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Transport System & Transport Sector Development Strategy

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Transport System & Transport Sector Development Strategy Technical Assistance Consultant’s Report Project Number: TA 4582-AZE June 2006 REPUBLIC of AZERBAIJAN Executive Summary of Overview of the Azerbaijan Transport System & Transport Sector Development Strategy Report I For the Ministry of Transport Prepared by Scott Wilson Scott House Basingstoke, RG213JG, UK TABLE OF CONTENTS Note: It is important to read this document in conjunction with Reports II and III. 1 COUNTRY BACKGROUND ............................................................................................................. 3 2 PROJECT BACKGROUND ..............................................................................................................4 3 TRANSPORT KEY ISSUES.............................................................................................................. 7 3.1 TRANSPORT INSTITUTIONS........................................................................................................... 7 3.2 ROAD TRANSPORT ...................................................................................................................... 8 3.3 RAIL TRANSPORT ........................................................................................................................ 8 3.4 MARITIME TRANSPORT ................................................................................................................ 8 3.5 AIR TRANSPORT.......................................................................................................................... 9 3.6 URBAN TRANSPORT .................................................................................................................... 9 4 TRANSPORT PRIORITIES............................................................................................................... 9 4.1 REGULATORY FRAMEWORK ......................................................................................................... 9 4.2 INFRASTRUCTURE ..................................................................................................................... 10 4.3 THE TRANSPORT SERVICES MARKET.......................................................................................... 11 4.4 TRANSPORT SAFETY ................................................................................................................. 12 4.5 TRANSIT ................................................................................................................................... 12 5 LONG TERM CHALLENGES ......................................................................................................... 13 6 STRATEGIC OBJECTIVES ............................................................................................................14 2 1 COUNTRY BACKGROUND Azerbaijan covers an area of about 86,600 square kilometres on the south-eastern flanks of the Caucasus Mountains bordering the Caspian Sea, between Iran and Russia. Its population was estimated 8,3 million in 2004, giving it an average population density of 1043 persons per square kilometre. Azerbaijan is the least urbanised country of South Caucasus, as only 56% of its population lives in urban areas. Azerbaijan is one of the world’s oldest oil exporters and developments of the country’s extensive petroleum reserves as well as development of transit for regional oil reserves remain central to its economic future. Agriculture is also important, with the country benefiting from fertile farmland and a diverse climate that allows the raising of a wide range of crops. While Azerbaijan’s oil and gas resources are considerable, they are also finite, peaking in about 10 years and then declining. The most difficult challenge Azerbaijan faces, which is well understood by the Government, is to avoid the path followed by many natural resource rich countries, wherein their citizens derive little benefit from the influx of oil revenues. This requires implementing a policy agenda that leads to poverty reduction and improves incomes as well as equity for current and future generations, while maintaining macroeconomic and financial stability. Continued growth in the non-oil sector will be critical to achieving the objectives of the State Program on Poverty Reduction and Economic Development (SPPRED), initiated by the Government in 2001. While the oil sector will contribute to the majority of GDP growth in the next few years, the magnitude of poverty reduction will be dependent on achieving the projected growth in the non-oil sectors. Azerbaijan has already put into place a number of critical structural reforms to achieve this. In particular, privatization of small businesses and land has largely been completed and the basic legal framework for a market economy has been established including strengthening the policies and institutions for expenditure management and improved service delivery and financial discipline. Well-focused rapid infrastructure improvements, after years of neglect due to fiscal restraint, are crucial for continued non-oil sector growth. The development of infrastructure (in particular transport) is one o f the six major strategic pillars of the SPPRED and is critical to further expansion of the non-oil sector and for improving the living standards of the low-income population. In order to ensure this development due to steady economic growth and changing needs in the transport sector, the institutional requirements continue to evolve. The Government has launched several initiatives to reform institutions, including establishing Ministry of Transport in 2003. Azerbaijan, as all former Soviet Union Republics inherited over-sized transport systems, which displayed gross incompatibilities with free market operation and development. The sector’s or- ganisation was characterised by a high vertical integration, i.e. all functions occurring in a sector, such as policy making, administrative/executive functions and the operations of transport modes, were carried out by Ministries which were later transformed in “State Concerns” without any further changes of tasks and responsibilities This contributed to transport volumes steep fall in the early 1990s, with the collapse of the chemicals, plastics and oil equipment industries, and difficulties in exporting oil. Although traffic volumes have been reviving over the last ten years, they are still below those of the 1980s. Consequently, there is surplus capacity in the ageing transport facilities; and partly for this reason there has been limited investment in modern infrastructure and equipment, much of which is now outdated. Azerbaijan’s trucks, buses, railway rolling stock, port handling equipment, etc, are all relatively old; and introduction of new technologies and new type of equipment are still rare and unplanned. 3 2 PROJECT BACKGROUND As the transport sector in Azerbaijan increasingly turned out to be a key factor for the development of the economy and especially for the exploitation of the oil resources of the country and the region, the Government started preparing a 10-year program for transport sector development, and MOT is in charge to develop this transport sector plans in line with a Transport Sector Development Strategy. In this respect, in 2005, the Government has requested, technical assistance (TA) from the Asian Development Bank (ADB) for the transport sector development strategy The goal of the TA was to improve transport sector performance so that it can make a sustainable contribution to economic development and poverty reduction in Azerbaijan. The purpose of the TA was at first to prepare a detailed assessment of all modes of transport (Transport Overview Report), and based on this Overview, to identify strategic priorities, resources for sector development, operational needs for the medium term in line with the Government’s objectives, and to assist the Ministry of Transport in the elaboration of Transport Sector Development Strategy. This strategy will be the Government’s key document guiding the policies and investments in the transport sector in 2006–2015. The Strategy paper was developed through an extensive consultative process in the framework of regular meetings of a Steering Committee led by the Ministry of Transport and involving all sub-sector Government agencies. In parallel of periodic discussions and reviews of the strategy paper by the steering Committee, two main workshops were organised in the beginning and the end of the project (November 2005, February 2006), attended by representatives of key stakeholders, civil society, private sector and IFIs/donors.1 The first phase of the extensive consultative process identified the transport key issues by sectors. According to the transport key issues identified in the first phase of the project, the second phase defined the priorities to be developed within the Strategy. Theses priorities have been defined in collaboration with the Ministry of Transport and under the leadership of the Steering Committee Thus, the Transport Strategy defines the priorities of national transport policy to 2015. It covers railways, road transport, urban passenger transport, aviation and water transport. It adopts a multimodal transport approach, and provides directions for future activities from the perspective of an integrated transport sector rather than individual modes of transport. Transport Strategy presents a set of policy measures, principles and priorities aimed at development of the transport sector including development of infrastructure, transit policy, providing an integrated approach to the transport
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