the terminal handled 2.5 million tons of oil that was
transported by rail to Batumi port, for subsequent transport to Europe.
According to ADDY’s responses to the seminar questionnaire in 2002, the total length
of main track is 2,932 km, and its operating length is 2,116 km. Of this, 815 km are
double-track lines and 1,272 km is electrified (60%), and 845 km (40%) is operated
by diesel locomotives.
Half of the lines, i.e. 1,126 km are equipped with auto blocking systems, 476 kmwith central controlling system, and the rest of the lines with half-automatic blocking
system. There are 176 stations, of which Baldjari and Shirvan are large automatic
marshalling yards, 12 stations are equipped with container yards with appropriate
equipment, and 3 stations are processing large-size containers.
The Railroads’ long term development program up to 2010 has the following key
points: (i) reconstruction of Locomotive depots in Baku and Baladjari, (ii)
reconstruction of existing signaling and communication systems on the section BakuBeiuk-Kasik, (iii) reconstruction of Baku rolling stock depot, (iv) reconstruction of
Baladjari washing station, (v) construction of the factory for the production of 250
thousand units of concrete sleepers, and (vi) reconstruction of Baku wagon Repair
factory
ADDY’s strategy is to try to rebuild its traffic base by promoting its international
links, particularly to Russia and the Black Sea, and to improve the standard of its
infrastructure. ADDY’s priority corridor is the Trans-Caucasian line, where traffic is
81
increasing most rapidly. However, lack of funds in the 1990s resulted in deterioration
of the track. In December 1999 the EBRD signed a project with ADDY which aims to
enhance the physical and economic viability of the Trans- Caucasian railway route, to
improve the efficiency and environmental management of the oil tanker wagon fleet,
and to support commercialization of the railway. (EBRD 2001c)
Table G.4. Statistics on rail passenger and goods transport in Azerbaijan 1995-2000
Source: Azerbaijan Railways reply to the seminar questionnaire, 2002
1995
Cargo turnover. Million ton-km
1996
1997
1998
1999
2000
2,409
2,788
3,515
4,702
5,052
5,770
Passenger turnover. Million pas. km
791
558
489
533
422
493
Number of Employees. Thousand
34.7
28.8
28.0
25.5
35.9
30.3
Total length of rail track, km
2,123
2,123
2,117
2,117
2,116
2,116
of which: electrified double track, km
1,276
1,276
1,271
1,270
1,270
1,270
Number of Cargo wagons, units
29,198
28,335
25,438
25,872
25,659
25,659
875
875
870
815
775
775
16,783
16,725
10,396
11,505
11,552
11,552
Number of Passenger Cars, units
Number of Containers, units
Goods transport revenue, USD million
38.2
Losses from passenger transport,
USD million
16.4
Investments, USD million
2.5
1.9
of which: new construction, USD
million
0.2
0.2
of which Cargo wagons, USD million
2.3
1.7
State budget funded investment, USD
million
1.0
0.3
11.0
20.0
8.4
13.3
4.1
11.0
6.7
4.3
2.3
1.4
The EBRD project included major repairs to the Balajari Wagon Washing Plant, and
the introduction of measures to commercialize ADDY. The project consisted of a
USD 20.2 million loan and grant funding of USD 8 million from the EU-TACIS
program. A condition of the EBRD’s involvement in the financing of the investments
obligated ADDY to implement a specific Environmental Management Plan for the
Balajari Wagon Washing Plant, the most environmentally significant component of
the project. The plan outlined a number of specific actions to reach regulatory
82
compliance in the areas of air emissions, waste management, materials handling and
storage, as well as energy conservation, waste reduction, occupational health and
safety, and emergency response. (EBRD 2001c)
Baku Locomotive depot carries out major-repair works of electric engines, electric
locomotives and trains. Baladjari and Ushmilini locomotive depots carry out major
repair of diesel locomotives. Major repair of rolling stock is carried out in Giandja
depot. Refrigerated wagons are repaired in Aliyati depot, tank wagons in Baku and
containers in Kishly.
Azerbaijan Railways has 769 passenger cars, of which 473 are. Average service age
of the cars is about 30 years. Financial conditions of railways does not allow the
purchase of new passenger cars, therefore the only justified possibility was
establishment of local major repair depots for passenger cars. Therefore several
repair shops of Baku Depot were reconstructed to handle passenger wagons, and some
new shops were also constructed.
This enabled the railways to resume international passenger traffic and today it
operates routes from Baku to Moscow, Kiev, Rostov, Kharkov, Astrakhan, and
Tbilisi. Special local trains serve the routes from Baku to Akstafa, Balocani, and
Gianfdja. Ticket-service is completely computerized.
Azerbaijan has entered into bilateral rail transport agreements with Russia,
Uzbekistan (1996) and Ukraine (1997). Azerbaijan Railways is a member of UIC.
G.3. Georgia
Georgia’s fully electrified railway network covers 1,583 kilometers of track. The
main route runs across the country, starting from Baku in Azerbaijan, via Tbilisi to
Samtredia and then on to Batumi and Poti ports, as well as into Russia via Sukhumi.
A new line is planned between Tbilisi and northern Turkey, which could further link
to a connection between Armenia and Iran. Table G.5. shows volumes for cargo
transport volumes and passenger traffic in 1997-1999.
Table G.5. Passenger and cargo volumes by rail in Georgia 1997-1999
Source: http://web.sanet.ge/gic/transpor.htm
Annual volume of cargo transported
Annual number of passengers
Unit
1997
1998
1999
Million tons
Million passengers
7.23
1.89
8.5
2.3
9.4
1.87
For passengers, rail travel in both the west and the north is difficult due to the conflict
in Abkhazia. Rail travel in other parts of the country is possible, but services are
sporadic to many destinations. Trains are the best way to travel throughout the
country, in spite of relatively modest level of service.
83
G.4. Rail infrastructure maintenance
The EU is financing the implementation of the Caucasian railway telecommunication
network, covering installation of underground optical cable in all three Caucasian
states, to allow for a direct connection with Europe (as part of the Trans Asia-Europe
cable running from Frankfurt to Shanghai). Part of the capacity of the so-called
Caucasus Optical Cable will be used by Armenian Railways to its operations and to
increase traffic. The remaining capacity will be made available to private operators,
improving the Armenian telecom market. The World Bank is financing this project.
The World Bank transport project in Armenia includes financing for the rehabilitation
of tracks and bridges, and for upgrading the locomotive fleet. It is also contributing to
institutional strengthening of the Armenian Railways and the companies responsible
for infrastructure management, and freight and passenger services. In July 2000 a new
rail cargo terminal was opened in Yerevan, following modernization financed by the
EU within the framework of the TRACECA program, with the participation of the
government. The terminal is expected to contribute to an increase in transit freight
from Iran to Russia and on to Europe. The EU provided USD 1 million for equipment,
while the government financed construction work for USD 0.25 million.
G.5. Regional Railway Developments
The Trans-Caucasian railway is a key link in the main TRACECA transport corridor
between the landlocked countries of Central Asia and the west. The Trans-Caucasian
rail link extends from Baku on the Caspian Sea to the Black Sea ports of Poti and
Batumi. The railway consists of 924 kilometers of electrified track, of which 499
kilometers are in Azerbaijan. (ESCAP 2001)
G.5.1. International rail agreements
Many countries in Europe and some in Asia (for example, the Islamic Republic of
Iran) are parties to the Convention Concerning the International Transport of Goods
by Rail (COTIF), Bern 1980, which replaces the traditional national customs
document with the International Consignment Note (CIM) established under COTIF.
The COTIF Convention is valid in most European countries, as well as in the states of
the Middle East and Africa, which are connected with the European railway network
via rail or via ferry. The Islamic Republic of Iran is also a party to the COTIF
Convention.
Meanwhile, the member countries of the Organization for Railways Cooperation
(OSJD), including among others, countries in the Caucasus and Central Asian regions
as well as the Russian Federation, have developed and are using the system known as
the Agreement on International Railway Freight Communications (SGMS) for the
same purpose.
At border points separating neighboring railway organizations which are signatory to
either of the above convention or agreement, the waybill are rewritten from one
84
format to the other. Recognizing the impact of this situation on the efficiency of
international movements by rail, both organizations are seeking ways to harmonize
the existing procedures. In this respect, it is interesting to note that the Russian
Federation has spearheaded efforts to define a new transit document, the so-called
GPBRT bill of lading, relating to the operation of container block-trains between
Germany and the Russian Federation through Belarus and Poland under the ‘Ostwind’
container services running between Berlin and Moscow.
Mainly bilateral agreements govern transit by road and/or rail vehicles at the borders
and border stations between countries in the corridor.
E 10
Kouvola Vainikkala
Luzhaika
UN/ECE
AGC
St Petersburg
E
International Railway Lines
31 December 2001
10
R
U
S
S
I
A
N
A
T
I
Tyumen
F
E
D
E
R
O
N
E
(Yekaterinenburg)
Sverdlovsk
10
E 20
Nizhniy Novgorod
Vladimir
C-E 20
E2
0
MOSKVA
Kurgan
E 20
C-E 30
Chelyabinsk
Smolensk
Krasnoye
Krasnoyarsk
Irkutsk
Vladivostok
E 20
C-E 30
Ryazan
Ufa
Novosibirsk
Omsk
Petropavlovsk
Presnogor'kovka
50
E
95
E 99
Orsha
E
MINSK
20
B E L A R U S
E
Brjansk
E 30
C-E 203
Magnitogorsk
Kartaly
Samara
Kokchetav
Kustanay
30
Kotchetovka
E
Gryazi
Pavlodar
Suzemka
Zernovo
Esil
Atbasar
Dzhaksy
Voronezh
Ozinki
Orenburg
E 30
Uralsk
E3
AKMOLA
Derzhavinsk
0
Ust-Kan
Iletsk 1
KIEV
E 50
E 30
Solovei
Valuiki
Fastov
Karabutak
I
Kupyansk
N
E
Lozovaya
O
E 95
O
E 56
0
99
E
E 95
C
E 95
59
Shetpe
Veseloe
Gantiadi
Burgas
720
E Dimitrovgrad
Micurin
Poti
Chervlennaya
Uzlovaya
E
20
3
Alashankou
Sary-Ozek
C
-E
50
E
Taldy-Kurgan
Khorgos
50
0
Chu
Kungrad
E 50
Fetisovo
Kegen
ALMATY
Zhambyl
Nukus
G E O R G IA
0
50
Zhetybay
E
95
1
E 99
-E
Druzhba
Burylbaytal
7
Kzyl-Orda
Varna
Kokpek
BISHKEK
Tyup
Dasshaus
E
Kapikule
E 70
Sivas
Turkmenbashi
B.
E
TU R KME N IS TAN
Chardzhu
R
70
Alyat
ZE
Malatya
E
Kapikoy
E 70
Razi
Mindjivan
Meghri
E 97
Iskenderun
Sary-Tash
Guzar
Astara
Gorgan
Kamishli
Murgab
DUSHANBE
ASHGABAT
Mary
0
E7
C H I N A
TAJ IKIS TAN
Sherobod
Tedjen
S YRIAN
Arab Republic
Irkeshtam
Jirgatal
Karshi
97
Torugart
Ayni
5
Gyzylarbat
Lankaran
Nusaybin
Yenice
Mersin E 97
Buchara
Alat E 69 Samarkand
Osh
Kokand
Khavast
Dihzak
Nawoy
A
T U R K E Y
Imishli
7
E9
70
70
E
Kalin
E
Naryn
Andijan
UZB EKIS TAN
YEREVAN
Kütahia
K I R G I S T A N
Chengeldy
7
BAKU
ARMENIA A Z E R B A I J A N
ANKARA
E 70
59
Shymkent
TASHKENT
5
E 59
E 97
Eskisehir
Idjevan 69
Dilijan E
Arya
Uchkuduk
Bekdash
Yalama
Kuba
Ghazakh
3
Gandja Evlak
Samsun
Haydarpasa
Istanbul
E 74
Bakhty
Novokazalinsk
E 680
Balikesir
Maikapshagai
Taskesken
Aktogay
C-E 203
Ucharal
66 Kaspican
0
Bandirma
Ayaguz
Beineu
Krasnodar
E 70
N
Balkhash
Novorossiysk
72
A
Mointy
E
54
E
T
9
Izmail
Buzau
0
E 68
Karnobat E
S
Aralsk
BUCURESTI
E 562
Giurgiu Constanta
Ruse
Videle
H
Atyrau
VA
57
K
Astrakhan
Reni
0
56
A
50
LD
E
E
E
1
E 85
Ploiesti
Galati
Z
Dzhezkazgan
Odessa
E
Brasov
A
Makat
Rostov-na-Donu
Razdelnaya
Kuchurgan
CHISINAU
Bendery
K
Georgiyevka
Volgograd
E 50
Krasnaya
Krasnoarmeisk
Mogila
Donetsk/Yasinovataya
Kvashino Uspenskaya
E
Taganrog 593
M
Ungeny
E 95
Iasi
E 95
Kandagach
Lougansk
Debaltsevo Gukovo
Dnepropetrovsk
Pascani
E 99
A
E 391
R
Ust-Kamenogorsk
Karaganda
Topoli
50
K
Vadul Siret
Vicsani
Semipalatinsk
Arkalyk
Kharkov
E 30
E
U
Aktyubinsk
Khorugh
Termis
Gaudan
Nizhiniy Panj Ishkashim
Lyangar
Sarakhs
I R A Q
I
R
A
N
Kushka
AFG HAN IS TAN
Main lines
Secondary lines
Gauge interchange station
CYPRUS
Figure G.1. The AGC network of railways in Eastern Europe and Central Asia
Source: UN/ECE
At regional level, the Inter-governmental Agreement on International North-South
Transport Corridor signed in Saint Petersburg in September 2000 encompasses the
common desire of the four signatories – India, Islamic Republic of Iran, Sultanate of
Oman and Russian Federation – to develop transport linkages and services. However,
85
the agreement only covers the route from India and Oman by sea to and through the
Islamic Republic of Iran and further on through the Caspian Sea and the Russian
Federation. The corridor designation in the agreement does not cover the all-land
routes going through the Caucasus area or the Central Asian region. However, the
agreement may be an example to follow for the entire North-South Corridor.
G.5.2. Trans-Asian Railway North-South Corridor
In recent years there has been an upsurge of interest in the feasibility of rail container
transport as a possible alternative to shipping between Northern Europe and the
Persian Gulf with shipping connections to South and South-East Asia. In order to
assess this corridor, ESCAP (2001) conducted a study to identify
(i) all feasible rail and land-cum-sea routes connecting Northern Europe with the
Persian Gulf through the Caucasus region, Central Asia and/or the Caspian Sea;
(ii) The characteristics of these routes in terms of their lengths and the transit times
they can offer, with due attention to average operating speeds as well as typical dwell
times at border stations and transshipment points; and
(iii) the possible presence of operational restrictions which might impede the smooth
flow of goods along the routes.
The different routes are shown in Figure G.2. Time comparison by sea or by either
rail, or sea-cum-rail for movements between Northern Europe and the Persian Gulf
with onward connections to South and South-East Asia is given in table G.5.
Table G.5. Estimated transit times in the three route options of the Trans-Asian
Railway North-South Corridor; in days
Source: ESCAP 2001
Helsinki to:
Sea (1)
Rail (2)
Land-cum-sea (3)
Tehran
33.2 days
11.5 to 12 days
33.2 days
Lahore
41.5 days
17 to 18.5 days
22 to 24 days
New Delhi
32.1 days
18 to 20 days
25 to 27 days
Bangkok
31.5 days
Not applicable
33 to 35 days
(1) With direct sea movements from Helsinki to Bandar Abbas, Karachi, Mumbai or Port Kelang.
(2) Considering the only currently operational route through Central Asia.
(3) All-rail to Bandar Abbas along currently operational route through Central Asia followed by sea
transport from Bandar Abbas to Karachi, Mumbai or Port Kelang and rail journey from these ports to
final destination.
The above estimates show a distinct transit time advantage for rail over shipping,
reflecting the actual differences in distances.
86
Figure G.2. Routes of the projected North-South Corridor of Trans-Asian Railway
Source: UN/ESCAP 2001
However, at this point in time, caution must be exercised in the interpretation of these
figures calculated on a series of optimistic assumptions. For example, as regards
shipping, the 2-day dwell time in ports used in the calculation may be shorter than is
actually the case. As regards rail, the times indicated consider unimpeded movements
between countries, especially between the Islamic Republic of Iran and Pakistan, and
between Pakistan and India. Meanwhile, landcum-sea transit times suffer from the
absence of regular, direct services from Bandar Abbas to ports in South and SouthEast Asia. While there is no doubt that the rail and land-cum-sea options are likely to
offer attractive transit times in future, much will have to be done to capitalize on this
advantage in the fields of tariffs, services and facilitation.
87
H. Pipeline transport
Pipeline transport is used for movement of fluids and gases as an integral of typically
oil and gas extraction and refining. The transport economy of pipelines is based on
large and stable quantities over relatively short and medium distances. In landlocked
regions, the pipeline networks extend reach several thousand kilometers. Pipelines
are capital-intensive fixed installations that are typically financed by and operated
through exclusive contracts to a limited number of oil and gas companies. Pipeline
transport is briefly discussed here since they create a large demand for rail, port and
shipping services in the South Caucasus region.
The issue of transit over Caspian oil and gas pipeline routes has wide economical and
political implications beyond the three South Caucasus states. Competition over the
routes for pipelines to carry Caspian oil and gas is fierce, as nations vie for the
opportunity to earn from transit fees and infrastructure investment.
Azerbaijans primary concern is to find a main export line that is both cost-effective
and secure. Several routes are being considered in addition to the existing pipelines
used by Azerbaijan International Operating Company (AIOC25) during the “early oil”
phase. The AIOC exports its early oil through two pipelines, a northern route through
Russia and a western route through Georgia, with a combined initial design capacity
of about 200,000 barrels per day (b/d). The northern route became operational at the
end of 1997, and the western route in April 1999.
However, shipments through the northern route were interrupted by pumping
problems and the conflict in Chechnya, leading to rail transportation of 70,000 b/d
around Chechnya from Dagestan to Stavropol, a Russian city on the northern side of
Caucasus. The AIOC shipped about 100,000 b/d via the western route in 2000.
Although several proposals have been made to expand the capacity of each of these
routes, the AIOC expects production to peak at about 800,000 b/d within the next 15
years.
Exporting the additional oil requires building additional oil export pipeline capacity in
the order of 1 million barrels per day. The total revenue that Azerbaijan and the
AIOC members can expect to generate varies with each route. Contributory factors
include: the capacity or diameter of pipelines; estimated tariffs for transit through
various countries; and the general cost of bringing each route on line, such as length,
refurbishment required, amount of new pipe needed, building or refurbishing
communications facilities, pumping stations, and upgrading of port facilities.
The three most likely routes are: 1) through Russia to the Black Sea; 2) through
Georgia to the Black Sea; and 3) through Georgia and Turkey to the Mediterranean
Sea at Ceyhan. There are other proposed pipelines routes, including one through Iran
to the Persian Gulf, using the existing pipeline structure in Iran. However, US
sanctions against Iran, which will be under review this summer, are standing in the
25
BP Amoco is the largest shareholder (34.2 per cent), followed by Lukoil (Russia), Unocal (USA),
and SOCAR (Azerbaijan), each with a 10 per cent share. The remaining six international shareholders
have 3.8 to 8.6 of shares. (EBRD 2001d)
88
way of this proposal. In any case, a regional pipeline and transit system centered on
Azerbaijan is beginning to emerge.
All export pipelines are effectively only open to the AIOC and SOCAR. All other
Azerbaijan companies sell their oil domestically or export via rail using the services
of Caspian TransCo, which SOCAR has designated as the purchaser of oil from
Azerbaijan’s joint ventures as it is the only transportation company with available
capacity. (Figure E.3.; EBRD 2001c and d)
Figure E.3. Map of existing and proposed oil pipelines
Source: EBRD 2001c
89
Oil is also currently being shipped across the Caspian from Kazakhstan and
Turkmenistan to Azerbaijan for further trans-shipment westwards. Chevron (US), the
operator of the TengizChevroil Joint Venture, has contracted Caspian TransCo to load
oil from its Tengiz field onto trains at a loading facility near Baku, to be shipped via
pipeline and rail to the Georgian Black Sea port of Batumi. Shipping volumes have
risen from 2,000 b/d in 1996 to an estimated 60,000 b/d in 2000. Caspian TransCo has
also been working with the Azerbaijan government to overhaul and expand the oil
terminal facilities at Dyubendi, 48 kilometers north of Baku, to allow for further
increases. Additionally, Caspian TransCo has the exclusive right to use pipelines
belonging to SOCAR, including the oil-loading facility near Baku.
Azerbaijan has two major refineries, at Baku and Novo-Baku, known respectively as
Azerneftyag and Azerneftyanadzhag. The Baku refinery has a capacity of 238,978
b/d, and the Novo-Baku refinery can process 202,830 b/d. However, both refineries
have been running well below capacity, and overall refinery utilization averages 40
per cent. Azerbaijan is planning some upgrading at both refineries at an estimated
cost of about USD 700 million.
The US Trade and Development Agency will finance a USD 500,000 feasibility study
for the upgrading of the Baku refinery. It is expected that minority interests in the
two refineries will be put up for privatization as part of the second privatization
program. It is also expected that the majority of Azerbaijan’s companies operating in
the chemical and petrochemical industry, mostly located in Sumgait, will be
privatized. (EBRD 2001c)
90
I. Ports and maritime transport
Only Georgia has access to High Seas through its ports in the Black Sea, mainly Poti
and Batumi. Azerbaijan, on the other hand, is the only one having ports in the
Caspian Sea. The Caspian Sea is directly connected to Russian’s extensive inland
waterway system through e.g. rivers Volga/Don.
Armenia is a completely landlocked country and does not have coastline of its own.
However, Armenia has made an agreement with Russia to establish a special ferry
link in the Black Sea, enabling Armenian cargoes to bypass the Abkhaz section of the
Georgian railway, which is blocked by ethnic unrest. The ferry link will run from
Georgia’s Poti port north along the coast to Novorossiysk in Russia, and will cost
USD 6 million (EBRD 2001b).
Sea and water cargo transportation has vital importance for Azerbaijan, especially
when there are road and rail transport disruptions. Azerbaijan has direct maritime
connections only with other Caspian littoral states (Iran, Kazakhstan, Russia, and
Turkmenistan). However, it can reach the high seas via the Volga- Don canal, or
through Georgia by rail or road to the Black Sea.
According to data gathered by ECMT, the transport work along inland waterways (i.e.
the Caspian Sea) in Azerbaijan was 2.67 million ton-kilometers in 1997, 2.48 million
in 1998, 4.74 million in 1999, and in 2000, it had reached 4.89 million ton-kilometers.
Despite of the importance of shipping to Georgia and Azerbaijan, the number and size
of shipping companies of these countries is small. The shipping companies in the two
countries are mainly owned by the public sector. The main part of shipping services
to the Georgian Black Sea Ports is taken care of by non-Georgian ships and shipping
companies.
The Georgian Shipping Company (GSC) was one of the six former Soviet Union’s
entities engaged in maritime services in the Black Sea. Georgia is a small shipping
nations. In 1992 the GSC had 44 vessels with about 1 million DWT. In 1999 it was
restructured, and as a consequence, it was split into a number of smaller shipping
companies. In Baku, the Caspian Sea Shipping Company is operating mainly with
bulk and oil tonnage.
In Azerbaijan, the state-owned Caspian Steamship Company (CSC) is virtually the
only Azerbaijan operator in maritime transport. It operates cargo vessels between
Baku and the Turkmen port of Turkmenbashi, where it transported 1.6 million tons of
cargo in 1998. 1.5 million tons was transported to other Caspian Sea ports. In 1998
the Company transported 20,000 passengers between different ports in the Caspian.
Baku International Sea Port is the largest port on the Caspian Sea. Its ferry terminal
will be undergoing a major reconstruction supported by the EBRD with a USD 16.2
million loan. Once modernization of Baku port is complete, it will be able to handle
30 million tons of freight a year. The Caspian Sea provides vital transport links with
other countries and is being used to ship oil until various pipeline projects are
completed.
91
The Black Sea ports are of strategic importance, both for Georgia and for the region at
large. The port of Poti handled about 3.4 million tons of cargo in 2001, which less
than half of it capacity of 7 million tons a year. Another important Georgian port is
Batumi, which has a freight capacity of 5 million tons. Port tariffs in both Poti and
Batumi are approved by the MOT of Georgia.
Since the Azerbaijan-Supsa oil pipeline was built almost all freight from the Caspian
region now passes through Batumi and Poti. The oil terminal constructed at Supsa,
close to Poti, handles oil deliveries through the Baku-Supsa pipeline.
The Black Sea ports handle mainly bulk or semi-bulk cargoes, and the movement of
unitized cargoes is very modest. According to ECMT data for the year 2000, the
Georgian ports handled about 36,000 containers measured in TEU’s (Twenty feet
equivalent units) with a gross tonnage of 391,000 tons. In the same year, only 4,700
containers were moved by rail, which indicates that most inland haulage of containers
is taken care of by road transport.
Both Azerbaijan and Georgia are members of IMO. There are also a number of
bilateral agreements on maritime transport. For example, Azerbaijan has such
agreements with Kazakhstan (1997), Romania (1997), Turkey (1997), Turkmenistan
(1996), and Ukraine (2000).
I.1. The Port of Baku26 in Azerbaijan
In the Soviet era, Baku was the most important port on the Caspian Sea. Today it
provides a key link in the transport chain connecting Western Europe with the Central
Asian republics via the Black Sea ports of Georgia, on the TRACECA route.
Baku International Sea Trading Port was formerly a department of the Caspian Sea
Shipping Company (CSSC), which in the Soviet era was responsible for all maritime
and associated landside operations in the Caspian. The Port was established as a
separate entity in November 1994. The Port is state-owned, with operational and
financial autonomy. There are four main operating units which generate revenues: the
Main Cargo Terminal, the Ferry Terminal, the Oil Terminal, and Shipping Services
(pilot service, tugboat services, dredging), plus administrative support departments
(e.g. marketing, accounting).
There are four terminals. The ferry terminal was constructed in 1963 with two berths
which are in poor condition, as are the associated facilities (access ramps, link spans,
paved areas, etc.). The dry cargo terminal in the main port comprises five principal
berths, a ro-ro ramp and berthing facilities for port craft. These berths are also
generally in poor condition but are not used as intensively. The timber terminal has
not been used since it was flooded in 1996 by the rising sea level in the Caspian. The
oil terminal is presently in an acceptable operating condition. A Two thirds of the
total port traffic is crude oil, while oil products add a further 7 per cent. In 2001 it
26
Based on EBRD 2001
92
processed 2.6 million tons of oil mainly originating from Kazakhstan and
Turkmenistan and transported to the Georgian Black Sea Ports. Dry cargo through
the main port accounts for less than 3 per cent of total traffic.
Ferry traffic peaked at about 5 million tons in 1986, before falling to a low of 360,000
tons in 1993. Since then it has enjoyed an annual growth rate of 19 per cent. In 2001,
it handled 1.9 million tons of cargo in 30,800 rail wagons. The ferry service is
operated by CSSC, which owns eight large ferries able to carry both rail wagons and
road vehicles. Five of these vessels operate a service to the Port of Turkmenbashi in
Turkmenistan on the TRACECA corridor. The distance from Baku to Turkmenbashi
is about 310 kilometers and the ferry crossing takes about 14 hours. There are on
average eight sailings per week. In addition, in July 1999, a once-weekly, vehicleonly ferry service started to the Port of Aktau in Kazakhstan. EU-TACIS is involved
in improvements to the ferry facilities at Aktau to permit more intensive operations.
To improve the efficiency of port operations, increase profitability and establish
greater commercial autonomy a EUR 20 million port development project was set up
which includes rehabilitation of the ferry terminal, restructuring of the Port’s
organization, and review of tariff structures. The EBRD extended a USD 16.2 million
sovereign loan to enable the Port to rehabilitate ferry terminal facilities. The project
has a substantial institutional development component for which EU-TACIS provided
technical assistance (EUR 1 million). Funding for engineering supervision (EUR
980,000) will also be supported by EU-TACIS. Baku International Sea Trading
Port’s strategy addresses three main issues: growth of traffic, revenue generation and
collection, and commercial and operational efficiency, including in particular the
quality of the ferry service.
The economics of the TRACECA route through Baku for international transit traffic
has been examined intensively by EU-TACIS and has been shown to offer in
principle advantages over alternative international routes, which is reflected by the
high level of traffic growth over recent years. The financial situation of the Port has
been adversely affected by its inability to raise tariffs and severe problems with debt
collection mainly from CSSC. The Port will open a Debt Service Account into which
the CSSC will be required to pay all amounts owing to the Port. This will add
transparency to the financial relations between the Port and the CSSC.
I.2. Port of Poti27 in Georgia
The port consists of an outer roadstead and an inner harbor. The inner harbor, which
is protected by breakwaters, consists 3 basins approached by a channel. The length of
entrance channel is 1,900m and the width 100m. The total area of basins is 643,400
sq. meters.
Occupying some 465,000 square meters the Port operates all the year round, including
weekends. At present the Port has cargo handling equipment on the 14 berths under
27
Current version based mainly on: http://www.potiport.com/geninfo.html and EBRD 2001
93
operation with total length of 2,650m, out of which 11 are equipped with portal cranes
of tonnage capacity from 6 to 40 tons and linked by railroad.
The Port has its own fleet consisting of tugboats, pilot boats, oil and garbage
collecting boats, water barge, two floating cranes from 35 up to 100 tons capacity.
Based on cargo handling facilities Port is able to serve almost all types of general,
bulk, project, liquid (gas oil, gasoline, chemical) cargoes and containers.
Several international shipping lines operate via the Port of Poti, with container links to
Istanbul, Piraeus, Malta, and Gio-Tauro by regular feeder lines, with Iliychevsk and
Varna by regular rail-ferry and with Bourgas by Ro-Ro lines.
In 2000 the port rendered services to 1220 vessels, that is 256 vessels more as
compared with the year of 1999. The throughput equaled to 3.6 million tons, which is
1.3 million tons more than in 1999. Total income amounted to GEL 38 million,
compared to GEL 28.6 million in 1999. Net profit in 2000 amounted to GEL 9.7
million. Profitability was slightly lower in 2001, but overall, the port is very
profitable. (Table I.1.)
Table I.1. Statistical data for the Port of Poti in 1999-2001
Source: Questionnaire responses, The Port of Poti
Cargo turnover
Containers
Ships processed
Income
Expenditures
Revenues (balance)
Profitability ratio
Number of Employees
Average salary per empl.
Unit
Thousand ton
TEU
Units
Thousand GEL
Thousand GEL
Thousand GEL
%
1999
2000
2,298
2,9761
964
28,569
20,844
7,725
37
2,606
141
GEL/month
2001
3,619
36,159
1,220
38,088
28,342
9,746
34
2,681
177
3,440
41,060
1,114
35,523
28,950
6,573
23
2,754
178
According to the Port modernization strategy, Poti Port is carrying out development
projects by using its of own resources and attracted foreign investments.
Since 1999, the port has invested substantially in cargo handling equipment,
modernized two tugboats and purchased a new pilot boat. Maintenance of the Port's
wharves and entrance channel has also been carried out. A new ro-ro terminal was
completed in 1999, financed by a EUR 6 million grant from the EU’s TRACECA
program.
The reconstruction of the existing covered storage (7,000m2) and the construction of
a new one (3,000m2) alongside berth number 10 and 11 are being carried out by the
Port. The construction of new storage will be completed by the end 2002. The
completion of the reconstruction of the existing warehouse is Spring 2002. These
warehouses will be leased to private operators.
94
An UK-based investor will commence constructing the oil product terminal with a
capacity of 3.5 million tons per year. The project cost is 30 USD million, out of
which 20 USD million will be EBRD loan.
The Port intends to lease berths and terminals to operating and stevedoring companies
on a long-term basis. Plans exist to announce international tenders for leasing the
eight berths and the ferry terminal. Berth No 6 has already been taken on lease by a
local private company. The tenders are expected to be announced in the beginning of
year 2003.
I.3. Port of Batumi in Georgia28
Batumi port is a substantial transit port mainly for Azeri and Kazakh oil with 8.4
million tons of cargo in 2001. Up to 90 per cent or 7.6 million tons of cargo turnover
is crude oil and oil products, while 70 percent of the remaining dry-cargo volume is
general cargo. 784 ships were handled in 2001, which is on average 2.1 ships per day.
Since 1997, the port has been run as a municipal enterprise.
Batumi has 11 piers, and oil, dry cargo and passenger terminals. Plans are underway
to build a new container terminal in the near future to handle larger volumes of
freight.
TRACECA has been preparing a grant valued at EUR 2.2 million for a railway-ferry
connecting Constanza, Samsun and Batumi.
Based on cargo turnover and collected revenues, year 2001 year was the best year in
the past 12 years, and volumes are expected to increase in 2002.
The gross cargo turnover of 8.4 million tons in 2001 generated GEL 26.4 million in
revenues. The port seems to be exceptionally profitable, because the reported
expenses were GEL 9.6 million. This leaves a margin of GEL 16.8 million, and a net
profit of GEL 0.8 million. The port transferred GEL 8.2 million to the municipal
budget. The port employed 1,378 persons with an average salary of 193 GEL/month.
As a comparison, the official average salary in the transport sector in 2000 was 129.3
GEL/month.
28
This esction is based on data from the Portof Batumi, and from their website at:
http://batport.batumi.net/
95
J. Civil aviation
Air infrastructure management remains the responsibility of the public sector in all
three countries, but the ways in which civil aviation administrations and airport
administrations have been organized differ to some extent among the three countries.
The main weaknesses identified are: (i) limited administrative capacity of regulators;
(ii) small and fragmented markets; (iii) lack of individual strategies for these markets;
(iv) aging fleets; (v) two aviation worlds in terms of technology and regulations (e.g.
airworthiness).
J.1. Armenia
Aviation is allegedly one of the Armenian government’s priority areas for
development. Modernization, including replacement of practically all airport
equipment, and purchase or lease of passenger aircraft is needed.
The state carrier, Armenian Airlines, was offered for privatization in 2001 by
international tender, but this did not attract investors. The Government is planning to
revisit this issue after completion of the Airport concession described below.
Scheduled Armenian Airlines flights operate between Yerevan and Amsterdam,
Athens, Beirut, Dubai, Frankfurt, Istanbul, Kiev, London, Moscow, Paris and
Teheran, among other destinations. British Mediterranean Airways, the British
Airways franchisee, is now offering direct flights from London twice a week. Caspian
Air operates a twice-weekly flight between Yerevan and Teheran, and 17 regular
flights are operated by various Russian airlines to Russian cities. Austrian Airlines
commenced twice-weekly flights between Vienna and Yerevan in 2001.
Civil aviation infrastructure consists of three international airports, at Zvartnots
(Yerevan), Erebuni, and Gyumri, and nine local (non-military) airports, although most
of the domestic airports are not functioning.
In 1994 the EBRD made a loan of USD 22.8 million for the construction of a cargo
terminal at Zvartnots airport, which serves Yerevan. The terminal, which cost USD
27.8 million to build, was opened in early 1998. Apart from building a new
warehouse, the project included the construction of new taxiways to accommodate
cargo aircraft and the procurement of necessary cargo handling equipment.
According to Polyakov (2001), however, the demand for air cargo that was based on
the assumption of a strict international blockade of Armenia, has turned out to be
significantly lower than estimated. Consequently, the terminal was operating at
below 20 per cent capacity in 2001.
96
Management of Zvartnots airport is to be privatized, including responsibility for the
passenger and cargo terminals, but not air traffic control. The government is seeking
an experienced buyer willing to make investments to upgrade airport facilities. An
Argentine company Aeropuertos Argentinas 2000 has announced plans to invest USD
30 million to Zvartnots airport, but the indicative amount of investment needed is
closer to USD 100 million. Armenia's government and company Aeropuertos
Argentinas 2000 signed a memorandum on a 30-year concession of Zvartnots airport
in 2001. The Argentine company is mainly owned by a businessman of Armenian
origin. The company manages 32 airports in Argentina.
J.2. Azerbaijan
The state-owned national airline of Azerbaijan, AZAL, was offered for privatization
to both foreign and domestic investors in end-March 2001, along with some 450
larger enterprises.
There are regular flights between Azerbaijan and the CIS countries as well as the UK,
Germany, Israel, Iran, the Netherlands, Turkey and the UAE. The national airline is
AZAL, which is a conglomerate that is practically a self-regulating entity in
Azerbaijan civil aviation (see Figure J.1). It operates the main airlines, airports, air
traffic control, helicopter services and most of the aviation support services.
There are international airports at Baku, Gyandzha and Nakhcivan, although the latter
two are in need of reconstruction and repair. Baku’s Bina International airport opened
in 1999 after a USD 64 million upgrading and extension by Turkish company Enka.
The airport belongs to AZAL, and it can now handle 1,600 passengers an hour. The
new runways are also able to serve wide-bodied jets such as Boeing 747s. A number
of international airlines have offices in Baku. However, in 2000, some airlines
stopped their services to Baku, citing high handling charges by the Baku airport.
Azerbaijan is a member of ICAO and AZAL is a member of IATA. Azerbaijan has
entered into bilateral air transport or traffic agreements with Belgium, Germany,
Egypt, France, Italy, Kazakhstan, The Netherlands, Poland, Turkey and Uzbekistan.
97
Figure J.1. Organization structure of the aviation sector in Azerbaijan
98
J.3. Georgia
British Airways, Austrian Airlines, Turkish Airlines, Aeroflot and Air Ukraine as well
as the Georgian airline Airzena run regular flights connecting Tbilisi with the outside
world. Direct connections exist to a large number of European, Russian, Ukrainian
and Middle Eastern cities, including flights several times a week to and from
Frankfurt, London, Vienna and Istanbul. In 2001, Georgia had 35 international air
routes with 14 countries. (Table J.1. and J.2)
Table J.1. Air passenger and cargo volumes in Georgia 1997-1999
Unit
Annual volume of air
cargo transported
Annual volume of air
passengers transported
Tonnes
Passengers
1997
1998
1999
4,789
6,369
2,302
220,000
230,000
171,000
Source: http://web.sanet.ge/gic/transpor.htm
Table J.2. Airport passenger traffic from Tbilisi Airport 2000
Source: Georgian Administration of Civil Aviation
Liaison
(other Airport)
London
Frankfurt
Istanbul
Zurich
Amsterdam
Tel-Aviv
Teheran
Athens
Vienna
Moscow
Sankt-Petersburg
Sochi
Rostov
Krasnodar
Ekaterinburg
Samara
Kiev
Donetsk
Depropeetrovsk
Odessa
Tashkent
Baku
Distance
(km)
Average Flying time Annual
(hour)
Passengers
(thousands)
3 800
3 050
1 450
3 400
3 400
1 800
1 100
2 100
2 500
1 750
2 400
500
800
800
2 250
1 400
1 550
1 100
1 100
1 380
2 080
470
99
05.40
04.10
02.10
04.40
04.40
02.30
01.30
03.00
03.00
02.30
03.20
01.20
02.10
02.10
03.00
02.10
02.10
02.50
02.50
02.00
02.40
01.20
Total
15,4
16,2
28,3
14,7
3,8
9,0
2,0
6,9
16,7
112,4
5,2
2,2
0,0
0,6
3,6
4,6
8,2
2,9
1,2
0,4
2,0
3,8
260
Tbilisi airport has been rehabilitated with EBRD financing which has substantially
increased its passenger handling capacity. There are smaller airports at Kutaisi,
Batumi, Poti and Senaki, all near Black Sea ports. Discussions were underway in
2000 with the Turkish government to reconstruct Batumi airport, which would cost an
estimated USD 60 million. Both airport passenger and air freight volumes across the
country declined in the past year. A new program developed with specialists from the
International Civil Aviation Organization (ICAO) aims to double air passenger traffic
by 2003. Priority will be given to improving the operation of Tbilisi airport, with
further reconstruction and expansion costs estimated at USD 30 million.
100
K. General transport support services
This chapter deals with service providers that are supporting the transport sector, such
as freight forwarding, customs brokerage and warehousing services. Banking and
insurance services are also briefly covered in this chapter, together with customs
services.
The demand for transport and other logistics services is always derived from the
demand generated by trading partners, who are in the business of accommodating the
needs of their customers, which may be commercial end-users or consumers.
Transport markets in all developed countries have been transformed profoundly
through deregulation, privatization, and technological development (notably in
information and communications technologies) and through adaptation to customers’
changing logistical needs.
This has brought about new types of logistical operators and markets. In many cases
the physical handling and transportation of materials is subordinated to the
management of supply chains. Consequently, the transport sector has come to support
the wider logistical operations, rather than the other way round.
In all three countries, freight forwarding, warehousing and other logistics-related
services have been privatized almost entirely. Compared to EU standards, for
example, the supply of these services is poor, and the quality of the services is often
low. Many of the international logistics companies operating in these countries cite
that it is difficult to organize reliable and cost-efficient logistics solutions due to
unpredictable public administration procedures, corruption and criminality.
As was illustrated by the logistical friendliness survey in the Chapter “Strategic
Context”, all three countries were perceived as “unfriendly” in this respect, i.e. it is
problematic to arrange logistical operations. In other words, it is difficult to do
business with them.
K.1. Trade and Transport Facilitation
The World Bank has been active in promoting Trade and Transport Facilitation (TTF)
issues in Armenia, Georgia and Azerbaijan. This work includes the continuation of
South Caucasus Trade Facilitation Audit (2000) and the June 2001 Trade Facilitation
Workshop in Georgia.
The region faces high direct and/or opportunity cost of not acting in terms of high
transport costs and low credibility as trading partners (see e.g. the logistics
101
friendliness ratings in Section K.2.) This led to a request by the three countries at
highest level to continue efforts facilitate trade and transport.
These efforts have also significant on-going Donor Support (e.g. from TRACECA,
US and DFID). This is accompanied by significant activities by NGOs and
associations such as local freight forwarders, road transport associations, IRU, traders
and Transparency International. Transport and forwarding industry is also interested
in providing feedback on a regular basis.
The objective of the World Bank’s TTF work is to improve the detailed understanding
of soft barriers to trade and transport and working out mechanisms, through active
public-private interactions (Table K.1.), and to remove those progressively. TTF
activities by June 2002 include the following:

Intensification of the public-private dialogue on trade and transport issues

Preparation of four studies :
- performance measurement at selected border crossing and clearance
facilities.
- definition of barriers to trade and transport, of incentives at a regional and
national level to improve the situation and of suitable mechanisms to build
on these incentives;
- review of information mechanisms available to trade and transport
companies to learn about procedures applied by the various border agencies;
and
- need-analysis of logistic/distribution/industrial centers and the definition of
suitable solutions for the region.
Table K.1. Public-Private Interactions within the World Bank’s TTF project in
Armenia, Azerbaijan and Georgia
Armenia PROCommittee
representatives
National Assembly
MOTC
TRACECA
Staff of President
AM CHAM
Union of Manufacturers and
Businessmen
Association of Armenian
Freight Forwarders
CMN International
Ministry of Trade and
Industry
Customs Committee
Transparency International
Center For Regional
Development
Georgia Working Grouprepresentatives
(provisional)
Georgia Business
Confederation Working
Group on Trade and Transport
and Customs
Association of Georgian
Freight Forwarders
Transport Reform and
Rehabilitation Center
Ministry of Economy Trade
and Industry
MOTC
Customs Administration
TRACECA ICG Secretary
Georgian Association of
Young Economists
102
Azerbaijan Working
Group-representatives
(provisional)
International Road
Carriers Association
Association of Freight
Forwarders
Entrepreneurship Development
Foundation
National Confederation
of Entrepreneurs
TRACECA
Int’l Trade Sea Port of Baku
State Customs Committee
"AZERAVTOROAD"
Ministry of Finance
The objective of Public-Private interactions in the TTF work is to create a structure to
systematically identify the most critical issues affecting trade and transport and to
design remedial measures, through active public-private interactions. This has the
following features:






Includes a representative sample of private sector and business associations/NGO
(road transport association/freight forwarder association/ trader and businessmen
association), representatives from major border agency or government agencies
involved with trade/transport, and Donor representatives
Provide proposals for implementation to the TRACECA Intergovernmental
Commission
Builds on reports produced by donors and WB
Conduct regular public outreach events
Use the experience from Southeast Europe as a model
Let the private sector drive the need for change
K.2. Logistics and Business friendliness of the South-Caucasus States
Trade and transport facilitation should be an issue of high priority in all the three
South-Caucasus States. The main developments in these fields require firm action in
a number of sectors (e.g. customs services, banking and logistics service providers).
How “easy” or “difficult” individual countries are perceived to be as trade and
transport partners can be analyzed in a number of ways. Trade and transport
operations invariably involve numerous partners both in the public and the private
sector, such as banking and insurance agents, in addition to various logistics service
providers. In addition, the trading partners (buyers and sellers or consignors and
consignees) evaluate the practicalities often on a case-by-case basis.
A survey was conducted among international freight forwarders in order to illustrate
how “easy” or “difficult” individual countries are perceived to be from a logistical
point of view (Ojala and Queiroz 2001). The concept of “Logistics friendliness” was
adopted as introduced by Murphy and Daley (1999).
According to Murphy and Daley, logistical friendliness (unfriendliness) refers to the
ease (difficulty) of arranging international freight operations to/from a particular
country. The “friendliness” and “unfriendliness” should be seen as two different
concepts (constructs) rather than opposite ends of the same continuum.
The survey was conducted in November-December 2000 by approaching 60 different
freight forwarders through e-mail. Among other questions, each respondent was
asked to rate a set of pre-determined countries as to what extent he/she perceived the
named country as logistically “friendly” or “unfriendly”.
The countries included in the e-mail questionnaire were based on the 90 countries
included in the Corruption Perception Index (CPI) collected by Transparency
103
International and Goettingen University29. Countries with the lowest level of
perceived corruption were assigned 10, whereas countries with highest level of
perceived corruption were assigned 1.
100 %
"Logistics more friendly"
90 %
Correlation coefficient = 0.784
80 %
70 %
60 %
EU countries
50 %
40 %
Azerbaijan
30 %
20 %
Armenia
10 %
Typical former Soviet
Republics
0%
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Least corrupt
7,0
8,0
9,0
10,0
Figure K.1. The ranking of countries in the logistics friendliness survey against their
Corruption Perception Index in 2000.
100 %
"Logistics more friendly"
90 %
Correlation coefficient = 0.845
80 %
70 %
EU countries
60 %
50 %
40 %
30 %
Azerbaijan
20 %
GDP/capita in 1999
in USD (log. scale)
10 %
Armenia
0%
100
Typical former Soviet Republics
1 000
10 000
100 000
Figure K.2. The ranking of countries in the logistics friendliness survey against their
GDP/capita 1999.
29
see: http://www.gwdg.de/~uwvw/
104
For each country included in the CPI, the Gross Domestic Product (GDP, Atlas
method) per capita figure for 1999 was collected using World Bank statistics.
Relevant data on both CPI and GDP was found for 88 countries, including Armenia
and Azerbaijan. Georgia was not included in the CPI ranking.
Between 6 and 12 independent respondents who were professional freight forwarding
agents evaluated each country. For practical reasons, an individual respondent did not
evaluate all the 90 countries in the CPI list. If the respondents did not have any
exposure to the logistical and/or trade practices of a particular country, they were
advised to leave a blank for that country. This procedure increases the reliability of
the responses.
About 65 percent of the respondents were from EU countries, some 20 percent from
the US, and 10 percent from Latin America and the rest from other parts of the world.
There were no respondents either from the South-Caucasus States or from the former
Soviet republics. On the other hand, about 40 percent of the respondents were from
Finland.
The combined indicator for logistical friendliness in the survey is the percentage of
the responses, which stated that a given country was either logistically “friendly” or
“unfriendly”. Hence, the percentage for Armenia (11 percent) indicates that one
respondent out of nine viewed Armenia as a “logistically friendly” country, whereas
eight did not. One respondent out of six rated Azerbaijan as “logistically friendly”,
whereby its value became 17 percent. By comparison, all the respondents regarded
Russia as logistically unfriendly; consequently, that country’s ranking is 0 percent in
Figures K.1. and K.2.
The results are only indicative and somewhat anecdotal, since they are based on a
small number of responses (nine for Armenia and six for Azerbaijan), all of which are
highly subjective assessments based on hands-on experience. Country-by-country
data is shown in Attachment K.1.
Despite the somewhat skewed distribution of the respondents, the small number of
respondents, and the highly simplified concept used, the results show a striking
correlation between on the one hand the logistics friendliness and the CPI, and on the
other, the GDP per capita. This is a strong indication that the less perceived
corruption there is in a country, the easier it is to trade and arrange the logistical
practicalities with that country. Similarly, the higher the level of GDP per capita, the
same occurs. This is no surprise as such, but the relatively strong correlation between
the logistical friendliness and CPI (0.845); and GNP/capita (0. 784, respectively) is
noteworthy.
The results also show that the South-Caucasus States are perceived as problematic
countries in a logistical sense. Compared against the CPI ranking and GDP/capita
data, the three countries show a performance fairly typical of other former Soviet
Republics.
105
Table K.2. Obstacles to doing business – Caucasus States Ratings Among 22 World
Regions (1 = lowest obstacle rating; 22 = highest rating)
Source: A. Brunetti , G. Kisunko, A. Weder, IMF Discussion Paper 33
Ranking (out of 22
world regions)
Total obstacles
8
Regulation related obstacles
2
Inflation and Financing related obstacles
5
Trade related obstacles
11
Public Revenue and Expenditure Policies Related
11
Uncertainty Related Obstacles (Policy instability, costs)
16
Crime Related Obstacles
11
In a context of analyzing general obstacles of doing business in certain countries or
regions, a broader approach is needed. According to one such study (Brunetti et al.)30,
the three South-Caucasus States assume a more positive standing. According to this
study, the obstacles upon companies by government regulation were deemed as the
second lowest, only to be superseded by the Baltic Republics (Estonia, Latvia and
Lithuania). See Table K.2.
K.3. The role of freight forwarders and customs brokers
The market structure in freight forwarding in the South Caucasus states comprises
three main types of operator. There are large international logistics operators, large
national operators and small local operators.
The handful of large international operators31 are typically present in the region
through country- or region- specific offices, but do not own transport or physical
assets in these countries. Their main strength is the possibility to organize worldwide
30
For a broader analysis, see e.g. IFC Discussion Paper Number 33 How Businesses See Government
Responses from Private Sector Surveys, available at:
http://www.ifc.org/economics/pubs/dp33/dp33.pdf
31
See e.g.: http://www.bisnis.doc.gov/bisnis/country/shipcos.htm, and on Armenia also:
http://www.bisnis.doc.gov/bisnis/country/000524amfreig.htm
106
transports for less-than-truckload (LTL) as well as FTL loads and for containerized
LCL and FCL flows.
The large express freight operators (DHL, EMS, FedEx, TNT and UPS), have country
offices in South Caucasus. The companies have pick-up in capitals and major port or
industrial cities such Poti and Batumi in Georgia, and Gyumri and Vanadzor in
Armenia.
The larger national freight forwarders are small by international standards, and the
freight forwarding industry is relatively small in each of the three countries. The
national freight forwarding associations have typically less than 40 members.
In addition to pure freight forwarding firms, there are also larger transport firms in
road transport. These are typically government-owned operators, or privatized former
state-owned entities. Their main field of operation is road transport and in some cases
operation of freight terminals for inland movement. The fleet is typically overage, but
relatively modern equipment is used in international road transport. The large number
of small local trucking firms generally operates one to two vehicles. In some cases, as
in Azerbaijan, a large number of small firms were created by privatizing state-owned
transport entities by selling the (often end-of-life) equipment to the drivers.
Due to problematic customs procedures, customs brokers are frequently used in
foreign trade and transit shipments. There are no data available of their exact number
or total turnover. The larger transport or logistics companies operate customs
brokerage units, but numerous small firms or entrepreneurs also do this type of work.
Also some of the major manufacturing or trading firms do customs brokerage for their
own account. Generally speaking, the market is likely to have two segments, the one
dealing with trade towards western countries such as the US and the EU, and the other
segment dealing with trade towards CIS countries. This is partly motivated by the
differences in the customs rules and language used in the transactions, as well as the
due to the great importance of personal relationships in this activity.
K.4. Customs services
Armenian Customs are believed to function slightly better than in Georgia 32. One
problem is the lack of management stability due to frequent changes of senior
positions. The new Customs Code entered into force in January 2001.
The Azerbaijan Customs Committee has been subject to recent external evaluation
(by PwC – completed in early 2002). This formed the basis to the work on Customs
reform, in co-operation with the IMF33. Reportedly, there are many cases of
misinterpretation of existing laws by customs and some decisions are being made
32
This section draws from notes provided by Judith Dean and from ECSPE (2002a) and ECSPE
(2002b). Data from Trade and Transport Facilitation reports and realted conslutant notes are used here.
These include data from Gerald Ollivier, who visited Yerevan in early March 2002 and did an
extensive work on customs, and the subsequent work by a consultant group led by Martin Humprehys.
33
The PwC report was not available to the consultant.
107
without any legal justification. As the settlement procedures are lengthy, companies
seek to avoid it reverting to other means of solving arising problems (e.g. getting the
support from the embassy or bribes). The examples of conflict of interests are present
also in Customs (the head of Customs is reportedly involved in the tobacco business).
The quality of functioning of Georgian Customs is commonly considered as
extremely bad, even by regional standards. The first fundamental objective problem
is lack of control of many fragments of country's border – in particular in Abkhazia
and South Ossetia. Moreover, corruption seems to be standard. Recent attempts to
reform the customs have confronted strong vested interests to maintain the current
status quo, thus blocking all the reforms. Deficiencies in physical infrastructure are
clearly an issue too. At present customs officers cannot normally operate at seaports
and airports; they can, for example, enter the seaport only by the decision of port
authorities.
It is estimated that as many as ten different structures operate at border crossing
points. This makes, among other things, control of rail transport very difficult. For
instance, on the Tbilisi-Yerevan train Georgian criminal police rather than customs
carry the controls (of luggage and documents).
The following examples on transshipment import and export provide information on
the type and scope of problems attached to import and export customs clearance. The
administrative problems in the process and the additional costs in transit and border
crossing in particular impose substantial barriers for transport and trade. Even if the
examples concern mainly Armenia, most of the problems described apply for the
region as a whole.
Transshipment Clearance and Goods Valuation
In Armenia, the declaration of the goods under the “transit shipment” regime does not
make any provisions for shipment with different types of transportation. For example,
for an air transit shipment from Russia to Zvartnots Airport (Yerevan) and further to
Georgia, goods are first declared under the “Customs warehouse” regime in Yerevan
and then declared to the “Re-export” regime”. This creates process duplication,
unnecessary documents and is inefficient.
The usual importer/exporter is required to get approval for clearance from the Chief
of Customs Committee to use the “Free Customs warehouse” regime. This is in
practice impossible in a short period of time. Even with enough time, the
importer/exporter is unlikely to be allowed to use this regime. The regime is available
to some privileged businesses.
An essential problem in the Customs clearance process is the valuation of goods by
Customs authorities. In principle, The Customs Code defines the methodology for the
calculation of Customs Value according to the provisions of the former GATT Article
VII. However the Code states that Invoice Customs Value will be defined only in
case of submission of documents including the cargo declaration of the importing
country. This declaration is, in practice, never submitted to the Customs officials of
the country of exportation. Even if all required documents would be presented, the
108
Customs officer will compare the invoice price with the price for similar products
from the “special price/value checklist”. In case of the substantial difference they will
use the price in the checklist as a Customs value for imported goods. Therefore, the
overwhelming number of imports is declared using the estimation of Customs officer
as a base for the determination of the Customs value.
Import Customs Clearance Process
The cargo arriving into Armenia by truck is being sealed at the border Customs point,
where the carrier must pay highway and environment taxes. For a 20-30 ton truck the
taxes amount to about USD 250. Simultaneously, the Customs officers will fill in
transportation documents. This step typically requires an informal fee of USD 30-50.
If certification is required, the process will generally take 1-2 days. The official duty
is about USD 60, but it could be increased depending on the number of goods subject
to the certification. This step requires informal fees within the range of USD 50 – 100.
Then the preliminary declaration is filled in the regional customs house, with informal
fees in the range of USD 2 – 10. After this the declared goods are valued. If the
goods are subject to the customs duties and VAT and if the required documents are
not presented, the invoice method for the identification of the customs value will not
be used and the customs value and the duties and taxes respectively (total 32% of the
customs value) can be increased. During this step the importer will usually pay the
informal fee within the range of USD 30-50.
For goods not subject to Customs duty and VAT, the Customs value is usually based
on the invoice price. After the payments are made, the Customs officer will inspect
and release of the goods at the terminal. The inspection type selected by ASYCUDA
is either thorough, medium, or no inspection/ external inspection. Informal payments
may be levied within the range of USD 20-50. The services provided by Customs
officers in the terminal is subject to the official payment of about USD 20-30, in rare
cases the official payment is higher. The informal fee is usually USD 20.
Export Customs Clearance Process
The export Customs clearance procedure starts with the application for the approval
for the export in the regional Customs house or in the Customs Committee. If the
exported goods are not of Armenian origin, the informal fee of about USD 500 per
one truck is required.
The next phase is preliminary declaration, where the informal fee here varies within
the range of USD 2-10. The following phase is the loading approval. The loading
and weighting must be done on the terminal premises, with the following service fees:
sealing – USD 30 (informal fee USD 50), and declaration and release – USD 50-100
(informal fee is USD 50). The exporter will pay an informal fee of USD 50 on the
border. If the truck will go through Georgia to other CIS countries it must use the
escort service for an additional USD 1500 – 2000.
109
K.5. Transit traffic costs and procedures
For the landlocked Armenia and Azerbaijan transit traffic one way or the other is the
only means to reach seaports that are needed for transport of voluminous items.
Transit traffic is also important in terms of the economic activity, which it generates.
The direction of transit traffic is predominantly westwards, with oil products
dominating the cargo base. Here, Azeri crude oil with 4.7 million tons in 2000 and
petroleum products with 1.1 million tons to Western European markets are the largest
single flows. 1.0 million tons was imported from Russia to Armenia in 2000. Apart
from oil and oil products, other major commodities are metals and fertilizers.
Volumes of unitized goods are very modest.
Data on Azerbaijan transit transport (TTF 2002) indicate that 53 per cent of the freight
volume in transit traffic in 2001 was moved by road transport, followed by 18 per cent
by pipeline transport, 17 per cent by rail and 11 per cent by sea. Air transport counts
for 1 per cent of the volumes. Consequently, about 57 per cent of the cargo are
transported by private carriers and 43 per cent by state enterprises.
Given the virtual blockades of Armenian borders with Azerbaijan and Turkey, as well
as geographic and political factors affecting transit through Iran, Georgia remains the
main transit route for significant part of trade flows from and to Armenia. This
clearly gives certain parties on the Georgian side a particularly strong position
towards Armenian partners. According to ample anecdotal evidence, Armenian
traders experience numerous difficulties and excess costs using transit routes through
Georgia.
Armenia and Georgia levy high transit fees on foreign vehicles. By contrast, there are
no formal transit fees in Azerbaijan, Iran or Turkey. However, all countries apply
transit quotas, i.e. the number of vehicles per year allowed to pass through the
country’s territory, by nation, is restricted. (Polyakov 2001).
According to Polyakov (2001) a truck with a capacity of 10-20 tons transiting Georgia
was to pay an equivalent of USD 245 in local currency in October 2000. A similar
vehicle transiting the Armenian territory was to pay USD 197 equivalent in local
currency. For cargo bound to Georgia the fee was USD 80 higher.
In addition to official fees, transit shipments currently face pervasive informal fees.
According to data gathered in early 2002, a truck transporting a 20 feet container from
Yerevan in Armenia to Port of Poti in Georgia incurs ordinary transport costs at
around USD 800 (Table K.3.). These include the drivers’ remuneration, Customs
carrier license for the driver and terminal handling cost at the port of Poti.
Almost prohibitive additional costs are incurred, if the truck will go from Yerevan
through Georgia to Russia or other CIS countries. Typically, the driver has to pay
USD 1,800 – 2,000 for the so-called “02 guard service” provided by the Ministry of
National Security. Unless this “02 service” is taken, the driver meets difficulties with
the road police and/or organized local gangs, and he is likely to face costs amounting
110
to USD 1,500 – USD 2,000. This somewhat anecdotal cost comparison shows the
steep increase in formal and informal costs since October 2000.
Table K.3. presents a breakdown of the time and official and unofficial monetary
expenditures associated with the import of a generic containerized consignment from
Northern Europe to Yerevan. The table reveals the significance of the national and
regional elements of the total logistical cost, despite their modest part in the total
logistics chain.
Table K.3. The logistical cost of moving one TEU from Northern Europe to Yerevan
by road or rail via the Port of Poti in 2002 prices.
Source: data gathered for the Armenia Trade Diagnostic Study, The World Bank 2002
Road
Expenditures
Money (USD)
Official
Transport & handling
Terminal to final destination
Handling charges, terminal
Handling charges, Poti port
Armenian transport leg
Georgian transport leg
Ocean leg34
Cross border processing
Border guards
Customs inspection
Highway, environmental
taxes
Clearance procedures
Terminal fees
Declaration completion
Valuation
Inspection
Total logistical cost
50
50
175
375
920
925
Unofficial
10-20
500
Rail
Time
Hours
2
3-4
24-48
5-6
10-15
480
Money (USD)
Official
50
50
175
175
190
925
Time
Unofficial
10-20
5
5-6
Hours
2
3-4
24-48
8-9
15-20
480
96-120
10
30 – 50
30 – 50
250
25
2,770
20
2 - 10
30 - 50
20 – 50
602-710
1
1
1
2-3
532-562
25
1,590
20
2 - 10
30 - 50
20 – 50
92-205
1
1
1
2-3
633-689
The Georgian leg of the movement by road accounts for nearly 40 percent of the total
costs, with the Armenian leg accounting for 27 percent and the leg between Poti and
Northern Europe accounting for the remaining 33 percent. The total unofficial fees
amount to between 22-25 percent of the total costs, whilst the Georgian leg is
responsible for over 85 percent of the total unofficial fees and nearly 20 percent of the
total costs, due, primarily, to the demands of the traffic police.
On the rail mode, the unofficial fees amount to between 6-13 percent of the total cost,
but the time expenditures for the land-based legs increase markedly. This is primarily
due to the delay at the border, despite a formal agreement between Armenian Customs
and the Armenian State Railway Company that delay should be restricted to a
maximum of 5 hours for cargo wagons, and 3 hours for passenger trains. The reality
34
Assuming 20 days from Poti to Rotterdam.
111
is that the delay averages 4-5 days, engendered entirely by the Customs procedure
detailed above, that requires a Customs official at the border to send a telex to the
regional customs house to confirm cargo and delivery time.
Table K.4. Standard freight quotations for Port-to-Port transport of a 20 foot
container in early 2002; the freights rates are subject to rebates.
Source: Background data gathered for the South Caucasus TTF project, The World Bank
Port-to-Port rates to
Poti and Batumi 35
Hamburg, Bremen, Rotterdam
Marseille, Barcelona
Piraeus
East Canada, USA
West Canada, USA
Sea Freight-+Port fees in USD
Total in USD
1,000+180+Customs
950 +180+Customs
550 +180+Customs
1,700+500+180+Customs
1,800+500+180+Customs
1,180+Customs
1,130+Customs
730+Customs
2,380+Customs
2,480+Customs
Note: Customs duties depend on commodity, customs regime.
Railway Transportation (20’)
Batumi-Yerevan
Poti-Yerevan
Batumi-Baku
Poti-Baku
Tariff in USD
535
485
625
575
Depending on the competitive situation and the balance of trade in liner shipping, the
transocean freight rates may differ substantially by direction (west to east or east to
west). The tariff-based quotation on shipping freight rates shown in Table K.3. and
K.4. are also subject to customer and cargo based rebates, but the rates are indicative.
The logistics costs indicated in Table K.3. and K.4. are very high compared to regular
shipments between, say Northern Europe and East Asia. Even with the considerably
longer maritime leg, a container (similar as the one indicated in the Table) will reach
its destination in comparable inland destinations in, for example, China at 2,000 to
2,500 USD. This is mainly because of the economies of scale due to larger vessels
and volumes.
This means that exporters from these countries can land their products in European
markets at less logistics costs than exporters from the South Caucasus region. This is
because there are practically no unofficial payments or fees in those countries, or if
they exist, they are very small.
The pervasive unofficial fees in South Caucasus thus create a serious hurdle for
exporters in highly competitive industries such as electronics and food processing.
The high logistics costs are particularly prohibitive for new or potential exporters.
35
The tariff for the port fee in Batumi is 110 USD copared to USD 180 in Poti.
112
K.5. Free Trade Zone and Logistics Center Developments
The 2001 TTF workshop in Tbilisi stressed on the necessity to prepare a strategy for
the development of logistics/distribution/industrial centers in the Caucasus region
The workshop recommended preparing a market driven proposal for
logistics/distribution/industrial centers. Such a strategy, followed by consistent actions
by the respective Governments, would offer a good setting to attract investors. A
regional approach is warranted in designing the enabling environment for attracting
private investors in logistic/distribution and/or industrial centers, after having studied
the different options and models.
This section presents the current status of selected free trade zone and logistics center
developments. This selection is not an exclusive list of all on-going or planned
projects. It also needs to be said that not all these projects materialize, as has been the
case with the Sumgait SEZ project, for example.
K.5.1. Sumgait Special Economic Zone (SEZ) Project
The city of Sumgait is situated 35 km to the North-West of Baku on the Caspian Sea.
During the Soviet period, its industrial base was built around petrochemicals and
chemicals, metallurgy and textiles. In 1995 Sumgait's population was 273,000. In
addition, 60,000 internally displaced persons and refugees reside in the city.
In 1995 the Government of Azerbaijan requested the United Nations Industrial
Development Organization, UNIDO, through the office of the United Nations
Development Program, UNDP, in Baku to assist in the formulation of an industrial
development strategy and support program for the Sumgait region.
The UNIDO working group came to the conclusion that Sumgait undoubtedly met all
the requirements in order to become a SEZ. The geographical site on the Caspian
designated for the construction of the port is advantageous. The transport
infrastructure is satisfactory since it has an airport, a railway sorting station, the main
Baku – Rostov road nearby as well as skilled labor force. According to some
estimates in 1998, the rehabilitation of Sumgait's economy USD 15 to 20 billion, with
USD 7 to 8 billion for chemical industry alone.
A team of national and international experts drafted the legislative framework in
1996. It comprised (i) the draft Law of the Republic of Azerbaijan on Free Economic
Zones, that was discussed in the Parliament but was not passed, and (ii) the draft of a
Presidential Decree on the Creation of the Sumgait Special Economic Zone and the
Establishment of the Sumgait Special Economic Zone Authority, which has not been
issued.
No clear official reason for not issuing the law and related decrees have been given.
Subsequently, the project has been suspended and no steps towards implementation
have been taken
113
K.5.2. First Logistics Center for Road Transport in Azerbaijan
Azertrans, a transport company, and part of the Azerinvest financial and industrial
group, has announced plans to create the first logistics center for road transport in
Azerbaijan. The center will be situated at Azertrans’ road transport terminal in
Binaghadi. EBRD has been approached to co-finance the project.
Currently, there are no advanced road transport terminals in Azerbaijan providing
customs and warehouse services, accommodation for drivers, packing of goods and
other value-adding logistics services all in one place.
The information available of the proposed new terminal is limited, and it is not clear,
how extensive logistics service will actually be on offer in that terminal.
EBRD has launched a credit line for development of infrastructure projects through
three Azerbaijan banks. In order to proceed with funding, EBRD will need relevant
Feasibility studies of the proposed projects.
K.5.3. Free Trade Zone at Bina Airport, Baku
AZAL (Azerbaijan Airlines State Company), is the owner and actual operator of Baku
Bina Airport through its subsidiary Ground Handling Company. In the absence of
clear public administration in the transport sector, the AZAL group has evolved to a
self-regulating unit. There are signs that the group may have abused its market
position. For example, British Airways, KLM and Emirates have ceased their
operations in Azerbaijan within the past few years.
There are indications that a semi-official FTZ has been operating at Baku Airport
since 1995. The "FTZ" provided opportunities for duty free trade and also production
of some consumer goods. Unfortunately, little public information is available on that
issue.
K.5.4. Bonded Warehouse in Baku
According to industry sources, there are plans to launch the first bonded warehouse in
Baku during April 2002.
Production Sharing Agreements (PSA) concluded between the Government of
Azerbaijan and AIOC (Azerbaijan International Operating Company), include a
special taxation and customs regime mode for the oil projects, which are considerably
lower than the ones paid by other legal entities.
This is a case where AIOC parties can influence the governmental agencies and
obtain special conditions, even if the mechanism of issuing licenses to establish
bonded warehouses is not clearly laid down yet.
114
Thus, the bonded warehouse facility to be opened soon is an ad hoc arrangement that
would specifically service operations of an oil consortium, and will be run by a
freight-forwarder involved in oil projects.
K.5.5. Free Trade Zones near the Iranian Border
In August 2001 a free trade zone called "Mugan" opened near the Iranian border of
Azerbaijan. The Ministry of Economic Development of Azerbaijan acted as a
Governmental Agency responsible for this project from Azerbaijan side. According to
preliminary estimates, the annual turnover of the FTZ could reach up to USD 10
million, but no further information is available as to the nature of the business or its
composition.
According to industry sources, there are plans to establish a similar FTZ on the
Iranian side of the border. The Iranian side has allegedly taken responsibility for
development of infrastructure of this area. Negotiations are also said to be going on
about establishment of another FTZ of this type at Iranian Nakhcivan Border.
K.5.6. Free Trade Zones within the framework of CIS
CIS countries, including Azerbaijan, have ratified a number of multilateral
agreements and protocols towards the establishment of the CIS free trade zone,
similar to that of North American Free Trade Agreement (NAFTA), designed to
replace the bilateral regime of the trade that existed in 1991-1993. The first such
agreement on the establishment of the FTZ in the CIS was signed in 1994. A Protocol
of 1999 amends the 1994 Agreement, leaving the disputed and numerous exceptions
in the 1994 Agreement to the bilateral agreements.
Only in 21 June 2000 the CIS countries agreed on a Plan of Implementation of
Recommendations on the Establishment and Operation of the CIS FTZ. The
document sets a list of most important activities, such as carrying on internal activities
on the implementation of signed multilateral documents, and a need for ratification of
requisite agreements on free flow of goods, services, and cash, free transit, nonpayments, and transport corridors.
The CIS FTZ issue was in the agenda of the 11th Session of the Economical Council
of CIS countries held in March 2002. Following that, The Council of Heads of
Governments of CIS Countries will discuss the issue in summer 2002. The main
problem concerned is levying VAT at the destination.
K.6. Financial markets and services
Access to credit in Armenia is difficult and this allegedly constitutes a significant
barrier to development of new businesses and trade development. Banking sector is
weak and several banks are badly managed. Interest rates are rather high and banks
prefer to work with clients that they know.
115
Armenia maintains a liberal foreign exchange system with no current account
restriction and the few minor capital account restrictions (mostly imposed for
prudential reasons). In 1997 Armenia accepted Article VIII of the IMF Agreement
and committed to refrain from imposing restrictions on carrying out payments and
transfers. The Central Bank of Armenia (CBA) maintains the managed float exchange
rate regime. (IMF 2001c)
Further reforms in the Azerbaijan banking sector are needed to enable more vigorous
private sector development. The banking system has undergone some further
consolidation over the past year, down from 68 to 53 banks. The country remains
“overbanked” and undercapitalized, with total AZM deposits equivalent to 1.3 % of
GDP (Singh 2001).
As noted by the US (2001), lack of credit is a key constraint to the development of
private business in Azerbaijan. The existing credit supply is far too small to provide a
suitable environment for the development of even small enterprises in Azerbaijan, let
alone medium-sized ones. Many enterprises have no access to affordable credit given
collateral requirements, short payment terms, etc. Long-term trade and project finance
is rare.
The banking system in Georgia is small, fragmented and weak in comparison with
intermediate and advanced transition countries. With total banking assets of less than
USD 400 million, banks are not as yet able to intermediate the bulk of financial
transactions in the country. Reform of Georgia’s banking system, under the
supervision of the National Bank of Georgia (the central bank), began in mid-1995.
Progress has been made in consolidating banks through the introduction of reporting
requirements and gradual increases in the minimum capital requirement. The
International Accounting Standard IAS 2000 is being introduced for all banks during
2001.
In Georgia, access to credit, including credit for foreign trade operation is difficult.
Interest rates are very high due to high general risk in the economy and lack of
available financial resources (IMF 2001d) . Credits are often granted on the basis of
personal contacts with bank's employees or thanks to bribes. Given the nature of
foreign trade operations this does not seem to represent an important barrier to
imports.
Leasing has not been allowed in Georgia, and the only exception is the leasing
agreement between Georgian airlines Airzena and the German Hapag Lloyd on two
Boeing 737 airliners. According to Georgian Times (April 15, 2002), the first
Georgian leasing company has been established but the company is still waiting the
Parliament to pass the necessary laws. Leasing as an alternative to finance transport
equipment would lower the barriers of entry to the transport market.
116
L. Summary and conclusion
This report is based on the most recent reports available on the three South-Caucasus
States’ transport sector, the pre-seminar questionnaire sent to the three countries in
March 2002 and the presentations held at the South-Caucasus States Seminar on
Restructuring of the Transport Sector, held in April 18-19, 2002 in Tbilisi.
Conclusions of meeting are listed below:
General
1.
The Seminar was attended by high-level delegations from all three countries,
as well as International Financial Institutions , international organizations, and private
interests;
2.
It allowed a wide ranging discussion on all aspects of transport policy in the
individual countries and also regionally. It was held in a positive spirit of exchange
and co-operation
3.
It showed that much work and progress had taken place in liberalizing the
transport market and in adjusting to the market economy but also that much remained
to be done regionally and in the three Countries to bring transport infrastructure and
services to the level of those in the rest of Europe
4.
The full program and all presentations are being put on the ECMT and World
Bank sites for consultation and information.
Policy Framework, Management and Financing
5.
The participants identified the main difficulties and challenges facing the
transport sector in the Region; these include:






a lack of confidence by shippers in using routes through the region as well as
difficulties in defining a coherent infrastructure network for national and
international transport.
the long time required to change laws and adjust to the new ways of functioning
a severe shortage of funds, to maintain and improve infrastructure as well as a lack
of long term budget planning
the variety and variability of transport charges and taxes in the region resulting in
confusion among shippers and increasing the risks of fraud and corruption
the lack of human resources, especially in management
the need for management training
6.
In order to provide a sound framework for transport development, the
countries need to accelerate the formulation of transport policies and plans, based on
market economy principles, with clear priorities, and, importantly, with identified
indicative multiyear financing plans, agreed at government and parliament level, with
due regard to international agreements and resolutions.
7.
Significant progress has been made to clarify the roles of government and
private sector, and there are several examples of effective private sector participation
117
in transport operations. But there is still a clear need to improve institutional
arrangements and structures for ownership, administration, management and service
delivery in order to make the government more efficient and to increase the
development and participation of the private sector in service delivery and, possibly,
in management. This applies to all modes.
8.
There is a pressing need to improve the investment climate to attract foreign
investment in the sector. Equally important is domestic resource mobilization, which
could be based more on the principle of user charges.
Trade facilitation, ports and logistics
9.
Bureaucratic border crossing and customs procedures are a major cause of
delays and expense (both formal and informal). These procedures need to be
streamlined and improved so that border crossing target times agreed in UN ECE and
ECMT are met, and that transit times for international traffic within the region and to
Europe and Asia are reduced. It is encouraging that a public -private Committee for
trade and transport facilitation will be created in each country to identify barriers and
define a specific set of projects to alleviate them. These Committees will present their
projects to the TRACECA IGC and their respective national governments.
10.
Initiatives, measures and ideas within each country were presented to resolve
or reduce these problems; these include projects and studies financed by EU, IFIs and
TRACECA as well as initiatives like the proposed TRACECA visa. Monitoring of
these initiatives should be followed-up to ensure implementation.
Road sector
11.
The most significant problems are (1) the backlog in maintenance, (2) very
low budget financing combined with low direct user charges, and (3) poor traffic
safety record. (4) Resolving these problems requires improved human resources in
road management, significantly higher and stable financing, introduction of new (EU
harmonized) standards and technology, and the development of competent domestic
consultant and construction industries, which is only feasible with stable domestic
financing, initially supplemented by loans and credits.
Railways and Intermodal
12
The most significant problems are: (1) the old age and poor condition of track
and rolling stock and lack of equipment for container traffic; (2) absence of
management information systems, to improve efficiency, for train circulation, for
goods movement and for tracking shipments, for empty wagons, for track
maintenance, and for ticketing and reservation; (3) difficulties to adjust to new
demand patterns, both commodity and direction; (4) inexperienced and untrained
management to evolve from the old monolithic State Railways to a modern,
economically viable organization.
13.
Special problems are caused by the bottlenecks in ports; with customs and
other bureaucratic processes as well as tariff setting by commodity both domestically
and in international transport.
118
Urban transport
14.
Urban transport faces the twin problems of dealing with the rapid growth in
car traffic and maintaining a viable public transport system. The key problem for
financing urban public transport is resources, partly because of the significant
difference between fare box revenue and operating costs, especially for the Metro, and
also partly because of the decentralization of responsibility without funds. There are
imaginative attempts in the region to introduce tendering and private sector operators
in the public transport system and also to introduce new forms of clean transport to
deal with the specific local situation
15.
Emerging traffic problems of pollution and congestion in urban areas deserve
special attention; with the appropriate measures to include the promotion of all means
of public transport (metro, trams, trolley-buses, regular buses and minibuses)
combined with traffic management measures like parking regulations and charges.
Next steps
16.
The shared objective is to raise transport services and infrastructure to the
level of the other European Countries. The individual Countries have the major
responsibility here but international organizations and financial institutions can help.
It will be useful if the there is improved co-ordination in the region of different
international bodies (e.g. ECMT, UN ECE, EC, UIC, WB, EBRD, and others), so that
synergy is created and consistent messages are given and applied.
17.
Participants agreed that close cooperation between all three countries would
benefit the region. ECMT, UN ECE, the World Bank and the EBRD agreed to arrange
periodically fora for information exchange and for sharing experience and for
monitoring the implementation of the recommendations above. This will also help to
encourage domestic and regional approaches to resolve problems and increase
understanding between the financial institutions and the borrowers.
To sum it up, the three South-Caucasus States have made progress in their transport
sector development both in terms of transport infrastructure improvement and creation
of markets and private sector participation in provision of transport services.
Substantial investment is still needed in the three states to improve the road and rail
infrastructure in particular.
Considerable work remains to be done to strengthen the institutional capability and
processes on all levels of public administration. The governance of transport sector
administrations and authorities is underdeveloped, but there are signs for
improvement. For example, the work started to restructure the Georgian road
administration, if continued, could provide a model to be used across public
administration in Georgia, and perhaps in the region too.
Finally, transport sector development, together with trade facilitation are effective
means to achieve sustainable economic growth in this region in order to alleviate the
pervasive poverty in the three countries.
119
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Embassy (2001), US Embassy in Yerevan, Country Commercial Guide Armenia FY 2002,
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120
ESCAP (2001) Trans-Asian Railway in the North-South Corridor Northern Europe to the
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122
Attachment C.1. Armenia at a glance
Armenia: http://www.worldbank.org/data/countrydata/aag/arm_aag.pdf
123
124
Attachment C.2. Azerbaijan at a glance
Azerbaijan: http://www.worldbank.org/data/countrydata/aag/aze_aag.pdf
125
126
Attachment C.3. Georgia at a glance
http://www.worldbank.org/data/countrydata/aag/geo_aag.pdf
127
128
Attachment E.1. Armenian export and import by mode and
commodity in 2000, in thousand tons
Source: TRACECA database
EXPORT
Georgia
By road
By rail
Iran
By road
By rail
Russia
By road
By rail
Turkey
By road
By rail
Europe
W&S
By road
By rail
Middle
East
By road
By rail
North
America
By road
By rail
IMPORT
Georgia
By road
By rail
Iran
By road
By rail
Russia
By road
By rail
Turkey
By road
By rail
Europe
W&S
By road
By rail
Middle
East
By road
By rail
North
America
By road
By rail
Ores,
incl. salt
Construction
materials (incl
cement)
Ferrous/
nonferrous
metals
Timber
Plastics
&
rubber
Machinery
&
equipment
Animal
products
Food
stuffs
654
1,053
48,272
19
-
-
53
-
457
-
155
-
160
-
407
-
-
22,712
-
237
-
136
-
9,984
-
-
-
920
-
649
70
92
-
55
-
3,471
-
2,228
1,005
15
-
2,309
1,837
-
-
-
29
-
-
62
-
-
-
480
26,143
29,980
39,038
684
-
-
45
-
43
95
-
-
3,352
1,784
1,276
422
-
413
33
-
162
121
40
-
1,733
-
-
14
46
-
196
667
Oil& oil
products
Fertilizers
Other
chemical
products
Construction
materials (incl
cement)
Ferrous/
nonferrous
metals
Animal
products
Agricultural
products
Food stuffs
38,514
-
1,020
21,895
8
1,699
205
958
33
-
104
354
91
60
31,919
-
-
14,640
-
17,038
-
1,762
-
18,967
-
4,035
-
8,644
-
738
-
25
-
1,739
1,389
367
575
5,172
2,093
965
85
266
25
1,491
440
2
7,021
-
5,778
-
2,317
-
4,609
-
486
-
396
-
2,759
24,956
108
543
11
-
1,455
133
537
782
911
206
3,445
642
1,041
381
26,800
28,938
752
-
-
6,124
-
2,060
-
1,233
-
3,898
-
1,230
-
110
37
14,606
52,330
-
99
182
6
180
21
241
1,747
11,567
390
90
110
1,678
129
Attachment F.1. Vehicle and overweight fees for crossing the
Georgian border in 2002 in Georgian Laris
Source: Georgian MOTC reply to the seminar questionnaire, 2002
A. Tax on bringing their motor vehicles onto the territory of Georgia owners of
the foreign vehicles should pay (to Road Fund):
Vehicle types
1
Tax rate in GEL
2
60
115
230
380
230
Motor cars
Buses(up to 13 seats)
Buses(13-30 seats)
Buses (over 30 seats)
Trucks and other vehicles with carrying capacity to 3
tons (inclusive)
Trucks with carrying capacity 3 -10 tons (inclusive)
380
Trucks with carrying capacity 10-20 tons (inclusive)
480
Trucks with carrying capacity 20- 40tons (inclusive)
650
Trucks with carrying capacity over 40 tons
880
Customs fee --100 GEL
Veterinary- sanitary control -10 GEL
B. Owners of the trucks upon entering and/or transiting the territory of Georgia,
in case of overloading should pay tax on each axle:
Up to 0,5 tonnes (inclusive) _
Up to 0,5 tonnes (inclusive) _
From 0,5 to 1,0 tonnes (inclusive) _
From 1,0 to 1,5 tonnes (inclusive) _
From 1,5 to 2,0 tonnes (inclusive) _
From 2,0 to 2,5 tonnes (inclusive) _
From 2,5 to 3,0 tonnes (inclusive) _
50 GEL
50 GEL
80 GEL
100 GEL
125 GEL
170 GEL
250 GEL
130
161,7
170,3
124,0
9,7
397,9
5,0
1 427,2
6,0
133,2
19,4
87,5
16,2
186,3
46,8
442,2
87,0
52,0
742,8
980,2
77,3
428,8
Cote d´Ivoire
Tanzania
Kenya
Indonesia
Slovenia
Namibia
Morocco
Poland
Croatia
Bulgaria
Argentina
Ethiopia
Ukraine
Chile
Botswana
Tunisia
El Salvador
Cameroon
Thailand
Romania
Vietnam
Azerbaijan
Costa Rica
Jordan
Zambia
Philippines
Uzbekistan
Colombia
Armenia
Peru
Belarus
Ghana
Kazakhstan
Angola
Malawi
Senegal
Zimbabwe
Burkina Faso
Bolivia
Moldova
Uganda
Mozambique
Russia
Nigeria
710
240
360
580
9 890
1 890
1 200
3 960
4 580
1 380
7 600
100
750
4 740
3 240
2 100
1 900
580
1 960
1 520
370
550
2 740
1 500
320
1 020
720
2 250
490
2 390
2 630
390
1 230
220
190
510
520
240
1 010
370
320
230
2 270
310
2,7
2,5
2,1
1,7
5,5
5,4
4,7
4,1
3,7
3,5
3,5
3,2
1,5
7,4
6,0
5,2
4,1
2,0
3,2
2,9
2,5
1,5
5,4
4,6
3,4
2,8
2,4
3,2
2,5
4,4
4,1
3,5
3,0
1,7
4,1
3,5
3,0
3,0
2,7
2,6
2,3
2,2
2,1
1,2
Sources: World Bank (GDP data), Transparency International and Goettingen university (CPI),
Ojala and Queiroz, 2001 (survey)
131
Logistics friendlinesss in %
10,4
8,0
10,6
119,5
19,6
3,2
33,8
153,1
20,4
11,3
277,9
6,6
37,5
71,1
5,1
19,9
11,8
8,5
121,0
34,2
28,2
4,4
9,8
7,0
3,2
78,0
17,6
93,6
1,9
60,3
26,8
7,4
18,9
2,7
2,0
4,7
6,1
2,6
8,2
1,6
6,8
3,9
332,5
37,9
CPI RANKING
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
COUNTRY
100
100
100
100
100
100
100
90
90
89
89
89
89
88
88
88
86
83
82
82
80
80
78
75
71
71
67
63
60
57
50
50
50
50
44
43
40
40
40
38
38
38
33
33
GNP per capita in 1999
105,9
9,4
8,9
8,3
7,7
6,4
6,1
4,6
9,4
8,6
10,0
7,6
7,2
7,0
9,1
8,6
7,8
9,2
8,7
9,1
9,1
6,4
5,5
7,7
9,8
4,9
4,1
4,0
5,7
6,7
3,4
5,0
3,5
3,1
2,6
3,8
5,2
6,6
2,8
2,7
4,3
3,9
3,1
4,8
3,3
GNP 1999 (USD billions )
122,9
2 079,2
71,4
551,6
146,4
273,1
8 351,0
591,4
1 338,1
95,4
25 040
24 320
20 050
25 970
32 230
24 510
19 710
13 780
30 000
23 780
25 350
19 160
14 000
32 880
38 350
30 600
19 320
22 640
29 610
25 000
10 600
12 000
23 520
32 030
11 770
2 620
13 000
3 480
23 480
2 470
3 160
3 590
1 400
1 310
2 900
4 650
18 000
450
3 670
5 060
4 420
780
3 400
4 400
Rank
221,8
384,3
380,8
210,0
4 078,9
250,6
1 136,0
52,7
Logistics friendlinesss in %
Sweden
Netherlands
Australia
Austria
Japan
Belgium
Italy
New Zealand
Luxembourg
Finland
Germany
Ireland
Spain
Norway
Switzerland
USA
Canada
United Kingdom
Singapore
Iceland
Portugal
Taiwan
Hong Kong
Denmark
Greece
Lithuania
South Korea
Estonia
France
Latvia
South Africa
Slovak Republic
Egypt
Ecuador
Turkey
Hungary
Israel
India
Venezuela
Czech Republic
Brazil
China
Malaysia
Mexico
CPI RANKING
COUNTRY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
GNP per capita in 1999
Rank
GNP 1999 (USD billions )
Attachment K.1. Data of the ”logistical friendliness” survey
33
33
33
30
29
29
27
25
25
25
25
25
25
22
22
22
22
22
20
20
20
17
14
14
14
13
13
11
11
10
10
10
9
9
0
0
0
0
0
0
0
0
0
0