Armenia amending financial agreement with EIB

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.