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Completion Report

Project Number: 45150-001 Loan Number: 2824 July 2018

Kazakhstan: Central Asia Regional Economic

Cooperation Corridor 1 (Taraz Bypass) Project

This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency unit – tenge (KZT)

At Appraisal At Project Completion 17 October 2011 31 December 2015

KZT1.00 = $0.006764 $0.002949 $1.00 = KZT147.84 KZT339.10

ABBREVIATIONS

ADB – Asian Development Bank CAREC – Central Asia Regional Economic Cooperation COR – Committee of Roads CSC – construction supervision consultant DLP – defect liability period DMF – design and monitoring framework EIA – environmental impact assessment EIRR – economic internal rate of return ha – hectare IDB – Islamic Development Bank JSC – joint-stock company km – kilometer LARP – land acquisition and resettlement plan m – meter MFF – multitranche financing facility MID – Ministry of Investment and Development MOF – Ministry of Finance MOTC – Ministry of Transport and Communications PMC – project management consultant PMU – program management unit SPS – Safeguard Policy Statement

GLOSSARY

Akimat – A municipal, district, or provincial government CAREC Corridor 1 – Western Europe–Western People’s Republic of China

International Transit Corridor, running from Khorgos at the border with the People’s Republic of China through Almaty and Shymkent, to the western border with the Russian Federation

Oblast – A local administrative unit analogous to a province

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on 31 December. (ii) In this report, "$" refers to United States dollars.

Vice-President Wencai Zhang, Operations 1 Director General Werner Liepach, Central and West Asia Department (CWRD) Director Country Director

Dong-Soo Pyo, Transport and Communications Division, CWRD Giovanni Capannelli, Kazakhstan Resident Mission (KARM), CWRD

Team leader Rika Idei, Transport Specialist, CWRD Team members Asem Chakenova, Project Officer, KARM, CWRD Nurlan Djenchuraev, Senior Environment Specialist, CWRD

Glenda Jurado, Associate Project Analyst, CWRD Laura Omarova, Operations Analyst, CWRD

Krisanta Carissa Vila, Senior Operations Assistant, CWRD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

MAP

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 1

A. Project 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. Procurement 4 H. Safeguards 5 I. Monitoring and Reporting 6

III. EVALUATION OF PERFORMANCE 7

A. Relevance 7 B. Effectiveness 7 C. Efficiency 8 D. Sustainability 9 E. Development Impact 10 F. Performance of the Borrower and the Executing Agency 11 G. Performance of the Asian Development Bank 11 H. Preliminary Overall Assessment 12

IV. ISSUES, LESSONS AND RECOMMENDATIONS 12

A. Issues and Lessons 12 B. Recommendations 13

APPENDIXES

1. Design and Monitoring Framework 14

2. Project Cost At Appraisal and Actual 15

3. Project Cost by Financier 16

4. Disbursement of ADB Loan Proceeds 18

5. Contract Awards of ADB Loan Proceeds 19

6. Chronology of Major Events 20

7. Status of Compliance with Loan Covenants 22

8. Contract Package 28

9. Project Implementation Schedule 29

10. Project Organizational Structure 30

11. Economic Reevaluation 31

12. Project Overall Assessment 36

13. Contribution to the ADB Results Framework 37

BASIC DATA A. Loan Identification

1. Country Kazakhstan 2. Loan number and financing source 2824-KAZ (Regular Ordinary Capital

Resources) 3. Project title Central Asia Regional Economic

Cooperation Corridor 1 (Taraz Bypass) Project

4. Borrower Republic of Kazakhstan 5. Executing agency Ministry of Investments and Development 6. Amount of loan Original: $95.00 million

Revised: $82.33 million 7. Project completion report number 1684 8. Financing modality Project loan B. Loan Data

1. Appraisal – Date started – Date completed

13 June 2011 17 June 2011

2. Loan negotiations – Date started – Date completed

28 October 2011 9 November 2011

3. Date of Board approval 7 December 2011 4. Date of loan agreement 19 June 2012 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

18 August 2012 28 February 2013 2

6. Project completion date – Appraisal – Actual

30 June 2015 7 November 2015

7. Loan closing date – In loan agreement – Actual – Number of extension

30 June 2015 31 December 2015 1

8. Financial closing date – Actual

28 April 2016

9. Terms of loan – Interest rate – Commitment charge – Maturity (number of years) – Grace period (number of years)

Sum of London interbank offered rate (LIBOR) and 0.60% per annum as provided by Section 3.02 of the Loan Regulations, less a credit of 0.20% as provided by Section 3.03 of the Loan Regulations. 0.15% per annum 20 years 4 years

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11. Disbursements

a. Dates

Initial Disbursement 28 May 2013

Final Disbursement 28 April 2016

Time Interval 35 months

Effective Date

28 February 2013

Actual Closing Date 28 April 2016

Time Interval 38 months

b. Amount ($ million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

Civil works 95.00 0.00 10.00 85.00 82.33 2.67 Total 95.00 0.00 10.00 85.00 82.33 2.67

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate Actual

Foreign exchange cost ADB 95.00 0.00 Government 28.00 1.88 Local currency cost 0.00 95.21 Total 123.00 97.09

ADB = Asian Development Bank. Note: The actual project cost includes (i) expenditures of consulting services for project management and construction supervision, and land acquisition and resettlements; and (ii) financial charges during construction. These were not included in the project cost at appraisal.

2. Financing plan ($ million)

Cost Appraisal Estimate Actual

Implementation cost Borrower financed 28.00 13.76 ADB financed 95.00 82.33 Total implementation cost 123.00 96.09

Financial charges during construction costs Borrower financed 0.00 1.00 ADB financed 0.00 0.00 Total interest during construction cost 123.00 97.09

ADB = Asian Development Bank. Note: The actual project cost includes (i) expenditures of consulting services for project management and construction supervision, and land acquisition and resettlements; and (ii) interest during construction. These were not included in the project cost at appraisal.

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3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actual

A. Base Cost Civil works 95.00 84.47 Taxes and duties 10.59 Land acquisition and resettlement 0.14 Consulting services 0.89 Total Base Cost 95.00 96.09 B. Contingency 28.00 C. Financial charges Interest during construction 0.71 Commitment charges 0.29 Total 123.00 97.09

Note: The actual project cost includes (i) expenditures of consulting services for project management and construction supervision, and land acquisition and resettlements; and (ii) financial charges. These were not included in the project cost at appraisal.

4. Project schedule

Item Appraisal Estimate Actual

Completion of engineering designs 2009 2009 Civil works contract Invitation for bids Q4 2011 June 2012 Date of award Q1 2012 March 2013 Completion of work December 2014 November 2015 Q = quarter.

5. Project performance report ratings

Implementation Period Single Project Rating From 28 February 2013 to 31 December 2013 On Track From 1 January 2014 to 31 December 2014 On Track From 1 January 2015 to 31 December 2015 a On Track From 1 January 2016 to 28 April 2016 On Track a The project was rated potential problem in the third quarter of 2015 because the actual required budget for civil

works in United States dollars was less than estimated. That was mainly the result of the devaluation of the Kazakhstan tenge in 2015, which led to underestimate the project’s progress. On 4 December 2015, the loan proceeds of $10 million were cancelled, which improved the performance rating to on track as of 31 December 2015.

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D. Data on Asian Development Bank Missions

Name of Missiona Date No. of

Persons No. of

Person-Days Specialization of Membersb

Consultation 13–19 July 2011 4 28 b(2), g, h Consultation (safeguards) 6–15 August 2011 3 30 c, f, h Consultation 4–11 October 2011 4 32 b, g(2), h Consultation 9–16 February 2012 6 48 b(2), d, g(2), h Inception 25 September–

8 October 2012 7 98 b(3), c, f, g, h

Review 1 3–12 April 2013 3 30 b, g(2) Review 2 3–11 June 2013 4 36 b, c, g(2) Review (social safeguards) 15–19 July 2013 1 5 c Review 3 21–30 October 2013 5 50 b, c, e, g(2) Special Project Administration (social safeguards)

5–7 March 2014 4 12 c, e, f, g

Midterm review 29 September– 4 October 2014

5 30 a, b, e, g(2)

Review 4 2–6 March 2015 4 20 b, e, g(2) Review 5 25–30 May 2015 6 36 c, e, f, g(2), j Review 6 12–23 October 2015 1 12 e Project completion review 18–25 April 2018 4 32 b, g, i, k a Except for the project completion review mission, all missions were combined for projects under the CAREC

Transport Corridor I (Zhambyl Oblast Section) [Western Europe–Western People’s Republic of China International Transit Corridor] Investment Program.

b a = director (transport), b = transport specialist, c = social development specialist (safeguards), d = senior advisor, e = public–private partnership specialist, f = environment specialist, g = project officer, h = operations analyst, i = project analyst, j = safeguards consultant, k = project completion review consultant.

I. PROJECT DESCRIPTION 1. On 7 December 2011, the Asian Development Bank (ADB) approved a $95 million loan to the Republic of Kazakhstan to improve a road section adjacent to Taraz City in Zhambyl Oblast, which was a part of the Government of Kazakhstan’s priority Western Europe–Western People’s Republic of China Corridor Investment Program (the government’s program). 1 The road improvement project was expected to contribute to regional cooperation and trade in Kazakhstan by helping the economy better integrate into the global economy. The project outcome was to augment connectivity for the Zhambyl Oblast section of the Central Asia Regional Economic Cooperation (CAREC) Transport Corridor 1, while the project output was a reconstructed 65-kilometer (km) road section.2 The project’s design and monitoring framework (DMF) is in Appendix 1. 2. The government’s program aimed at developing a regional highway corridor in the southern part of the country, along the Central Asia Regional Economic Cooperation (CAREC) Transport Corridor 1, which runs from Khorgos, People’s Republic of China, through Almaty and Shymkent to the Russian Federation’s western border. It received financial assistance from various international financial institutions, including ADB, the World Bank, the European Bank of Reconstruction and Development, the Islamic Development Bank (IDB), and the Japan International Cooperation Agency. ADB provided a multitranche financing facility (MFF) in 2008, comprising four projects to develop and rehabilitate the Zhambyl Oblast section of the CAREC Transport Corridor 1. The MFF helped improve the corridor over a total length of 301 km.3 3. The project was originally to be financed by IDB together with the 49 km Blagoveschenka–Aspara section along the corridor, but the government withdrew its earlier request (made to IDB in 2010) primarily because of IDB’s financial charges. The government subsequently requested ADB financing for the development of the sections that IDB had been supposed to finance (footnote 1) because the sections were a continuity of the roads developed under the MFF—they needed to be completed to establish links to the southwestern regions of the country and surrounding countries and thereby spur regional socioeconomic growth. The 49-km section, financed within the framework of the MFF using the savings, was approved in February 2011 as Project 4 (Loan 2735-KAZ), while the other section was considered as a standalone project for ADB approval because the total approved amount under the MFF was almost used up and could not accommodate any additional projects.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation 4. The project’s overall design was relevant at appraisal. It tackled critical traffic congestion and significantly deteriorated road conditions around Taraz City. A route built during the Soviet era traversed the city and was widely used by long-distance travelers, including heavy-load trucks operating between major cities around the country and neighboring countries such as Uzbekistan and the Kyrgyz Republic. The route was not properly maintained because financial and human resources had been inadequately allocated for a long time. As a result, road users

1 ADB. 2011. Report and Recommendation of the President to the Board of Directors on the Proposed CAREC

Corridor 1 (Taraz Bypass) Project. Manila. 2 The design and monitoring framework (DMF) was updated on 30 June 2015, when the project closing date was

extended from 30 June 2015 to 31 December 2015; these statements are in line with the updated DMF. 3 ADB. 2017. Completion Report for CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe–

Western People’s Republic of China International Transit Corridor] Investment Program. Manila.

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suffered from dust, congestion, and accidents caused by the dilapidated conditions; high vehicle operating costs; and long travel times. Local populations along the route also suffered from air pollution and dust. 5. Under the project, a bypass was built in the outer area of the city to relieve the critical situation inside the city, alleviate congestion, and enhance users’ comfort, safety, and convenience. The highway section was a continuation of the section rehabilitated under Project 1 of the MFF and needed to be upgraded to ensure smooth traffic along the regional corridor. B. Project Outputs 6. The project outputs at completion were (i) a 7.7 km road (km 483.3–km 491.0) upgraded from category II to category IB; and (ii) a 56.7 km category-II road, which bypasses Taraz City, constructed.4 In November 2015, the entire civil works had been completed and the project roads were opened to traffic. The 2-year defect liability period (DLP) ended in November 2017. C. Project Costs and Financing 7. At appraisal, the total project cost was estimated at $123.0 million: $112.0 million for civil works (91.1%) and $11.0 million for contingencies (8.9%). The cost for construction supervision consultancy services was not included at appraisal because the construction supervision consultant (CSC) engaged under Project 4 of the MFF was also responsible for supervising civil works under this project (para.13). ADB was to provide a loan for $95.0 million to finance the civil works, while the government was to provide counterpart funds of $28.0 million to finance taxes, contingencies for physical and price adjustments, and other necessary expenditures. During the project, loan proceeds of $10.0 million were cancelled, reducing the ADB loan amount to $85.0 million. The cancellation was mainly caused by the devaluation of the Kazakhstan tenge, 5 the currency used at payment for civil works following its contract. At completion, the project cost was $97.1 million,6 21.1% less than estimated at appraisal in nominal terms, of which $96.1 million accounted for civil works, 14.2% less than the $112.0 million estimated at appraisal. ADB disbursed $82.3 million overall, and the government contributed $14.8 million. A comparison of the project cost at appraisal and completion is shown in Appendix 2, and the comparison by each financier is in Appendix 3. D. Disbursements 8. Disbursement of the ADB loan proceeds followed ADB’s Loan Disbursement Handbook (2012, amended time to time). The direct payment procedure was applied for civil works, and an imprest account was not required. 9. The Ministry of Transport and Communications (MOTC) in June 2009 had established a financial unit within the Committee of Roads (COR) for the MFF in June 2009, and the unit extended its responsibility to facilitate disbursements for the project. Since 2011, the unit has

4 In Kazakhstan, a road classified category-IB is a four-lane road with cement-concrete pavement, a lane width of

3.75 meters (m), and a shoulder width of 3.75 m. A road classified category II is a two-lane road with asphalt-concrete pavement, 3.75 m lane width, and 3.75 m shoulder width.

5 On 29 March 2013, when the civil works contract was signed, the exchange rate was $1 = KZT150.64; on 4 December 2015, when the partial loan cancellation was approved, the rate was $1 = KZT307.53.

6 The project cost presented included costs for the project management and construction supervision consultants, who had been engaged under the MFF (para. 13), and the compensations paid to affected people (para. 19), which had not been included in the project cost at appraisal.

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been able to use ADB’s Electronic Storage and Retrieval system for uploading electronic files of withdrawal applications with the help of ADB’s Kazakhstan Resident Mission, which made submission to ADB easier. Further, COR obtained access to the ADB Loan Financial Information System website for monitoring disbursement achievements against projections. This close coordination between COR, the Ministry of Finance (MOF), and ADB ensured smooth disbursements, and there were no outstanding issues. 10. Disbursements began on 28 May 2013, about 2 years behind the schedule at appraisal. The delays are attributable to protracted procedures of making the loan effective and procuring a civil works contract (paras. 11 and 15). However, once the civil works started, disbursements progressed smoothly. The loan account was financially closed on 28 April 2016 by cancelling the unutilized loan proceeds of $2.7 million. One adjustment was made on 30 March 2016, after the civil works were completed to account for the actual disbursement made. The disbursement of ADB loan proceeds is shown in Appendix 4. E. Project Schedule 11. The loan was approved on 7 December 2011 and became effective on 28 February 2013. This 14-month gap was caused by the prolonged procedure within the government for getting the loan agreement signed and ratified by the Parliament for loan effectiveness. The loan agreement was signed on 19 June 2012 after MOF’s request for an extension,7 i.e., about 2.5 months later than agreed during loan negotiations (31 March 2012). The loan became effective about 8 months later, after the deadline for loan effectiveness had been twice extended, against the original schedule of 60 days after the loan signing date.

Those delays occurred mainly in the following procedural steps: (i) issuance of a presidential decree before signing a loan; (ii) ratification of the signed loan agreement by the Parliament of Kazakhstan before declaring the loan effective; and (iii) compliance with the new requirement for legal, scientific, and linguistic reviews of loan documents. Further, procurement took about 1 year from inviting the bids to signing the contract (para. 15), and the time to complete the works was extended by 4 months to accommodate additional works beyond the initial scope (para. 16). The loan closing date (originally 30 June 2015) thus needed to be extended to 31 December 2015. A comparison of the project implementation schedule at appraisal and completion is presented in Appendix 9. F. Implementation Arrangements 12. At appraisal, MOTC was the executing agency for the project and COR was the implementation agency. The deputy chairman of COR was appointed as the project director. On 6 August 2014, in the course of a reorganization, the government established the Ministry of Investment and Development (MID), which took over MOTC’s functions. COR remained the implementation agency until project completion. The program management unit (PMU), established within COR, was responsible for the four projects under the MFF, and its responsibility was extended to the project. The PMU comprised of staff members with expertise in engineering, finance, legal matters, and procurement. Until 2013, COR’s branch in the oblast (Zhambyl Oblast Road Department) was responsible for the day-to-day oversight of the project on site to ensure smooth implementation and coordination with local stakeholders. At the reorganization in 2014, the responsibility for daily oversight was transferred to the Zhambylzhollaboratory (COR’s oblast-level subordinate organization) until the DLP ended. The implementation arrangement for the project is shown in Appendix 10.

7 MOF requested ADB to extend the loan signing to 15 July 2012.

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13. A consulting firm, selected under Project 4 of the MFF, was engaged to supervise the civil works and administer the works contract. In addition, the project management consultant (PMC), engaged under the MFF, kept working for the project to oversee the performance of the contractor and the CSC, and help COR execute procurement, disbursement, and safeguard assessments and monitoring. The expenditures for the PMC were paid under Project 1 of the MFF until its loan account closed on 31 December 2013, and were then financed solely from the republican budget from 1 January 2014 until project completion. Likewise, the expenditures for the CSC were financed under Project 4 of the MFF until 31 December 2014, and then covered by the republican budget from 1 January 2015 until the end of the DLP. G. Procurement 14. During implementation, a single contract package was procured as planned at appraisal. The procurement was carried out in accordance with ADB’s Procurement Guidelines (2007, as amended time to time) and the procurement plan. The civil works contract was procured using international competitive bidding under the single-stage and one-envelope procedure without prequalification. The ADB project team offered close guidance to ensure that all the institutional requirements of ADB were properly met in the bidding documents and the contract, including relevant sections of ADB’s Anticorruption Policy (1998, as amended to date) and Safeguard Policy Statement (2009) (SPS), and the loan agreement. 15. Based on the advance contracting arrangement, the procurement process was initiated before ADB approved the project. The bidding documents were principally based on the detailed design, which the government had approved in 2009. The invitation for bids was issued on 19 April 2012 on the websites of ADB and MOTC with the deadline for bid submission set on 31 May 2012 which was extended to 21 June 2012 to give potential bidders more time to incorporate several changes made to the issued documents. Subsequently, COR carried out the bid evaluation in close consultation with ADB and completed it on 28 March 2013 with the contract signing, about 9 months after the bid submission date. Two major reasons for the long bid evaluation were found: (i) COR’s initial bid evaluation result required the careful reexamination of the bidders’ qualification to avoid any misinterpretation, and the entire evaluation ended on 4 January 2013; and (ii) COR had to wait about 2 months until the loan became effective (para. 11) before awarding the contract. The notice of commencement was issued on 7 August 2013. The gap of about 4 months was mainly because the contractor needed time to mobilize its resources (personnel and equipment) and to obtain the necessary permissions from the local authorities to begin civil works. 16. Five variations had to be made to the civil works contract to respond to issues that came up during implementation. First, soil that was not suitable for civil works had to be replaced. Second, the specifications of culverts to be installed and the quantities of pavement materials had to be adjusted. Third, more pavement material was needed to strengthen the worn-out or rutted sections along the route and ensure smooth traffic flows during construction, requiring another adjustment of quantities of related material. Fourth, soil strata with high moisture content had to be strengthened to build embankments as originally designed. Finally, public utilities had to be moved and wells installed for the local population’s use. Moreover, in February and April 2016, price adjustments had to be made for the entire works period to factor in the escalating price of construction materials. These circumstances increased the contract price by

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21.1% in local currency.8 The Take-Over Certificate was issued on 7 November 2015 for the entire sections, and the 2-year DLP ended on 7 November 2017. The contractor’s performance was confirmed as satisfactory. It managed the aforementioned changes in works during construction well and discharged its responsibility properly until the DLP ended, which is acknowledged as contributing to the quality of the completed sections and the absence of any significant delay. Details of the contract package are shown in Appendix 8. H. Safeguards 17. Environmental safeguards. The project was classified A at appraisal because it entailed the construction of a new two-lane bypass and associated facilities such as bridges, railway overpasses, and interchanges in the greenfield. It also involved cutting of non-special status trees along the alignment. Accordingly, MOTC conducted an environmental impact assessment (EIA) and prepared an environmental management plan, both of which were disclosed on ADB’s website. During implementation, in July 2013, the CSC carried out field inspections and found that municipal solid waste was being dumped outside the designated landfill area, encroaching the right-of-way of the section. The issue had not been discussed in the 2011 EIA because the unauthorized dumping occurred largely between 2011 and 2013, but it was considered critical for its potential to cause pollution and health issues in the surrounding areas. To resolve the problem, a supplementary assessment was carried out and an environmental management plan was developed in close consultation with COR and ADB, whereby (i) solid waste dumped in unauthorized areas was moved to the designated landfill area, and (ii) remedial measures were to be taken to restore the site of the unauthorized dumping to proper conditions. The plan was properly executed, and the issue was confirmed resolved in 2015. ADB’s project completion review mission found that (i) barriers had been installed by the operator to create 150-meter buffer zones between the bypass and the dumpsite to prevent further encroachments and (ii) a path had been constructed to give dumpsite operators the controlled access to the waste disposal site. To mitigate significant loss of trees caused by implementing the MFF, the COR had launched a replanting program in the framework of road maintenance as funds from the state budget become available. Environmental monitoring was being conducted by CSC, who submitted biannual environmental monitoring reports to ADB through COR during the civil works, all of which were disclosed on ADB’s website. 18. Involuntary resettlement and land acquisition. The project was classified B at appraisal. During implementation, land acquisition was required prior to civil works, which was carried out in accordance with the land acquisition and resettlement plan (LARP) under the project, the national regulations, and the ADB SPS. 19. The original LARP of October 2011 indicated that the project would affect 98 households and 10 legal entities and require the acquisition of 132.5 hectares (ha) of land, bringing the estimated total compensation cost to KZT118.1 million. At completion, 128 households and 10 legal entities were confirmed as affected because their arable land, 257.8 ha in total, was permanently acquired for the project. In detail, 16.3 ha were privately owned by 12 households, and 241.5 ha were leased by 116 households and 10 legal entities. The additional land acquisition became necessary during construction, increasing the number of affected people by 30 households. Of those affected, four households and two legal entities voluntarily surrendered their land, totaling 22.5 ha, mainly because the predetermined compensation amount was

8 The contract amount at signing on 29 March 2013 was KZT14,800,238,556.16 (including value-added tax), while

the final contract amount was KZT17,920,766,485.11.

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deemed insignificant. One legal entity’s land had to be taken through compulsory acquisition because of the owner’s long absence and its failure to respond to repeated government requests. The other 124 households and 7 legal entities reached a compensation agreement with the government and were paid from the republican budget by 2013. Compensations were paid not only for losing land and structures for individual uses but also for losing future business profits (25 households), maintaining their workers’ salaries during the project (65 households and 5 legal entities), and developing alternative plots (55 households and 3 legal entities). Further, 5 households were confirmed severely affected since more than 10% of their land was impacted, and special allowances to restore their livelihoods were paid. 20. Among the 30 additionally included households, three were affected by the installation of power line poles and the redesign of an interchange on Asa River. This amounted to a total area of 3.5 ha—2.5 ha leased by two households and 1.0 ha owned by one household. The compensation payments to these households had been upheld since 2014, when their cases were referred to the courts for determining the extent of their losses and compensation due, but the issue was eventually solved in early 2017. The total compensation paid to the households was KZT10.6 million. 21. A grievance redress mechanism—in the form of a community liaison group—was established in 2011 under the MFF to identify potential environmental or social safeguard-related issues in a timely fashion. To make the mechanism operational, a community liaison group coordinator was employed under the PMC contract. She attended to issues raised by the local population and helped COR and other authorities take immediate measures to resolve them. The 37 complaints filed under the project mainly concerned (i) noncompliance with the acquisition process stipulated in the original LARP for installing public utilities and (ii) failure to reach settlements on compensation prices for land acquisitions. COR took the necessary measures and by 2017, all issues were solved. The CSC submitted biannual social monitoring reports to COR and ADB until 2014, but no submission was made in 2015. 22. During the civil works, the CSC regularly monitored the living and working environments of laborers, most of whom had been hired by subcontractors of the aforementioned contractor and stayed in accommodations near their area of duties. To ensure that those laborers worked in healthy and safe conditions, the CSC provided guidance to the contractor and its subcontractors on how to correct any violation identified.9 23. Indigenous peoples. The project was classified C at appraisal because no indigenous peoples that would fall under the ADB SPS definition of such groups were found to be living in the project areas. Until completion, no person was identified as belonging to indigenous peoples or being a vulnerable person. I. Monitoring and Reporting 24. The executing agency and the implementation agency generally complied with the 27 loan covenants due by project completion, while one was partially complied with (Section 5, Para. 8 (a) and (d) of the loan agreement). The partial compliance relates to the submission of social safeguard monitoring reports (para. 21). The government submitted annual audited project financial statements for the financial years of 2013–2016 in a timely manner, and their quality was confirmed to be acceptable. The auditors raised no outstanding issue. Details of compliance with the loan covenants are in Appendix 7.

9 This was referred to the CSC’s project completion report, prepared and submitted to COR in November 2015.

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III. EVALUATION OF PERFORMANCE A. Relevance 25. The project is rated relevant at both appraisal and completion. Its outcome continues to be aligned with (i) the government’s transport sector strategies and the priority given to improving transport infrastructure such as the project road;10 (ii) ADB’s Strategy 202011 and its country partnership strategies;12 and (iii) the CAREC program’s strategies.13 A common aim of those development strategies for Kazakhstan was to enhance its regional connectivity and thereby augment trade and investments in a variety of sectors, which was believed to strengthen the economic platform both nationally and in the oblast. The project is considered to have contributed to this achievement. 26. The project was not originally to be financed by ADB. However, ADB accommodated the government’s immediate need (para. 3). This flexible arrangement is acknowledged as a contributor to completing the development of the strategically important regional corridor in Zhambyl Oblast efficiently and effectively, utilizing resources and knowledge acquired during the implementation of the MFF and the project. Strengthening the republican highway networks in the oblast helped people start economic activities, particularly in manufacturing and agriculture, using local resources; foster business relationships with traders from outside the oblast; and diversify their income resources. These achievements remain aligned with the aforementioned strategies. 27. The design was principally unchanged from appraisal to completion, and was adequate to achieve the project’s original outputs and outcome. Rehabilitating the existing highway section and constructing a new bypass of the city was designed to alleviate the seriously deteriorated conditions of the existing route inside the city and concerns about traffic congestions around the city. During the civil works, five contract variations were required to ensure the quality of the newly built or rehabilitated roads in the long run, which enhanced the project’s relevance (para. 16). Indicators in the DMF remained relevant. B. Effectiveness 28. The project is rated effective in achieving the intended outcome. During ADB’s project completion review mission in 2018, the travel time from Otar (Almaty–Zhambyl Oblast border) to the Zhambyl–South Kazakhstan Oblast border using the new bypass was reported as about 7 hours, achieving the original target of 7 hours (baseline: 9 hours). Further, it was found that the average traffic volume of the project roads reached about 7,500 vehicles per day in 2016 (baseline: 4,000 vehicles per day), exceeding the original target of 7,000 vehicles per day.14 Such increases are expected to continue.

10 For instance, Government Program on the Accelerated Industrial-Innovative Development of the Republic of

Kazakhstan, adopted in 2010; the Nurly Zhol Infrastructure Development Program, adopted in November 2014. 11 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020.

Manila. 12 ADB. 2012. Country Partnership Strategy for Kazakhstan (2012–2016). Manila; and ADB. 2017. Country

Partnership Strategy for Kazakhstan (2017–2021)—Promoting Economic Diversification, Inclusive Development, and Sustainable Growth. Manila.

13 ADB. 2014. CAREC Transport and Trade Facilitation Strategy 2020. Manila; and ADB. 2017. CAREC 2030: Connecting the Region for Shared and Sustainable Development. Manila.

14 The data on traffic volumes was provided in May 2018 by COR.

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29. Increases in employment and business opportunities are expected from private investments along the project roads. To encourage this, Joint-Stock Company KazAvtoZhol (JSC KazAvtoZhol, para. 37) and the Taraz City akimat jointly promoted private investments into roadside business areas along the new bypass, which is expected to offer more business opportunities for the service industry, generate jobs for local residents, and diversify income resources individually and regionally. 30. The environmental management plan was developed as part of the EIA, and measures proposed in the plan were incorporated in the civil works contract and implemented during the civil works. The CSC helped COR to monitor the contractor’s implementation and document it in biannual environmental monitoring reports, which helped avoid proactively any potential adverse effects (para. 17). Issues related to social safeguards were dealt with promptly in accordance with the original LARP and other related regulations. When necessary, some issues were brought to the courts for seeking proper solutions and establishing the affected people’s consent. ADB’s safeguard specialists closely monitored these cases in coordination with the ADB’s Kazakhstan Resident Mission, minimizing any disturbances to the civil works. C. Efficiency 31. The project is rated efficient. 32. To assess the efficiency of the project, its economic internal rate of return (EIRR) was reevaluated using a similar methodology than that used at appraisal, as well as updated data. The economic benefits were calculated by comparing with-project and without-project cases, including (i) savings in vehicle operation costs and (ii) savings in passenger travel time costs. The EIRR was recalculated at 15.4% for the whole project. It is higher than estimated at appraisal (13.5%), mainly because recent increases in regional trade volumes suggest higher traffic growth rates in future years (paras. 28 and 42). The EIRR is above the ADB-recommended discount rate of 12% at appraisal. The project is therefore considered to be economically viable. The EIRR was subjected to sensitivity analysis to test different scenarios of maintenance costs and benefits. The results indicate that the project continues to be economically viable under all tested scenarios. If a 20% maintenance cost increase would be combined with a 20% benefit reduction, the EIRR would still be 12.4% for the whole project. The sensitivity analysis also showed that the EIRR is more sensitive to changes in economic benefits, indicating a need for continuous efforts to promote the socioeconomic development along the project roads (para. 29). Appendix 11 details the project’s economic reevaluation. 33. The overall implementation progressed smoothly once civil works started, without any significant delays in achieving the intended outputs in an acceptable quality (para. 16). Further, the project cost did not exceed the original estimates, regardless of the several technical variations (para. 7). However, it must be noted that the loan signing and effectiveness procedure took 8 months, and the procurement, from the invitation for bids until the contract signing, about 1 year. This resulted in the extension of the project closing date by 6 months (para. 11), without which the project efficiency would have been better. The country has made institutional efforts to avoid these issues in future projects. 34. To supervise the civil works under the project, the CSC for another project (Project 4 of the MFF) was engaged (para. 13). The arrangement was agreed between the government and ADB prior to preparing the bidding documents for the recruitment of a new CSC, thus saving time. The PMC closely monitored the performance of the CSC, who worked on both project sites, to confirm that sufficient resources were mobilized and tasks properly executed across the

9

project area. Engaging a single CSC for several road sections could bring substantial economic benefits to future projects if the works are contiguous and implemented within the same time frame, and provided that the following steps for effective implementation are taken: (i) assigning a team with the capacity to perform the overall supervision at several sites at the same time, such as the PMC did for this project; (ii) designing and clearly specifying the project scope (e.g., road sections); and (iii) verifying that the project areas are not too far apart from each other. Item (ii) might help the government in preparing the terms of reference for the CSC properly and allocating adequate budgets. D. Sustainability 35. The project is likely to be sustainable. 36. Road safety. During the 2-year DLP, several accidents were reported along the two project road sections. However, the trend of the accident rates differed: the rate increased slightly on the highway section but decreased on the new bypass. This suggests the need for continuous observation in future years, as most truck drivers using these sections tend to drive faster than the speeds they are designed for.15 Further, potential increases in traffic accidents call for policy actions to enforce speed limits and raise drivers’ awareness, such as training government staff with responsibilities for road transport on how to conduct and operationalize road safety audits, enforce speed limits, and control vehicle overloading along the project roads, and on executing road safety awareness campaigns for road users and roadside residents.16 The sections were equipped with the necessary roadside furniture, such as guardrails, lights, marks, speed-limit signs, and repair workshops, and shoulders in the required width were provided along the entire sections. 37. Road maintenance. JSC KazAvtoZhol is an independent operator tasked with building and maintaining all the republican roads, including the project roads, and was established in 2013. 17 The responsibility for the project roads is with the Zhambyl Oblast branch of JSC KazAvtoZhol, which carries out regular and periodic maintenance and repair works with monthly inspections since the Take-Over Certificate was issued in November 2015. The branch has allocated budgets to the project roads utilizing the receipts from the republican budget, and showed intentions to finance additional amounts from its own budget. Moreover, ADB’s project completion review mission found the branch to be equipped with experienced staff and machineries for conducting regular inspections and providing timely repair and maintenance works as needed. The government’s awareness of the importance of road maintenance has been growing, and it has increased the budget for routine maintenance and repair works by about 3.0% on average each year.18 Likewise, at the oblast level, the annual budget allocated for maintaining the republican roads has increased. Since 2018, long-distance and/or heavy-load trucks are restricted from entering the city at the junctions of the highway and the bypass sections (km 491 and km 536). These measures are found to be effective in avoiding a deterioration of road conditions and relieving congestion inside the city.

15 The design speed for the highway section (Category IB) is 110 km per hour, and 90 km per hour for the new

bypass (Category II). 16 ADB. 2016. Safely Connected: A regional road safety strategy for CAREC countries, 2017–2030. Manila. 17 ADB. 2016. Technical Assistance Consultant’s Report for Managing for Development Results in the Transport

Sector of Kazakhstan (Final Report). 18 The annual actual budget for routine road maintenance and repair works in the country was KZT8,000 million in

2013, KZT15,502 million in 2014, KZT15,739 million in 2015, KZT17,031 million in 2016, and KZT21,438 million in 2017. In principle, the budget originally allocated was expended within the year as scheduled.

10

38. Despite continuous increases in budget receipts for maintaining republican roads, a chronic insufficiency has been noticed.19 In response, JSC KazAvtoZhol plans to convert about 15,000 km of republican roads (including the project roads) into toll roads by 2023, installing toll collection facilities and utilizing the collected fees to repair and/or maintain the roads, and ultimately become a self-financing agency by 2022. It projects to earn KZT8.5 billion from toll collection annually once all the republican roads under its responsibility have become toll roads, which is considered sufficient to provide the required maintenance works (footnote 3). In the meantime, JSC KazAvtoZhol is likely to make use of the republican budget and initial toll revenues. The highways and bypasses constructed or rehabilitated under the MFF and the project in the Zhambyl Oblast have been selected to become toll roads, and the toll system is expected to become operational in 2018.20 39. Further, JSC KazAvtoZhol is to introduce a road asset management system with technical and financial assistance from the World Bank.21 It now performs its responsibility for regularly collecting data related to the republican highway network with visual inspections because its current data inventories are not compatible with a road asset management system. The World Bank assistance will help it improve its data management and allocate its financial and personal resources more efficiently and effectively. 40. Environmental sustainability. To avoid any erosion along the project roads, COR has been implementing a tree-replanting program along the road sections developed under the project and the MFF, using receipts from the republican budget (para. 17). E. Development Impact 41. Regional economic development. The project was found to contribute to the economic development of Taraz City as well as the surrounding countries or regions. As originally designed, the new bypass enabled smooth traffic along the regional corridors, reduced the travel time, and enhanced travelers’ safety, all of which makes regional trade and people’s mobility easier to achieve. The section is used mainly by long-distance travelers and heavy-load truck drivers who transport vegetables and fruits between Uzbekistan and Astana, Almaty, and Bishkek, thanks to bilateral agreements between Kazakhstan, the Kyrgyz Republic, and Uzbekistan. 22 They indicate increases in regional trade and people’s transits along CAREC Corridor 1 and its connecting corridors. Further, the intersections with local roads were constructed in a way to ease the entry of trucks from surrounding factories engaged in chemical fertilizers, construction materials, and food processing. These trucks transport their products to major cities in the country, such as Shymkent and Atyrau, and the intersections help them reduce their transit time. 42. In 2011–2015, the national trade volume in monetary nominal terms continuously increased by about 70%, from KZT3,865 trillion to KZT6,556 trillion,23 which exceeded the target

19 ADB. 2016. Compendium of Best Practices in Road Asset Management. Manila. 20 Kazinform. 14 February 2018. Investors will help Kazakhstan create toll road system.

https://www.inform.kz/en/investors-will-help-kazakhstan-create-toll-road-system_a3153469. Accessed 21 June 2018.

21 World Bank. 2017. Restructuring Paper on a Proposed Project Restructuring of East–West Roads Project (Almaty-Korgos Section): Western Europe–Western China International Transit Corridor (CAREC-1B) Approved on May 1, 2012 to Republic of Kazakhstan.

22 United Nations Economic and Social Commission for Asia and the Pacific. 2017. Review of Developments in Transport in Asia and the Pacific. Bangkok.

23 Committee of Statistics, Ministry of National Economy, Republic of Kazakhstan (http://stat.gov.kz/).

11

of a 10% increase by 2020 in the project’s DMF. Industries that significantly increased their share of the total trade volume were clothes, building materials, and electronic equipment. 43. Taken with all the related regional links, Zhambyl Oblast can be said to be a vital transit hub of CAREC Corridor 1. With the project’s completion, this function has been strengthened and is expected to grow further, not least because the oblast’s trade volume increased by about 80% from 2011 to 2015 in nominal terms, mainly thanks to significant increases in non-food trades (footnote 23). Taraz City, the capital of Zhambyl Oblast, is expected to grow continuously as a regional transit hub. 44. Impact on local population’s livelihoods. Construction on the project sites generated jobs and incomes for people in the surrounding areas. About 600 individuals were employed, of which more than 90% came from Zhambyl Oblast and 10% were women (footnote 9). 45. Taraz City has been growing in tandem with the economic development in surrounding regions that the CAREC corridors gave rise to, and its local population’s livelihoods and economic structure have been transformed accordingly. In the outer areas of the city, most people are still engaged in farming and cattle breeding, with limited possibilities before the project. The bypass and its associated intersections may enable them to bring their products to markets and shops in the city or surrounding towns and villages faster, selling them in better conditions and at higher prices, which eventually will help increase individual mobility and interaction in the region. F. Performance of the Borrower and the Executing Agency 46. The overall performance of the borrower (the Government of Kazakhstan, represented by MOF), the executing agency (MOTC, subsequently MID), and the implementation agency (COR) was satisfactory. They carried out their assigned tasks and responsibilities from project inception to completion. The government reorganization in August 2014 changed the executing agency from MOTC to MID but did not affect the project’s implementation, since COR and its PMU continued to perform their role of administering the project. Most of the covenants were complied with during implementation (para. 24), and counterpart funds were released properly and on time for paying the PMC, CSC, and contractor (para. 9). The PMU maintained separate records for the utilization of the ADB loan proceeds and government counterpart funds, as confirmed by the annual audit reports. G. Performance of the Asian Development Bank 47. ADB’s performance was satisfactory. The teamwork between ADB headquarters and the Kazakhstan Resident Mission was well engineered, which contributed to effective project preparation and efficient project implementation until completion. ADB closely consulted with MOTC–MID and COR on the project’s progress, their concerns, and potential issues. During project preparation, ADB accommodated urgent requests by the government for the project and processed them promptly, including necessary due diligence (para. 3). During implementation, ADB provided substantial assistance to the PMU by (i) facilitating disbursements in a timely fashion; (ii) offering guidance on resolving issues related to procurement, contract administration, and safeguards; and (iii) promptly facilitating the government’s request for cancelling the loan proceeds and extending the loan closing date. 48. Since project processing, ADB has conducted 15 review missions (including consultation, inception, special loan mission for safeguards, and midterm) as well as video- or

12

teleconferencing to foster relationships with MOTC–MID, COR, and its oblast branch. The communication and coordination between ADB, MOTC–MID, and COR are confirmed as being generally smooth and effective. H. Preliminary Overall Assessment 49. The project is rated successful. It remains in line with the institutional strategies of Kazakhstan and ADB (paras. 25–27); it is considered to have been implemented effectively (paras. 28–30) and efficiently (paras. 31–34); and it is rated likely sustainable (paras. 35–40), with initial positive impacts on regional and local economies (paras. 41–45).

Preliminary Overall Ratings Criteria Rating Relevance Relevant Effectiveness Effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Satisfactory Borrower and executing agency Satisfactory Performance of ADB Satisfactory ADB = Asian Development Bank. Source: Asian Development Bank.

IV. ISSUES, LESSONS AND RECOMMENDATIONS

A. Issues and Lessons 50. Initial delays. The project closing date was extended by 6 months for various reasons, which could be attributed to (i) the lengthy procedure of making the loan effective and (ii) lengthy procurement from preparation of bidding documents to contract signing. Item (i) was a result of the government’s procedural issues (para. 11), while item (ii) arose from insufficient capacities to handle the entire procurement procedure (para. 15). These issues were already discussed in the MFF’s completion report (footnote 3). It is expected that MOTC–MID and COR will make institutional efforts to share and accumulate knowledge and experience among their staff, which could help them manage externally funded (including ADB-financed) projects more efficiently and effectively. 51. Repeated amendments to civil works contract. The detailed design of the project sections was completed and approved by the government in 2009, and principally formed the basis of the EIA, which was completed in 2011, and the bill of quantities attached to the bid documents, which were issued in 2012, translating into a 4-year gap. The gap may have caused repeated corrective actions necessitating (i) technical variations to the civil works contract became necessary (para. 16) and (ii) a supplementary environmental assessment on unauthorized solid waste dumping occurred after the EIA completion (para. 17). The experience indicates a need for having detailed designs reviewed and updated as appropriate prior to finalizing the bid documents to account for any gap between the detailed design and the start of civil works.

52. Project performance management system report. No project performance monitoring report was produced under the project, even though a project performance monitoring system had been expected to be operational throughout the implementation, as indicated in the project administration manual at appraisal. Possible reasons were the lack of clarity on the terms of

13

references attached to the CSC contract and the lack of a relevant covenant in the loan agreement. A project performance monitoring system is a mechanism to monitor the likelihood that an ADB-financed public sector project achieves its intended output, outcome, and impact as stated in the DMF,24 which helps the government and ADB assess during implementation whether the project design fits the country’s development directions. Such a system is needed at appraising future projects to ensure that pertinent statements and requirements are properly dealt with in the documents related to project implementation, which will help to get the prompt attention of ADB, the executing agency, and the CSC. B. Recommendations 53. Future monitoring. Comprehensive monitoring is suggested for all sections that ADB financed in the Zhambyl Oblast to confirm whether the entire investment contributed to regional economies and local populations as envisaged by the impact and outcome indicators in the DMFs of the MFF and the project. In doing so, it is suggested to analyze impacts on the natural environment, such as carbon dioxide emissions, and road safety along the sections, which may be affected by people's economic activities and travel behaviors using those sections. Further, the government's ongoing initiatives need to be continuously monitored and recorded: (i) JSC KazAvtoZhol's road maintenance works and road asset management system which is under preparation (paras. 37–39) and (ii) COR's tree replanting program (para. 17). Those two are essential to strengthen the sections' performance in the long run, and their implementation should be closely monitored including allocations of those authorities' resources. 54. Road safety assessment. Though not explicitly observed in the 2 years since the completion of civil works, potential increases in traffic accidents are anticipated in the future because the project roads’ smoother surface may tempt drivers to speed and is likely to keep increasing the number of road users. Continuous monitoring is required on the number of accidents along the project roads, and their types and reasons. This may help the government identify fundamental causes and invent and implement preventive policy instruments. As the project roads are near Taraz City, consultations between COR, JSC KazAvtoZhol, the city akimat, the Zhambyl Oblast government, and any relevant authorities are strongly suggested. Further, the project roads are part of CAREC corridors, so those measures should be implemented in concert with the other CAREC countries (footnote 16). 55. Covenant. It was found that biannual social monitoring reports were not submitted in 2015, although the civil works continued (para. 24). There may be various reasons behind this, but an important one is that social monitoring reports were not explicitly stated as a regular deliverable in the CSC’s terms of reference. Hence, the lists of deliverables should be discussed with and understood by the executing agency and the selected CSC during contract negotiations, both regarding contents and timing, and be indicated clearly in the contract. The payment could have been linked to the deliverables. Moreover, the lists of deliverables should be consistent with the project administration manual and the loan agreement, if applicable, which also helps remind ADB of its responsibility of close guidance and follow-up until the project closes. 56. Timing of the project performance evaluation report. A project performance evaluation report is to be prepared in 2020, the year indicated in the DMF as the target to achieve the project impact.

24 ADB. 2011. Project Performance Management System. (Operations Manual Section J1/Bank Policies). Manila.

14 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Indicators and Targets Project Achievements Impact Increased trade in Kazakhstan

By 2020: Kazakhstan’s trade volume increased by 10% from 2011

Achieved. Total volume was increased KZT3,865 trillion in 2011 to KZT6,556 trillion in 2015, by about 69.6%.

Outcome Better connectivity for the Zhambyl Oblast section of the CAREC Transport Corridor 1

By 2016: Average travel time through Zhambyl Oblast-between the southern Kazakhstan border and Otar-reduced to 7 hours, from 10 hours in 2009 Average traffic volume along the project road increased to 7,000 vpd, from 4,000 vpd in 2007

Achieved. Average travel time in the concerned sections was found about 7 hours. Achieved. Traffic volume along the project roads (highway section) about 7,555 vpd in 2016.

Outputs A 65-km road section (Taraz Bypass) reconstructed

By 2015: Works on the project road from km 483-536 completed with IRI of less than 3 m/km

Achieved. The highway section (7.7 km: km 483.3-491) was rehabilitated, and the bypass section (56.7 km: km 491-536) constructed with IRI of less than 3 m/km.

Note: The DMF above was referred to the one updated at ADB approval of extending the project completion date from 30 June 2015 to 31 December 2015. ADB = Asian Development Bank, CAREC = Central Asia Regional Economic Cooperation, COR = Committee of Roads, GDP = gross domestic product, IRI = international roughness index, km = kilometer, KZT = Kazakhstan tenge, MOTC = Ministry of Transport and Communications (currently, Ministry of Investment and Development), vpd = vehicles per day. Source: Asian Development Bank; Committee of Roads under the Ministry of Investment and Development.

Appendix 2 15

PROJECT COST AT APPRAISAL AND ACTUAL ($'000)

Appraisal Estimate Actual

Item Foreign

Exchange Local

Currency Total Cost Foreign

Exchange Local

Currency Total Cost

A. Base Cost 1. Civil works 95,000 0 95,000 0 84,469 84,469 2. Land acquisition and resettlementa 0 0 0 0 147 147 3. Consultants a. Project management 0 0 0 340 0 340 b. Construction supervision 0 0 0 550 0 550 4. Taxes and duties 0 0 0 0 10,593 10.593

Subtotal (A) 95,000 17,000 112,000 890 95,209 96,099 B. Contingencies 1. Physical 0 9,500 0 0 0 0 2. Price 0 1,500 0 0 0 0

Subtotal (B) 0 11,000 11,000 0 0 0 C. Financial Charges During Implementation 1. Interests during construction 0 0 0 706 0 706 2. Commitment charge 0 0 0 287 0 287 Subtotal (C) 0 0 0 993 0 993 Total (A+B+C) 95,000 28,000 123,000 1,883 95,209 97,092

Sources: Asian Development Bank and the Committee of Roads under the Ministry of Investment and Development estimate. a The items were not included in the cost table at appraisal. During the preparation of the project completion report, their expenditures were confirmed to have

incurred during implementation and included in the cost table at completion.

16 Appendix 3

PROJECT COST BY FINANCIER

Table A3.1: Project Cost at Appraisal by Financier ($ ‘000)

ADB Government Total Cost

Amount

{A}

% of Cost Category

{A/D} Amount

{B}

% of Cost Category

{B/D} Amount

{D}

Taxes and Duties

{E}

A. Base Cost 1. Civil works 95,000 84.82% 17,000 15.18% 112,000 0 2. Land acquisition and resettlementa 0 0.00% 0 0.00% 0 0 3. Consultants

a. Project management 0 0.00% 0 0.00% 0 0 b. Construction supervision 0 0.00% 0 0.00% 0 0 Subtotal (A) 95,000 84.82% 17,000 15.18% 112,000 0 B. Contingencies 1. Physical 0 0.00% 9,500 100.00% 9,500 0 2. Price 0 0.00% 1,500 100.00% 1,500 0 Subtotal (B) 0 0.00% 11,000 100.00% 11,000 0 Total Base Cost (A+B) 95,000 77.24% 28,000 22.76% 123,000 0 C. Financial Charges During Implementation 0 0.00% 0 0.00% 0 0 1. Interests during construction 2. Commitment charge Total Project Cost (A+B+C+D) 95,000 77.24% 28,000 22.76% 123,000 0

% Total Project Cost 77.24% 22.76% 100%



Appendix 3 17

Table A3.2: Project Cost at Completion by Financier ($ ‘000)

ADB Government Total Cost

Amount

{A}

% of Cost Category

{A/D} Amount

{B}

% of Cost Category

{B/D} Amount

{D}

Taxes and Duties

{E}

A. Base Cost 1. Civil works 82,328 97.47% 2,141 2.53% 84,469 10,248 2. Land acquisition and resettlementa 0 0.00% 147 100.00% 147 0 3. Consultantsa

a. Project management 0 0.00% 340 100.00% 340 52 b. Construction supervision 0 0.00% 550 100.00% 550 293 Subtotal (A) 82,328 96.28% 3,178 3.72% 85,506 10,593 B. Contingencies 1. Physical 0 0.00% 0 100.00% 0 0 2. Price 0 0.00% 0 100.00% 0 0 Subtotal (B) 0 0.00% 0 100.00% 0 0 Total Base Cost (A+B) 82,328 96.28% 3,178 3.72% 85,506 0 C. Financial Charges During Implementation 1. Interests during construction 0 0.00% 706 100.00% 706 0 2. Commitment charge 0 0.00% 287 100.00% 287 0 Total Project Cost (A+B+C+D) 82,328 95.18% 4,171 4.82% 86,499 10,593

% Total Project Cost 95.18% 4.82% 100%



18 Appendix 4

DISBURSEMENT OF ADB LOAN PROCEEDS

Table A4.1: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Annual Disbursement Cumulative Disbursement

Year Amount

($ million) % of Total Amount

($ million) % of Total 2013 42.70 51.87% 42.70 51.87% 2014 23.35 28.35% 66.05 80.22% 2015 8.63 10.47% 74.68 90.69% 2016 7.65 9.31% 82.33 100.00%

Total 82.33 100.00% 82.33 100.00%

Source: Asian Development Bank.

Figure A4.1: Projection and Cumulative Contract Awards and Disbursements

($ million)

Note: The projection at appraisal was based on the project administration manual at appraisal; and the disbursement projection was revised on 30 March 2016 with reflecting the actual disbursement records. Source: Asian Development Bank.

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015 2016

Cumulative Disbursements (Projection at Appraisal)

Cumulative Disbursements (Actual)

Appendix 5 19

CONTRACT AWARDS OF ADB LOAN PROCEEDS

Table A5.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds

($ million) Annual Contract Awards Cumulative Contract Awards

Year Amount

($ million) % of Total Amount

($ million) % of Total 2013 76.61 100.00% 76.61 100.00%

Total 76.61 100.00% 76.61 100.00%

Source: Asian Development Bank.

Figure A5.1: Projection and Cumulative Contract Awards of ADB Loan Proceeds

($ million)

Note: The projection at appraisal was based on the project administration manual at appraisal; and there was no record on changes in the projection of the contract award until the project completion. Source: Asian Development Bank.

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015 2016

Contract Award (Projection at Appraisal)

Contract Award (Actual)

20 Appendix 6

CHRONOLOGY OF MAJOR EVENTS Date Event

2011

29 March Consultation mission fielded; public consultation with local stakeholders held. 24 June Concept paper approved. 6 July Management review meeting held. 13–19 July Consultation mission fielded. 6–15 August Consultation mission (safeguards) fielded. 4–11 October Consultation mission fielded. 26 October Staff review meeting held. 28 October– 9 November

Loan negotiations conducted between ADB and Ministry of Finance.

7 December Loan approved.

2012

9 January First listing in ADBBO approved. 9–16 February Consultation mission fielded. 19 April Invitation for bids for civil works posted on ADB and MOTC websites. 19 June Loan agreement signed. 17 August Extension of loan effectiveness deadline approved. 25 September– 8 October

Inception mission fielded.

26 October Award of civil works contract approved. 20 December Second request for extension of loan effectiveness deadline approved.

2013

28 February Loan effectiveness declared. 29 March Civil works contracts signed. 3–12 April Review mission fielded. 3–11 June Review mission fielded. 15–19 July Review (social safeguards) mission fielded. 7 August Notice to commencement issued to contractor. 21–30 October Review mission fielded. 19 November VO1 for civil works contract approved.

2014

5–7 March Special project administration (social safeguards) mission fielded. 6 March Round-table meeting with NGO Aarhus Committee for Kazakhstan held. 3 July APFS for FY2013 accepted. 6 August Executing agency changed from MOTC to MID. 29 September–4 October

Midterm review mission fielded.

10 October VO2 for civil works contract approved.

2015

15 January VO3 for civil works contract approved. 2–6 March Review mission fielded. 25–30 May Review mission fielded. 18 June Request for extending loan closing date from 30 June 2015 to 31 December 2015

received. 30 June Loan closing date extension approved. 10 July APFS for FY2014 accepted. 12–23 October Review mission fielded. 7 November Taking-Over Certificate issued. 27 November Request for extension of contractor’s contract completion date approved.

Appendix 6 21

Date Event

4 December Partial cancellation of loan proceeds of $10 million approved.

2016

26 February Request for applying price adjustment to civil works contract for the entire construction period approved.

19 April VOs 4 and 5 for civil works contract adjusting actual quantity requirements and price adjustment due to price escalation approved.

28 April Loan account closed with cancellation of undisbursed balance of $2.67 million. 17 August APFS for FY2015 accepted.

2017

18 August APFS for FY2016 accepted.

2018

18–25 April Project completion review mission fielded. ADB = Asian Development Bank; ADBBO = ADB Business Opportunities; APFS = audited project financial statement; FY = financial year of Kazakhstan; MID = Ministry of Investments and Development; MOF = Ministry of Finance; MOTC = Ministry of Transport and Communications; NGO = nongovernment organization; VO = variation order for civil works contract Source: Asian Development Bank.

22 Appendix 7

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Loan

Agreement

Status of Compliance

1. (a) The Borrower shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development practices.

Section 4.01 Complied with.

(b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to the Loan Agreement.

Complied with.

2. The Borrower shall make available promptly as needed, the funds, facilities, services, land and other resources, as required, in addition to the proceeds of the Loan, for the carrying out of the Project and for the operation and maintenance of the Project facilities.


3. (a) Whenever applicable, in the carrying out of the Project, the Borrower shall cause competent and qualified consultants and contractors, acceptable to ADB to be employed to an extent and upon terms and conditions satisfactory to the Borrower and ADB.


4. (b) The Borrower shall cause the Project to be carried out in accordance with plans, designs, specifications, work schedules and construction methods acceptable to the Borrower and ADB, as applicable. The Borrower shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, designs, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.


5. The Borrower shall ensure that the activities of the departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.


6. (a) 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 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’


Appendix 7 23


Agreement


opinion on the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement), 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.

7. (b) The Borrow shall enable ADB, upon ADB’s request, to discuss the Borrower’s financial statements for the project and its financial affairs related to the Project with the auditors appointed by the Borrower pursuant to subsection (a) hereinabove, and shall authorize and require any representative of such auditors to participate, during such audits, in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree.

Complied with.

8. The Borrower shall enable ADB’s representatives to inspect the Project, the Works and any relevant records and documents.


9. The Borrower shall ensure that any facilities relevant to the project are operated, maintained and repaired in accordance with sound applicable environmental, technical, financial, business, development, operational and maintenance practices.


Implementation Arrangements

10. The Borrower and MOTC shall ensure that the Project is implemented in accordance with the detailed arrangements set forth in the PAM. Any subsequent change to the PAM shall become effective only after approval of such change by the Borrower (through the MOTC) and ADB. In the event of any discrepancy between the PAM and this Loan Agreement, the provisions of this Loan Agreement shall prevail.

Schedule 5, para. 1

Complied with.

Environment

11. The Borrower shall cause MOTC to ensure that the preparation, design, construction, implementation, operation and decommissioning of the Project comply with (a) all applicable laws and regulations of the Borrower relating to environment, health and safety; (b) the Environment Safeguards; and (c) all measures and requirements set forth in the EIA, the environmental management plan (EMP), and any corrective or preventive actions set forth in a Safeguards Monitoring Report. The Borrower shall cause MOTC to submit to ADB an updated EMP prior to initiation of Works.

Schedule 5, para. 2

Complied with.

24 Appendix 7


Agreement


Land Acquisition and Involuntary Resettlement 12. The Borrower shall cause MOTC to ensure that

(a) all land and all right-of-way required for the Project are made available to the Works contractor in accordance with the schedule agreed under the related Works contract; and

(b) all land acquisition and resettlement activities are implemented in compliance with (i) all applicable laws and regulations of the Borrower relating to land acquisition and involuntary resettlement; and (ii) the Involuntary Resettlement Safeguards, as set forth in the measures and requirements of the land acquisition and resettlement plan (LARP), and any corrective or preventive actions set forth in the Safeguards Monitoring Report.

Schedule 5, para. 3

(a)–(b) Complied with.

13. Without limiting the application of the Involuntary Resettlement Safeguards or the LARP, the Borrower shall cause MOTC to ensure that no physical or economic displacement takes place in connection with the Project until: (a) the Borrower has obtained ADB's clearance

for the final LARP and this LARP has been disclosed to affected people;

(b) compensation and other entitlements have been provided to affected people in accordance with the LARP;

(c) a comprehensive income and livelihood restoration program has been established in accordance with the LARP; and

(d) the Borrower has submitted to ADB a report, validated by an external expert appointed by the Borrower and ADB, on the fulfillment of the requirements of this paragraph, and ADB has cleared such report.

Schedule 5, para. 4

(a)–(d) Complied with.

Indigenous Peoples

14. The Borrower shall cause MOTC to ensure that the Project does not cause any impact on indigenous peoples within the meaning of the SPS. If there is such an impact, the Borrower shall cause MOTC to prepare, disclose and implement an indigenous peoples plan in accordance with all applicable laws and regulations of the Borrower relating to indigenous peoples and the SPS.

Schedule 5, para. 5

Not Applicable. There were no people falling into the definition of “indigenous peoples” according to ADB SPS (2009) throughout implementation.

Human and Financial Resources to Implement Safeguards Requirements

15. The Borrower shall cause MOTC to make available necessary budgetary and human resources to fully implement the EMP and the LARP.

Schedule 5, para. 6

Complied with.

Safeguards – Related Provisions in Bidding Documents and Works Contracts

16. The Borrower shall cause MOTC to ensure that all bidding documents and contracts for Works

Schedule 5, para. 7

(a)–(c) Complied with.

Appendix 7 25


Agreement


contain provisions that require contractors to: (a) comply with the measures relevant to the

contractor set forth in the EIA, the EMP and the LARP, and any corrective or preventive actions set forth in a Safeguards Monitoring Report;

(b) make available a budget for all such environmental and social measures; and

(c) provide MOTC with a written notice of any unanticipated environmental, resettlement (including temporary land acquisition and resettlement activities, and agreements made with affected people on these activities) or indigenous peoples risks or impacts that arise during construction, implementation or operation of the Project that were not considered in the EIA, the EMP and the LARP.

Conditions for Award of Contract

17. The Borrower shall not award any Works contract which involves environment impact until (a) the EIA has been approved by the appropriate authority of the Borrower, and (b) the Borrower has incorporated relevant provisions from the EMP into the Works contract.

Schedule 4, para. 5

Complied with. EIA was approved in 2011, prior to awarding the civil works contract, and relevant provisions was included into the civil works contract.

Safeguards Monitoring and Reporting

18. The Borrower shall cause MOTC to do the following: (a) submit to ADB Safeguards Monitoring

Reports (i) semi-annually during construction and (ii) annually during operation, and disclose relevant information from such reports to affected persons promptly upon submission;

(b) if any unanticipated environmental and/or social risks and impacts arise during construction, implementation or operation of the Project that were not considered in the EIA, the EMP and the LARP, promptly inform ADB of the occurrence of such risks or impacts, with detailed description of the event and proposed corrective action plan;

(c) no later than the date of award of Works contract, engage qualified and experienced external experts (such external experts to be funded under the project management budget of Loan 2503 between the Borrower and ADB) under a selection process and terms of reference acceptable to ADB, to verify information produced through the Project monitoring process, and facilitate the carrying out of any verification activities by such external experts; and

Schedule 5, para. 8

(a) Partly complied with. Social safeguards monitoring reports for 2015 were not submitted. (b) Complied with. ADB was timely informed about unanticipated environmental impact–unauthorized dumping of solid waste near the alignment, and the corrective action plan was prepared. (c) Complied with. An independent expert was engaged in 2012 to examine the compliance on aspects related to land acquisition and resettlements. His findings were summarized in a compliance monitoring report, which was disclosed to ADB website.

26 Appendix 7


Agreement


(d) report any actual or potential breach of compliance with the measures and requirements set forth in the EMP or the LARP promptly after becoming aware of the breach.

(d) Partly complied with. Safeguards monitoring reports for 2015 were not submitted.

Conditions for Award of Contract

19. The Borrower shall not award any Works contract which involves involuntary resettlement impact until the Borrower has prepared and submitted to ADB the final LARP based on the Project's detailed design, and obtained ADB's clearance of such LARP.

Schedule 4, para. 6

Complied with. The final LARP was uploaded to ADB’s website in 2011.

Prohibited List of Investments

20. The Borrower shall ensure that no proceeds of the Loan are used to finance any activity in the list of prohibited investment activities provided in Appendix 5 of the SPS.

Schedule 5, para. 9

Complied with.

Labor Standards and Gender

21. The Borrower shall cause MOTC to ensure that the Works contracts incorporate provisions to the effect that contractors (a) shall comply with applicable labor laws and regulations of the Borrower, and incorporate applicable workplace occupational safety norms; (b) shall not differentiate payment between men and women for work of equal value; (c) shall not employ child labor in the construction and maintenance activities; (d) to the extent possible, shall maximize employment of local poor and disadvantaged persons for project construction purposes, provided that the requirements for job and efficiency are adequately met; and (e) shall encourage employment of skilled and unskilled women laborers.

Schedule 5, para. 10

(a)–(e) Complied with.

Health

22. The Borrower shall cause MOTC to ensure that information on the risks of sexually transmitted diseases, including human immunodeficiency virus/acquired immunodeficiency syndrome, is disseminated to the employees of the Works contractors under the Project and to members of the local communities surrounding the Project.


Complied with.

Appendix 7 27


Agreement


Counterpart Support

23. Without limiting the generality of Section 4.02 of this Loan Agreement, the Borrower shall make available all counterpart funds required for timely and effective implementation of the Project through annual budget allocations to MOTC, and ensure that such funds are released to MOTC in a timely manner. The Borrower shall cause MOTC to ensure that it includes the updated funding requirements for implementation of the Project in its annual development programs. The Borrower covenants and agrees (i) to fund any cost overruns incurred in connection with the Project and (ii) that it shall not request ADB to provide any additional financing for cost overruns incurred in connection with the Project.


Complied with.

Construction Quality

24. The Borrower shall cause MOTC to ensure that the Project is carried out in accordance with applicable technical specifications and design, and that the construction supervision, quality control and project management are performed in accordance with applicable standards and best international practices.


Complied with.

Prevention of Illegal Trafficking

25. The Borrower shall ensure that concrete and rigorous legally permissible measures to detect and prevent illegal trafficking of humans, wildlife, endangered species, and controlled substances on the Project Road are fully implemented.


Complied with.

Governance and Anticorruption

26. The Borrower and MOTC shall (a) comply with ADB's Anticorruption Policy (1998, as amended to date) and acknowledge that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the Project; and (b) cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation.


(a)–(b) Complied with.

27. The Borrower shall cause MOTC to ensure that anticorruption provisions acceptable to ADB are included in all bidding documents and contracts, including provisions specifying the right of ADB to audit and examine the records and accounts of all contractors, suppliers, consultants, and other service providers as they relate to the Project.


Complied with.

28 Appendix 8

CONTRACT PACKAGE

Contractor/

Consultant

Procurement

Method

Bidding

Procedure

Accepted Contract

Amount Value

Variations % Price

Escalation

% Final

Contract Amount

Contract

Period

(Mos.)

Completion

Date

KCC Engineering and Construction

ICB 1S1E 14,800,238,556.16 1) 403,589,760.00 2.73 1) 1,255,025,419.31 8.48 17,920,766,485.11 51 7 Nov 2015 2) -66,638,009.57 -0.45 2) 238,506,874.68 1.61 3) 523,970,502.97 3.54

4) 1,040,015,573.11 7.03 5) 273,942,191.54 -1.85

ICB = international competitive bidding; 1S1E = Single-Stage: One-Envelope bidding procedure.

Appendix 9 29

PROJECT IMPLEMENTATION SCHEDULE

■: Appraisal; ■: Planned. Source: Asian Development Bank.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Board approval

Loan effectiveness

Preparation of bidding documents

Bidding for civil works

Mobilization of contractor

Civil works

Mid-term review

Project completion

Loan account closing

20162011 2012 2013 2014 2015

30 Appendix 10

PROJECT ORGANIZATIONAL STRUCTURE

a The Government’s reorganization on 6 August 2014 replaced the Ministry of Transport and Communications

(MOTC) with the Ministry of Investment and Development (MID), which absorbed the functions of MOTC. b Until the reorganization of MOTC to MID, the Zhambyl Oblast Department of the Committee of Roads was

responsible for daily oversight. After the reorganization, ZhambylZholLaboratori took over the responsibility. c The project management consultant engaged under Project 1 continued its responsibility for the project, aside from

the four project under the multitranche financing facility (MFF). d The construction supervision consultant engaged under Loan 2734-KAZ (Tranche 4 of the MFF) worked for the

project.

Appendix 11 31

ECONOMIC REEVALUATION A. General

1. Under the project, (i) 7.7 km of the highway road was upgraded from category-II to category-IB with four-lane cement concrete pavement (hereinafter called as “highway section”); and (ii) 56.7 km of new Taraz bypass road was constructed to category-II with two-lane asphalt concrete pavement (hereinafter called as “new bypass section”). Upon completion, the project has significantly improved the transport condition of the highway section, which is one important section of the CAREC Transport Corridor 1. During the ADB project completion review mission, economic reevaluation of the project was carried out in accordance with ADB’s Guidelines for the Economic Analysis of Projects.1 The economic reevaluation used a similar methodology as that at appraisal and the latest data provided from the Committee of Roads (COR). In the economic reevaluation, the actual traffic counts were analyzed and the traffic forecast for future years was adjusted accordingly. Economic benefits were calculated by comparing the “with-project” and “without-project” cases. In the “without-project” case, it was assumed that the original state of the roads would be retained. In the “with-project” case, the bypass section was newly constructed, and the highway section were rehabilitated so that vehicles could drive at faster speeds with lower operating costs and less travel time. Consequently, the economic internal rate of return (EIRR) was calculated for the project road and the economic viability of the project was reassessed. B. Traffic Analysis and Forecast

2. The actual traffic counts on the project roads in 2016 and 2017 were provided by COR, and the annual average traffic counts on the highway section was 7,555 in 2016 and 7,850 in 2017 respectively. A9.1 presents the estimated traffic counts each project road section in 2016 and 2017 respectively.

Table A11.1. Traffic Count (annual average daily traffic, in number of vehicles)

Passenger Vehicle Goods Vehicle

Total Car Pickup

Mini Bus

Small Bus

Large Bus

2-Axle Truck

3-Axle Truck

>3-Axle Truck

Base line in 2010 (estimates)

4,325 159 540 53 386 209 204 448 6,324

Actual traffic in 2016 Highway section 5,467 201 683 212 163 339 96 394 7,555 New bypass section 1,575 58 197 172 136 226 84 303 2,751

Actual traffic in 2017 Highway section 5,506 202 687 245 186 435 120 469 7,850

New bypass section 1,586 58 198 199 155 290 105 361 2,952 Sources: Asian Development Bank, and the Committee of Roads under the Ministry of Investment and Development

estimate.

3. In comparing with the base year traffic, the actual traffic on the highway section increased by 3% per year at average in the period of 2010–2016 and 3.9% per year in 2017. Under the government regulation,2 the through traffic, approximately 38% of the total traffic on the highway section, now take the new bypass section, especially the freight trucks (about 74% of the

1 ADB. 2017. Guidelines for the Economic Analysis of Projects. 2 No heavy vehicles are now permitted to enter Taraz City. All heavy trucks and long-distance buses from/to the

highway section are directed to the new bypass road at km 491 and km 536.

32 Appendix 11

truck total). Along with constant increases in trade volumes,3 the fright traffic on the new bypass section present an accelerated growth trend, about 24% in 2017. Considering the recent growth in traffic volumes, the traffic forecast at appraisal was adjusted accordingly as shown in Table A9.2.4 The revised traffic forecast results were used in the economic reevaluation.

Table A11.2. Adjusted Traffic Growth Rate (% per year)

Passenger Vehicle Goods Vehicle

Car Pickup Mini Bus

Small Bus

Large Bus

2-Axle Truck

3-Axle Truck

>3-Axle Truck

2018–2020 6.0% 6.0% 6.0% 8.0% 10.0% 10.0% 10.0% 10.0% 2021–2025 4.0% 4.0% 4.0% 6.0% 5.0% 8.0% 8.0% 8.0% 2026–2030 3.0% 3.0% 3.0% 3.0% 3.0% 5.0% 5.0% 6.0% 2031–2035 2.0% 2.0% 2.0% 2.0% 2.0% 3.0% 3.0% 3.0%

Source: Asian Development Bank estimates.

C. Economic Costs 4. The project costs comprised capital and maintenance costs. Upon completion, the total project cost was KZT18,361 million, equivalent to $97.1 million, which was 21.1% lower than that at appraisal. Further, the actual cost for civil works was KZT18,242 million, 5 equivalent to $96.1 million, 14.2% lower than the one at appraisal ($112 million). The actual annual investment costs in KZT for the project were used in the economic reevaluation, which excluded the tax and duties and the financial charges. The unit maintenance costs provided by COR were used in the analysis, including KZT1.738 million per kilometer per year for routine maintenance and KZT2.375 million for periodical maintenance (mainly for pavement overlay of two-lane roads) respectively. Taking into account the interview results to COR and the Joint-Stock Company KazAvtoZhol during ADB project completion review mission, it was assumed that the routine maintenance cost would increase by 3.0% per year along with the road deterioration and the periodical maintenance would take place in every seven years mainly for re-pavement of the project roads. All of these financial costs for capital and maintenance are in domestic numeraires and in 2018 prices, which were converted into economic costs by using the conversion factors of 0.92 for civil works and 0.81 for maintenance, which were used at appraisal. D. Economic Benefits 5. As at appraisal, the main sources of economic benefits of the project were (i) savings in vehicle operation cost (VOC), and (ii) savings in passenger travel time costs. The benefit of accident cost reduction was not included, because of potential recent increases in traffic accidents on the project roads. 6. The unit VOCs was adopted from a similar project in the project areas, which was adjusted by 2018 price. For the 7.7-km highway section, the VOC savings by comparing the “with-project” and “without-project” cases were estimated at KZT268 for car, KZT497 for small bus,

3 ADB. 2017. Key Indicators for Asia and the Pacific. Manila; and Committee of Statistics, Ministry of National

Economy, Republic of Kazakhstan (http://stat.gov.kz/). 4 At appraisal, it was assumed that the traffic would increase by 4% per year in 2010–2015, and 6% per year

afterward. 5 The project cost at completion included costs paid by the government for the project management consultant and

construction supervision consultant which were engaged under the MFF and the one paid to acquire lands for construction, which were not counted at appraisal.

Appendix 11 33

KZT978 for large bus, KZT525 for light truck, and KZT2,340 for truck trailer respectively. For the new bypass section, the VOC savings by comparing with using the existing route passing through Taraz City (45.0 km) or using the new bypass road (56.7 km) were estimated at KZT168 for car, KZT847 for small bus, KZT1,584 for large bus, KZT761 for light truck, and KZT3,556 for truck trailer respectively. 7. The passengers’ travel time cost savings were recalculated by comparing the “with-project” and “without-project” cases. According to the designed speeds and observations, passenger vehicle speeds were assumed at average (i) 80–100 kilometer per hour for the “with-project” case and 50–60 km per hour for the “without-project” case on the highway section; and (ii) 80–90 km per hour on the new bypass section in comparing with 40–50 km per hour on the old bypass road.6 The unit passenger time cost was derived from the national average income per capita, provided by COR, at average KZT297 per hour. 7 The passenger time cost savings were calculated by different types of passenger vehicles. Other factors considered in the calculation of passenger time cost savings include average vehicle loads, percentage of work-related trips, time costs by different road users, and travel speeds for different types of passenger vehicles. The generated traffic was assumed to be 20% of the total traffic, for which 50% of the benefits was considered. E. Economic Reevaluation and Sensitivity Test 8. Based on above assumptions and estimations on the economic costs and benefits, the economic internal rate of return (EIRR) was recalculated at 15.4% for the whole project. The calculation covers 23-year period, including four-year capital investments (2013–2016) and 20-year operation (2016–2035) with one-year overlap. The project roads were designed to have 20-year life span, 10% residual value was considered in the calculation and added to the last year of calculation. In comparing with that at appraisal (13.5%), the recalculated EIRR was higher, which was mainly caused by higher traffic increase rates for future years and some parameters used. The recalculated EIRR is above the ADB threshold of 12% at appraisal. Therefore, the project is considered to remain economically viable. 9. The EIRR was subjected to sensitivity analysis to test different scenarios of costs and benefits. At the worst case of a 20% maintenance cost increase combined with a 20% benefit reduction, the EIRR would be 12.4% for the project. The sensitivity analysis also showed that the EIRR was very sensitive to changes in benefits. This indicates a need for continuous efforts to increase socioeconomic benefits to road users, including local residents, and in surrounding regions, for instance, promoting economic platforms along the project roads for helping interregional transport and trade and fostering service sectors for road users including transport services. Those would generate employment opportunities for local residents and increase/diversify their incomes, generating more socioeconomic benefits in more sustainable manners. The result of the sensitivity tests is presented in A9.3. The cost and benefit streams of the EIRR calculation is in Table A9.4.

6 The design speed for the highway section (Category IB) is 110 km per hour, while 90 km per hour for the new

bypass section (Category II). 7 The unit passenger time cost was calculated using the 2017 annual average income of KZT570,743 per capita,

provided by COR, which was extrapolated to 2018.

34 Appendix 11

Table A11.3. Sensitivity Test Case Tests

EIRR (%) ENPV@12% (KZT million) Maintenance.

Cost Benefits

Base Case

15.4% 10,296.3

Changes (+/-) +10% 15.4% 10,128.6

+20% 15.3% 9,960.9

+10% 16.7% 14,708.1

+20% 18.0% 19,119.9

-10% 14.0% 5,884.5

-20% 12.5% 1,472.7

+10% -10% 14.0% 5,716.8

+20% -20% 12.4% 1,137.3

Switching Value 610% -24% 12.00% EIRR = economic internal rate of return, ENPV = economic net present value. Source: Asian Development Bank estimates.

Appendix 11 35

Table A11.4. Economic Reevaluation (KZT million)

Costs Benefits

Net Benefit

Net Present Value

Capital Cost

Maint enance

Cost Total

VOC saving Time Cost saving

Total

High way

New Bypass

High way

New Bypass

2013 9,021.3

9,021.3

-9,021.3 -15,898.6

2014 5,487.7

5,487.7

-5,487.7 -8,635.0

2015 2,560.1

2,560.1

-2,560.1 -3,596.8

2016 3,438.5

3,438.5 1,096.8 699.3 285.2 670.4 2,751.7 -686.8 -861.5

2017

1,200.8 809.5 291.6 701.6 3,003.5 3,003.5 3,363.9

2018

90.6 90.6 1,296.0 883.9 310.5 751.7 3,242.1 3,151.4 3,151.4

2019

93.4 93.4 1,399.3 965.3 330.5 805.6 3,500.7 3,407.4 3,042.3

2020

96.2 96.2 1,511.2 1,054.5 352.0 863.6 3,781.3 3,685.1 2,937.7

2021

99.1 99.1 1,600.1 1,127.7 366.6 901.6 3,995.9 3,896.9 2,773.7

2022

102.0 102.0 1,694.7 1,206.2 381.9 941.2 4,224.0 4,122.0 2,619.6

2023 1,083.0 90.6 1,173.6 1,795.5 1,290.6 397.8 982.7 4,466.5 3,292.9 1,868.5

2024

93.4 93.4 1,902.9 1,381.1 414.4 1,026.0 4,724.3 4,631.0 2,346.2

2025

96.2 96.2 2,017.4 1,478.3 431.7 1,071.2 4,998.5 4,902.4 2,217.6

2026

99.1 99.1 2,104.6 1,551.9 444.6 1,103.3 5,204.5 5,105.4 2,062.0

2027

102.0 102.0 2,195.9 1,629.5 458.0 1,136.4 5,419.8 5,317.8 1,917.7

2028

105.1 105.1 2,291.7 1,711.3 471.7 1,170.5 5,645.1 5,540.0 1,783.7

2029

108.2 108.2 2,392.0 1,797.4 485.8 1,205.6 5,880.8 5,772.6 1,659.5

2030 1,083.0 90.6 1,173.6 2,497.2 1,888.1 500.4 1,241.8 6,127.5 4,953.8 1,271.5

2031

93.4 93.4 2,560.0 1,939.8 510.4 1,266.6 6,276.8 6,183.5 1,417.1

2032

96.2 96.2 2,624.5 1,992.9 520.6 1,292.0 6,430.0 6,333.8 1,296.0

2033

99.1 99.1 2,690.7 2,047.5 531.0 1,317.8 6,587.0 6,488.0 1,185.3

2034

102.0 102.0 2,758.6 2,103.6 541.7 1,344.2 6,748.0 6,646.0 1,084.1

2035 -2,050.8 105.1 -1,945.7 2,828.3 2,161.4 552.5 1,371.0 6,913.2 8,858.8 1,290.2

Economic Net Present Value (ENPV): 10,296.3

Internal Rate of Return (EIRR): 15.4%

Discount Rate: 12%

VOC = vehicle operation cost Source: Asian Development Bank estimates.

.

36 Appendix 12

PROJECT OVERALL ASSESSMENT

Criterion Weight (%) Assessment Scorea Weighted Rating

Relevance 25 Relevant 2 0.50 Effectiveness 25 Effective 2 0.50 Efficiency 25 Efficient 2 0.50 Sustainability 25 Likely to be Sustainable 2 0.50 Overall Assessmentb Successful 2.00 a Rating range: 3 = highly relevant/effective/efficient/most likely; 2 = relevant/effective/efficient/likely; 1 = less than

relevant/effective/efficient/less likely; 0 = irrelevant/ineffective/inefficient/unlikely. b Highly successful: Overall weighted average is ≥ 2.7; Successful: overall weighted average is ≥1.6 and < 2.7;

Less than successful: overall weighted average is ≥ 0.8 and < 1.6; Unsuccessful: overall weighted average is < 0.8. Sources: ADB. 2016. Guidelines for the Evaluation for Public Sector Operations. Manila.

Appendix 13 37

CONTRIBUTION TO THE ADB RESULTS FRAMEWORK No.

Results Framework

Indicatorsa Target Achieved Methods or Comments

1 Use of roads built or upgraded

(average daily vehicle-kilometers in the first full year of operation)b

7,000 7,555 The annual average daily vehicle on the highway section was 7,555 in 2016, the first year after the entire project roads opened.

2 Roads built or upgraded (km) 65 64.4 Total km-length achieved almost as originally designed, based on the implementation agency’s completion report.

km = kilometer. a These are the standard transport sector Level 2 indicators as defined in ADB’s Results Framework: Interim Update

to Align with the Midterm Review of Strategy 2020 (2014). b The “use of roads built or upgraded” indicator was not included in the approved report and recommendation of the

President. This figure was estimated at completion. Sources: Asian Development Bank, and the Committee of Roads under the Ministry of Investment and Development.