As bright future beckons, Azerail seeks foreign investors
Modernization of old Silk Road route to vastly increase tonnage carried by state railway

Azerbaijan State Railways, known as Azerail, is highly optimistic about its future. And with good reason: As Azerbaijan resumes its historic position as a key transit point between Europe and Asia, major traffic growth is expected in both passengers and cargo.

Azerail’s hopes lie in the rehabilitation of the historic "Silk Road" rail transport corridor. Under the European Union’s TACIS (Technical Assistance to the CIS countries) umbrella, the multi-nation TRACECA ("Transport Corridor - Europe - Caucasus - Asia") transportation infrastructure program plans to reconstruct a modern transport route across Central Asia to the Black Sea, with Azerbaijan as the focal point.

Another good reason to be optimistic is that with the end of the Russian blockade of shipping in the North-South direction in 1996, and ongoing structural improvements on the route to India, transport tonnage is expected to grow significantly.

Azerail is already seeing results from TRACECA’s infrastructure aid projects. In 1996, the company transported a mere 650,000 tons through the East-West corridor. By late 2001, however, annual tonnage should reach or even exceed some seven million tons.

With the company’s transport of 11 million tons of petroleum from the Dubendi terminal north of Baku, to Black Sea ports in 2000 is also considered, it is clear that Azerail is a company making an impressive comeback from the internal chaos of the first years of Azerbaijan’s independence.

"Azerbaijan has always been a transport bridge in the North-South and East-West directions," says Ziya Mamedov, the company’s president. "Azerail has a long history. We go back to 1880, when we were the first railroad to transport oil on the Absheron peninsula. We began with just 12.4 miles of track."

At that time, oil wells were dug manually, gushers often developed, and oil under natural pressure was allowed to collect in pits in the ground. Transporting the oil itself in the early days was equally primitive, with donkeys and camel caravans use to move the precious fluid which was stored in wooden barrels. These early methods of obtaining and transporting oil were clearly holding back Baku’s oil production.

Then came the invention of the rail tank car, and the 1878 decree that created Azerail. Within five years of its birth, Azerail was transporting oil from Baku on a new mail railway line to Tbilisi , and then on the Black Sea port of Baladjari. By 1890, another main line connected Baladjari to Derbent.

In 1900, Baku was linked to Russia by a network of railways. Oil was transported on a line from Baku to Tihoretskaya and on to the central and western regions of Russia. In 1908, another line from Djulfa to Norashen was opened. Azerail opened its first electrified line in 1926.

Today, Azerail has 1,814 miles of railway lines, some 70 percent of it electrified and fully modernized. The car inventory totals 25,438. The company has 252 locomotives, 280 engines, and 76 electro-sections.

Except for a few locomotives that are repaired out of the country, Azerail now does most of its own maintenance work. In the last year alone, some 7,250 wagons have been repaired, and 140 damaged tank cars were restored.

The transition from a high-capacity system under the Soviets to a smaller entity today has been difficult for Azerail.

"During the Soviet period, we moved 90-95 million tons annually. Our capacity was very high," Mamedov said. "But after independence in 1991, the economy crashed. Then Armenia launched its war of aggression." The war caused the company severe losses of track, stations, and equipment.

In 1993, Russia, supporting its Armenian allies, blockaded the railway from the north, and did not lift it until 1996. The accession to power of Russian President Vladimir Putin and his early meeting with President Aliyev has led to a warmer relationship. In that meeting last year, the two presidents discussed a project to upgrade rail shipments on the North-South line and to eventually extend the line to India. President Putin authorized the project to start. "We expect improvements on the route to be completed by 2005. The increase in cargo should be enormous," Mamedov said.

In order to improve its capability to transport international cargo, Azerail has reached out to international organizations. The railway has become a full member of the Council of Railway Transport of the CIS and OSJD. Transportation of goods in the CIS and Baltic states are governed by international tariff agreements. In addition, the company has worked closely with the European Union.

To help the company realize its potential, Azerail has received significant capital inflows from foreign aid programs. In 1995, the company received $2 million to make repairs on the bridge over the Kura River. It has received $200,000 for repairs on another bridge, about $100,000 for locomotive spare parts, and $500,000 to purchase two boiler plants for steaming and cleaning. Finally, it received a grant from the European Union for installation of a fiber optic cable from Baku to Georgia that has improved communication along the entire route.

The European Bank for Reconstruction and Development has provided a $20 million credit for reconstruction of the Silk Road route. Other grants from other sources include $1.2 million for new equipment, a track layer, and ballast cleaning, and an additional $3 million for station renovation and equipment.

Preparing for privatization under the Azerbaijan government’s privatization program, Azerail continues to look for additional capital. "We need investments for power supply, locomotives, rolling stock refurbishing and rail road refurbishing. We are looking for foreign investment that is non-recurring and provides good credit conditions."

Azerail has always taken pride in fulfilling its social responsibility and in the care it provides to its workers. For nine years, the company has been supporting 3,000 railway worker refugee families. The company supports 42 kindergardens, and has built new schools for children of railway workers. It has a technical school and railway faculty in the Technical Academy. The company has established four camps for children.

There are 13 hospitals at the disposal of the railway, with a capacity to treat 1,800 patients simultaneously. The company also has two polyclinics, six ambulance stations, and 60 medical teams. Finally, Azerail also owns a rest home for its employees on the Caspian seacoast.