Azerbaijan will loan USD 200 million to Georgia to finance construction of its portion of a railway that will link Azerbaijan with Turkey, according to an agreement signed in Tbilisi on January 13.

Georgia will have to repay the loan with 1% annual interest within 25 years. Georgian officials said they plan to use the revenues from the Baku-Akhalkalaki-Kars railway to cover the loan.

USD 200 million is an initial sum and the loan may increase depending on the results of an assessment that will determine the exact cost of the project, Irakli Ezugbaia, chief of the state-run Georgian Railway, said on January 13. The project assessment paper is expected to be ready by this February.

“We are very satisfied with the results [of the talks]; this [agreement] is a guarantee that the project will be launched,” Giorgi Arveladze, the Georgian Economy Minister, said after the agreement was signed.

“This is a huge project, which will mean an investment of USD 300 million in the Akhalkalaki district. It means new jobs, new economic opportunities and new links for Georgia,” he added.

“This project is important both from the political and economic point of view,” Zia Mamedov, the Azerbaijani Transport Minister, who led the Azeri delegation, said after the agreement was signed.

Officials said that both sides want construction to be launched as soon as possible. Irakli Ezugbaia initially said that Tbilisi wanted to launch construction no later than mid-2007.

But it became clear on January 13 that the project requires time-consuming procedures which may delay the construction until the end of 2007.

The procedures involve discussion of the agreement in the national legislative bodies, as well as the announcement of a tender to select a company to carry out the construction, Ezugbaia stated.

Georgia’s ex-Economy Minister Irakli Chogovadze, who participated in talks as a consultant to the government, said that despite some formal details which remain to be clarified, the agreement signed on January 13 means that the project has received a go-ahead.

“Now there is nothing hindering the launch of this project,” Chogovadze told Civil Georgia.

A 29 kilometer-long railway will be constructed on Georgian territory from Akhalkalaki to the Turkish border, and a 192 kilometer portion of already existing railway infrastructure will be rehabilitated in the frames of the project.

Officials say that project implementation will take about two and half years.

The railway will have the capacity to transport 15 million tons of cargo annually, chief of the Georgian Railway Irakli Ezugbaia said.

There are fears in Georgia that the launch of the Baku-Akhalkalaki-Kars railway will redirect flow of cargo from the Georgia’s Black Sea ports of Batumi and Poti. But Georgian Economy Minister Giorgi Arveladze downplayed these concerns.

“Additional transport routes are of special importance for us against the continuing economic blockade by Russia,” he added.

Armenia is against the Baku-Akhalkalaki-Kars railway, claiming that the project will further isolate the landlocked country.

U.S. President George W. Bush signed into law on December 20 the Export-Import Bank Reauthorization Act of 2006, which bans the U.S. Ex-Im Bank from financing the construction of the Baku-Akhalkalaki-Kars railway.

The Act was passed by the House and Senate as a result of intensive lobbying by Armenian diaspora groups in the United States.

As an alternative to Baku-Akhalkalaki-Kars, Yerevan is pushing for reopening the already existing Kars-Gyumri-Tbilisi railway. The railway between the Turkish town of Kars and Armenia’s Gyumri is currently not operational because of trade blockades imposed on Armenia by Turkey and Azerbaijan.