ArmInfo.Armenia is amending its financial agreement with the European Investment Bank (EIB) aimed at restoring the water supply network in the city of Yerevan.
In July 2013 the EBRD signed the Yerevan Water Supply Improvement Project, a sovereign loan of USD 7.0 million to the Republic of Armenia. The Project is co-financed by the European Investment Bank ("EIB") and the EU Neighbourhood Investment Facility ("NIF"), each providing USD 7.0 million. The operator of the water system assets in Yerevan is currently Veolia Djur CJSC, a private company wholly owned by Veolia Environment SA of France, which operates water assets under a 15-year lease contract in the country.
The Project addresses urgently needed water supply management improvements in Yerevan city. The overall objective of this Project is the rehabilitation of the water supply network in Yerevan.
In order to fully implement the work planned within the project, the Armenian side initiated an extension of the deadline for the final provision of loan funds until 2025. December 23. As part of the extension of the term, another change to the financial contract is planned, according to which a transition will be made from the interest rate to another market interest rate (Secured Overnight Financing Rate). The latter is calculated and published by the Federal Reserve Bank of New York.
The transition to a new interest rate is due to the fact that leading banks plan to stop quoting the LIBOR rate due to cases of fraud identified in the process of quoting this interest rate. The LIBOR rate is the benchmark interest rate for the global financial market, and similar changes have been made by other lending financial institutions (including the World Bank and the Asian Development Bank).
The change in the financial agreement associated with does not provide for additional financial obligations for the Republic of Armenia>, the document says.
Global regulators have decided to abandon the LIBOR indicator (London Interbank Offered Rate - the weighted average offer rate on interbank loans from the world's leading banks based in London. It is calculated once a day based on a survey of banks for seven loan terms - from overnight to 12 months and for five reserve currencies: US dollar, euro, Swiss franc, pound sterling, Japanese yen) after revealing facts of rate manipulation in 2012 and launched a reform for a gradual transition to new indicators. It was noted that the main disadvantage of the IBOR family of rates, and in particular LIBOR, was the susceptibility to manipulation due to the lack of regulation and imperfections in calculation methods.
As a result, a global reform of debt market benchmark rates was initiated - Interest Rate Benchmark Reform. The recommended alternative, as noted, is the SOFR (Secured Overnight Financing Rate). It has been officially published since April 2018. SOFR is calculated as the volume-weighted average rate of three types of overnight repo transactions backed by US Treasury securities.
The use of this indicator in derivative instruments also started in 2018 with the launch of SOFR futures on the Chicago Mercantile Exchange (CME). Later, the exchange introduced corresponding options to the market. In December 2020, the UK Financial Conduct Authority (FCA) announced its intention to stop collecting data from banks to calculate IBOR family rates after the end of 2021. However, an exception was made for dollar LIBOR rates for the most popular terms: overnight, one, three, six and 12 months. These indicators will be calculated until June 30, 2023.
