Monday, May 15 2023 15:40

ArmInfo. "We all live under the same sky, but we don't all have the same horizon," the great German politician Konrad Adenauer said, in a tough discussion with the United States on the issue of restoring Germany destroyed by the WW2 and insisted on canceling the initial scenario of turning it into a country with an agriculture-led economy, forcing the ally to the implement the Marshall Plan, aimed at restoring the infrastructure and industrial power of Germany. 

It was then that the idea of founding the KfW Bank (Kreditanstalt fuer Wiederaufbau) emerged, 80% capital of which is owned by the German government.

Having perfectly coped with the task of restoring its own country, the Bank subsequently, in cooperation with European institutions, began to provide serious assistance to the countries of the so-called third world, and then the post-Soviet space as a fiduciary for the German Government within German Development Cooperation.

In order to expand the economic horizons of already independent Armenia, more than a quarter of a century ago, the Bank launched programs in our country in the framework of German Financial Cooperation. The cumulative (accumulated) share of KfW investments in the economy of Armenia has reached about 1.1 billion euros in recent years. To date, Bank's active portfolio in our country, that is, the amount of funding for ongoing programs, is over 650 million euros.  These are mainly long-term investments in serious infrastructure projects that are designed to change not only the structure of the country's socio-economic life, but also give this process a new, so-called sustainable acceleration.

Recently, the Bank’s official accreditation in Armenia was announced. The correspondent of ArmInfo asked Zara Chatinyan, the Local Representative of German Development Bank (KfW) in Armenia, to tell about the new major projects implemented by the bank and the horizons of their implementation.

- Ms. Chatinyan, it is known that KfW Bank is considered one of the main investors in the Armenian economy, but lately it seems that the bank has frozen several of its projects. Is it true? 

- Indeed, we have not been heard from recently, but only because the Bank was closely involved in the preparation and implementation of a number of serious and technically very complex projects. The accreditation of our representative office in Armenia shows that the German government has long-term and serious plans in the country. Today, both the policy of the German government and our Bank is focused on creating a strong foundation for sustainable development. Therefore, the main attention is paid to such areas as energy security, development of small and medium-sized businesses, water resources management, ecology and food security.

- We follow the Bank's projects, so I would like to talk about the state of affairs with the large cross- border Caucasus Transmission Network Project. It was first talked about 10 years ago, but as it seems, the project implementation dates are constantly being postponed.

- This is the largest and most complex project, the only cross-border investment project in which Armenia participates. As you rightly noted, the Bank within German Financial Cooperation has been working on it for almost 8 years. But it should be taken into account that this is a comprehensive, complex project and the course of its implementation depends on factors beyond Armenia's control. From the point of view of the high-voltage energy system, Armenia is currently synchronized only with Iran and generally operates according to the "island principle". Within the framework of this program, there is the opportunity to synchronize Armenia with Iran, Georgia, Russia, and further, possibly with Turkey. That is, this project opens up great opportunities for the import and export of electricity and leads to an increase in the level of stability with all the ensuing positive factors, including in terms of a significant increase in the level of energy security.

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ArmInfo.The Caucasus Transmission Network Program, which provides for the construction of a power transmission line and an Armenia-Georgia substation for the organization of parallel synchronous operation of the energy systems of the two countries, will start working after 2025 in the best case scenario. The difficulties with the organization of the parallel operation mode are connected with the delay in the construction of infrastructure, including the converter station.

Within the framework of the Caucasus Transmission Network Program, it is planned to build the "Ddmashen" substation with a voltage of 400/220/10 kV, "Ayrum" converter station of 400/500 kV, with the possibility of synchronizing the work of regional power systems.  This project is an integral part of the North-South Energy Corridor, which is designed to connect the power systems of Iran, Armenia, Georgia and Russia.

And while the construction of the Iran-Armenia power transmission line has been completed by 40-50%, the parties have not started to build a similar power transmission line with Georgia. The terms of reference for the program were developed by the Armenian Government with the support of the company FICHTNER, which won the project consultant tender and also in close exchange and under the monitoring of KfW, which finances the program. According to the terms of reference, the project was divided into several stages. At the first stage, it was planned to modernize the electrical substation with a voltage of 220 kV, build a new substation with a voltage of 400 kV, and build a new overhead power line to the Georgian border. The cost of this program was first estimated at 188 million euros.  According to FICHTNER, the initial cost of the entire Armenian-Georgian energy systems synchronization project is 326.9 million euros, 10% of which should be Georgia's investment. Three loan agreements were signed in 2014-2015 to finance the "Armenian section" of the program. In particular, 165 million euros were allocated in the form of a loan within German Financial Cooperation through by KfW, another 10 million euros were allocated by the European Investment Bank and the same amount was allocated by a grant from the European Commission. The Armenian side took upon the tax burden. It should be noted that back in 2017, the Armenian government, based on the expediency of managing public debt, froze the project based on the decision of the technical commission.

However, in 2019 the government of the country decided to implement the program in full. Due to the delay in the implementation of the project, which was initially scheduled for 2019, it was decided to extend the terms of loan payments.

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- Ms. Chatinyan, what are the difficulties in implementing the project after its unfreezing in 2019?

- This is a complex program, technically so complicated that you have to make corrections every time. An important issue, for example, is the general increase in prices. It leads to additional unforeseen expenses.  But I think that already this year the tender documentation will be provided, and by the end of the year the Armenian Government will receive a list of companies participating in the tender, so that works could start soon.

Germany has a strong focus on sustainable development issues, and KfW also has the same priorities in its policy. For the Kaps Reservoir, the agreement with the construction company that won the international public tender has been signed.  How is the project progressing? 

You know, this is my, how to say, favorite project. And first of all, because the project solves several important tasks at once - from the preservation of ecology and biological diversity to issues of security and irrigation of the Shirak Plain. The reservoir, as you probably know, is located 15-20 km northwest of Gyumri. The Kaps Reservoir is being fed by Arpilich (Lake Arpi) with its waters. By the way, the Arpi National Park has been founded with the support of the German Government at the grant amount of 2.5 million euros. The Akhuryan River originates from Lake Arpi and after 30 km flows into the Kaps Reservoir. It was almost built back in Soviet times for 90 million cubic meters of water, but after the 1988 earthquake, work stopped, it was not even tested. The construction canals, which were temporary, are still there today, and all these years a river has flowed along them. It is very unsafe to leave these temporary channels, because if they get clogged, then the dam may not withstand and there will be a disaster. This is on the one hand. On the other hand, there is a serious problem with Arpilich, which today directly feeds the Shirak Plain with water. Therefore, the water level in the lake fluctuates constantly and very sharply, causing it serious ecological damage. This destroys the ecosystem of the lake; flora and fauna suffer. As a result of the implementation of the project, all these risks will be neutralized, the lake will "breathe" steadily, its ecosystem, the ecosystem of the entire national park will be restored, and water releases will be regulated directly from the Kaps Reservoir.

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ArmInfo. It is believed that Armenia has a lot of water resources, but Armenia could lose significant water resources due to climate change. Water resources may decline by 30% in 50 years. This is quite a large figure and we are faced with the task of preserving and effectively using them.  As of today, there are about 90 reservoirs in Armenia with different volumes and sizes. In the next five to ten years, judging by the government's plans, significant progress is foreseen in this area. We have learned that the Armenian Government plans to invest in new reservoirs. These works will be implemented within the framework of credit programs, and the cost of the program will be about 350-400 million dollars. Financing is mainly provided through loans from such international donors.

According to independent experts, most of the reservoirs in Armenia are not filled properly due to the fact that their technical condition leaves much to be desired. Experts believe that Armenia has the necessary amount of water for consumption, and if it is used properly, there should be no shortage. According to their calculations, about 7 billion cubic meters of water flow is formed on the territory of Armenia annually, of which 3.8 is surface runoff and 3.2 is underground runoff, which is of high quality and is used by households and industries. From this entire mass, Armenia uses only 2.5 billion cubic meters. The rest goes to the neighbors. Therefore, according to experts, it is necessary to "patch" old reservoirs at a fast pace, build new ones, and hold up the water runoff that is formed on the territory of our country. In this case, the country is not threatened by any warming and there will be no "water famine". 

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- Judging by the latest information, construction work on the Kaps Reservoir may begin in the near future. This is good news, considering that the first steps in this direction were made back in 2014. Is everything ready to start work?

- KfW has allocated around 70 million euros for this program. Construction work will begin within the next month. Financing by KfW will cover the implementation of the first stage of the program, according to which the volume of water in the reservoir will be 25 million cubic meters. The Armenian Government plans to increase the design to 60 million cubic meters which was already considered in the design plans. This is the task of the future. In the meantime, the completion of the dam and auxiliary facilities will, first of all, ensure the safety of settlements in the lower reaches of the Akhuryan River, increase the level of water supply to lands with an area of 12,325 hectares in the Shirak region. It will also be possible to replace the mechanical irrigation of 2,280 hectares of land with gravity, which will save 1.3 million kWh of electricity per year. As a result of regular irrigation, agricultural production will increase, and the installation of a reliable water metering system will increase the level of water management and monitoring. Today it is very important that the government quickly solve the problem of relocation of the village of Jradzor, which will be under water. The new village, which will be located next to the reservoir, is planned to be inhabited by about 350 inhabitants. This entire process will be fully organized at the expense of the state budget. The villagers have had these expectations for almost 40 years, and I hope that they will come true this year. The land has been allocated, engineering work is underway. 

- Yet another program that is in the focus of our editorial team is related to agriculture insurance. How is it progressing?

-This is a very complex and complicated program. This is a completely new area of the insurance market. 5 million euros were allocated by the German Government and the same amount by the Armenian Government. The agricultural insurance system has started working, insurance policies are actively subsidized. This year they have already been sold to farmers in the amount of 1 billion drams. This is much more than last year. But this is a delicate area, like the insurance business itself. It is necessary to constantly adjust the sums insured, it is necessary to diversify the risks. After all, the allocated funds for the pilot period of the program will soon be used up. 

- And what about environmental and urban development programs, how are they progressing?

- Well, first I would like to mention the Communal Infrastructure Program aimed at providing the regions with drinking water. These are Lori, Shirak, Gegharkunik, Armavir,Vayots Dzor and Syunik regions for a total amount of 60 million euros. The program is co-financed by the European Investment Bank and the EU. The program finances a network of small reservoirs of 1-2 million cubic meters of water. This is important for a stable supply of water to the population. In addition, we it will get rid of rusty old networks. We are talking about dozens of cities and villages in Armenia.  As for environmental projects, grant funds are provided from the German government for the implementation of projects. Within the framework of the program, about 50 million euros were provided to the Armenian government for protected natural areas (biodiversity), the so-called buffer zones, and for the protection of forests. 

I would like to mention that the latest intergovernmental agreement signed in 2020, provided 116 million 400 thousand euros to the Armenian government for socio-economic development. In particular, 3 million euros were allocated for the implementation of the Biodiversity and Sustainable Local Development 40 million euros were provided under the program for the development of renewable energy sources. 70 million euros were allocated for the implementation of Small and Medium-Sized Enterprises Program and about 3 million euros to finance the necessary accompanying activities aimed at technical assistance and the implementation of these abovementioned projects.

These programs will be implemented by the German-Armenian Fund (GAF), established by KfW and the Central Bank of Armenia, which will celebrate its 25th anniversary this year.  I would like to note that last week a new loan agreement was signed in the amount of 12 million euros provided by the German government for the implementation of projects in the field of energy efficiency. The implementation of the program will begin in the near future by providing funds to Armenian commercial banks.

So, we've got important things to do, and I hope that all difficulties will be overcome, and KfW will continue to actively develop its investment cooperation with Armenia.