TRANSPORT SECTOR REVIEW OF ARMENIA, AZERBAIJAN AND GEORGIA
Final Report
Lauri Ojala
June 28, 2002
CONTENTS
Acronyms
A. Abstract
B. Introduction
C. The South-Caucasus States’ socio-economic profiles......
C.1. Armenia......
C.2. Azerbaijan......
C.3. Georgia......
D. Trade and Foreign Investment Highlights......
D.1. Merchandise trade......
D.1.1. Armenian Trade performance 1996-2001......
D.1.2. Azerbaijan trade performance......
D.1.3. Georgian Trade developments......
D.2. Foreign Direct Investment......
E. Transport Sector Highlights......
E.1. Global trends in the transport sector......
E.2. Public Sector Restructuring in the Transport Sector......
E.3. Transport Sector Policies of the South-Caucasus States......
E.3.1. Armenia......
E.3.2. Azerbaijan......
E.3.3. Georgia......
E.4. Membership in international transport organizations and conventions......
E.6. Environmental sustainability in the transport sector in the region......
E.7. Transport Sector Projects and IFIs, the EU and UN/ESCAP......
E.7.1. World Bank finance in the transport sector in the South-Caucasus States......
E.7.2. EBRD finance in the transport sector in the South-Caucasus States......
E.7.3. European Union assistance in South Caucasus......
E.7.4. UN/ESCAP......
F. Roads and road transport......
F.1. Road networks and vehicle statistics......
F.1.1. Armenia......
F.1.2. Azerbaijan......
F.1.3. Georgia......
F.2. Organization of the road subsector......
F.3. Safety issues......
F.4. Economic and technical analysis on road works......
F.5. Road financing......
F.5.1. Armenia......
F.5.2. Azerbaijan......
F.5.3. Georgia......
F.6. Road transport services......
F.6.1. Freight transport services......
F.6.2. Long-distance passenger services......
F.7. Urban transport......
G. Railways......
G.1. Armenia......
G.2. Azerbaijan......
G.3. Georgia......
G.4. Rail infrastructure maintenance......
G.5. Regional Railway Developments......
G.5.1. International rail agreements......
G.5.2. Trans-Asian Railway North-South Corridor......
G.6. Conclusion......
H. Pipeline transport
I. Ports and maritime transport......
I.1. The Port of Baku in Azerbaijan......
I.2. Port of Poti in Georgia......
I.3. Port of Batumi in Georgia......
J. Civil aviation
J.1. Armenia......
J.2. Azerbaijan......
J.3. Georgia......
K. General transport support services......
K.1. Trade and Transport Facilitation......
K.2. Logistics and Business friendliness of the South-Caucasus States......
K.3. The role of freight forwarders and customs brokers......
K.4. Customs services......
K.5. Transit traffic costs and procedures......
K.5. Free Trade Zone and Logistics Center Developments......
K.5.1. Sumgait Special Economic Zone (SEZ) Project......
K.5.2. First Logistics Center for Road Transport in Azerbaijan......
K.5.3. Free Trade Zone at Bina Airport, Baku......
K.5.4. Bonded Warehouse in Baku......
K.5.5. Free Trade Zones near the Iranian Border......
K.5.6. Free Trade Zones within the framework of CIS......
K.6. Financial markets and services......
L. Summary and conclusion......
References......
Attachment C.1. Armenia at a glance......
Attachment C.2. Azerbaijan at a glance......
Attachment C.3. Georgia at a glance......
Attachment E.1. Armenian export and import by mode and commodity in 2000, in thousand tons
Attachment F.1. Vehicle and overweight fees for crossing the Georgian border in 2002 in Georgian Laris
Attachment K.1. Data of the ”logistical friendliness” survey......
Acronyms
ADDYAzerbaijan Dovlet Demir Yolu, the State Railways of Azerbaijan
AMDArmenian Dram, 1 USD was approximately 575 Dram in April 2002
ARArmenian Road; The Road Administration of Armenia
ARDArmenian Railways
ASYCUDAAutomated SYstem of CUstoms Data management developed by UNCTAD
AZMAzerbaijan Manat, 1 USD was approximately 4,800 Manat in April 2002
BASA Bilateral Air Services Agreements, an international aviation convention
b/dBarrels per day; one petroleum barrel is 42 gallons, i.e. 190.68 liters
CAA Civil Aviation Authority
CEECentral and Eastern Europe
CIMInternational 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
ECHOEuropean 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
FSUFormer Soviet Union Republics
FTL Full truck load (cf. LTL and FCL for Full container load)
FWD Falling Weight Deflector
GELGeorgian 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.4Highway Development and Management System (version 4)
HIPCHeavily 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
IDAInternational Development Agency, part of the World Bank Group
IFI International Financial Institutions
IMFInternational Monetary Fund
INOGATEInterstate Oil and Gas Transport to Europe initiative
IRI International (Road) Roughness Indicator
IRU International Road Transport Union
ISO 9001,2002Quality standards of the International Standardization Organization
JAA Joint Aviation Authority
JAR Joint Aviation Regulations
JSC Joint-stock company
LTLLess-than-truckload
MOTMinistry of Transport
MOTCMinistry of Transport and Communications
MWhMegawatt hours
NACEInternational classification system used in sectoral statistics
NGONon-governmental organizations
NISNewly Independent States, typically former Soviet Union republics
OECD Organization of Economic Co-operation and Development
OSJDOrganization for Railways Cooperation, comprises CIS countries
SGMSAgreement on International Railway Freight Communications, used in OSJD
PAX Passengers
PMSPavement Management Systems
PRGF Poverty Reduction and Growth Facility of the IMF
PSO Public Service Obligation
Ro-roRoll-on – roll-off ship
SDRG Georgian State Department of Roads
SOE State-owned enterprise
SME Small and medium-sized enterprises
TACISEU’s development program for CIS countries
TEU Twenty feet equivalent unit, a measurement for unitized cargo
TRACECAEU-funded Inter-Governmental Group TRAnsport Corridor Europe Caucasus Asia
UICInternational Organization of Railways
UNCTADUnited Nations Conference for Trade and Development
UN-ECEUnited Nations / Economic Commission for Europe
UN-ESCAPUnited Nations / Economic and Social Commission for Asia and the Pacific
UNDPUnited Nations Development Program
USDAmerican dollar
WTO World Trade Organization
WWWWorld Wide Web
XML Extensible Mark-up Language; used for making www-sites
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.
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.
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.
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 minimum[1]. 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 economy[2] 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 capitain 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 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 / Inflation1990-95 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 low-income 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*) / Income distribution1988 / 1999 / Below USD 2.15 per capita per day 1999 / 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
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 / GeorgiaPopulation, 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
Employed in the transport sector / 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
*) Armenia: preliminary data for 2000; Azerbaijan data for end-September 2001.