ASIAN DEVELOPMENT BANK PCR:KGZ 28355 · Designed according to Soviet standards, the road had no...

ASIAN DEVELOPMENT BANK PCR:KGZ 28355

PROJECT COMPLETION REPORT

ON THE

ROAD REHABILITATION PROJECT (Loan 1444-KGZ[SF])

IN THE

KYRGYZ REPUBLIC

December 2002

CURRENCY EQUIVALENTS

Currency Unit–Som

At Appraisal At Project Completion 1 Mar 1996 1 Mar 2002

Som1.00 = $0.0866 $0.0209 $1.00 = Som11.55 Som47.87

SDR1.00 = $0.68 $0.80

ABBREVIATIONS ADB – Asian Development Bank DGRMBOR – Directorate General for Rehabilitation and Maintenance of the

Bishkek-Osh Road DOR – Department of Roads EIRR – Economic Internal Rate of Return JBIC – Japan Bank for International Cooperation km – kilometer m – meter MOTC – Ministry of Transport and Communications PIU – Project Implementation Unit RSPS – Road Sector Policy Statement TA – technical assistance TSPS – Transport Sector Policy Statement VOC – vehicle operating cost Vpd – vehicles per day

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, "$" refers to US dollars.

CONTENTS Page

BASIC DATA i MAPS v I. Project Description 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Project Outputs 2

C. Project Costs and Financing 2 D. Disbursements 2 E. Project Schedule 3 F. Implementation Arrangements 3 G. Conditions and Covenants 4 H. Related Technical Assistance 4 I. Consultant Recruitment and Procurement 4 J. Performance of Consultants, Contractors, and Suppliers 5 K. Performance of the Borrower and the Executing Agency 6 L. Performance of ADB 7 M. Present Condition of the Rehabilitated Road 8

III. Evaluation of Performance 9 A. Relevance 9 B. Efficacy in Achievement of Purpose 9 C. Efficiency in Achievement of Outputs and Purpose 11 D. Preliminary Assessment of Sustainability 11 E. Environmental, Sociocultural, and Other Impacts 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 11

A. Overall Assessment 11 B. Lessons Learned 12 C. Recommendations 12

APPENDIXES 13 1. Chronology of Major Events 13 2. Comparison of Projected and Actual Schedules 15 3. Road Maintenance Equipment procured Under JBIC Loan 16 4. Project Costs and Financing 17 5. Actual Cost Data 18 6. Organization Chart of the Ministry of Transport and Communications 19 7. Compliance with Loan Covenants 20 8. Transport Sector Development Framework 23 9. Action Plan for Road Sector Reform 29 10. Traffic Forecast at Appraisal and Project Completion 30 11. Economic Reevaluation 31 12. Project Rating 34

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan

7. Project Completion Report Number

Kyrgyz Republic 1444-KGZ (SF) Road Rehabilitation Kyrgyz Republic Ministry of Transport and Communications SDR34,218,000 PCR:KGZ 720

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

14 Feb 1996 24 Feb 1996 08 Apr 1996 10 Apr 1996 13 Jun 1996 18 Jul 1996 16 Oct 1996 27 Sep 1996 - 30 Apr 2000 18 Dec 2001 1 1 percent per annum 40 years 10 years

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8. Disbursements a. Dates Initial Disbursement

19 Nov 1996

Final Disbursement 18 Dec 2001

Time Interval 5 years, 1 month

Effective Date

27 Sep 1996

Original Closing Date 30 Apr 2000

Time Interval 3 years, 7 months

b. Amount (SDR) Category or Subloan

Original

Allocation

Last Revised

Allocation

Amount

Cancelleda

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance 1.Civil Works 26,553,000 30,054,892 298,572 29,756,320 29,756,320 0 2.Consulting Services

2,122,000 3,362,607 151,667 3,210,940 3,210,940 0

3.Service Charge

698,000 800,501 - 800,501 800,501 0

4.Unallocated 4,845,000 0

Total 34,218,000 34,218,000 450,239 33,767,761 33,767,761 0 a cancelled on 18 December 2001

9. Local Costs (Financed) - Amount ($ million) 15.23 - Percent of Local Costs 53% - Percent of Total Cost 20% C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 48.50 47.14 Local Currency Cost 37.60 28.85 Total 86.00 75.99

2. Financing Plan ($ million) Appraisal Estimate Actual Cost Foreign Local Total Foreign Local Total Implementation Costs Borrower-Financed 0.00 15.00 15.00 0.00 9.02 9.02 ADB-Financed 31.48 17.50 48.98 29.83 15.23 45.06 JBIC 15.45 5.10 20.55 15.27 4.60 19.87 Total 46.93 37.60 84.53 45.10 28.85 73.95

IDC Costs Borrower-Financed 0.00 0.00 0.00 0.00 0.00 0.00 ADB-Financed 1.02 0.00 1.02 1.07 0.00 1.07 JBIC 0.45 0.00 0.45 0.97 0.00 0.97 Total 1.47 0.00 1.47 2.04 0.00 2.04

ADB = Asian Development Bank, JBIC= Japan Bank for International Cooperation, IDC = interest during construction

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3. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual Foreign Local Total Foreign Local Total A. Base Costs 1. Civil Works 31.50 31.00 62.50 33.37 28.80 62.17 2. Equipment 6.25 0.25 6.50 7.45 0.00 7.45 3. Consulting Services 2.50 0.60 3.10 4.28 0.05 4.33 Subtotal (A) 40.25 31.85 72.10 45.10 28.85 73.95 B. Contingencies 1. Physical Contingencies 4.14 3.16 7.30 0.00 0.00 0.00 2. Price Escalation 2.54 2.59 5.13 0.00 0.00 0.00 Subtotal (B) 6.68 5.75 12.43 0.00 0.00 0.00 C. Interest During Construction 1.47 0.00 1.47 2.04 0.00 2.04 Total 48.40 37.60 86.00 47.14 28.85 75.99 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultantsa Aug 1996 Jun 1996Completion of Engineering Designs Aug 1996 Nov 1996Civil Works Contract Date of Award Jun 1996 Sep 1996 Completion of Work Oct 1999 Dec 2000Equipment and Supplies Dates First Procurement Nov 1997 Aug 1997 Last Procurement Mar 1998 Oct 2000Start of Operations Handing over Section 1, km 412-426 31 Oct 1997 23 Oct 1999 Handing over Section 2, km 161-247 31 May 1999 10 Jul 2001 5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

From 27 Sep 1996 to 18 Dec 2001 Satisfactory Satisfactory

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D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons a

No. of Person-Days

Specialization of Members a

Reconnaissance 2-12 Oct 1995 2 22 a, a Fact-Finding 22 Nov-3 Dec 1995 3 36 a, a, d Appraisal 14-24 Feb 1996 4 40 a, a, c, e Inception 6-8 Aug 1996 1 3 a Review 1 29 Oct – 4 Nov 1996 2 14 a, g Review 2 13-16 Jul 1997 1 4 a Mid-Term Review 24 Nov – 1 Dec

1997 2 16 a, d

Review 3 20 – 27 Mar 1998 1 8 d Special Loan Administration 9 – 13 Nov 1998 b 1 5 d Disbursement 12-16 Apr 1999 1 4 f Review 4 15-22 Oct 1999 b 1 8 a Review 5 30 Nov – 9 Dec

2000 b 2 20 a, d

Review 6 21-31 Aug 2001 b 1 10 a Project Completion Reviewc 4-16 Mar 2002 b 3 30 a, d, i a a - engineer, b - financial analyst, c - counsel, d - economist, e - procurement consultant or specialist, f - control

officer, g - programs officer, h – young professional, i– associate project analyst b Mission in conjunction with loan 1630-KGZ(SF): Second Road Rehabilitation Project. c The Mission comprised: K. Saari, Transport Specialist/Mission Leader; J. Miller, Sr. Project Economist; and N. de

los Reyes, Associate Project Analyst.

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I. PROJECT DESCRIPTION

1. The Road Rehabilitation Project in the Kyrgyz Republic included rehabilitation of about 135 kilometers (km) of key sections of the main route between Bishkek and Osh, equipment to improve maintenance and safety of the road, and consulting services for project design and construction supervision.1 The Project also assisted the Kyrgyz Government in developing its road sector by supporting policy reform and strengthening its road sector institutions. 2. The Bishkek-Osh road traverses four of the Kyrgyz Republic’s seven regions and serves about half of the country’s population. It connects the two major urban centers of economic activity and population, which together account for over half of the country’s gross domestic product and 80% of its industrial enterprises. Also, the Bishkek-Osh road is part of the regional route linking eastern Uzbekistan and Tajikistan with Kazakhstan and Russia. 3. Poor maintenance of the Bishkek-Osh road had resulted in serious deterioration of certain sections which were often subject to periodic closure in winter months because of unsafe traffic conditions. The main objective of the Project was to improve traffic efficiency and road safety along the country’s main transport corridor through the rehabilitation of three priority sections of the Bishkek-Osh road. Through the technical assistance (TA)2 concurrently approved with the loan provided by the Asian Development Bank (ADB), the Project also assisted the Government in implementing sector reforms relating mainly to the road maintenance organization and financing. The Project comprised three components: (i) civil works for the rehabilitation of about 135 kilometers (km) of three mountainous road sections (Map 2), (ii) equipment for road maintenance and technical support, and (iii) consulting services for detailed design and construction supervision. Major events of the project history are given in Appendix 1 and project schedule is given in Appendix 2.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The Bishkek-Osh road is economically and strategically the most important road in the Kyrgyz Republic. It provides connection between the northern capital area and the southern area of the country in and around Fergana Valley. The road is an important international transport corridor from Fergana Valley to Kazakhstan and further to Russia. Also, the road contributes to maintaining the territorial integrity of the country. 5. Originally built before the Second World War, the road was improved in the 1950s and 1960s. The Kolbaev Tunnel at Tyo Ashuu, 130 km from Bishkek, was completed in 1964. Designed according to Soviet standards, the road had no shoulders and the 6-7 m wide carriageway was partially paved with gravel surface on mountainous sections. The road was 620 km long during the time of the Soviet Union. After the independence of the Kyrgyz Republic, detours around Uzbek territories extended the length of the road by 50 km. The southern Osh and Batgen oblasts are separated from the northern Chui Oblast by the Kyrgyz mountain range. The road crosses two mountain passes at elevations more than 3,000 meters (m) above sea level. Before rehabilitation, the road had to be frequently closed for long periods during winter 1 RRP: KGZ 28355, Report and Recommendation of the President to the Board of Directors on a Loan and

Technical Assistance Grant to the Kyrgyz Republic for the Road Rehabilitation Project, May 1995. 2 ADB. 1996. Technical Assistance for Institutional Strengthening of the Road Sector in the Kyrgyz Republic. Manila.

The TA, for $800,000, was implemented between January and August, 1997.

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due to avalanches and rock falls. Large buses were not allowed to travel along the road due to the unsafe traffic conditions. 6. The three road sections under the Project have been rehabilitated with an 8 m carriageway and 1 m wide shoulders. The rehabilitated sections are now open to traffic all year around and road safety is now ensured through improved alignments, reinforced slope protection, and adequate traffic signs. 7. During the Soviet period, the Ministry of Transport was responsible for all transport sector activities. The TA (footnote 2) assisted in reorganizing the sector institutions to meet the requirements of a market economy and promoting the involvement of the private sector in road development and maintenance. The TA also helped the Government draft the new Automobile Road Act and Road Fund Act. The reorganization was adopted and the reorganized ministry was renamed Ministry of Transport and Communications (MOTC) in 1997. B. Project Outputs

1. Civil Works 8. Of the three rehabilitated road sections, two totaling 100 km were financed by ADB, and the third one, 35 km long, was financed by the Japan Bank for International Cooperation (JBIC).3 The ADB-financed sections were completed on 16 July 2001. The first ADB-financed section was completed on 23 October 1999 and the second on 10 July 2001. The JBIC-financed section was completed on 4 May 2000.

2. Procurement of Equipment 9. The equipment to be procured under the Project was financed in full by JBIC. The equipment mainly of Russian origin was procured through international competitive bidding for a total cost of ¥880 million (Appendix 3). The equipment was procured through two contracts, one of $4,675,550 signed on 21 August 1997 and the other for $2,981,770 signed on 8 October 2000. C. Project Costs and Financing

10. At appraisal, the project cost was estimated at $86.0 million, comprising $48.4 million in foreign exchange cost and $37.6 million in local currency cost (Appendix 4). The actual project cost amounted to about $76.0 million including a $47.1 million foreign exchange cost and $28.9 million equivalent in local currency cost. The cost of civil works amounted to $62.2 million compared with $62.5 million at appraisal. The $7.5 million equipment cost was slightly higher than the estimate of $6.5 million due to actual requirements in excess of those anticipated. The cost of consulting services increased by $1.2 million due to the extension of the construction period and consequent increase in consultants’ inputs. The interest during construction cost increased by $0.6 million as a result of extension of the loan closing date from the original date of 30 April 2000 to the actual loan closing date of 18 December 2001. 11. At appraisal, the $50.0 million ADB’s loan was to finance 58.1% of the total estimated project cost of $86.0 million. The balance was to be financed by JBIC ($21.0 million) and the

3 The first 15 km long section extended from km 412 to km 427, the second, 86 km long, from km 161 to km 247.The

JBIC’s loan financed the km325-361 section.

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Government ($15.0 million).4 Of the actual $76.0 million project cost ADB financed $46.1 million (60.7%), JBIC $20.9 million (27.4%), and the Government $9.0 million equivalent (11.9%).5 The ADB loan proceeds financed the civil works ($40.7 million), consulting services for ADB and JBIC financed road sectors ($4.3 million), and service charge ($1.1 million). The JBIC loan was utilized for financing civil works of the third section and maintenance equipment only. The Government contribution went in full to the ADB-financed civil works. D. Disbursements

12. Of the ADB loan, $46.1 million was disbursed and $0.6 million was cancelled on the loan closing of 18 December 2001. The breakdown of disbursements among loan categories is as follows: Category 01: Civil Works for $40.7 million; Category 02: Consulting Services for $4.3 million and Category 03: Service Charge for $1.1 million. The retroactive financing of SDR3.4 million effective 16 February 1996 was not used. Direct payment procedures were used for payment of civil works and consultants. 13. Disbursements from the loan account began on 19 November 1996 and were completed on 18 December 2001, the date of loan closing. The present dollar equivalent of the loan amount is $46.7 million against $50.0 million (SDR 34.218 million) on the loan approval date of 13 June 1996. The decrease in the dollar amount of $3.31 million is attributed to exchange rate fluctuations. The annual and total disbursements of the ADB and JBIC loans are given in Appendix 5. E. Project Schedule

14. Project preparatory TA6 (PPTA) was approved to complement the studies prepared by the European Bank for Reconstruction and Development7 to assess the priority needs of the sector, review the project feasibility study, and prepare a project suitable for external financing. A second phase of the PPTA assisted the Department of Roads in preparing the project design and tender documents. A tripartite meeting for the TA was held in October 1995. An ADB loan fact-finding mission to the Kyrgyz Republic was fielded in November 1995, and an appraisal mission was conducted in February 1996. Loan negotiations were held with representatives of the Government of the Kyrgyz Republic in Manila in April 1996. The loan was approved on 13 June 1996 and declared effective on 27 September 1996. The consultant commenced work on 5 June 1996 after the advance recruitment action was approved on 7 February 1996. The civil works contractor was selected on 13 September 1996 and the civil works commenced on 1 January 1997. The original loan closing date of 30 April 2000 was extended once to 1 October 2001. The civil works were substantially completed on 10 July 2001 and the loan was closed on 18 December 2001. 15. The Project was completed on 10 June 2001 about 17 months behind the anticipated date for completion of 31 December 1999. The implementation delay is mainly due to (i) continuous slope stability problems including a major landslide at km 422, which caused four 4 Parallel cofinancing was provided by JBIC through a $21.0 million loan approved on 17 March 1997 and made

effective 26 June 1997. 5 Due to delayed completion, the contractor had to pay $0.9 million liquidated damages to cover the cost of

additional consulting services and other Government’s losses. While the liquidated damages were actually deducted from the contractor’s invoice, they are included in the Government’s contribution of $9.0 million.

6 ADB,1994. Road Rehabilitation Project. The TA, for $600,000, was implemented between October 1995 and May 1996

7 Appraisal Mission for Bishkek-Osh Road, Kyrgyz Republic, June 1994, and Central Asia Outline Transport Strategy, April 1995.

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months of delay and several design changes; (ii) persistent problems in obtaining diesel fuel and good-quality bitumen for asphalt works; and (iii) lack of contractor’s capacity in managing and resolving implementation-related issues and internal problems of the joint venture between the Turkish and Kyrgyz companies. 16. The JBIC loan became effective on 27 June 1997 and the closing date of the loan was scheduled for 26 June 2002. The civil works under the JBIC loan were completed on 4 May 2001. F. Implementation Arrangements

17. The Borrower was the Kyrgyz Government represented by its Ministry of Finance (MOF). A Project Steering Committee consisting of the representatives of MOF, MOTC, Ministry of Economy, and Goskominvest (government investment committee) was established. The steering committee had annual meetings. At the beginning of project implementation, the Office of the Prime Minister acted as the Executing Agency. However, following the establishment of MOTC, which replaced the original Ministry of Transport, MOTC became the Executing Agency (EA) and assumed the responsibility for overall project management including planning, managing, supervising, and coordinating project implementation. 18. A project implementation unit (PIU) was established under the Directorate General for Rehabilitation and Maintenance of the Bishkek-Osh Road, which later was renamed Bishkek-Osh Road Division. Under the PIU head, the unit was staffed with 2-6 engineers, an accountant, and a financial and administrative assistant. After the reorganization of MOTC, the unit was moved into MOTC’s Department of Roads. The reorganized structure of MOTC is shown in Appendix 6. G. Conditions and Covenants

19. Most of the loan covenants have been complied with; deviations concern recording of the Steering Committee meetings and implementation of the benefit and monitoring system. (Appendix 7). While the Steering Committee convened annual meetings, minutes of these meetings were not prepared. Initially, project benefits were not monitored prior to 1998 pending the completion of the TA (footnote 2). In August 2001, a loan review mission followed up with the EA on the implementation of the benefit monitoring system but due to closure of the loan soon after, the benefit monitoring was not carried out. Instead, data on the project benefits as compiled by the consultant under the project preparatory TA for the Third Road Rehabilitation Project,8 and by the consultant of the Second Road Rehabilitation Project9 have been used in this report. H. Related Technical Assistance

20. Implementation of the TA for institutional strengthening in the road sector (footnote 2) commenced in January 1997 and was completed in August 1997. A transport sector development framework (Appendix 8) and action plan for road sector reform (Appendix 9) were prepared. A draft transport sector policy statement was also drafted. The interim Road Sector Policy Statement was reviewed and revisions to the Automobile Roads Act from 1994 were 8 ADB, 1999, Third Road Rehabilitation Project. The TA, for $600,000 was implemented during May 2000-August

2001. 9 ADB, 1999, Second Road Rehabilitation Project. The loan, for $50 million was approved on 10 September 1998.

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recommended. Also, the draft Road Fund Act was prepared. Measures for restructuring the Ministry of Transport were recommended, as well as recommendations were issued for planning and reorganizing the road maintenance activities. 21. As a result of the TA findings and recommendations, MOTC was established, the road maintenance was reorganized, and the new Automobile Roads Act and Road Fund Act were passed. 22. The country was divided into seven road maintenance regions, which were further divided into 38 road maintenance units. While a road fund has been established the financing of the road sector is still inadequate. As part of the Third Road Rehabilitation Project (footnote 8) the annual road budget is expected to increase at a 20% annual rate from about $3.5 million equivalent in 2001 to about $5.0 million equivalent in 2005. The road maintenance equipment procured under the Project has been assigned to the road maintenance units. It is envisaged that under the Second Road Rehabilitation Project (footnote 9) part of the equipment would be transferred to an equipment leasing company, which would be operated by the Bishkek-Osh Road Department. I. Consultant Recruitment and Procurement

23. Following ADB-approved advance procurement action, the consulting services and civil works under ADB financing were advertised in February 1996. The consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants. A $2,779,600 consulting services contract was signed on 17 June 1996 for detailed design and construction supervision. On project completion the actual consulting services cost amounted to $4,331,253 including $50,958 for auditing services. The consultant supervised also the JBIC-financed civil works construction and procurement of equipment until the end of 2000, when JBIC transferred the supervision to the consultant supervising the JBIC-financed civil works under the Second Road Rehabilitation Project. MOTC signed and financed a separate contract for $86,000 with the consultant to cover the defects liability period. 24. The civil works financed by JBIC and ADB were procured in accordance with their respective guidelines for procurement using international competitive bidding. Prequalification documents were prepared for the contractors, but due to time constraints, it was decided to use post-qualification instead. The five bids for ADB financed civil works were opened 10 June 1996. The bid prices varied from $45.0 million to $72.0 million. Three of the bids, including the lowest evaluated one, were disqualified because they did not meet the evaluation criteria, due to insufficient experience or insufficient financial capacity. The ADB-financed contract was awarded on 16 July 1996 to the second lowest evaluated and substantially responsive bidder for $51.3 million. The JBIC-financed contract was awarded on 1 December 1997 to the lowest evaluated bidder for $9.6 million, which due to additional works was increased to $12.4 million in the course of the Project. 25. After the signing of the contract the issue arose whether the contract price would need to include 20% value added tax (VAT) or not. VAT was introduced in the Kyrgyz Republic on 1 July 1996, two weeks before the contract was signed. It was finally decided that the contract prices did not include VAT and the contractor did not have to pay VAT.

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J. Performance of Consultants, Contractors, and Suppliers

1. Consultants 26. The consulting services’ contract for the civil works was amended four times to cover additional works including (i) training of local workers in road construction: (ii) preparation of a feasibility study of Bishkek-Georgievka road (Almaty-Bishkek Road Rehabilitation Project); and (iii) providing assistance to the EA with regard to the prequalification of contractors and procurement of civil works for the Second Road Rehabilitation Project. In addition, the consulting services contract was extended twice due to delays in civil works construction, from 31 January 2000 to 24 September 2000 and subsequently, to provide consulting services up to 31 September 2001. Project detailed design and construction supervision required 100 person-months of international consultants and 220 person-months of domestic consultants. Despite some deficiencies in designing the slope stabilization works and supervising the pavement works, the overall performance of the consultants is rated generally satisfactory. 27. The consultants arranged training courses for the domestic consultants during March-July 1998. Two training modules, topographical survey (9 person-months) and highway design (2.3 person-months), were successfully completed in Denmark. A 1-month training program was implemented on the worksite for the domestic supervision engineers and project administration and management staff. While the training program was successful, there is still a need for further training. As recommended by the consultants, a training center should be established within MOTC. 28. The consultant could have given better advice to ADB and the EA on the technical details of the design and paid more attention to the mountainous nature of the terrain during the feasibility study and in the design phase. Rock slope reinforcement and protection could have been better addressed at all stages of the design. During the construction works serious rock slope failures took place, which made it necessary to extend the construction period and caused extra construction cost. The consultants could have paid more attention to winter conditions in designing the guardrails on high embankment sections. Instead of metallic guardrails, concrete parapets were chosen; they look good but are impractical during snow removal operations and they prevent the use of ordinary snowplows. The consultant could have been more careful in the design and supervision of the road structures in some areas (especially on km 170-194) where the pavement started cracking during the very first winter season.

2. Contractors 29. After a long mobilization period, the civil works progressed satisfactorily. By the time of the midterm review in 1997, it was still envisaged that the civil works construction would be completed in 1998. However, during 1998, the rock slope failure at km 422 caused a 4-month delay. The progress of the ADB-financed civil works slowed down during 1998 and the works were interrupted in late 1999. This interruption is attributed to a lack of adequate resources of the international contractor who in addition to the Bishkek-Osh roadworks, had to implement the JBIC-financed civil works of the Second Road Rehabilitation Project and the civil works of a Tajikistan project financed by the Islamic Development Bank. Further delays were caused by delayed payments to the construction workers and subcontractors.

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3. Suppliers 30. The contractor experienced problems in obtaining fuel and good-quality bitumen. Supply of these materials was slow and erratic. The procurement of JBIC-financed equipment was delayed because the selected suppliers did not have the required equipment in stock. The first batch of equipment was delivered almost one year behind the original schedule. K. Performance of the Borrower and the Executing Agency

31. The Borrower’s project completion report was submitted in December 2001. The Borrower considers that the Project is successful. The Executing Agency was inexperienced at the beginning of the Project, as this was the first major road project undertaken after independence. 32. The EA’s performance was affected by a shortage of English speaking personnel in MOTC and the PIU. The PIU would have benefited from having access to the Internet to facilitate faster communication with ADB. 33. According to the Loan Agreement, the EA should have procured road maintenance equipment under the JBIC loan. However, the equipment procured largely consists of construction equipment (trucks, bulldozers, graders, loaders, asphalt pavers, asphalt rollers). Some snow removal equipment was procured from Russia, but the procured snow blowers were not suitable. Hence, road maintenance continues to suffer from the lack of proper snow removal equipment. Also, a large part of the road maintenance equipment, that are procured under the JBIC loan, was distributed in the various road maintenance districts and therefore is not available for the road maintenance units of the Bishkek-Osh road.10 34. Financing of road maintenance operations increased during the project implementation from almost nil in 1996 to Som197 million ($40 million equivalent) in 2001, and is expected to increase further in line with covenanted requirements under subsequently approved projects. 35. The EA has transferred the equipment (office equipment, survey equipment, laboratory equipment, and vehicles) produced for the contractor’s use during the civil works construction period to Bishkek-Osh Road Department. The road department has placed the equipment in temporary storage at road maintenance units in Tash Komyr and Kara Kul, which is considered adequate. L. Performance of ADB

36. ADB processed the loan efficiently in a short time based on a pre-feasibility study financed by the European Union. ADB was the first multilateral development bank to finance a road project in the Kyrgyz Republic. 37. ADB fielded 13 missions consisting of 1-3 persons during 6 years of project implementation. Altogether 11 different persons from ADB participated in the missions; seven of them were mission leaders at least once. Six of the mission members participated only in one or two missions. While the Borrower is satisfied with ADB’s performance, the Borrower has 10 This caused subsequent problems in the compliance of the covenant of the Second Road Rehabilitation loan,

which necessitated establishment of a commercially functioning equipment pool to rent the equipment procured under the JBIC loan.

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indicated in its PCR that there was not sufficient transfer of knowledge relating to ADB implementation procedures. For a first loan in the transport sector of the Kyrgyz Republic, there may have been undue expectation from the PIU and MOTC staff to be fully conversant with all ADB procedures from the commencement of project implementation. Also, concerned ADB staff may not have been fully aware of the typical problems associated with PIU staff who are new and unfamiliar with ADB operations, thereby sometimes leading to misunderstandings. 38. Implementation of the project preparatory TA commenced in September 1995 and was completed in May 1996. The quality of the feasibility study was affected because comprehensive field investigations were not possible during autumn and winter periods. This would have been avoided if TA implementation would have begun in early spring. Further, the consultant had limited experience only in designing roads in mountainous terrain. 39. The severity of technical problems usually encountered in rehabilitation of highly mountainous roads and the specific requirement for a consultant with experience in designing mountain roads in cold climatic conditions should have been given more importance by ADB staff. In the terms of reference for the project preparatory TA, the mountainous nature of the road is mentioned only briefly. The original cost estimate for the rehabilitation was also very low at $143 million for the entire Bishkek-Osh road. During the early stages of project implementation, ADB missions and the Government had difficulties in agreeing on the standards to be applied to the rehabilitation and the available funds did not allow proper reinforcement of the mountain slopes. As a result, the detailed design for the rehabilitation of the road did not provide adequately for reinforcement and support of the rock and soil slopes and at present, traffic safety suffers from the unstable slopes and frequent rock falls along steep sections of the road. 40. The Loan Review Missions during 1996-1998 should have pursued benefits monitoring more actively. M. Present Condition of the Rehabilitated Road

41. The Project Completion Mission (Mission) found that the quality of the civil works done during 1997-2001 is generally acceptable. The alignment of the road is good. The road is rated as category III according to the Kyrgyz standard. The following deficiencies and defects need to be rectified or repaired.

(i) The asphalt concrete pavement is excessively cracked along km 170-194 where the road goes through a swampy landscape in the Susamyr Valley at 2000-3000 m above sea level. The defects are due to the extreme temperature variations the pavement is subjected to: the temperature ranges from minus 45°C to plus 35°C, and the temperature drops below 0°C almost 200 times annually. The soft foundation of the embankment probably would have required thicker subbase and base course layers, and perhaps modified bitumen should also have been used to prevent the cracking. Experience from northern European countries shows that it is possible to build roads in similar climatic and geological conditions. Thus the reason for the cracking seems to be inadequate design or poor-quality materials of the road structure. The Mission recommended that MOTC hire an independent consultant to investigate the defects and to design remedial measures (such as a new wearing course using modified bitumen and installing geotextile in it, or reconstruction of the damaged sections) and assess the liabilities.

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(ii) In the mountain passes the concrete parapets installed at high embankment

sections are impractical because they collect snow and prevent use of ordinary snow removal equipment. The Mission recommended that MOTC consider replacing the parapets with normal metallic guard rails and using the replaced parapets instead in other projects.

(iii) Slopes below several culverts along km 412-426 have eroded badly and threaten

the stability of the road embankment. Some of the high embankments have suffered large settlements due to sliding failure, which are probably due to inadequate compaction of the embankment. Some high downhill slopes have been badly eroded below culverts and are in need of urgent repair.

(iv) Along km 412-426 there are several rock fall areas where protective structures

and/or steel wire meshes should be installed. Some embankments where the existing road was widened have suffered differential settlements and at some locations even slip failures. As the defects liability period for the section has already expired, MOTC will undertake the repair work and some was done already during 2001.

(v) Several avalanches had occurred along km 190-250. A snow gallery is needed at

km 247 where very large avalanches have occurred. On other areas protective walls and snow fences are needed to prevent the avalanches from building up.

42. The consultants have separately studied the reasons for cracking of the asphalt concrete along km 170-194. Both studies suggest cold climate as the cause. However, the contractor has not accepted any liability for the cracking, attesting that the design and instructions of the consultant were strictly followed. An independent consultant will therefore be hired to study the cause for the cracking and assess the liabilities for the repair and reconstruction. 43. The most unstable slopes posing a threat to traffic safety will be repaired under the Second Road Rehabilitation Project as similar dangerous slopes exist along section km 85 -128. Traffic safety on the Bishkek-Osh road is being studied by the consultant under the Second Road Rehabilitation Project, and it will be further addressed by the advisory TA piggybacked to the Alamaty-Bishkek Regional Road Rehabilitation Project.11

III. EVALUATION OF PERFORMANCE

A. Relevance

44. The Project is highly relevant as it rehabilitated 135 km of the most important road in the Kyrgyz Republic. The Project successfully introduced international competitive bidding and independent supervision of road works in the Kyrgyz Republic. The Project also helped to establish MOTC and to reorganize road maintenance operations.

11 ADB, 2000. Improvement of Road Sector Efficiency. The TA for $400,000, was approved 31 October 2000.

10

B. Efficacy in Achievement of Purpose

1. General 45. The Project met its objectives and will contribute even more to realizing the wider development goals after the Second Road Rehabilitation Project is completed by the end of 2002 and the Third Road Rehabilitation Project by 2005. With the ongoing rehabilitation works of these subsequent projects, the benefits of this Project can be expected to improve further. 46. With the benefit of hindsight, more improvement of the mountainous sections could have been undertaken to avoid rockfalls. Given the finite resources under the Project, and the difficult road conditions, the length of the road for rehabilitation under the Project could have been reduced to allow more funds to be used for improving, reinforcing, and supporting the dangerous mountain slopes.

2. Traffic 46. The selection of the rehabilitated road sections was done based on the condition of the road, and the worst sections were included in the Project. It was not foreseen at that time that the traffic could be affected by the rehabilitation of the Kolbaev Tunnel at Tyo Ashuu pass, which was undertaken under the Second Road Rehabilitation Project and required frequent closures of the tunnel during the construction season. The benefits from the Project may have been higher if such closures had not occurred. 47. At appraisal, traffic was forecast to grow at an average annual growth rate of 8.8% from 1995 through 2008 and at a rate of 6.0% from 2008 to 2018. According to actual traffic data provided by MOTC for the 1995-2001 period, traffic grew at annual rates of 7.4% on the Susamyr-Ala Bel Pass section (km 161-248), 8.6% on the Naryn-Kok Bel Pass section (km 327-361), and 9.2% on the Kara Kul-Kurpsai section (km 412-426). The average growth rate on these three sections was 8.5%, which is slightly lower than the rate projected at project appraisal. Based on the benefits monitoring done under the Second Road Rehabilitation Project, the traffic in 2002 may have been higher had it not been for the following (i) ongoing tunnel works; (ii) introduction of high tolls for international transports; (iii) existence of eight police and environmental check points between Tash Komyr and Bishkek; and (iv) reduced transports from Fergana valley to Russia due to introduction of VAT for imports in Russia. The traffic forecast has been revised to take into account the actual data and more recent traffic forecasts prepared for other sections of the Bishkek-Osh road being rehabilitated under succeeding projects. 48. The revised traffic forecast is based on annual economic growth of 4.5% through 2005 and 5.0% thereafter. The forecast at appraisal was based on annual economic growth of 6.0% throughout the project period. The projected average annual growth rates used in the revised forecast for passenger traffic are 6.8% during 2002–2005, 7.0% during 2006–2010, and 6.5% for the remaining project period. Freight traffic is expected to grow at rates of 6.8% during 2002–2005, 6.5% during 2006–2010, and 6.0% during the remaining project period. The revised forecast assumes 2,018 traffic levels of 3,063 vehicles per day (vpd) on the Susamyr - Ala Bel Pass section (versus 3,710 at appraisal), 3,028 vpd on the Naryn-Kok Bel Pass section (versus 3,436 at appraisal), and 3,103 vpd on the Kara Kul-Kurpsai section (versus 3,414 at appraisal). The lower traffic levels in 2018 in comparison with the project appraisal estimate are primarily due to lower projected growth rates in the period between 2002 and 2008. Actual traffic, the traffic forecast at project appraisal, and revised traffic forecasts are shown in Appendix 10.

11

3. Economic Benefits

49. An economic reevaluation of the project was carried out based on the methodology used at appraisal, comparing the with- and without-project cases. The primary differences between reevaluation and appraisal are (i) revised economic costs derived from actual financial costs, (ii) a construction period of 5 years compared with about 3.5 years anticipated at appraisal, and (iii) adjustment of benefits for actual traffic data for the project road. The main sources of benefits are savings in vehicle operating costs and savings from diverted traffic. The revised economic internal rate of return (EIRR) is estimated at 9.7% versus 13.1% at appraisal. The decrease in EIRR is mainly due to higher economic capital cost, the decrease in traffic, and the longer implementation period.13 While the revised EIRR is below ADB’s 12% threshold for economic feasibility, future traffic levels due to implementation of rehabilitation projects for other sections of the project road could be higher than projected and improve the EIRR in the future. The economic reevaluation is described in Appendix 11. 50. Some of the project’s positive impacts that could not be quantified, including improvements in road safety, development of domestic subcontractors and roadside businesses, such as small restaurants and vendors selling agricultural produce. The Project generated an estimated 5,200 person-years of employment for local residents, the vast majority of which was for unskilled labor. There have been a number of other positive developments in the project area, which may be partly attributable to the Project, including increased levels of employment and income in Talas and Jalalabad oblasts, which comprise most of the project area, and reduced prices for agricultural products in Bishkek and Jalalabad. C. Efficiency in Achievement of Outputs and Purpose

51. The funds available for civil works were efficiently used. However, insufficient road maintenance equipment was procured. The equipment procured should have included some efficient snow removal equipment. D. Preliminary Assessment of Sustainability

52. The project outputs are fully sustainable provided that the Borrower makes sure that road maintenance continues to be properly organized and financed and provided that the defects along km 170-194 and 412-426 are repaired soon. Road maintenance issues are addressed and will be closely monitored under the second and third road rehabilitation projects.

E. Environmental, Sociocultural, and Other Impacts

53. The Project has greatly improved safety conditions on the project road sections compared to the situation prior to rehabilitation. This has been achieved through the use of concrete barriers, warning signs, road markings, etc. Some hazardous sections remain along the road, but they are being addressed under the Second Road Rehabilitation Project. The Project rehabilitated an existing road, and there were no issues related to relocation or resettlement, nor any other adverse social impacts associated with the Project. Widening of the road did not widen the right-of-way. Mitigation measures for restoration of borrow pits, extraction of water for construction, and control of hazardous and toxic materials were implemented by the Executing Agency and monitored by the regional environment inspectors of the Ministry of

13 The higher economic capital cost is due to reassessment of the economic costs estimated during appraisal.

12

Environment and Emergency Situations, which performed site inspections. There were a few complaints about environmental issues, which were resolved jointly by the Executing Agency, contractor, and environmental regional authorities. 54. The project preparatory TA did not include poverty or social assessment. The Initial Environmental Examination was accurate as it did not anticipate any adverse social or environmental problems. The Project has had a major impact on the living conditions of the local population by providing work for 5,200 person-years, improved access to Bishkek and Osh, and opened opportunities for small roadside businesses.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

55. The Project was implemented as planned. Due to the financial and technical difficulties the contractor had, the implementation took about 1.5 years longer than the projected 3.5 years. The EIRR at 9.7% is below the appraisal estimate (see para. 49) but is expected to increase after completion of the second and third road rehabilitation projects. 56.

57.

58.

59.

Traffic on the rehabilitated road is also slightly lower than forecast at appraisal. This may be due to partial closure of the Kolbaev Tunnel at km 129-132 from July 2000 to July 2002 each day during the construction season (April-November) under the Second Road Rehabilitation Project. As a result, road users avoided the tunnel due to its inconvenient opening hours (from midnight to 6-7 a.m. from May 1999 until August 2001).

The basic objectives of the Project were achieved. The Project is rated as successful in

accordance with ADB Guidelines for the Preparation of Project Performance Audit Reports (Appendix 12). B. Lessons Learned

57. In retrospect, more consideration could have been given to the feasibility of rehabilitation of the Kolbaev Tunnel at Tyo Ashuu (subsequently included in the Second Road Rehabilitation Project) under the Project.

The feasibility study and preliminary design should have been followed by more careful detailed design, and the project scope should have been reconsidered to allow proper treatment of the mountainous sections of the road. In this particular case the consultant that had been engaged to prepare the feasibility study and detailed design for the Project was also engaged to prepare the detailed design for the Second Road Rehabilitation Project as well. While this has numerous benefits, a possible disadvantage is that possible deficiencies in the consultant’s work experienced in the first project may affect the second project as well.

For new EAs dealing with the ADB for the first time, particularly in transition economies,

more attention needs to be given to familiarize them with ADB guidelines and procedures for smoother project implementation.

13

C. Recommendations

1. Project-Related

59. Repair of Defects. The causes of the damage of the asphalt concrete pavement along section km 170-194 should be investigated to find remedial measures and to assess the liabilities. Unstable rock slopes along the mountainous section between km 412-427 should be repaired to improve traffic safety. Repair of defects should be done by the expiration of the extended defects liability period, 15 June 2003. Unstable rock slopes should have been addressed by 30 July 2003. 60. Traffic Safety. It is projected that the traffic will increase and travel speeds will increase, which may result in an increase in traffic accidents in near future, especially after the completion of the Second Road Rehabilitation Project in 2003. It is recommended that traffic safety management in the Kyrgyz Republic should be reorganized and an assessment conducted of all roads and streets of the country. Establishment of a traffic safety secretariat to coordinate traffic safety work, cooperation, and education should be considered. 61. Benefits Monitoring. Benefits monitoring should be pursued during subsequent projects. This is being done under the second road project, and will be continued under the third project. 62. Timing of Performance Audit Preparation. A project performance audit should not be undertaken before the second and third road rehabilitation projects have been completed. The full benefits of the investments and the true traffic volumes can be observed only after the entire road from Kara Balta (km 61, and preferably from Bishkek, km 9) to Osh has been rehabilitated.

2. General

63. In designing and implementing future road rehabilitation projects in the Kyrgyz Republic (and other Central Asian republics) it is necessary to note the following:

(i) Decide with the concerned EA before the feasibility study (or at early stage of the study) the standard (category) of the road to be achieved depending on traffic, topography, and required speed and traffic safety.

(ii) Projects in geographically difficult areas should undergo detailed inspection by a

highway engineer, geologist, and tunnel specialist to ensure that the terms of reference for the project preparatory TA consultants fully capture the requirements. Consultants with experience in designing mountain roads, preferably in the concerned geographical area, should be selected.

(iii) Ensure that the domestic consultants get involved in the design at an early stage

of the feasibility study. (iv) In cold climatic conditions commence the feasibility study in early spring to

facilitate the study of the soils of the existing road in their weakest state. (v) Do not include in the loan agreement covenants whose compliance depends on

implementation of another loan.

14

(vi) Even for a first loan, examine the feasibility of advance procurement action to facilitate commencement of civil works soon after the loan is declared effective.

(vii) Make the project administration manual project specific and instruct the EA on

how to use it. It is necessary to give a checklist of tasks to be performed to the executing agency during the project preparation missions. An inexperienced executing agency should be encouraged to hire an independent consultant to assist them in the preconstruction activities.

(viii) The contract documents should clearly specify which taxes are included in the

bid prices. 64. In the Borrower’s project completion report, prepared by the international consultants and approved by the executing agency, are the following recommendations:

(i) As presently several different standards are being used in the road projects in the Kyrgyz Republic, decisions on the use of various standards should be made, e.g. the recommendations of the regional TA14 in 1998 financed by ADB have not yet been officially approved.

(ii) Building cost indexes should be available for estimation of construction costs.

Presently no price indexes of building construction works and materials are available.

(iii) It would be useful to include a paragraph in the civil works contract how the

present value of lump sum items are evaluated during handing over to the client of the engineer’s facilities. Estimation of the present value of the various items has turned out to be difficult as the government controllers and auditors require original purchase receipts.

14 ADB, 1998. A review of Road Design and Construction Standards. The TA for $600,000 was executed during

1998.

Appendix 1 15

CHRONOLOGY OF MAJOR EVENTS

21 Dec 1994 - Project preparatory technical assistance (TA) 2256-KGZ: Road Rehabilitation Project for $600,000, was approved.

02 – 12 Oct 1995 - Reconnaissance Mission was fielded. 22 Nov - 3 Dec 1995 - Fact-Finding Mission was fielded. 18 Dec 1995 - Draft tender documents for civil works were approved. 07 Feb 1996 - Management Review Meeting was held. 07 Feb 1996 - Advance recruitment action and retroactive financing for a

maximum of $5.0 million was approved. 07 Feb 1996 - Advance procurement action for Package 1 and retroactive

financing for a maximum of $5.0 million were approved. 14 – 24 Feb 1996 - Appraisal Mission was fielded 08 Mar 1996 - Consultants Selection Committee meeting was held and approved

the shortlist of seven consulting firms, draft letter of invitation, terms of reference, evaluation criteria, and draft contract for project design and construction supervision component.

26 Mar 1996 - Staff Review Meeting was held. 08 – 10 Apr 1996 - Loan negotiations were held.

20 May 1996 - Evaluation and rankings of four consulting firms who submitted

proposals were approved. 17 Jun 1996 - Consultants contract was signed by Ministry of Transport and

Communications (MOTC). 23 Jun 1996 - Report and Recommendation of the President was circulated to

the Board. 13 Jun 1996 - Loan 1444-KGZ(SF): Road Rehabilitation Project for $50.0 million

and TA 2587-KGZ: Institutional Strengthening of the Road Sector for $800,000 were approved.

18 Jul 1996 - The Loan Agreement was signed. 06 – 08 Aug 1996 - Inception Mission was fielded. 06 Sep 1996 - Postqualification and award of contract for Package 1 were

approved. 27 Sep 1996 - The loan was declared effective. 29 Oct–04 Nov 1996 - Review Mission was fielded.

Appendix 1 16

01 Nov 1996 - Civil works contract for Package I between MOTC and Susamyr-Inter Joint Venture was signed.

13 – 16 Jul 1997 - Review Mission 2 was fielded. 24 Nov-01 Dec 1997 - Midterm Review Mission was fielded. 20 – 27 Mar 1998 - Review Mission 3 was fielded. 10 Jul 1998 - Manager, Transport and Communications Division East (IETC)

approved the reallocation of loan proceeds to finance the additional cost of civil works and consulting services.

14 Sep 1998 - Audited project accounts for fiscal year 1996 were received. 30 Sep 1998 - Audited project accounts for fiscal year 1997 were received. 09 – 13 Nov 1998 - Special Loan Administration Mission was fielded. 12 – 16 Apr 1999 - Disbursement Mission was fielded. 15 – 22 Oct 1999 - Review Mission 4 was fielded. 01 Dec 1999 - Consultants’ contract for auditing of project accounts between

MOTC and Marka Audit Bishkek was signed. 01 Mar 2000 - Audited project accounts for fiscal year 1997 were received. 16 Mar 2000 - Director, Infrastructure, Energy and Financial Sectors Department

East (IED) approved first extension of loan closing date from 30 April 2000 to 1 October 2001.

09 Oct 2000 - Audited project accounts for fiscal year 1998 were received. 30 Nov–09 Dec 2000 - Review Mission 5 was fielded. 27 Dec 2000 - Manager, IETC approved the second reallocation of loan proceeds

from Category 04: Unallocated Category to Category 03: Service Charge in the amount of $132,159 (SDR102,501) to cover settlement of interest payment due on 1 December 2000.

28 Aug 2001 - Third reallocation of proceeds was approved, $400,000 from

Category 01: Civil Works to Category 02: Consulting Services to cover the cost of additional services of the supervision consultants.

21 – 31 Aug 2001 - Review Mission 6 was fielded. 24 Sep 2001 - Audited project accounts for fiscal year 2000 were received. 18 Dec 2001 - Loan account was closed and the undisbursed loan proceeds

$571,456.34 was cancelled. 04 – 16 Mar 2002 - Project Completion Review Mission was fielded.

Item 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

A. Civil Works Package 1 Appraisal XXXXXXXX x x

Actual X X X X X

Package 2 Appraisal ########## X X X X X X

Actual ######## X X X X X X

B. Equipment Road Maintenance Equipment Appraisal X X X X X

Actual

Technical Support Equipment Appraisal X X X X X

Actual

C. Consulting ServicesDetailed Design and Appraisal XXXXXXXXXConstruction Supervision

Actual XXX X X X

Technical Assistance for Appraisal X X X XInstitutional Strengthening of

Road Sector Actual X X X X

## Design

X X Postqualification & Tendering

Mobilization and Delivery

Construction and Fieldwork

Defects Liability Period and Maintenance

COMPARISON OF PROJECTED AND ACTUAL SCHEDULES

Appendix 2 17

Appendix 3

18

ROAD MAINTENANCE EQUIPMENT PROCURED UNDER JBIC LOANA. Under First Contract

PARM 2 85000 170000Truck Ural 44202-10 1 50000 50000Buldozer T-150KD-05 4 60000 240000Paver DS-142B 4 70000 280000Grader DZ-98B92 4 125000 500000Loader TO 18B 7 65000 455000Bulldozer K-702MB-BKU 2 110000 220000Snow-removing machine K-700A-OC-OO-1 2 137500 275000Dump-truck 55514 18 27000 486000Excavator EO-4225A 1 125000 125000Water tanker and sand distibutor MDK-5337-00 6 47000 282000Water tanker and sand distibutor MDK-5337-01 6 45000 270000Roller CC-92"Dynapac" 6 37000 222000Pick-up UAZ-3303 6 10000 60000Niva-"Taiga" VAZ-21213 3 9500 28500Trailer TSMZAP 1 30000 30000Patch-hole reparing machine 6 85000 510000Trailer ED-134.0004 3 7000 21000Dump-truck MAZ-5551 2 25000 50000Total 84 4274500B. Under Second ContractDump-truck MAZ-5551 12 17700 212400Motor grader DZ-180 5 28900 144500Road line marker DE21M02 2 42450 84900Asphalt vibratory roller DU-54 6 21800 130800Combined road machine MDK-5337 10 35900 359000Wheel type tractor MTZ-82 13 11200 145600Wheel dozer excavator TO-49 1 23550 23550Motor grader DZ-180 3 28900 86700Combined road machine MDK-5337 7 35900 251300Front wheel loader TO-18B 6 30000 180000Wheel dozer excavator TO-49 10 23550 235500Caterpillat type bulldozer B-170 6 33700 202200Motor grader DZ-98 2 64000 128000Motor grader DZ-180 4 28900 115600Front wheel loader TO-18B 6 30000 180000Wheel dozer excavator TO-49 1 23550 23550Caterpillat type bulldozer B-170 2 33700 67400Wheel dozer excavator TO-49 1 23550 23550Asphalt vibratory roller DU-98 2 34900 69800Motor grader DZ-98 1 64000 64000Spare parts 10% 192420 192420Additional spare parts 61000 61000B. Under Second Contract 100 2981770JBIC= Japan Bank for International Cooperation

Name of equipment Quantity TotalUnit cost

Appendix 4

19

Foreign Local Total Foreign Local Total

Component Exchange Currency Cost Exchange Currency Cost

A. ADB FinancingPart A: Civil Works

Road Rehabilitation 24.30 14.50 38.80 25.55 15.18 40.73Part B: Equipment

1. Road Maintenance Equipment 0.00 0.00 0.00 0.00 0.00 0.002. Technical Support Equipment 0.00 0.00 0.00 0.00 0.00 0.00

Part C: Consulting ServicesDetailed Design and Construction Supervision 2.50 0.60 3.10 4.28 0.05 4.33

Part D: Contingencies1. Physical 2.80 1.40 4.20 0.00 0.00 0.002. Price 1.88 1.00 2.88 0.00 0.00 0.00

Part E: Service Charage During Construction 1.02 0.00 1.02 1.07 1.07Subtotal A 32.50 17.50 50.00 30.90 15.23 46.13

B. Japan Bank for International CooperationPart A: Civil Works

Road Rehabilitation 7.20 4.30 11.50 7.82 4.60 12.42Part B: Equipment


Part C: Consulting ServicesDetailed Design and Construction Supervision 0.00 0.00 0.00 0.00 0.00 0.00

Part D: Contingencies1. Physical 1.34 0.51 1.85 0.00 0.00 0.002. Price 0.66 0.29 0.95 0.00 0.00 0.00

Part E: Service Charge During Construction 0.45 0.00 0.45 0.97 0.00 0.97Subtotal B 15.90 5.10 21.00 16.24 4.60 20.84

C. GovernmentPart A: Civil Works

Road Rehabilitation 0.00 12.20 12.20 0.00 9.02 9.02Part B: Equipment 0.00 0.00 0.00 0.00 0.00 0.00


Part C: Consulting Services 0.00 0.00 0.00 0.00 0.00 0.00Detailed Design and Construction Supervision 0.00 0.00 0.00 0.00 0.00 0.00

Part D: Contingencies 0.00 0.00 0.00 0.00 0.00 0.001. Physical 0.00 1.25 1.25 0.00 0.00 0.002. Price 0.00 1.30 1.30 0.00 0.00 0.00

Part E: Service Charage During Construction 0.00 0.00 0.00 0.00 0.00 0.00Subtotal C 0.00 15.00 15.00 0.00 9.02 9.02

Total 48.40 37.60 86.00 47.14 28.85 75.99

Appraisal Actual

PROJECT COSTS AND FINANCING($ million)

Appendix 5

20

Total Actual Disbursements (including ADB and Gov't disbursements)

Year Foreign LocalExchange Currency Total

A. ADB Loan Disbursements (Includes Government's Counterpart Funds)1996 7,332,374.97 631,283.15 7,963,658.121997 9,973,033.37 3,126,577.28 13,099,610.651998 15,087,116.36 2,298,604.80 17,385,721.161999 7,614,867.87 1,647,338.43 9,262,206.302000 4,922,238.24 988,937.76 5,911,176.002001 1,180,702.64 0.00 1,180,702.642002 0.00 330,180.00 330,180.00

$46,110,333.45 $9,022,921.42 $55,133,254.87

B. JBIC Loan Disbursements (No Government's Counterpart Financing)

1996 0 0 0.001997 0 0 0.001998 6,244,647.69 0 6,244,647.691999 4,482,041.23 0 4,482,041.232000 5,910,220.64 0 5,910,220.642001 4,201,181.96 0 4,201,181.962002 0 0 0.00

$20,838,091.52 $0.00 $20,838,091.52

ACTUAL COST DATA

ORGANIZATION CHART OF THE MINISTRY OF TRANSPORT AND COMMUNICATIONS

Minister

Deputy MinisterFirst

Deputy Minister

Project Implementation Units

for ADB, IDB and JBICloans

Communications and Information Department

Main Road Department

Bishkek-Osh RoadDivision

Department of Transport and

Technical Policy, Special Operations, and Civil Defense

Economy Unit

Foreign Economic Relations Unit

Collegium Minister's Assistant

Planning Maintenance and Construction Unit

Legal and Standardization Unit

Financial Control and Accounting Unit

Head of the Minister's Office

Personnel, Legal Work, and Documentation Execution Control Unit

Appendix 6 21

Appendix 7 22

COMPLIANCE WITH LOAN COVENANTS

Covenant Reference Remarks

1

Project Implementation

The Project Implementation Unit established within DGRMBOR Directorate General for Rehabilitation and Maintenance of the Bishkek-Osh Road (DGRMBOR) shall be responsible for the day-to-day implementation of the Project and provide the necessary contact between DGRMBOR, the contractors, the suppliers, other relevant parties and the Asian DevelopmentBank (ADB). A Project Manager appointed by DGRMBOR shall serve as the head of the unit and shall at all times be supported by a minimum of three civil engineers with appropriate expertise in materials and soil engineering, bridges and tunnels.

Loan Agreement (LA), Schedule 6, para. 1(a)

Complied with.

2

Project Steering Committee

The Project Steering Committee established by the Borrower shall be maintained for the duration of the Project implementation period and shall (i) oversee and coordinate all Project activities, including contact among agencies involved in Project implementation, and sector reforms agreed during policy dialogue with ADB; (ii) review the status of the implementation of Project components; (iii) monitor the progress achieved and resolved difficulties encountered; and (iv) serve as a forum for discussions on, and review of, the Project’s impact on regional development.

LA, Schedule 6, para. 2

Complied with.

3

Cost Recovery The Borrower shall cause the Ministry of Finance, Ministry of Transport (MOT, though name was later changed to Ministry of Transport and Communications), and DGRMBOR to establish by 31 December 1996 a yearly road maintenance budget commencing from 1 January 1997 to be implemented by MOT and DGRMBOR and funded by collections under the Road Fund Act referred to in paragraph 8 below.


Complied with delay.

4.

The Borrower shall, by 30 June 1997, taking into account the recommendations of the Technical Assistance, adopt measures to improve road sector revenues from road users, including the transnational traffic on the Bishkek-Osh Road.



5

Maintenance

The Borrower shall, in consultation with ADB, implement by 30 June 1997, the road maintenance system to be prepared under the Technical Assistance, and give priority to operation and maintenance activities to improve maintenance and safety of the Bishkek-Osh Road.


Complied with.

Appendix 7 23

6

Benefit Monitoring and Evaluation

The Borrower shall, (a) by 30 June 1997, (i) with the assistance of the consultants financed under the Technical Assistance, established a system for collecting and recording traffic data for selected road sections; and (ii) cause MOT and DGRMBOR to undertake, with the assistance of consultants for detailed design and construction supervision engaged under the Project, benefit monitoring and evaluation of the Project in accordance with the terms of reference and schedule to be agreed upon between the Borrower and ADB; and (b) submit annually a benefit monitoring and evaluation report to ADB, commencing from 31 December 1997.


Not complied.

7

Midterm Review

The Borrower and ADB shall carry-out a midterm review of the Project in 1998.


Complied. Midterm review was done from 24 Nov to 1 Dec 1997.

8

Environmental Considerations

The Borrower shall (i) ensure that appropriate environmental protection and safety devices are included in the design of the Project facilities; and (ii) implement the Project, and operate and maintain the Project facilities, in accordance with the Initial Environment Examination that has been accomplished under ADB-financed technical assistance (TA No. 2256-KGZ: Road Rehabilitation Project), and ADB’s “Environmental Guidelines for Selected Infrastructure Projects”.


Complied with.

9

Regulatory Reforms

The Borrower shall, by 31 December 1996, in consultation with ADB and with the assistance of the consultants financed under the Technical Assistance, promote the principles of a market-oriented economy in the transport sector by (i) issuing a Transport Sector Policy Statement (TSPS), a revised Road Sector Policy Statement (RSPS) and regulations consistent with TSPS and RSPS; (ii) preparing and presenting for the consideration of the Parliament a Road Fund Act to finance road maintenance; and (iii) undertaking a comprehensive review of the existing legislation in the transport and road sector, and making any amendments required to ensure consistency with the TSPS, RSPS and the Road Fund Act.


Complied with.

10

Institutional Reforms

The Borrower shall, by 30 June 1997, taking into account the recommendations for the Technical Assistance and in consultation with ADB, restructure MOT and DGRMBOR,



Appendix 7 24

institutionally strengthen the Department of Roads, and implement the human resource development plan to be prepared under the Technical Assistance.

11

The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than nine (9) months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the covenants of this LA), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

LA, Section 4.05(b)


12

The Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan, and the expenditure of the proceeds and maintenance of the service thereof; (ii) the goods and services and other items of expenditures financed out of the proceeds of the loan; (iii) the Project; (iv) the administration, operations and financial condition of the agencies of the Borrower responsible for carrying out of the Project, or any part thereof; (v) Borrower and the international balance-of-payments position of the Borrower; and (vi) any other matters relating to the purposes of the Loan.

LA, Sec. 4.06(a)

Complied with.

13

Without limiting the generality of the foregoing, the Borrower shall furnish, or cause to be furnished, to ADB Quarterly reports on the carrying out of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and shall and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and the proposed program of activities and expected progress during the following quarter.

LA, Sec. 4.06(b)

Complied with.

14 Promptly after physical completion of the Project, but in any event not later than (3) months thereafter or such later date as may be agreed for this purpose between the Borrower and ADB, the Borrower shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by the Borrower of its obligations under the Loan Agreement and the accomplishment of the purposes of the Project.

LA, Sec. 4.06(c)

Complied. The Borrower’s report was received in January 2002.

Appendix 8 25 TRANSPORT SECTOR DEVELOPMENT FRAMEWORK1 A. Overview 1. The Kyrgyz Republic has a well-developed transport infrastructure. In 1991, the sector contributed 4.1% of gross domestic product. The total freight traffic was 1,435 million ton-kilometers (km) in 1994, while the total passenger traffic was 2,849 million passenger-km. In 1990 these figures represented about 16% and 30% of freight traffic and passenger traffic levels, respectively. Road transport dominates the sector and in 1991 accounted for 95% of freight traffic (in million tons) and 99% of total passenger traffic (number of passengers). In recent years, transport infrastructure has begun to deteriorate due to inadequate maintenance. If allowed to continue, this neglect of maintenance will result in considerable economic losses both from increased transportation costs and the higher costs of eventual reconstruction. The state is still heavily involved in transport operations. However, a program has been initiated to develop competitive markets for transport services through privatization and deregulation. 1. Roads 2. With 34,000 km of roads, the Kyrgyz Republic has the highest density road network among the Central Asian republics of the former Soviet Union. Around 19,000 km of the network are urban and interurban main roads under the control of the Ministry of Transport (which in 1997 became known as the Ministry of Transport and Communications, MOTC). The remainder of the network consists of local roads, mainly in the rural areas. 3. The main road network is well developed, serving all areas of the Kyrgyz Republic. Roads are classified into five categories, as summarized in the table. Plans exist to upgrade the network by increasing the length of Class I roads to 270 km, Class II roads to 760 km, and Class III roads to 8,230 km. However, implementation of this program is stalled due to lack of funds. In recent years, the road network has suffered significant deterioration with over 60% of main roads now requiring periodic maintenance and resealing. Additionally, a number of sections of road now require reconstruction, particularly in the Susamyr Valley areas, where infrastructure was damaged following an earthquake in 1993. Main Road Network by Class of Road Class of Road Length

(kilometers) Specification

Category I Category II Category III Category IV Category V

140 380 2,060 8,910 7,550

asphalt, double highway with separation asphalt 9 meters (m) -11.5m width without separation asphalt 7.5m width asphalt 6.0m width asphalt 4.5m width

Source: Ministry of Transport (later Ministry of Transport and Communications) of the Kyrgyz Republic. 4. Traffic counts undertaken by the transport ministry indicate that road traffic levels have fallen significantly since 1985. Despite the fall in economic activity, traffic levels have stabilized since 1990 and on a number of routes are now increasing. This may reflect a switch in freight traffic from rail to road transport.

1 At the time of the Technical Assistance Project, 1997. Source: Kyrgyz Republic's Public Investment Program (PIP), 1996-98.

Appendix 8 26

5. The planning, construction, and maintenance of the main road network has been the responsibility of Kyrgyzjol (Kyrgyz Roads JSC), which operates as a holding company with enterprises in the oblasts (provinces) and rayons (districts) responsible for construction and maintenance work. There are, thus, no competitive contracting practices. Most of the road construction and maintenance machinery is outdated and will require replacement in the near future. There is a need to introduce new technologies, for example to allow the reutilization of bitumen, which could significantly reduce costs and improve construction standards. 6. The rural road network is similarly facing major deterioration. 2. Road Transport 7. The numbers of commercial vehicles currently exceed requirements, reflecting both the downturn in the economy and the inefficient fleet utilization practices of the former state transport enterprises. Since 1991, road transport enterprises, both passenger and freight transport, have been turned into joint stock companies while remaining under majority state ownership. An exception is the urban passenger transport operation of the Bishkek City Council. 8. Most of the transport companies, both passenger and trucking, are established at oblast and rayon levels with a small number of national-level specialist operations. In late 1994 measures were introduced to increase competition within the subsector. These involved (i) the abolition of the national and oblast holding companies and associations which had continued to exercise control over the operations of individual transport companies, and (ii) a reduction in the government's shareholding in companies through the auctioning of surplus vehicles and assets to private bidders. 9. Because of the city's size, passenger transport operations in Bishkek are facing particular difficulties. The Bishkek City Transport Department operates a network of 1,200 km of trolley-bus and bus routes. In 1994, it carried an average of 8 million passengers per month. Services are provided by a fleet of 256 trolley-buses, 372 large buses and 367 smaller buses and minibuses. Most of the fleet is old and will require replacement in the near future. Approximately 60% of the fleet is unserviceable, leading to severe overcrowding. The services receive a subsidy from the Bishkek City Council although it has been insufficient to cover day-to-day operating costs.2 3. Railways 10. The railway network was formerly under the control of the Almaty and Central Asian divisions of the the Soviet Union’s railway system, but is now controlled by the Kyrgyz Republic. The network consists of: (i) a single-track 340 km line, which runs from Balykchi to Bishkek and on to Lugovaya in Kazakhstan where it links with the Kazakh railway network; and (ii) 110 km of spur-lines linking Osh, Jalalabad and mines in the Fergana Valley with the Uzbek railway system. In addition to local services, passenger services are operated from Bishkek to Jalalbad (via Tashkent), Bishkek to Moscow, Bishkek to Kransoyarsk, Bishkek to Ekaterinburg, and Bishkek to Novokuznetsk. Traffic levels on the Lugovaya-Bishkek-Balykchi line have fallen by 78% for freight traffic and 15% for passenger traffic since 1990. 11. Rolling stock consists of 60 locomotives, 580 railway carriages, and 3,000 freight wagons. Over 70% of railway carriages and 30% of locomotives are now beyond their economic life. Track and signaling systems are generally in reasonable condition, although around 10% of the track is subject to speed restrictions. Railway operations are well integrated with those in neighboring countries and Russia through the Commonwealth of Independent States’ Railway Directorate in Moscow. Tariffs

2 During 1994, the Bishkek City Transport Department incurred an operating loss of Som17 million, against which it received a

subsidy from the City Council of Som3.4 million.

Appendix 8 27 follow those set by the neighboring railway networks. Although the railway system covers its immediate operating costs, it is unable to meet its capital rehabilitation and replacement requirements.

4. Lake Transport

12. There is a small state-owned operation on Lake Issyk-Kul operating mainly between Balykchi and Karakol. This comprises two 600 metric ton motor vessels, three tugs, and 10 lighters with a combined capacity of 8,400 metric tons. 5. Civil Aviation 13. The Kyrgyz Republic has two international airports at Manas (Bishkek) and Osh. There are two other airports, at Jalalabad and Karakol, which are served by regular air services, and a further 19 operational airfields. Air passenger traffic fell from 1.7 million trips in 1991 to fewer than 0.4 million trips in 1994. Freight traffic showed a similar decline. The fall in air traffic can be attributed to a number of factors including (i) the severe economic downturn, (ii) the increase in aviation fuel prices toward world market levels, (iii) the reduced need for official travel to Moscow, and (iv) shortages of aviation fuel that affected airline operations in 1993. 14. Manas Airport is the largest airport in Central Asia. With a runway of 4.2 km built in the early 1970s, it is capable of taking the heaviest aircraft. There is a very extensive passenger terminal (completed in 1989) for flights within the Soviet Union, and a smaller international terminal completed in 1994. Passenger traffic at Manas fell from 1.1 million trips in 1991 to fewer than 0.2 million in 1994. Currently, there are around 15 aircraft movements per day. The existing physical facilities at Manas are thus heavily underutilized and are expected to be adequate to meet forecasted traffic levels over the next 20 years. However, the airport has a number of deficiencies that need to the addressed in order to bring it to compliance with International Civil Aviation Organization standards for safe operation of aircraft. The most important of these relate to the poor condition of the runway and the outdated and unreliable airfield lighting system. There is also a need to modernize the Kyrgyz Republic's air navigation system. 15. The national airline Kyrgyzstan Aba Zholduru is the major user of Manas Airport. It has a fleet of over 100 aging aircraft and helicopters inherited at the time of the breakup of Soviet Aeroflot. These include 13 Tul54s, 6 Tul34s and 24 Yak44s, which are used for airline operations. The airline is also responsible for the running of the Manas International Airport and for air traffic control operations. B. Transport Sector Strategy 1. Policy Framework 16. The overall policy objectives for the transport sector are to (i) ensure the maintenance of an adequate transport infrastructure necessary to support the reform and recovery of the economy; (ii) privatize transport operations and promote competition among operators while ensuring that safety and environmental concerns are addressed; and (iii) ensure increased cost recovery for transport operations remaining under state control. 2. Strategies 17. The measures through which these objectives will be implemented include:

Appendix 8 28

(i) developing a transport policy for the Kyrgyz Republic for the coming decade; (ii) increasing financial provision for the maintenance of the road network, which carries the

overwhelming share of commercial and passenger traffic; (iii) completing the privatization of road transport operations and dismantling of licensing

controls that hinder competition between firms; (iv) promoting, in collaboration with Russia and neighboring countries, rail transport as the

most efficient means of transporting large loads over long distances; (v) privatizing lake shipping services; (vi) providing civil aviation infrastructure and support services that encourage foreign and

domestic airlines to operate to and within the Kyrgyz Republic; and (vii) increasing cost recovery within the sector through appropriate pricing and taxation

policies. 18. The transition to a market economy implies major changes to the role of Government in the transport sector. The state will no longer be responsible for directing all aspects of transport operations. Instead, it will focus on the following core tasks: (i) establishing an appropriate policy, legal and regulatory framework for the sector; (ii) providing and maintaining public infrastructure, comprising the road and rail networks, and civil aviation facilities; and (iii) ensuring the efficient operation of those transport services that remain under state control. By 1998, it is expected that these services will mainly be limited to rail and urban bus transport in Bishkek. 19. The immediate priority is to proceed with the creation of a competitive road transport sector. This will be achieved through the completion of the program to reduce Government shareholdings in road transport companies through the auctioning of surplus assets. This measure will lead to the creation of new small private transport operators, and at the same time move the existing semi-privatized transport operations fully into the private sector. These steps will be backed up by the progressive removal of the remaining administrative barriers to competition. 20. There is also a need to develop modern institutional structures for the sector. This would involve: (i) strengthening transport policy and planning capabilities in MOTC, and bringing all

regulatory functions directly under the ministry; (ii) completing the break up of Kyrgyzjol, the organization responsible for road construction

and maintenance, with its planning, management and supervisory functions to be retained in the public sector, either directly under MOTC or as a separate Department of Roads, and its contracting companies being corporatized prior to privatization and required to bid for construction and maintenance contracts; and

(iii) breaking up the Kyrgyz airline company into separate airport, air navigation services, and airline operations. Air navigation services are already being brought under the Committee for Airspace Management in MOTC, and Manas Airport would similarly be brought under the control of MOTC. The airline operation will eventually be privatized.

21. There will be a requirement to establish capacity at the rayon administrations for taking over the maintenance of local road networks that were previously the responsibility of the farming collectives and state enterprise conglomerates. C. Public Investment Priorities 1. Main Road Network 22. The overriding importance of road transport within the sector and the substantial backlog of rehabilitation and maintenance work means that the major share of Public Investment Program

Appendix 8 29 financing will be allocated to road rehabilitation and maintenance projects. The immediate priority will be to rehabilitate and maintain the road network within existing specifications so that adequate maintenance standards can be established over as much of the network as possible. 23. Main road rehabilitation and maintenance requirements have been assessed by separating the following main routes from the rest of the network: (i) Bishkek-Osh Road: MOTC affords top priority to the rehabilitation of the 620 km

Bishkek-Osh road, which links the Kyrgyz Republic's two largest cities. It also provides a regional link between Almaty, the capital of Kazakhstan, the agriculturally productive Fergana Valley in Uzbekistan, and the Republic of Tajikistan.

(ii) Bishkek-Naryn-Torugart. This road, which has a total length of 540 km, links the Kyrgyz Republic with the People’s Republic of China and is becoming an increasingly important trade route. Substantial sections of the road require improvement in order to make them suitable for heavy goods vehicles.

(iii) Balykchi-Bokombayevskoe-Karakol. This road, which follows the southern shore of Lake Issyk-Kul, has a length of 216 km, of which some 160 km requires extensive rehabilitation.

(iv) Osh-Isphana. The 403 km Osh-Isphana road provides a link to the western part of Osh oblast. Several sections of the road pass through enclaves of Uzbekistan's territory, and the Government wishes to bypass these enclaves through the construction of about 70 km of new road.

(v) Djambal-Talas. The Djambal-Talas road provides the only connection between the oblast capital of Talas with Bishkek. MOTC has prepared detailed plans for the upgrading and widening of the road from Djambul to the junction with the Bishkek to Osh road, in order to improve access to the Talas oblast.

(vi) Tashkent-Bishkek-Almaty Highway. Around 200 km of the Tashkent-Bishkek-Almaty Highway passes through the Kyrgyz Republic. MOTC has proposed the construction of an overpass at the intersection of this road and the Bishkek bypass.

24. For the rest of the road network, there is a need to increase maintenance expenditures to allow the periodic maintenance and resealing of the road network each year. Initially, some financing from the Public Investment Program will be required to reduce the backlog of overdue maintenance and to assist with the reorganization of road maintenance operations and the introduction of competitive tendering for maintenance works. 2. Road Transport 25. Following the liberalization of the road transport subsector, the state will no longer invest directly in road transport operations. Instead, transport operators would be expected to raise funds for investment through the banking system and from private investors. The Government's program in the enterprise sectors will provide assistance to firms in building their business management capacities and in securing investment resources. An exception will be the urban transport operation of Bishkek City Council, which is expected to remain under state control for the immediate future. 3. Rail Subsector 26. Further major investment in the rail network will be postponed pending recovery of the economy and clarification of the likely long-term role of rail transport. The immediate priorities will be (i) to restructure railway operations in order to improve operational performance and ensure long-term financial viability, and (ii) to maintain the existing rail infrastructure for which some Public Investment Program funding may be required for track maintenance and replacement and rehabilitation of locomotives and rolling stock.

Appendix 8 30

27. A proposal has been drawn up for the electrification of the Lugovaya-Bishkek-Balykchi railway line. Given the fall in rail traffic levels since 1990, it is unlikely that this project is still economically viable. 28. The Government has proposed the construction of a new north-south railway, from Balykchi through Kara Kiche to Jalalabad. The project would need to be subjected to full economic and financial appraisal, which would take into account projected demand forecasts for the line and the long-term viability of the subsector as a whole. 4. Lake Transport 29. Transport infrastructure and services on Lake Issyk-Kul are expected to be privatized during 1996-1998 and will not require financing from the Public Investment Program. 5. Civil Aviation 30. A feasibility study on the rehabilitation of Manas Airport was completed in November 1994. The project was determined to be economically viable, although it would depend crucially on a relatively rapid buildup in the number of international tourists. 31. Some investment at Manas Airport was required during 1996-1998. Financing constraints mean that these investments will initially have to be limited only to those items, such as runway resurfacing, airport lighting system navigational aids, and air traffic control, which are necessary to ensure safe operation of the airport. Major investments in the terminal building complex and in the extension of the taxiway and apron areas should be deferred to the second phase of the program. 32. Investment requirements for the modernization of Kyrgyz Republic’s Air Navigation System are being assessed in the context requirements for the Central Asia region. The Government's policy is that the costs of such investment should be recovered from air navigation service charges raised on flights using Kyrgyz airspace.

Appendix 9

31

ACTION PLAN FOR ROAD SECTOR REFORM

Initiative

Action

Target Date

Status

1. Policy and Regulatory Framework

a. Transport Sector Policy Statement (TSPS)

Technical assistance (TA) consultants will assist Ministry of Transport and Communications (MOTC) in preparing TSPS and Road Sector Policy Statement (RSPS) for issuing by MOTC

31 Dec 1996

TSPS and RSPS issued on 15 October 1997, Decree No. 596.

b. Road Fund Act TA consultants will assist MOTC in having the Road Fund Act revised and enacted.

31 Dec 1996

Road Fund Act was enacted on 1 June 1998.

c. Review of existing legislation to ensure consistency with TSPS

TA consultants will review and recommend amendments to Automobile Act and other legislation.

31 Dec 1996

Included in TA Final Report of 1997

2. Institutional Strengthening of MOTC and Department of Roads (DOR)

Restructuring of MOTC, institutional strengthening of DOR, and training will be conducted.

30 Jun 1997

Done

TA consultants will assist Directorate General for Rehabilitation and Maintenance of the Bishkek-Osh Road (DGRMBOR)/MOTC/DOR with restructuring and training

30 Jun 1997

Done

3. Maintenance Prepare maintenance plan and implement maintenance system.

30 Jun 1997

Done

TA consultants will review existing maintenance structure and recommend appropriate restructuring.

31 Dec 1996

Done

Prepare maintenance system for Bishkek-Osh road and implemented with assistance of TA consultants.

30 Jun 1997

Done under loan 1630-KGZ

4. Road Funding and Cost Recovery

TA consultants will assist DGRMBOR/MOTC/DOR in reviewing Road Fund Act.

Done

Draft Road Fund Act will be submitted for Parliament’s consideration.

by 31 Dec 1996

Done

TA consultants will assist DGRMBOR/MOTC/DOR in having revised Road Fund Act enacted.

Not done

Ministry of Finance must collect appropriate road fund taxes and transfer funds to DGRMBOR/MOTC/DOR

Road Fund taxes are collected to the consolidated budget.

5. Human Resource Development

MOTC will increase number of staff. 30 Jun 1996

Being done

DGRMBOR/MOTC/DOR will commence English language training.

Commence Jun1996

Done under loan 1444-KGZ

Human Resource Plan will be prepared by TA consultants and implemented by MOTC/DOR

30 Jun 1997

Done

Appendix 10

32

TRAFFIC FORECAST AT APPRAISAL AND PROJECT COMPLETION

AverageAnnual

Articu- Articu- GrowthPickups/ Light Heavy lated lated Rate

Road Section Cars Vans Buses Trucks Trucks Trucks 1 Trucks 2 Total (%)Susamyr Jn - Alabel Passkm 161 - km 248

Actual1995 269 29 38 64 214 69 8 6911999 542 90 12 76 196 20 36 9722000 563 93 15 79 199 21 37 1,0072001 548 119 16 102 213 25 39 1,062 7.4 (2001/1995)

AppraisalForecast 2008 806 87 114 192 641 207 24 2,071 8.8 (2008/1995)

2018 1,444 156 204 344 1,149 370 43 3,710 6.0 (2018/2008)PCR Revised

Forecast 2008 873 190 26 160 335 39 61 1,684 7.1 (2008/1995)2018 1,655 359 48 290 605 71 111 3,063 6.2 (2018/2008)

Naryn - Kokbelkm 327 - km 361

Actual1995 245 22 40 54 210 62 7 6401999 260 84 41 45 154 13 25 6222000 411 108 41 61 266 22 49 9582001 431 161 27 83 275 24 50 1,051 8.6 (2001/1995)


2018 1,315 118 215 290 1,127 333 38 3,436 6.0 (2018/2008)PCR Revised

Forecast 2008 687 257 43 130 432 38 79 1,665 7.6 (2008/1995)2018 1,302 486 82 236 781 68 142 3,028 6.2 (2018/2008)

Karakul - Kurpsaikm 412 - km 426

Actual1995 258 23 46 56 198 49 6 6361999 250 66 42 35 155 13 31 5922000 410 114 40 65 273 27 38 9672001 442 157 49 96 274 20 39 1,077 9.2 (2001/1995)


2018 1,385 123 247 301 1,063 263 32 3,414 6.0 (2018/2008)PCR Revised

Forecast 2008 704 250 78 151 431 31 61 1,707 7.9 (2008/1995)2018 1,335 474 148 273 778 57 111 3,103 6.2 (2018/2008)

Appendix 11 33

ECONOMIC REEVALUATION A. General 1. The economic analysis was carried out on the basis of a comparison of the with- and without-project scenarios. The Project involved rehabilitation of approximately 135 kilometers (km) of the Bishkek-Osh road. The economic reevaluation covers a period of 24 years (1996-2019), including 20 years of full project benefits. Economic prices are expressed using the world price numeraire, and all benefits and costs were estimated in 2002 prices. B. Costs

2. Project economic costs include the resource costs of road improvement and maintenance, as well as maintenance equipment, and consulting services. Costs were divided into tradable and nontradable groups. A standard conversion factor of 0.9 was then applied to the nontradable portion. A standard conversion factor was not applied at appraisal, as it was not available at that time. The project economic costs are 5.7% higher than at appraisal arising from an underestimation at appraisal. C. Benefits 3. The principal sources of economic benefits for the Project are savings in vehicle operating costs (VOCs), in time costs for passenger and cargo traffic, in periodic maintenance costs, in costs of diverted traffic, and those derived from vehicle composition change. Economic benefits were calculated using the revised traffic forecast and unit values adjusted to 2002 prices. The largest sources of benefits are savings in VOCs and in costs of diverted traffic. Savings in VOCs arose from the improved road conditions resulting from the civil works carried out under the Project. As a result of the lower VOCs, it is estimated that about 20% of the traffic would be generated. VOC savings were attributed to generated traffic at 50% of unit VOC savings. At appraisal it was assumed that traffic would be diverted from the alternative road via Tashkent in Uzbekistan. Due to the Uzbek authorities’ closure of the border in recent years, it is very likely that benefits from diverted traffic will be realized. D. Economic Reevaluation 4. At appraisal, the economic internal rate of return (EIRR) was estimated at 13.1%. The revised EIRR is now estimated at 9.7% (Table A11.1). The decrease in EIRR is mainly due to higher economic costs, the decrease in traffic, and the longer implementation period. The higher economic costs are due to an underestimation of project economic costs at appraisal. While the revised EIRR is below ADB’s 12% threshold for economic feasibility, the uncertainty regarding future traffic levels due to implementation of rehabilitation projects for other sections of the project road means that the EIRR could increase in the future. Sensitivity analysis has been carried out (Table A11.2), and shows that a decrease in total benefits by 10% and excluding benefits from vehicle composition change would decrease the EIRR to 8.5 and 8.8%, respectively. 5. The Project has also had positive impacts that could not be quantified, including substantial improvements in road safety, development of local subcontractors and roadside businesses, such as small restaurants and vendors of agricultural produce. The Project generated an estimated 5,200 person-years of employment for local residents, the vast majority of which was for unskilled labor. There have been a number of other positive developments in the project area, which may be partly attributable to the Project, including increased levels of employment and income in Talas and Jalalabad oblasts, which comprise most of the project area, and reduced prices for agricultural products in Bishkek and Jalalabad.

Appendix 11 34

Table A11.1: Economic Internal Rate of Return($ million)

Costs BenefitsSavings Vehicle

Total VOC Savings in in Major Diverted Composition Total NetYear Capital Maintenance Costs Savings Time Costs Maintenance Traffic Change Benefits Benefits

1996 9.737 0.000 9.737 (9.737)1997 16.692 0.000 16.692 (16.692)1998 27.496 0.000 27.496 (27.496)1999 14.752 0.208 14.960 1.628 0.039 5.591 0.632 0.399 8.290 (6.670)2000 12.220 0.208 12.428 3.257 0.077 0.000 0.975 0.431 4.740 (7.689)2001 5.426 0.208 5.634 3.589 0.086 0.000 1.473 0.466 5.615 (0.019)2002 0.297 0.208 0.505 3.970 0.094 0.000 2.159 0.502 6.725 6.2202003 0.000 0.208 0.208 3.963 0.094 0.000 2.945 0.543 7.545 7.3372004 0.000 0.208 0.208 4.410 0.105 0.000 3.180 0.585 8.281 8.0732005 0.000 0.208 0.208 4.868 0.118 0.000 3.436 0.632 9.055 8.8472006 0.000 0.208 0.208 5.393 0.133 0.000 3.710 0.684 9.920 9.7122007 0.000 0.208 0.208 5.978 0.150 0.000 4.007 0.738 10.872 10.6642008 0.000 0.208 0.208 6.630 0.167 2.289 4.328 0.796 14.210 14.0022009 0.000 0.208 0.208 6.248 0.161 2.458 4.587 0.845 14.299 14.0912010 0.000 1.873 1.873 5.508 0.148 0.843 4.863 0.895 12.257 10.3842011 0.000 1.283 1.283 5.821 0.156 0.000 5.155 0.950 12.081 10.7982012 0.000 0.208 0.208 6.535 0.175 0.000 5.463 1.007 13.180 12.9722013 0.000 0.208 0.208 6.933 0.187 0.000 5.791 1.067 13.978 13.7702014 0.000 0.208 0.208 7.360 0.200 0.000 6.138 1.129 14.827 14.6192015 0.000 0.208 0.208 7.692 0.214 0.000 6.507 1.197 15.611 15.4032016 0.000 0.208 0.208 7.921 0.224 0.000 6.897 1.270 16.311 16.1042017 0.000 0.208 0.208 8.055 0.232 0.000 7.311 1.345 16.943 16.7352018 0.000 0.208 0.208 8.257 0.243 2.289 7.749 1.426 19.964 19.7562019 0.000 0.208 0.208 8.550 0.256 0.000 8.213 1.512 18.531 18.323

VOC: Vehicle Operating Cost Economic Internal Rate of Return = 9.7%

Appendix 11 35

Table A11.2: Sensitivity Analysis

EIRRScenario (%)

1. Base case 9.72. Decrease in total benefits (10%) 8.52. Excluding vehicle composition change 8.8Source: Asian Development Bank Staff estimates.

Appendix 12 36

Project Rating

Criterion Weight Rating Description

Rating Value

Score Total Rating

Relevance 0.20 Highly relevant 3 0.60 Efficacy 0.25 less efficacious 1 0.25 Efficiency 0.20 less efficient 1 0.20 Sustainability 0.20 Likely 2 0.40 Institutional Impacts 0.15 Moderate 2 0.30 Overall weighted average 1.75 Successful

Score >2.5 Highly Successful (no criteria<2) Score1.6-2.5 Successful (no criteria <1) Score 0.6-1.6 Less Than Successful Score <0.6 Unsuccessful

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