AMBASSADOR'S MEETING WITH ASIAN DEVELOPMENT BANK

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000087

SIPDIS

E.O. 12958: DECL: 02/17/2020
TAGS: PGOV EAID ECON GA AM
SUBJECT: AMBASSADOR'S MEETING WITH ASIAN DEVELOPMENT BANK

REF: YEREVAN 71

YEREVAN 00000087 001.2 OF 002


Classified By: Ambassador Marie L. Yovanovitch. Reason 1.4 (b/d)

SUMMARY
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1. (C) During a meeting with the Ambassador on February 11
Areg Barseghian, the head of the Asian Development Bank's
Armenia office, outlined for the Ambassador the ADB's current
projects in Armenia. The GOAM plans to manage the largest
road project -- the North-South Corridor -- through a
parallel structure that would bypass the dysfunctional
Ministry of Transport, one of several recent instances where
the GOAM's response to poor governance has been to create a
workaround rather than reforming the institution. Barseghian
said he had not heard of rumored plans by the Government of
Georgia to cancel a planned road that would connect the
North-South Corridor to the Georgian port of Batumi, and
insisted that ADB remains committed to the project.
Separately, the Georgian Ambassador told us that the GoG will
build the road, but does not want to term to project
"regional." End Summary.

ADB PROJECTS
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2. (C) Meeting with the Ambassador on February 11, ADB Senior
Country Coordination Officer Areg Barseghian outlined some of
the ADB's current projects in Armenia, which will amount to
nearly $1 billion spread over about seven years. These
include $40 million in co-financing (with the EBRD and
Germany's DEG) of a new terminal at Zvartnots Airport and $48
million for construction of 220 km of rural roads, a project
which Barseghian said is now
95 percent complete and should be finished this year (Note:
Construction on the Zvartnots facility is well under way,
though the ADB board has yet to formally approve its part of
the financing. End Note). ADB is also providing $36 million
for water infrastructure, and smaller amounts for regional
development projects and technical assistance.


3. (SBU) ADB is also financing the Yerevan Urban Transport
Project, a total of $200-300 million over 7-10 years. This
would consist of new roads, an extension of the metro and new
parking facilities. The main feature would be three bypass
roads that would allow freight to avoid having to pass
through Yerevan, where it currently must often negotiate
narrow and congested streets not properly designed for large
vehicles. Financing will be provided through a multi-tranche
facility, and Barseghian said ADB may disburse a first
tranche of $50 million by the end of 2010.


NORTH-SOUTH ROAD
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4. (C) ADB's current major project is the North-South
Corridor, a road that will run from Iran to the Georgian
border, and has an estimated price tag of $900 million, of
which ADB is financing approximately $500 million. This
project envisions the creation of a "Class A" four-lane (in
most cases),dual-carriage road. This is about a seven-year
project that will be done in phases: The first stage will
upgrade the existing highway north from Yerevan to Ashtarak,
then to Gyumri, and eventually to Bavra, near the Georgian
border. South of Yerevan, it would connect to Kapan, near
the Iranian border, and would
be built largely in a new corridor, with fewer curves, in
order to facilitate cargo traffic. Bargseghian said that
work on the road north from Yerevan will be done first, due
to greater near-term economic potential along that route,
even though it is in much better shape than the roads south
to the Iranian border.


5. (C) The project will be financed in tranches - the first
one, for Yerevan-Ashtarak, will be about $70 million. The
parliament recently voted to approve the multi-tranche
financing facility and to accept the first tranche, which
carries a concessional interest rate (subsequent tranches
will carry commercial rates). ADB will make subsequent
tranches available as the projects are ready;
Yerevan-Ashtarak is projected to take three years to
complete. ADB expects to lend about $150 million for the
Ashtarak-Gyumri leg, construction on which could run
concurrently with the Yerevan-Ashtarak segment. Barseghian
says it could be approved before the end of 2010.


6. (C) In order to oversee the North-South corridor, the GOAM
plans to bypass the Ministry of Transport, which has recently
come in for serious criticism for mismanaging various
projects. Instead, the current plan is to create a new

YEREVAN 00000087 002.2 OF 002


Governance Council, chaired by the Prime Minister, to oversee
the project, and a Project Management Unit to implement it.
The GOAM has delayed approval of this unit, causing a delay
in the start of work on the corridor's first phase.


7. (C) Appearing to contradict the recent assertions of
Deputy Foreign Minister Shavarsh Kocharian (reftel),
Barseghian indicated that he has not heard of any plans by
the Georgian government to withdraw its support for
construction of the road from Bavra to Batumi, which would
connect the North-South Corridor to a more direct route to
Georgian ports. Kocharian believed that the GOG's lack of
support could endanger ADB funding for the North-South
Corridor as the project would no longer be considered
"regional." Barseghian confirmed that ADB remains fully
committed to the North-South corridor, and separately, the
Georgian Amassador told us that the GoG will do "all that is
required" to build their portion of the road. He said that
the GoG does not want to call the road a "regional project"
because it will then become the highest priority, limiting
Georgian flexibility on allocation of funds.

IF THE BORDER OPENS
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8. (C) According to Barseghian, there is flexibility in the
ADB's $500 million loan for the North-South corridor that
would allow the GOAM to divert funds toward roads connecting
to Turkey in the event of a border opening. Instead of the
Gyumri-Bavra road, for example, the GOAM would be free to
construct or upgrade a road to the Turkish border, connecting
most likely to Kars.

COMMENT
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9. (C) Armenia is in desperate need of the infrastructure
these projects will provide, and the construction activity
will provide some helpful economic stimulus during a severe
economic crisis. While the nearly $1 billion of borrowing
these projects will entail will combine with loans from the
World Bank, IMF and Russia to increase significantly the
GOAM's indebtedness, many of these loans are concessional and
the ADB so far appears confident that servicing the debts
will not cripple the country's budget; the IMF, however, has
characterized the ADB loans as "reckless." Perhaps more
worrisome is that, in the case of the North-South Corridor,
the GOAM yet again seems to be addressing problems of
corruption and inept governance not by reforming a
problematic agency (or dismissing its head),but by creating
a parallel structure or process to bypass the problem. The
solution to every governance or corruption problem cannot be
to create a committee chaired by the Prime Minister. END
COMMENT.
YOVANOVITCH