Document ofThe World Bank

Report No: 20458-KG

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED CREDIT

IN THE AMOUNT OF SDR 16.7 MILLION (US$22.0 MILLION EQUIVALENT)

TO THE

KYRGYZ REPUBLIC

FOR A

KYRGYZ URBAN TRANSPORT PROJECT

July 26, 2000

Infrastructure Sector UnitCentral Asia Country UnitEurope and Central Asia Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective)

Currency Unit = Som1 Som = US$ 0.0213US$ 1 = 47 Som

FISCAL YEAR2000

ABBREVIATIONS AND ACRONYMS

DCCC Department of City Capital ConstructionDHPUS Department of Housing and Public Utilities ServicesEMP Environmental Management PlanERRs Economic rates of returnHDM-3 Highway Design and Maintenance ModelIDA International Development AssociationMoTC Ministry of Transport and CommunicationsNPVs Net present valuesPIU Project Implementation UnitPTAs Passenger Transport AgenciesRF National Road FundRMD Roads Management DepartmentTCC Transport Coordination Committee (TCC)

Vice President: Johannes F. Linn, ECACountry Director: Kiyoshi Kodera, ECCO8

Sector Director/Manager: Ricardo A. Halperin / Eva Molnar, ECSINProgram Team Leader/TaskTeain Leader: Richard C. Podolske / Kavita Sethi, ECSIN

KYRGYZ REPUBLICKYRGYZ URBAN TRANSPORT PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 22. Main sector issues and Government strategy 23. Sector issues to be addressed by the project and strategic choices 9

C. Project Description Summary

1. Project components 102. Key policy and institutional reforms supported by the project 113. Benefits and target population 124. Institutional and implementation arrangements 12

D. Project Rationale

1. Project alternatives considered and reasons for rejection 122. Major related projects financed by the Bank and other development agencies 143. Lessons learned and reflected in proposed project design 154. Indications of borrower commitment and ownership 165. Value added of Bank support in this project 16

E. Summary Project Analysis

1. Economic 172. Financial 173. Technical 184. Institutional 185. Environmental 206. Social 217. Safeguard Policies 23

F. Sustainability and Risks

1. Sustainability 232. Critical risks 233. Possible controversial aspects 25

G. Main Loan Conditions

1. Effectiveness Condition 252. Other 25

H. Readiness for Implementation 28

I. Compliance with Bank Policies 28

Annexes

Annex 1: Project Design Summary 29Annex 2: Project Description 32Annex 3: Estimated Project Costs 34Annex 4: Cost Benefit Analysis Summary 35Annex 5: Financial Summary 37Annex 6: Procurement and Disbursement Arrangements 38Annex 7: Project Processing Schedule 49Annex 8: Documents in the Project File 50Annex 9: Statement of Loans and Credits 51Annex 10: Country at a Glance 53Annex 11: Statistical Tables 55Annex 12: Urban Passenger Transport Action Plan 64

MAP(S)IBRD 30895

KYRGYZ REPUBLIC

Kyrgyz Urban Transport Project

Project Appraisal Document

Europe and Central Asia RegionECSIN

Date: July 26, 2000 Team Leader: Richard C. PodolskeCountry Manager/Director: Kiyoshi Kodera Sector Manager/Director: Ricardo A. HalperinProject ID: P050719 Sector(s): TU - Urban TransportLending Instrument: Specific Investment Loan (SIL) Theme(s):

Poverty Targeted Intervention: N

Project Financing Datai Loan 1 Credit El Grant El Guarantee O Other (Specify)

For Loans/Credits/Others:Amount (USSm): 22

Proposed Terms:Grace period (years): 10 Years to maturity: 40Commitment fee: 0.5% Service charge: 0.75%

Financing Pan: Source Local Foreign ToulGOVERNMvIENT 0.00 0.00 0.00IDA 4.33 17.67 22.00CENTRAL GOVERNMENT OF BORROWING COUNTRY 2.22 0.00 2.22

Total: 6.55 17.67 24.22

Borrower: KYRGYZ REPUBLICResponsible agency: MINISTRY OF TRANSPORT AND COMMUNICATIONS

Contact Person: J. Satybaldiev, Minister of Transportation and CommunicationsTel: Fax: Email:

Other Agency(ies):Project Implementation Unit (PII)

Contact Person: Anatoly Kan, Head, Project hnplementation UnitTel: 996-312-21 37 25 Fax: 996-312-6642 81 Email: urbanpiu@infotel.kg

Estimated disbursements (Bank FYIUS$M:FY 2001 2002 2003 20

Annual 4.7 8.5 8.7 0.1Cumulative 4.7 13.2 21.9 22.0

Project Implementation period: 4 yearsExpected effectiveness date: 09/15/2000 Expected closing date: 05/31/2004

A. Project Development Objective

1. Project development objective: (see Annex 1)

The ultimate objective is to provide sustainable, reliable, and affordable access to mobility for thepopulations of the cities of Bishkek, Osh, and Jalalabad. The project will initiate actions in this direction by(i) restoring selected urban roads to acceptable service standards, (ii) taking the first steps to develop areliable source of financing for urban roads maintenance and rehabilitation.

2. Key performance indicators: (see Annex I)

* Reduction of vehicle operating costs for all vehicles* Increased expenditures for urban road maintenance and rehabilitation* Inproved quality and efficiency of expenditures for urban road maintenance and rehabilitation* Staff trained in maintenance and use of Road Management Systems

B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex I)Document number: 17641-KG Date of latest CAS discussion: 05/07/98

The strategic objectives of the Bank's assistance in the Kyrgyz Republic are to attain sustained growth, toreduce poverty, to improve governance and to strengthen public finances. The Bank's first priority is to helpattain sustained growth through removal of policy and regulatory impediments to private sector activity.The second priority is to assist in reducing poverty through specific investments in basic social services,including health, rural water supply, and public transportation, improvements to the social protectionsystem, and support for rural infrastructure projects. Support for government wide procurement, audit andbudget reforms, deregulation and enhancement of the competitive environment, along with strengthenedpublic finances, are expected to contribute to both the growth and poverty reduction objectives. The Bankstrategy also envisages assistance for increasing revenues and improving efficiency in expendituremanagement to reduce dependency on external budget support operations.

This project is fully consistent with the Bank's overall strategy and will focus on the priorities listed above,in particular: (i) it supports the objective of sustained economic growth by promoting privatization of urbanroad works construction activity and through assisting in the opening up of multi-operator provision ofpublic transport, (ii) it supports the objective of irnproving conditions for the urban poor (constitutingabout 50% of the population in the project cities) by investments in the now badly deteriorated urban roadnetworks which will reduce the cost of urban mobility and consequently facilitate access to employmentand basic services, and (iii) it supports the CAS objective of strengthening public finances by pilotingmunicipal finance reforms, focusing first on the urban roads sector.

2. Main sector issues and Government strategy:

The Kyrgyz Government's development strategies are in line with the Bank's assistance strategy as outlinedabove, and provide a relevant framework to address the main urban transport sector issues which aredescribed below.

Deterioration of Urban Road Infrastructure. The condition of urban roads in the proposed project cities isvery poor, due largely to lack of investments in maintenance and rehabilitation because of insufficientfunds, at the national and city level. This situation has markedly deteriorated since the collapse of theSoviet Union. Street surfaces tend to be heavily cracked and uneven, coupled with inadequate repair of the

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many potholes which develop as a result of the frequent freeze/thaw cycles. Bishkek, the capital, has thelargest road network of 730 km, of which nearly 900/O are paved. Osh and Jalal-Abad have road networksof 320 and 330 km respectively, with 80% and 70% paved surfaces. With an estimated population of 1million, Bishkek dominates Osh and Jalal-Abad which house approximately 450,000 and 100,000 people

respectively. Each city is responsible for the maintenance and management of its road system, andJalal-Abad is also responsible for several km of streets in neighboring municipalities, which could account

for the high street length per capita.

The lack of routine maintenance and deteriorating drainage conditions have resulted in serious worsening ofroad surface and pavement conditions. Many roads now need or will soon need rehabilitation or even

complete reconstruction. Inclusion of substantial amounts of routine maintenance is needed in an effort tocatch up on the lack of crack filling and pothole repairs. Deterioration has been particularly severe inBishkek, which has much higher traffic volumes than Osh or Jalal-Abad, typically in excess of 20,000vehicles per day (vpd) on the arterials as compared with volumes in the other two cities in the order of5,000 vpd or less. Most streets are in 'poor' to 'bad' condition.

Institutions and Governance Relationships. Responsibility for the maintenance and mnanagement of urbanroads rests with road departments within the municipal corporations of the cities. All three project cityadministrations have evolved from the pre-independence style where implementation responsibilities of eachcity functional division were fulfilled under a "contract' with "Meenet", a city agency which provided mostworks and services. All cities have begun a transformation towards a more transparent "client-contractor"relationship, and towards increasing the competition for the provision of works and services. The progressof each city varies somewhat and today urban roads are managed as follows.

Bishkek. Until early 1999, municipal road construction and maintenance were primarily the responsibilityof Meenet, a city agency of some 20 organizations, with responsibilities in addition to roads for buildingrepairs, public heating, water supply, sewage and sanitation, and street lighting among others. In March1999, the Departnent of Urban Roads Parking Lots and Garages, more commonly known as the RoadsDepartment, was carved out of the Bishkek Meenet by combining the Road Construction Unit, the RoadRepair and Construction Unit, and four district maintenance units, with a total staff of 466. This newdepartment has a mandate to be functionally and financially independent. Other entities involved inroadworks include the Department of City Capital Construction (DCCC), which supervises contracts forall capital construction, including new or reconstructed roads. There are also at least five joint stockcompanies registered with the municipality and potentially eligible to compete for road maintenance andrehabilitation works.

More reform is necessary to increase efficiency within the sector. While the new narrower focus of theRoads (Construction) Department is appropriate, additional steps are required to separate the planning,budgeting and administrative functions from road construction which should be handled by the privatesector. As of January 2000 a new Roads Management Department (RMD) was established within theDCCC, and staffed by four staff members charged with the responsibility of planning, budgeting, andmanaging roads within the municipality. In order to complete the separation of the management andimplementation functions, the municipality needs to complete the divestiture of the Roads (Construction)Departrnent by severing it from municipal control and financial support. While routine maintenance mightbe retained in-house, steps should be taken to sell off major pieces of construction equipment required onlyfor capital construction projects. Bishkek should also divest its asphalt and concrete plants currently underits direct administration.

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Osh. Similar to the developments in Bishkek, the responsibility for road maintenance and rehabilitationrested within the Department of Roads and Public Utilities in Osh. The Osh Department of Roads andPublic Utilities (DRPU) has a staff of 419 and controls two asphalt plants and three laboratories owned bythe municipality. The laboratories are under-equipped and have only basic testing equipment. A new RoadsManagement Department (RMD) was established in January 2000. The RMDs mandate is road worksplanning, budgeting, and management of maintenance and rehabilitation to be completed throughcompetitive tendering. The RMD is also responsible for contract supervision, All construction andmaintenance capabilities and equipment need to be divested from the municipal organization, so the RMDcan focus on the road program management. A lot of effort has already been directed toward this end, butadditional steps are necessary to ensure a transparent competitive environment. At least six localcontractors (oint stock companies) have demonstrated local maintenance and construction interest andcapabilities. For bigger contracts there is competition from companies in neighboring Uzbekistan.

Jalalabad. Experience in Jalalabad mirrored Osh, although somewhat behind it. Until the establishment ofthe RMD in January 2000 (with the same mandate as Osh), road management and maintenance functionswere the responsibility of the Department of Housing and Public Utilities Services (DHPUS), with a staffof 193. The city does not have any operational quality control laboratories. Jalalabad has two joint stockconstruction companies; however, due to the city's slow payment capacity and the small size of the tenderedcontracts, both companies are reluctant to enter into any more contracts with the city.

Although both Osh and Jalalabad have de facto separated roadwork planning and programming fromexecution of works, contracting practices are in need of improvement. To complete the transition to acommercial market environment the separation, corporatization, and privatization of the cities' maintenanceand construction resources need to be completed.

Urban Roads Finance. Urban roads lack a reliable source of financing. The central government is no longerable to provide the subsidies of the past, and alternate sources of funding have not been secured. The mainchannels available for funding road rehabilitation and maintenance include municipal budgets and aNational Road Fund (directed primarily towards inter-city road networks). These sources have beenconsistently inadequate for even a basic level of routine maintenance.

Municipal Firnances. The financing situation has been aggravated by a weak institutional framework. Thepowers and responsibilities devolved to the municipal level have not been accompanied by commensuraterevenues and taxing authority. Municipalities have constrained taxing authority. At the same time itappears that tax collection is a problem and total revenues could potentially be enhanced throughimprovements in collection practices. The bulk of municipal funds are targeted transfers from the centralgovernment to pay for school and health worker salaries. Municipalities are also allocated a share of theincome tax, but collections in excess of annual targets are, in practice, extracted by the Oblast regionalgoverrnents. Total transfers make up 60% of Bishkek's budget and 70-75% of the Osh and Jalalabadbudgets.

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Municipal Budget Summary, 1998-2000

Total revenues Road Road Road Road(million soms) Expenditures expenditures expenditures expenditures

(net of National /capita, soms 1km, /km, US $Road Fund soms (S0soms/$)transfers)

(million soms)Bishkek 1998 536.5 4.7 4 7230.8 144.6

1999 602.8 13.6 12 20923 418.52000 677.7 31 28 47692 953.8

Osh 1998 79.0 0.6 1.7 2352.9 47.11999 92.6 0.8 2 3216 64.3

2000 89.3 na na na na

Jalalabad 1998 33.2 0.7 5.8 3043 60.91999 37.7 0.5 4 2174 43.52000 42.6 na na na na

* Bishkek has Oblast-level status and associated revenue/expenditure responsibilities.Source: March 2000 mission findings.

The primary locally-raised source of funds is a 2% sales tax, which in 1998 generated approximately$500,000 in Osh, $120,000 in Jalalabad, and $2.3 million in Bishkek. This rate cannot be altered at thelocal level. The only significant source of budgetary flexibility currently available to a municipality isnon-payment of utility bills for heating, electricity and water provision. All three target cities haveaccumulated large arrears. Furthermore, all three have resorted to ad hoc lotteries, bazaars and festivals toraise cash for road maintenance.

The impacts of inadequate finances on urban road expenditures have been severe. In Bishkek, from 1995 to1997, only 55-60% of planned urgent maintenance was actually carried out. Routine maintenance activitiessuch as crack filling, road marking and maintenance of ditches and drainage were not carried out at all.From the 1994 budget year actual road expenditures in Bishkek fell from 35% of plan to 30% in 1995 toonly 3% in 1996. Annual rehabilitation needs of the Bishkek road network are estimated to be 45km (basedon a 15-20 year road life cycle), but only 4km in 1995 and 1.3km in 1996 were resurfaced. The situationhas been equally bad in Osh and Jalalabad.

More recently, Bishkek spent a little over 2% of its 1999 budget on road works, while Osh and Jalalabadspent approximately 1% in the same year. On a per capita basis, Bishkek spent about 12 soms ($0.24), andOsh and Jalalabad 2 soms ($ 0.04) and 4 soms ($ 0.08) respectively. These figures are extremely low byany comparable international standards. While expenditures for cities around the world vary considerably,it is not unreasonable for expenditures on municipal road systems to account for at least 10% of the totalcity budget. Moreover, it would be reasonable even for a low income country to allocate about 50,000 somsor $1,000 per kilometer as a low target budget for urban road maintenance. Using these rough indicators, itwould appear that Bishkek might allocate three times the amount of money allocated in 1999 to roadmaintenance, while Osh and Jalalabad would need to allocate even more.

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National Road Fund. A National Road Fund (RF) was established in June of 1998 with a mandate toaddress road design, maintenance, repair, rehabilitation, and construction. The primary purpose of the RFwas to support the maintenance and rehabilitation of the deteriorated inter-urban roads network. In 1996,expenditures on the inter-urban roads sector, funded by allocations from the State budget, were only 76million soms, in contrast to the estimated road development and maintenance needs of about 1,080 millionsoms per year. The RF was created under the Asian Development Bank initiated institutional and financialreforms in this sector. These in turn were part of an ADB project to rehabilitate the Bishkek-Osh roadconnecting the country's two major centers of economic activity and population. The National Road Fundlegislation explicitly permits up to 10 % of the Fund proceeds to be allocated for urban roads. The fimd isadministered by the Ministry of Transport and Communications (MoTC).

Road Fund Revenues. The Road Fund draws its revenues from tolls, charges on fuel and lubricants,international transit fees, vehicle license fees, a turnover tax, and budget allocations. The 1999 Road Fundbudget was approximately 380 million Som ($9 million). This is a very small sum considering the scale ofthe rural and urban network in Kyrgystan and the extreme climatic and topographic conditions under whichthe road network must be maintained. (The estimate for the 2000 Road Fund budget is 687 million Som).The majority of the 1999 funds originated from a 145 million Som national budget allocation for theBishkek - Osh Road (38% of total Road Fund revenues), and an additional 138 million Som (36% of thetotal) came from a 0.8% turnover tax on businesses. By comparison, fuel tax revenues and motor vehiclefees, which typically constitute a majority or all of road fund revenues in other countries, and which closelyapproximate user fees, constitute a comparatively small share (24%) of Road Fund revenues in the KyrgyzRepublic.

The situation of the Road Fund in the Kyrgyz Republic is similar to that found in other FSU countries. Theturnover tax in these countries has been used to maintain local and municipal roads and can be considered aroad access charge. In the short run, its continuation is justified by the fiscal constraints facing thegovermnent. However, in the future the turnover tax should be replaced by charges more directly aligned toroad use. Substantial increases in the fuel tax and vehicle taxes consistent with international norms arebeing considered in the Kyrgyz Republic. These tax increases might collectively double the size of theFund. At the same time, the allocation of the turnover tax on businesses to the Road Fund is expected to begradually eliminated so the aggregate impact would be to increase the Fund by about 50% over its presentlevel.

Road Fund Allocations. Road Fund allocations in the Kyrgyz Republic are made by a committee in theMoTC. This approach is justified by the small size of the fund and the importance of allocating these verylimited resources to areas of highest priority rather than 'dissipating' the funds over the entire country.Under this approach, during 1999 less than 3% was allocated to the project cities which make the dominantproportion of the national urban population. In 2000, this allocation is expected to be even less than 2%(see table below). These allocations, at present, are insufficient to address even the maintenance backlog.

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National Road Fund Allocations to Project Cities, 1998-2000 (million Soms)

Year Road Amount Allocated to Project Tot. Road Expenditure PerFund (million Soms) Cites Capita: Municipal & NationalDisbursed Share of Road Fund Sources (Soms)(rnillion TotalSoms) Road

FundRevenues(0% )

Bishkek Osh Jalalabad Bishkek Osh Jalalabad1998 197 0 0 0 0 4 2 61999 374 10 0 0 2.7 21 3 32000 687 1.5 5 3.5 1.5 34 14 29

Source: March 2000 mission findings

Road Fund Expenditures. In 1999, only the Bishkek municipality received a Road Fund allocation, and thiswas limited to 10 million soms or less than 3% of the total Fund revenues. For 2000, the allocations areprojected at 1.5 million soms for Bishkek, 5 million soms for Osh and 3.5 million soms for Jalalabad.Given that Bishkek, Osh, and Jalalabad collectively constitute about a third of the national population, andsince motor vehicle ownership and use in these urban areas are higher on a per capita basis than in ruralareas, an increase in the allocation for urban areas until such time as alternative means are found toincrease the capability of urban areas to raise additional revenues from their own sources would be welljustified. The project cities complain that they receive no funds from the RF despite forwarding allmunicipal road user tax contributions to the Fund. The share of Road Fund revenues collected from theproject cities increased from 58% in 1998 to 79% in 1999.

Deterioration of Urban Passenger Services. Since the Kyrgyz Republic's independence, the lack ofinvestment in the fleet of publicly owned transport companies has resulted in severe reductions in theiroutput. The impact on the Bishkek bus services, run by Autokombinat, the public bus operator, has beenparticularly severe. Over a six to seven year period the peak supply of large capacity buses fell from over600 buses in the early 1990's to about 35 buses in 2000. The effects have been dramatic in the face of anear doubling of the population of Bishkek over the same time horizon. The collapse in the supply ofpublicly-owned bus services has led the municipality to allow the private sector to emerge and serve agrowing segment of the market. Without the presence of the private sector the performance of the Bishkektransport sector would be wholly unacceptable. Despite similar financial and supply constraints, theBishkek Trolleybus company has managed to cope relatively well. This may be attributed to more efficientand cost-conscious management of the Trolleybus company. The company's output is stable and has evenincreased with the addition of 45 trolley buses to its fleet, financed from budgetary allocations, last year.

The situation in Osh and Jalalabad is not significantly different though the scale of operations is muchsmaller. The level of service offered by the main, formerly state owned, operators in Osh is totallyinadequate. Ongoing financial difficulties in the operations of the incumbent and associated urban fleetreductions, have seen a phenomenal growth in operations by both private companies and individualoperators organized in associations. In Jalalabad, the former monopoly state operator now shares the urbannetwork with the services of a rival association of individual operators.

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Institutions and Regulation of Urban Passenger Transport. Following independence, responsibility forurban bus and trolley bus operations was shifted to the various municipal authorities. In 1997, Bishkekcreated the Transport Coordination Committee (TCC) to manage the city's public transport services; in Oshand Jalalabad this function was fulfilled by the City Transport Departments. The role of the TCC and theCity Transport Departments was mainly to coordinate, control, and regulate the transport network, and inparticular the activities of the private sector operators. The TCC focused on retaining as much control aspossible over the network operations where it viewed the private/individual operators as temporary innature until such time as normal service could be resumed by the public operator with investments in largecapacity buses. Though the role of the TCC was regulatory in nature, TCC was closely involved in themanagement and day-to-day operations of the monopoly public bus operator, Autokombinat. Theseparation between the City Transport Departments and the operators was more comnplete in Osh andJalalabad, partly as public operators in Osh were reconstituted as joint stock companies, and completelyprivatized in Jalalabad.

To move urban transport provision towards a commercially oriented, competitive approach, a genuinelyindependent regulatory body, which ensures a level playing field for all operators in the sector is required.In 1997, the Ministry of Transport and Communications, with the assistance of the World Bank, startedpreparation of an Action Plan to improve the efficiency of existing operations and change the structure ofthe regulatory framework in the project cities. The Action Plan was adopted by government decree inJanuary 2000 and major steps in its implementation have already been completed. Passenger TransportAgencies (PTAs) with representation from the City government, operators, passengers, the police (GAI),and academia have been established in all three project cities. These replace the former TCC and CityTransport Departments and are responsible for, inter alia, network planning, fare determination, serviceprocurement, contract monitoring and enforcement. These new Agencies provide both separation from PToperations and representation from various stakeholders in the urban passenger transport sector. Further,the monopoly Autokombinat in Bishkek has been broken into two independent bus companies, and the PTAhas, in March 2000, initiated as a first phase competitive tendering for 10%/0 of all public transport routes.

Urban Passenger Transport Financial Situation. As in most countries of the former Soviet Union, asubstantial percentage of passengers are exempted from paying for services, and an additional substantialproportion avoid paying, making it difficult for urban passenger service operators to cover their costs andmaintain sustainable services at adequate levels. City budgets can no longer cover the financial shortfalls.Moreover, these services, which have traditionally been provided by public sector operators, have beeninefficient and service quality, as supported by a social assessment survey, is low. Urban passengerservices have been at least partially privatized in the project cities, mostly privatized in Osh, andcompletely privatized in Jalalabad in large part due to the inability of local governments to adequately fundand maintain publicly provided urban transit operations. The combined effect of the exemptions, leakagesand fare restrictions has been to jeopardize the financial viability of public passenger transport operators,and the sub-sector as a whole. The situation appears to be worst in Bishkek City where the Centralgovernment has transferred 55 million soms in 1999 to public transport operators, Autokombinat and thetrolley bus company, as an operational subsidy, through the Bishkek City government.

Urban Passenger Transport Action Plan. In response to the above issues in passenger transport, the Kyrgyzgovernment, in cooperation with the World Bank and the project cities, prepared an Action Plan for urbantransport sector reform. The Action Plan includes a list of actions according to prescribed timetables to beaccomplished by the Central Government and the city administrations of the three cities. The Action Planalso includes a statement of underlying strategies being pursued. The Plan includes, inter alia, strategiesand schedules for the following: (i) initiating competition in the provision urban passenger services throughfranchising and tendering bus routes, (ii) creating independent passenger Transport Authorities (PTAs),

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(iii) improving cost recovery through revised fare structures, (iv) reducing exemptions and introducingimproved compensation mechanisms for exemptions, while taking into account the needs of those in thepoverty group.

3. Sector issues to be addressed by the project and strategic choices:

Enhancing Municipal Road Finances. Initiating urban road finance reforms is one of the major objectivesof the project. The poor condition of the urban road networks is clearly the result of inadequate fundingmechanisms and must be addressed as the highest priority. The actual impact on broader municipal financereforms may be small during the project implementation period, since the project is concerned mainly withurban road funding. Nevertheless, this will be an important and necessary step that will pave the way for aprogram with greater impact in the future. Here the project will build upon and incorporate the results ofongoing work under the USAID funded Government Decentralization Project which includes a specialmunicipal finance component. The project includes establishment of a Working Group with representativesfrom the cities, Oblasts, Ministry of Finance, Ministry of Transport and Communications, Office of thePresident, and other interested stakeholders. The Working Group will be headed by a senior governmentofficial and will be advised by an international Consultant. The Consultant will facilitate the preparation ofa time bound Action Plan and assist in its implementation, during the project, for enhancing the revenuesavailable for urban road fmance form locally generated sources and improved expenditure management.

The Working Group will also review, and establish clear and predictable guidelines for allocation of fundsfor urban road use under the National Road Fund. Thus far the Road Fund has provided a level ofprotection for road sector funding in the face of demands from all sectors for budgetary resources, whichhas helped to maintain the main national roads in the worst condition. The next step is to commercializethe Road Fund, in part by restructuring the Fund and improving its management. The project will initiatethis process through addressing the RF revenues, revenue allocation process and Road Fund management.One of the revenue sources for the RF is the turnover tax; it is proposed that the turnover tax be replacedby more appropriate user charges such as fuel taxes. This is one of the actions required for the ThirdTranche of the Consolidated Structural Adjustment Loan, recently negotiated by the Government and IDA.The Government is committed to making this change and the Working Group, set up under this project, willassist in identifying the appropriate level of gas taxes to replace the turnover tax. In reviewing theallocations from the Fund it will be necessary to balance the continued requirements of the national roadsagainst the increasingly urgent funding needs of urban roads.

Better quality and efficiency of Road Fund management are desirable in the Kyrgyz Republic. This entailsthe creation of a Road Board, responsible to the government through the Ministry of Transport. The RoadBoard would include representatives of the MoTC, Ministry of Finance, sub-national government unitsincluding municipalities, and road users including public and private road transport operators. The Boardwould be responsible for all fund collection, distribution, accounting and monitoring of all road relatedexpenditures. The ADB project under preparation, for the third phase of the Bishkek-Osh road, continuesthe institutional and policy reforms initiated earlier. In particular, the ADB targets a review of the sourcesand expenditures from the Road Fund to implement the user pays principle. The Adviser to the WorkingGroup, established under the project, will work in cooperation with the ADB Consultants to support andfurther the policy reforms required to improve Road Fund efficiency.

Separating Road Planning. Budgeting, and Contract Administration from Road Construction. Toimplement competitive tendering and contracting practices for urban road improvements, a clear separationis needed between the municipal organizations that plan, program, budget and manage road works, and thecontractors who will carry out the works. This requires the reorganization (or creation) and strengthening

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of the appropriate institutions within the project cities. To varying degrees, the actual performance of roadrehabilitation and maintenance in the project cities has been mixed with the core city functions of planning,budgeting and managing the road systems. Under the project it is proposed that the cities retain the coremanagernent functions in a single Road Management Department (RMD). The RMDs would have thefollowing functions and characteristics: (i) it would inventory and regularly monitor the condition of theroad network; (ii) it would prepare plans, programs, and budgets for road improvements (including capitalconstruction, rehabilitation, and maintenance); (iii) it would administer all road construction, rehabilitation,and maintenance contracts (including the road construction contract administration function currently heldby the Capital Construction Department in Bishkek); (iv) it would be an integral part of the cityadministration, and would not be financially self-sustaining or revenue-generating; (v) it would not directlyperforn any road construction, rehabilitation or maintenance functions; and (vi) it could assume the trafficengineering function as part of its roads responsibility (e.g., road signing, pavement marking, and trafficsignals).

Divestiture of all Road Construction Entities. Concurrent with the creation of the Road ManagementDepartments, all road construction functions would be divested from city management and financialcontrol. More specifically these road construction entities would be corporatized with full or at leastmajority ownership in private hands. This will be a significant step as, preliminary indications are that,about 1000 employees across the three cities would be moved from municipal employment to the privatesector. This should result in significant economies for municipal budgets, as it appears that currently moreroad funds are directed to salaries than to physical road improvements. Further, experience in many citiesaround the world has shown that road rehabilitation and maintenance conducted by private sector concernsunder competitively bid contracts normally result in significant cost reductions.

Addressing Public Transport Issues through Ongoing Policy Dialogue. Substantial reform in the PublicTransport sector has already been achieved during project preparation. Bus services in the project citiesare increasingly run by private operators, and this has raised operating efficiency and reduced the need forgovernment subsidies. The cities have initiated competitive route franchising and are seeking measures toreduce operational subsidies to the public bus operator. The Bank will continue to support the ongoingreform process via an active policy dialogue with the cities on sector regulation, efficiency improvements inrevenue collection, and competitive franchising.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

Proiect Cities. Project investments will be directed at the three principal Kyrgyz cities of Bishkek (thecapital), Osh, and Jalal-Abad which have estimated populations of 1 million, 450 thousand, and 100thousand persons respectively. The population of these cities combined accounts for about 1/3 of thenational population of the Kyrgyz Republic, (which is estimated at approximately 4.5 million), and theeconomies of these cities likely account for at least half of the total national GDP. Bishkek is located on thenorth-central frontier close to the Kazakhstan border. Osh and Jalal-Abad lie close to each other on thewest-central frontier near the border with Uzbekistan.

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List of Project Components. Project components and costs are listed in the table below.

IndicatIve Ia*- %oComponent Sector costs % of financing Bnk-

(UW$S) Total (U$M) filnancinRoad Rehabilitation and Maintenance Urban Transport 16.27 67.2 14.64 66.5in Bishkek

Road Rehabilitation and Maintenance Urban Transport 3.43 14.2 3.08 14.0in Osh

Road Rehabilitation and Maintenance Urban Transport 2.01 8.3 1.82 8.3in Jalal-Abad

Engineering Services (desing second & Engineering 1.50 6.2 1.50 6.8third years, construction supervisionUrban Road Finance Reforn Public Financial 0.10 0.4 0.10 0.5

ManagementOperating costs for Project Public Financial 0.39 1.6 0.35 1.6Implementation Unit ManagementEnvironmental Monitoring Urban 0.03 0.1 0.03 0.1

EnvironmentMiscellaneous Road Management and Urban Transport 0.11 0.5 0.10 0.5Project Management EquipmentAudit Fees Public Financial 0.08 0.3 0.08 0.4

ManagementProject Preparation Advance Pre-Investment / 0.30 1.2 0.30 1.4

PortfolioDevelopment

Total Project Costs 24.22 100.0 22.00 100.0Total Financing Required 24.22 100.0 22.00 100.0

2. Key policy and institutional reforms supported by the project:

The project supports fundamental urban transport sector reforms, including the following:* initiating the process to establish reliable and sustainable sources of financing urban road rehabilitation

and maintenance needs.* addressing Road Fund management and allocation procedures to provide a reliable source of funding

for urban roads.* broad based strengthening and development of new institutional capabilities of road departments in the

project cities to manage urban road assets.* the development and sustainability of a private road construction and consulting industry capable of

operating in a competitive environment.

3. Benefits and target population:

The benefits of investments in the project will consist principally of improved road conditions andconsequent reduced vehicle operating costs. As reflected in the high rates of return and net present values,the benefits are expected to be considerable. The road investments are focused on the most heavily usedstreets within the public transport network, thus benefiting users of public transport proportionately more.While no specific population group is targeted, the urban poor who are most dependent on urban passengerservices should receive considerable benefits. The project will have an immediate positive effect onemployment, as contractors and workers are engaged to carry out the work. This will include some skilledformer employees of city road construction services, but is likely to include unemployed workers whowould otherwise not be part of the labor force.

The project will have benefits on the cost side as well. Until recently, all Kyrgyz road construction wascarried out by force account, through a network of construction units that often produced low quality work.These have now, or will soon be, corporatized and/or privatized and will have to compete for contractsunder standard Bank conditions and oversight. It is expected that the competitive approach, which is animportant development objective, will lead to improve quality and reduced unit costs of maintenance.Improved road maintenance management, and project management will lead to more efficient and equitableuse of resources under the project and beyond.

The pilot regulatory reforms in urban passenger services introduced during the project preparation period inall three project cities have already had major beneficial impacts on public transport provision. The mostimportant of these is the influx of private operators into the sector compensating for the decline in capacityof publicly owned operators. These operators provide reliable, non-subsidised services, at competitiveprices. The competitive pressure exerted by these operators has led to increased efficiency of publictransport operators as well, and reduced the need for public subsidies for a given level of service. Theoverall welfare of public transport users has been enhanced; and a whole range of skilled workers who wereeither unemployed or not paid in their former employment have found employment.

4. Institutional and implementation arrangements:

* Overall project management will be handled by a Project Implementation Unit (PIU) within theMinistry of Transport and Communications. This unit will coordinate most technical assistancefinanced under the project and will provide assistance and support to the project cities. The PIU willhave overall responsibility for financial management aspects of the project, including accounting,financial reporting, administration of the Special Account and auditing arrangements. The PIU will hirea consulting engineering firm that will be directly responsible for construction supervision for all civilworks under the project in cooperation with the city road management departments.

* Each project city will appoint a representative to work with the PIU, to monitor progress, providemunicipal input, receive and give guidance, disseminate information to their city administrations, tocoordinate activities, and to ensure practical implementation. The newly established Road ManagementDepartments (RMDs) within the city administrations will manage the road rehabilitation andmaintenance contracts in each project city in cooperation with the consulting engineer.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

Prior to June 1999 the project preparation effort was directed at preparing an urban passenger transport

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project aimed at increasing the level of service in the three project cities while making these services moreefficient and financially sustainable. At this time representatives of the Kyrgyz Republican governmentrequested the Bank to redirect the focus of the project from urban passenger transport services to that ofimproving the condition of the road systems in the same project cities. The Bank concurred with thisrequest since much had already been accomplished in strengthening the passenger transport systems in allthree project cities, tendering of bus services was already taking place, and private sector operators wereproviding additional services obviating the need for substantial Bank financing of urban passenger vehicles.Indeed, the choice of investment components not only had to do with what to finance, an equally importantchoice was how best to pursue policy reforms. The Bark continues to effectively support the policy reformsin urban public transport.

Among the project alternatives which have been considered are the following:

* Assisting only Public Sector Urban Passenger Service Operators. This option has been pursued inother ECA projects with mixed results. Some improvements in public sector operator efficiencies havebeen achieved and cost recovery has improved, but not sufficiently to pemit sustainable operationswithout substantial and continued govemmental subsidies. It is clear that much more extensive privatesector participation along with competitive regimes is needed to provide adequate and efficient urbanpassenger service to urban residents. Moreover, it was viewed by many Kyrgyz officials thatimprovements to urban passenger services would need to be supported by improvements to the urbanroad network as a means of reducing wear and tear on operating vehicles. A project focused onassisting only public sector operators would likely have the adverse effect of propping up inefficientpublic operators at the expense of deterring the entry or enlargement of private sector operators in theprovision of urban passenger services.

* Financing only Private Sector Urban Passenger Service Operators. While financing only thoseoperators could be an option, this approach was also rejected because it would not address the mostpressing constraint which is the serious and deteriorating conditions of the urban road network in theproject cities. Moreover, a project focused on financing only private sector operators would have beena very risky operation given the relatively unsophisticated and fragile nature of the financial system inthe Kyrgyz Republic. During project preparation considerable progress was made in facilitating privatesector operations in the project cities without the need for Bank financing.

* Financing only Road Rehabilitation and Maintenance with No Urban Passenger Services Reforms. Fnancing only road maintenance and rehabilitation would be an acceptable option since the conditionof the urban road network in aMl the project cities is the most pressing issue they face. However, thiswould have meant foregoing the opportunity to also promote reforms in urban passenger services.

* Financing only Road Rehabilitation and Maintenance but with Limited Urban Passenger ServicesReforms This is the option selected for the project, after extensive discussions with the KyrgyzGovernment and city authorities. Under this option all of the Credit funds would be channeled into roadrehabilitation and maintenance, and no Credit funds would be allocated for urban passenger services.However, a modest amount of available grant funds will be utilized for assisting continuation of theurban passenger reform process in Bishkek. Additional grant funding will be sought to further thereform process in all three project cities.

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2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

Ltest SupervisionSector IsePod S Ro adg

Implemnww&Mon DevelopmentBank-financed Progos (IP) Objective (DO)Modest cost recovery umprovemnents Russia Urban Transport Project U Shave been achieved but substantialsubsidies are still required. Privatesector operators have appeared and aregaining market share. Procurement ofvehicles was a slow and expensiveprocess. Several cities unable to repayloan due principally to substantialRuble devaluation, but there is goodprogress towards resolving theseproblems.

Modest cost recovery improvements Kazakhstan Urban Transport S Shave been achieved but subsidies are Projectstill required. Private sector operators (Ongoing)have appeared and bidding for routefranchises has been implemented.

Regulation of fares policy has Budapest Urban Transport S Sundermiined full achievemnent of Project (Ongoing)financial goals. Substantial reformshave been achieved while keeping thepublic transport operator mnodel.

All Bank financed projects were Turlanenistan Urban Transport U Ususpended in Turlanenistan due to Project (Ongoing)procurement issues. Activity on thisproject is now resumed, and there ishope that through restructuring it willbe turned around.

This project is aimed at supporting the Uzbekistan Urban TransportGovernmnent policy of encouraging Project (To be submitted to thecompetition in the provision of urban Board shortlypassenger services.

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Other development agenciesThis US Aid program in several ULkraine Urban TransportUkraine cities has achieved substantial Project (US Aid)improvements in public sector operatingefficiencies principally through offeringpremium service with smnall vehiclesand no exempted passengers.Improvements were also attainedthrough (a) more attention to costrecovery and introduction of modemaccounting techniques, (b) changes toroute structures, and (c) encouragingemployee buyouts of the compames.

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

The Bank has broad experience in urban transport projects In different parts of the world, including theFSU. Some of the key lessons derived from the Bank's work in the sector are summarized below:

It is Important to Emphasize Maintenance. Past reviews of Bank-financed urban transport and highwayprojects in ECA confirm the primacy of maintaining existing systems before investing in expansion. This issomething that the Kyrgyz Republic is now well aware of and maintenance is the primary focus of theproject.

Devolution of Responsibilities to City and Local Governments is Important for Sustainabilily. One ofthe main lessons emerging from Bank experience is that the single most important requirement forsustainable institutional improvement in urban transport planning, programming, and design is thedevolution of these responsibilities to competent city and local governments. The project supports thedevolution of these responsibilities and provides technical assistance for capacity enhancement at the locallevel.

Simplicity in Project Design Lowers Project Risks. Another irnportant lesson in project preparation is tokeep project design simple, as the inclusion of multiple components and institutions greatly increases therisks to the project. This design of this operation has been kept simple with the main focus on emergencyrepairs and institutional reforms in the urban roads sub-sector.

Timely Project Preparation is Important for Successful Implementation. Experience from around theworld underlines the importance of rigorous, early preparation for major civil and ancillary works and earlypreparation for procurement activities. This is especially important in the urban transport context, wheretraffic and other impacts during construction may cause greater risks to project costs and schedules.Advance preparation of bidding documentation are likely to foster smooth implementation and help reducevariations during the implementation period. Bids for the first year construction program have beenreceived as have proposals from short listed firtms for detailed design of the second and third year programsand construction supervision for the entire project have already been sent to short listed finrs. Constructionis poised to start during August pending Credit approval and conditions for loan effectiveness being met.

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Quality Assurance during Construction is also Vital for a Successful Outcome. Experience has shownthat it is necessary to build quality control mechanisms into all projects. Higher costs result frompremature deterioration, when corrective actions in the form of increased maintenance and/or rehabilitationare required. To address this concern, a series of measures has been built into the project includingstringent contractor prequalification, careful formulation of supervision arrangements, (includingengagement of international experts), and training of local supervision staff.

4. Indications of borrower commitment and ownership:

* The strongest indication of borrower commitment and ownership has been the high levels of human andfinancial resources which have been dedicated to the project since its inception as an idea, over twoyears ago.

* Kyrgyz Ministry of Transportation and Communication and city officials have collaborated inpreparing an urban transport policy paper and action plan which addresses the key project objectivesand issues (Action Plan attached as Annex 12).

5. Value added of Bank support in this project:

The Bank could provide substantial value added in the following ways:

* Municipal Finance Reforms. The Kyrgyz Government has completed a number of studies onMunicipal Finance Reform under various initiatives. In addressing the objective of increasing resourcesfor urban rods rehabilitation and maintenance, the project will initiate the first steps in comprehensivemunicipal finance reform. These reforms will not be achieved under the project but the stage forbroader reform will be set.

* Public Transport Reforms. The project has already assisted the government, during the preparationphase, in implementing substantial reforms in the public transport sector. The regulatory andinstitutional reforms already completed have taken this sector from a publicly owned, monopolyoperator to an increasingly commercially oriented, multi-operator competitive model of transportservices provision.

* Demonstration Potential. While the project will focus on only three cities, the project is designed tohave a substantial demonstration potential for adoption by other Kyrgyz urban areas.

* Competitive Procurement Practices. While the Governnent has fornally introduced ICB and LCBcompetitive procurement practices by legislative acts and by the creation of a central procurement bodywith the assistance of the Bank, the country is still at a formative stage in introducing competitiveprocurement practices. The project will extend and deepen these practices into the project cities.

* Institutional Development. The Bank has had extensive experience in assisting borrowers in preparingand implementing urban transport projects in many cities that have multiple agencies concerned withpassenger services and road infrastructure issues. The Bank is accustomed to working across theseinstitutional boundaries under a single project framework and in providing a catalytic role in bringingtogether all concerned parties to meet project objectives.

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E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):* Cost benefit NPV=US$74.5 million; ERR = 157 % (see Annex 4)O Cost effectivenessO Other (specify)The road sections included in the first year program were selected from a preliminary list prepared by theproject cities. A cost-benefit analysis was carried out by the Ministry of Transport and Cormnunications,supported by external consultants, and the final program selection was based on that. The road investmentcomponent includes (i) periodic repairs/maintenance of sections of the urban public transport roadsnetwork, (ii) rehabilitation of sections of the public transport road network. A set of maintenance andrehabilitation strategies were compared using the Highway Design and Maintenance Model (HDM-3).Economic rates of return (ERRs) and net present values (NPVs) were calculated from incremental costsand benefits. The benefits included are savings in road user costs due to inproved pavement conditions,road agency savings in future maintenance costs arising from timely rehabilitation, and passenger time costsavings. Costs of institution building activities, such as technical assistance, design, supervision,monitoring and physical contingencies were incorporated into the investment costs to perform the economicevaluation.

The NPV is calculated using a 12 % percent discount rate and a 20 year simulation period. The ERR andthe NPV of the priority works are estimated to be in excess of 60 % and US$ 106 million. Traffic volumesover the road sections under consideration were in the range of 10,000 to 28,000 vehicles per day forBishkek, and between 5,000 to 20,000 vehicles per day for Osh and Jalalabad.

Road Rehabilitation ERR (%) NPV, (US$ million)Bishkek 208 90Osh 124 13Jalalabad 61 3

A limited sensitivity analysis for the worst case scenario was completed. Under the assumption of zerotraffic growth and no time savings, all sections included in the program remain viable though the NPVs aresubstantially lower. The average ERR is still above 100/o. There is one qualification to this result. Thelower traffic in the no growth scenario would result in slower road deterioration and thus lower roughnessin both the with and without cases. Ignoring this might have overstated the results but given the initial veryhigh benefits, it seems unlikely that a more detailed analysis would alter the recommendations.

2. Financial (see Annex 5):NPV=US$ million; FRR = % (see Annex 4)

Financial analysis covered in:

(i) fiscal impact and counterpart funding arrangements below, and in Section B

(ii) national road fund budget allocations and municipal budget for participating cities (see Section B)

(iii) financial management capacity assessment (see Annex 6)

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Fiscal Impact:

Fiscal considerations are extremely important for this project. Summarized below are the principal projectfinancing issues and decisions reached.

Project Counterpart Funding. The Government has indicated concern about the required projectcounterpart contribution requirements which must amount to at least 10% of the total project cost net oftaxes and duties, or a total of $2.22 million. However, it has been agreed that the counterpart funding willbe provided by a mixture of local government contributions and allocations from the National Road Fund.On-lending to Project Cities. The Government currently proposes to on-lend to Bishkek in US dollars at1% per annum for 15 years, with 5 years grace on the principal. The Government proposes to lend to Oshand Jalal-Abad on the same terms and conditions except for a 20 year period and 5 years grace. Under thisarrangement the foreign exchange risk would be assumed by the project cities. In the event that therepayment requirements of the cites exceed a reasonable share of total city revenues, the central governmentwill provide financial relief. Terms and conditions for on-lending and the criteria for central government forfinancial relief to the cities confirmed at negotiations.

Taxes and Duties. The Government has proposed to waive taxes and duties under the project.

A summary estimate by year of the amounts of IDA funds and counterpart contributions (in US $ millions)is provided in the table below.

2000 2001 2002 2003IDA Funds 4.70 8.50 8.70 0.10

Counterpart Funds 0.41 0.89 0.90 0.02

3. Technical:

There are no remaining technical issues. Design standards have been agreed upon. The first yearconstruction program is fully designed and bids have been received under ICB guidelines.

4. Institutional:

4.1 Executing agencies:

The Roads Departments in the project cities will execute construction contracts with the assistance of thePIU within the Ministry of Transport and Communications. The PIU will hire the consulting engineer whowill be directly responsible for design of the second and third year construction program, supervision of allcivil works financed by the project, and for technical training of city road department staff. The cities willassist the PIU and the consulting engineer in selecting priority road sections and monitoring the designprocess.

4.2 Project management:

Overall project management will be handled by the PIU. The PIU will assume the followingresponsibilities: (i) maintain strong communication and liaise with appropriate central government andproject cities officials, and the Bank on key project issues; (ii) prepare and maintain consolidated projectaccounts; (iii) process Credit withdrawal applications including administration of the Special Account; (iv)provide procurement and project administration assistance to the project cities; (v) monitor project statusand prepare quarterly and annual reports, including financial report, project progress report andprocurement management report and (vi) make arrangements for auditing of the project financial

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statements by independent auditors.

Flow of Funds

The IDA Credit of US$22.0 million equivalent will initially be disbursed on basis of traditionaldisbursement procedures. After approval of financial management systems of the PIU by the Bank, andwith mutual agreement with the Bank, the Borrower may choose to substitute traditional disbursementswith PMR-based disbursements. The Borrower is the Kyrgyz Republic. Proceeds of the Credit will beon-lend to the three Project cities Bishkek, Osh and Jalal-Abad. The counterpart contribution of US $2.22million equivalent will be provided by a mixture of local govermnent contributions allocations from theNational Road Fund as described in the financial section above.

Overall project management and administration will be the responsibility of the PIU within the Ministry ofTransport and Comnnunications. To facilitate timely project implementation, the Borrower will open oneSpecial Account for the Project in a commercial bank under conditions acceptable to the Bank.Administration of the Special Account, including Credit disbursements for all Project components of thethree participating cities, and preparation of consolidated accounts and financial reporting will becentralized at the PIU. The project supervising engineer (foreign contractor) will issue engineer'scertificates for works completed and forward the documentation for authorization for payment to theaccounting department at the city level. The Project Manager who is also the Minister of Transport andCommunications makes the final authorization for payment of project expenditures incurred by theparticipating cities through the PIU which is responsible for payments of all project expenditures financedthrough the IDA Credit and counterpart funds. With these arrangements, Credit funds will not be handledby the participating cities and project accounting will be carried out by the PRU, there is, therefore, norequirement for auditing of the participating cities. Counterpart funds will be maintained in a ProjectAccount to be maintained in a commercial Bank. Opening of the Project Account in a commercial Banksatisfactory to the Bank is a condition of Credit Effectiveness.

Retroactive Financing

To facilitate prompt execution of IDA-financed operations, up to US$2.2 million equivalent is pernittedfor retroactive financing of project expenditures made after May 1, 2000 and before the Credit signing.

4.3 Procurement issues:

Procurement Arrangements. Contracts for works and goods to be financed under the Loan will be procuredin accordance with the Bank's Guidelines - Procurement under IBRD Loans and IDA Credits, datedJanuary 1995, revised January and August 1996, September 1997 and January 1999); consultants will behired in accordance to the Guidelines - Selection and Employment of Consultants by World BankBorrowers, dated January 1997, revised September 1997 and January 1999.Major project elements, theirestimated costs and proposed procurement methods and packages are shown in Annex 6. Bank StandardBidding Documents will be used. All procurement under the proposed project will be carried out by theProject Inplementation Unit in the Ministry of Transport and Communications. A procurement capacityassessment of the agency was conducted during project preparation. Based on the assessment's findings, anaction plan (including recommended procurement arrangements and provision of training and intermationalprocurement assistance) was prepared by the Bank. The main objective of this plan is to enhance theimplementation agency capacity in conducting competitive procurement and apply Bank ProcurementGuidelines under the project The actions under this plan have been agreed with the Borrower duringpre-appraisal. Failure to carry out these actions would be an event of default.

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4.4 Financial management issues:

An assessment of the financial management capacity of the PIU was canied out during projectpre-appraisal and agreement reached on actions required to strengthen the capacity of the PIU. The CaranaCorporation is in the process of installing a computerized accounting and financial reporting system toreplace the existing manual system. The system capable of producing Project Management Reports(PMRs) will be installed and tested by December 31, 2000. The PIU is fully operational with a staff ofeight experts including: director, procurement specialist, economist, transport expert, road expert,municipal finance expert, accountantldisbursement officer and translator. The PIU reports to the ProjectManager/Minister - Ministry of Transport and Communications. Summary assessment is presented inAnnex 6, and full report available in the Project Files.

5. Environmental: Environmental Category: B (Partial Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

Rated a Category B, an Environmental Management Plan has been prepared for the project. TheKyrgyz Republic Urban Transport Project will involve rehabilitating sections of road within urbanareas of Bishkek, Osh and Jalal-Abad. Road rehabilitation activities will range from pavement cracksealing and pot hole repairs, to pavement grinding, application of leveling course and repaving withasphalt or surface course (chip seal). In some cases pavement and sub-grade material will be removedby excavation to expose underlying drainage conduits that will be repaired or replaced.

The project will not involve road widening or realignment and, hence, there will be no land acquisitionor relocation. As all work wil be confined within urban centers, there are no issues associated withdisruption to indigenous peoples. Work will be undertaken within the existing curb to curb dimensionsof the roadways and, therefore, none of the trees that line the roadways in the project areas, or adjacenturban green space or parks will be affected by the project.

Impacts are expected to be confined to the immediate area of construction and will primarily involvedgeneration of noise and fugitive dust that will affect adjacent businesses and residential apartmentcomplexes. Cleaning of drainage works may produce sediments contaminated with elevatedconcentrations of lead, the result of deposition of lead aerosols from years of automobile use of leadedgasoline, which will have to be disposed of in an environmentally acceptable manner. Aside frompotential noise and dust impacts on local inhabitants, other impacts may include local disruption totraffic flows during construction. A traffic management plan will be developed to address this issue.

Asphalt plants and aggregate quarries are located within the existing project cities and are approved foroperation under existing environmental passports. It is expected that these facilities will be available tocontractors employed to carry out the construction work. However, if contractors propose to developnew locations for asphalt plants or aggregate quarries, then additional EA studies will be required.

5.2 What are the main features of the EMP and are they adequate?

The EMP identifies the environmental and socio-economic impacts related to project works. Direct impactsarise from (i) potential air contamination resulting from possible development of new aggregate quarTy andasphalt batch plants; (ii) possible release of contaminants (lead, zinc, cadmium, etc.) from potentiallycontaminated roadside soils during excavation; (iii) potential contamination of soils from accidental releaseof fuels, lubricants or solvents during refueling and equipment maintenance operations during construction,

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and/or improper disposal of liquid and solid construction wastes.

Key socio-economic impacts of concern during construction include worker health and safety, noise,vibration, and dust disturbance to local residences, reduced access to residences and businesses duringconstruction, and temporarily reduced traffic flows during construction.

The EMP also identifies (i) measures to mitigate the impacts identified above; (ii) authorities responsiblefor implementing the mitigation measures; (iii) monitoring requirements; (iv) authorities responsible formonitoring and enforcement activities; (v) cost of the mitigation, monitoring, and training program requiredunder the project.

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: May 3, 2000

An EMP has been prepared and submitted to the Bank The EMP has been approved by the Ministry ofEnvironmental Protection, the agency responsible for environment related issues in the Kyrgyz Republic.

5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?

As part of the EMP preparation process, the PIU has consulted with local NGOs and obtained their inputon likely impacts and mitigation opportunities. The EMP document was provided to local libraries in thethree project cities for public comment, and comments have been incorporated in the final document.

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

Monitoring will primarily be carried out by the Kyrgyzstan Ministry of Environmental Protection'sEnvironmental Inspectorate Department. This will involve compliance monitoring to ensure constructionactivities comply with the environmental laws, standards and norms of the Kyrgyz Republic. Some specificenvironmental measurements will be taken to confirm whether soil contaminants are a legitimate concern.Contract compliance monitoring will be the responsibility of the PIU.

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

Approximately 50 % of the Kyrgyz population lived below the poverty line in 1997 and this shareincreased to more than 60 % in 1998. Despite the increase in Gross Domestic Product (GDP) in 1997,GDP in 1998 was below the level in 1996. The related increase in poverty affected mainly the urban areaseven though the severity of poverty remained greater in the rural areas. According to the report on "Povertyin the Kyrgyz Republic", the sectors that suffered the biggest declines in output were industry,construction, and transport. Bishkek has been identified as one of the worst affected Oblasts by the increasein poverty levels.

A social assessment was completed for the project in the early stages of project preparation. The objectivewas to identify stakeholders and assess the likely impact of the project on various groups, particularlywomen and the poor. The SA was also directed towards identifying potential negative impacts of theproposed project. It is noted that the focus of the SA was urban passenger transport, in line with the projectalternative being considered at the time. The SA highlighted the following main points: (i) Transport is one

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of the major problems faced by survey respondents; (ii) The poor spend an estimated 25 % of their monthlyincome on transportation as compared to an average of 18% for all income groups; (iii) More than half theurban residents use public transport every day; (iv) About half the urban households would be willing topay more for improvements in service quality; (v) Poor road conditions were identified as one of the maindrivers of higher vehicle maintenance costs, by drivers; (vi) carrying subsidized passengers is seen as amajor burden by bus companies; (vii) Removal of exemptions is likely to hurt low income pensioners themost. The SA did not identify any negative impacts of the proposed project.

The project targets the three largest urban areas in the Kyrgyz Republic which have suffered the bulk of theincrease in poverty levels in recent years. Within the three cities, Bishkek with its larger road network has ahigher share of investments under the project. As mentioned above, urban areas, Bishkek Oblast inparticular, and the transport sector, have seen the biggest increases in poverty, so the poor are likely to bethe biggest beneficiaries of the project.

The benefits of investments in the project will consist of imnproved road conditions and reduced vehicleoperating costs, and travel time saving for passengers. The road investments are focused on the mostheavily used streets within the public transport network, thus benefiting users of public transportproportionately more. While no specific group is targeted, the urban poor who are most dependent onpublic passenger services are expected to be the biggest beneficiaries.

6.2 Participatory Approach: How are key stakeholders participating in the project?

A participatory approach has been followed throughout project preparation. Consultations organized by thePIU have allowed fruitful dialogue involving municipalities, ministries, operators, and transportassociations. The project preparation team and staff of the PIU have had extensive discussions with privateoperators, individuals and associations, and private contractors in each of the project cities. A socialassessment including potential stakeholders was also completed during project preparation. The socialassessment itself was completed by a local NGO. The preparation of the environmental assessment has alsofollowed a participatory approach, including consultations with environment NGOs and variousgovernment stakeholders, as well as public dissemination of the EMP.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

The Social Assessment for the project was completed by a local NGO. Private environmental NGOs havereviewed and commnented on the Environment Management Plan.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

The PIU will be responsible for ensuring preparation of a mid-term social impact assessment for the project.

6.5 How will the project monitor performance in terms of social development outcomes?

A mid-term social assessment will be used to monitor and review the project's social impact. Thegovernment's agreement to the social assessment will be sought during Negotiations.

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7. Safeguard Policies:7.1 Do any of the following safegud policies apply to the project?

Policy IApplicabilityO Environmental Assessment (OP 4.01. BP 4.01, GP 4.011 X Ye,s O NoEl Natural habitats (OP 4.04, BP 4.04 GP 4.04 [I Yes Z NoEl_Forestry (OP 4_36. El 4 Yes 1 NoEl Pest Managemnent _OP 4.09) Yes 2 NoEl_Cultural Property (OPN 11.03) l [Yes Z NoEl Indigenous Peoples (OD 4.201 El Yes 1 Nol Involuntary Resettlement (OD 4.30) E Yes Z No

El Safety of Dams (OP 4.37. BP 43n _ll Yes 1 NoO Projects in International Waters (OP 7.50. BP 7.50. GP 7.501 LI Yes 1 NoEl Projects in Disputed Areas (OP 7.60Q BP 7.60. GP 7.60) El Yes 0 No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

A comprehensive Environment Mitigation Plan has been completed by the Borrower. The project providesassistance for monitoring the project environmental impact and compliance with the EMP. In addition, civilworks contracts include a clause requiring compliance with applicable EMP actions.

F. Sustainability and Risks

1. Sustainability:

This project has been necessitated by the protracted lack of adequate and sustainable finance for urbanroads. As a result, the urban road network in the project cities has been allowed to deteriorate, and this rateof deterioration will accelerate without mitigating measures. The project will only help in the short run byrehabilitating about 10% of the surfaced road networks in the three project cities and by providing routinemaintenance measures to additional road sections. Project sustainability will be achieved only by acombination of measures aimned at substantially increasing on a sustainable basis funding for urban roadmaintenance and rehabilitation. Progress towards financial sustainability will be sought under the projectthrough measures to be identified by the Working Group on municipal finance and its advisers.

2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

Risk Rlsk Rating Rlsk Minimization MeasureFrom Outputs to Objective1. Road improvement programs do not M The first year construction program is designedproceed on schedule and are implemented and bids have been received for works in allwith poor quality three project cities. Proposals have been

received from short listed firms for designing thesecond and third year programs, for constructionsupervision of all civil works to be financed byIDA, and for technology transfer to municipalgovermments.

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2. Insufficient interest of private M A total of only 7 construction contracts arecontractors with suitable road proposed for the entire project, one for each ofmaintenance and rehabilitation experience the three years in Bishkek, and one for the first

year and one for the second and third years eachfor Osh and Jalal-Abad. By packaging thecontracts in this manner, they are likely to belarge enough to attract international firms. Thepresence of an internationally qualifiedengineering finm with known competence tosupervise the work ought to increase the level ofconfidence of several international contractingfirms to participate in the bidding.

3. Local Road Departments do not M Commitments have been made by the projectactively participate in the project and do cities to provide prescribed staff to work on thenot learn from the experience. project. The consulting engineer will be

required to regularly meet with city roaddepartment staff and to conduct staff training.

4. Cities do not adequately implement H The project seeks government commitment tomeasures to enhance revenue sources for implement the Action Plan for revenueurban road maintenance and rehabilitation enhancement, agreed by the Working Group on

Municipal Finance reform and the Bank, byDecember 31, 2001. The Working Group wouldinclude representatives of city governments.

5. Adequate and stable Road Fund S The Working Group on Municipal Financeallocations are not secured for the benefit reform, with the assistance of internationalfor the project cities during the sub-loan consultants, will assess methods for allocatingrepayment period. funds to urban areas and will additionally assess

the appropriate management structure for theRoad Fund with a view to more localgovernment participation and transparency

From Components to Outputs1. Lack of adequate provision for M Agreement has been received in principle thatcounterpart funding for the project adequate counterpart funding will be provided

by a combination of city contributions andallocations from the National Road Fund. For2000, cities have already made provision fortheir contribution to the counterpart fundsrequired for this year's construction work.Commnitment to specific amounts, bygovernmental unit, by year will be sought atnegotiations.

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2. The PIU, who hires the engineering N The consulting and construction contractingconsultant, and the cities, who hire the arrangements were explained in detail with theroad maintenance and rehabilitation project cities as part of a workshop during thecontractors do not cooperate. last mission. Detailed arrangements are spelled

out in the consulting engineers terms ofreference. The first supervision mission willagain address this matter with all three parties.

3. Inadequate central government and M Agreement will be sought at negotiations on amunicipal government participation in the Working Group consisting of representatives ofMunicipal Finance Reform Working each project city, the Ministry of Finance, andGroup. the Ministry of Transport and Communications.

A local municipal finance expert has been hiredby the PIU to work with city and centralgovenmment stakeholders, and internationalconsultants will facilitate the task of theWorking Group. Preparation of an agreedAction Plan and its implementation are datedcovenants under the project.

Overall Risk Rating MRisk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

There may be resistance to increases in National Road Fund allocations to the project cities for urban roadmaintenance, as well to make the needed changes to increase municipal financial resources for the purposeof increased expenditures on roads. There is resistance to spend more than a minimal amount of technicalassistance funds to study the matter. The willingness of the government to adequately address thesefinancial issues and to introduce needed changes rests on their awareness that without revenue enhancementmeasures on a sustainable basis, urban road assets will continue to deteriorate.

G. Main Loan Conditions

1. Effectiveness Condition

1. Subsidiary Loan agreements between the Borrower and each project city have been executed

2. Appointment of an independent Auditor on terms of reference acceptable to the Bank.

2. Other [classify according to covenant types used in the Legal Agreements.]

Board Conditions

1. A Working Group consisting of at least representatives of the project cities, the Ministry ofFinance and the Ministry of Transportation and Communications with agreed terms of reference to havebeen established to prepare a time-bound action plan for providing adequate and sustainable sources of

-25 -

funding for the project cities and to monitor the implementation of the plan during the projectimnplementation period. The Plan should be furnished to IDA no later than December 30, 2000, andthereupon promptly implemented after taking into account such comments as IDA may reasonably provide.

2. Initiation of selection of Consultants for the Urban Finance Reform Working Group.

Conditions for Negotiations

1. Completion of all environmental requirements

2. Letter from Government confirming suitable counterpart funding commitment.

Agreements Reached at Negotiations

1. The following financial matters were confirmed:* Specific arnounts of counterpart funding from city and central government sources to be

provided for each year of project implementation* On-lending terms and conditions* Exemption of Taxes and Duties under the project

2. The terrns of reference and selection of consultants for the Urban Road Finance Program

3. The Environmental Mitigation Action Plan

4. The Project Implementation Plan

Dated Covenants

During negotiations agreemnents were reached on the following:

1. The Borrower will open a Project Account in a Conmnercial Bank acceptable to IDA, and depositinto the account an initial anount of US$500,000.

2. The Borrower and each of the project cities will collaborate and prepare city-specific time-boundimplementation plans no later than December 31, 2000 for the purpose of securing sustainable road financein the project cities. The plan will contain for IDA review agreed actions for increasing revenues in eachproject city as a means for improving urban road finance and will also contain agreed actions with respectto allocations from the National Road Fund to the project cities, increasing Road Fund Revenues, andaltering Road Fund management.

3. The Borrower will review with the Association time bound implementation plans for improvingroad finance in the project cities by March 31, 2001 and will take all measures necessary to implementthese plans during the life of the project.

4. Semi-annual reports on implementation of the action plan will be prepared no later than June 30and December 31 of each year during project implementation commencing on June 30, 2001

5. The Borrower will cause each project city to furnish the Association for its review and comments

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by December 31, 2000 a plan for the city to divest itself of all capital road construction staff andequipment, including asphalt and concrete plants and all road construction equipment, and by July 1, 2001,or such later date as the Association may agree, implement the plan taking into account the Association'scomments.

6. The PIU, in cooperation with IDA, will carry out a Mid-Term Review of project no later thanDecember 31, 2001 to assess overall project status and to determine if there is a need for any revisions tothe project objectives and scope. For this the Borrower will furnish the Association by September 30,2001, a report on the progress achieved in carrying out the project, and will review the report with theAssociation by December 31, 2001, and take all measures required to ensure the efficient completion of theProject and achievement of the objectives.

7. Consultants to the Urban Road Finance Working Group should be contracted no later thanSeptember 1, 2000.

8. The Borrower will carry out a time-bound action plan acceptable to the Association for thestrengthening of the financial management system in order to enable the Borrower to prepare no later thanDecember 31, 2000 Project Management Reports acceptable to the Association with regard to financial,physical, and procurement aspects of the project.

9. The Borrower will furnish the Association a time bound reforn program for irnproving costrecovery of urban passenger transport and for the franchising of urban passenger services by December31, 2000. The Borrower will review the Urban Passenger Trasnport Action Plan with the Association byMarch 31, 2001, and will implement the Plan in accordance with a time schedule to be agreed with theAssociation.

Other Covenants

1. The Government will maintain for the duration of the project a Project Account that ensuressufficient counterpart funds will be available for irnplementation of the project.

2. The PIU will prepare and submit to the Borrower and the Association, starting in September 2000and not later than 30 days after the end of each quarter, quarterly reports on the progress of projectimplementation.

3. The Government will furnish the Association within 6 months of the Credit Closing Date a plan forfuture operation of the project

4. The Borrower will maintain a financial management system, including records and accounts, andprepare financial statements in a format acceptable to the Association.

5. The Borrower will have the records, accounts, and financial statements as specified by theAssociation audited each year according to standards acceptable to the Association, and will furnish within6 months after the end of each fiscal year an audit in such scope and detail as requested by the Association.

6. No withdrawals may be made for expenditures prior to the date of the Credit Agreement exceptthose in aggregate which do not exceed $2.2 million (SDR equivalent 16,700,000) on account of paymentsmade for expenditures before that date but after May 1, 2000.

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7. The Borrower will maintain the PIU with adequate staff, resources, and terms of referencesatisfactory to the Association until the completion of the project in order for it to manage and coordinateoverall project operations.

8. The Borrower shall take all measures necessary to ensure the adequacy of the staff retained by theRoad Management Departments of each participating city for the planning and management of roadmaintenance and rehabilitation works under the project

9. The Borrower will undertake all measures required to carry out the Environmental ManagementPlan

H. Readiness for Implementation

1 1. a) The engineering design documents for the first yeares activities are complete and ready for the startof project implementation.

O 1. b) Not applicable.

1 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implernentatiox.

1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

O 4. The following items are lacking and are discussed under loan conditions (Section G):

1. Compliance with Bank Policies

1 1. This project complies with all applicable Bank policies.fO 2. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Richard C. Podolske Ricardo A. valpe yoshi KoderaTeam Leader Sector Ma er/Director Country Manager/Director

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Annex 1: Project Design Summary

KYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

Key P anooIerarchy of Objecives Indkators NMnitoring & Evaluatkon Critical Assumptions

rSector-related CAS Goal: Sector Indicators: Sectorl country reports: (from Goal to Bank Mission)* Sustain growth through * Increased role of private * Mid-term review * Government implements

removal of policy and sector in urban road * Implementation project according to planregulatory impediments maintenance and Completion Reportto private sector activity rehabilitationin the road construction * Impact on publicindustry finances due to

* Strengthen public municipal road financefinances, especially and managementthough increasing improvements.revenues for urban roadmaintenance andrehabilitation

Project Development Outcome I Impact Project reports: (from Objective to Goal)Objective: Indicators:1. Reduced transport costs * Vehicle operating costs * Social assessment * Reduced transport costsand improved transport of private and urban exercise and improved transportaccessibility of the general passenger transport * Mid-term review accessibility contributespublic and the low income vehicle fleets * Road roughness and to economic growthpopulation, in particular other condition surveys

of completed sections* Vehicle operating cost

survey

2. More effective annual road * Implementation of the * Annual road * More efficient publicexpenditure programs and Municipal Road Finance expenditure review sector spendingstronger municipal finances Action Plan (Road Fund and contributes to sustained

* Annual budgets for road municipal road economic growthmaintenance programs expenditures) * Improved revenues

* Increased opportunities * Mid-term review with sources will not befor private contractors in special focus on undermined by poorcivil works efficiency of public utilization of the

expenditures under the increased fundingproject

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Key PfraoHIerarchy of Objecves IndIcatos knOuring & Evalatn Critical.Assumpffons

Output from each Output Indicators: Project reports: (from Outputs to Objective)component:1. Improved quality of road * Road upgrading * Quarterly progress * Improved quality ofsurfaces and reduced rate of completed according to reports by PIU; road surfaces leads toroad deterioration on portions an agreed schedule * Supervision mission reductions in transportof the road network; * Road roughness reports; costs

measures * Mid-term review* Road roughness surveys

of completed sections

2 (a) Improved road design * Introduction of road * Better roadand implementation quality, maintenance management systems

management systems in and local technical2 (b) Increased opportunities each city capacity lead to efficientfor private sector through * Number, size, and resource usecompetitive bidding, nationality of private

sector contractors(c) improved technical working on projectcapacity in local road * Staff of Roaddepartments departments working on

project* Quality of construction

3. Stable and reliable funding * Central and city * Stable and reliablefor city road expenditures governments agree on funding leads to

municipal road finance improved roadaction plan maintenance planning

* Road improvementrevenues to be generatedby each city

* National road fundallocations to each city

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Project Components I Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)1. Road Rehabilitation and $21.71 million * Quarterly progress * Adequate and timelyMaintenance reports by PIU; provision of counterpart

* Supervision mission in-kind contributionsreports;

* Mid-term review2. Engineering Services: $1.61 million * Good cooperation

* Design of Second & between the PIU whichThird Year Construction hires the engineeringProgram, consultant and the cities

* Construction who hire the contractorsSupervision,

* Institutional CapacityBuilding (Training,Road ManagmentSystems, and realtedequipment) for RoadRehabilitation andMaintenance

3. Urban Road Finance $0.10 million * Mission review of * Adequate central andConsultants findings prior to municipal support for

December 2000 and participation in thestudy

4. Project Management: $0.50 million * Annual audit reports * Adequate counterpart* Operating costs for the funding for PIU

Project ManagementUnit

* Project Audits* Environmental

Monitoring

5. Passenger Transport $30,000 in grant funds; * Adequate grant fundingReform Program for Bishkek additional grant funding to be will be received toand possibly other project sought permit suitablecities assistance to the reform

process

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Annex 2: Project DescriptionKYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

By Component:

Project Component I - US$21.75 millionA. Civil Works: Rehabilitation and Maintenance of Priority Sections of Urban Streets in theCountry's Three Major Cities

This component includes rehabilitation and maintenance of priority sections of the urban public transportnetworks in the cities of Bishkek, Osh and Jalalabad. The selection of roads for inclusion in the project ismade on the basis of economic returns, following classification, condition rating assessment, and remedialtreatmnent proposals. Routine maintenance supplementary funds are also included and directed towardsthose sections of roads not included for other rehabilitation treatment The improvement of materialsmanagement and testing capabilities in each city will be included in the provisions of civil works contracts.

Rehabilitation treatments vary from complete reconstruction to asphalt overlays to surface treatments, andinclude minor drainage improvements and provision for utility modifications. The routine maintenancefunds are aimed at catching up on crackfilling and pothole repairs. Works will be implemented over a threeyear period in Bishkek, and in two years in Osh and Jalalabad.

(i) Civil Works in Bishkek will include approximately rehabilitation of 72 km of roads at an estiratedcost of approximately US$16.5 million, and maintenance. Selection and design of the first yearconstruction contract recommends improvements to 13 km of pavement by milling and new asphalt overlay,and 4 km of surface treatment.

(ii) Civil works in Osh will include rehabilitation of 14 kms of pavement at a cost of about US$3.4million, and maintenance. The first year program recommendations include 4 km of milling and overlay.

(iii) Civil works in Jalal-Abad will allocate US$1.9 million to rehabilitation of about 12 kms ofpavement. 3 km of milling and overlay treatment, plus 1.5 km of reconstruction are recommended for thefirst year.

Project Component 2 - US$1.90 millionB. Consultants Services and Training

This component includes consultants services, coordinated through the PIU in the Ministry of Transportand Communications, for the following:

(i) Engineering Design and Construction Supervision will introduce current design technologies forroad maintenance and rehabilitation, condition assessment, economic prioritization, and internationaltendering and contract administration practices. In addition to on-the-job training opportunities in routinedesign and supervision practices, the consultant will assist in establishing standard practices andprocedures, and documenting these in a set of contract administration and construction supervision manualsfor future application in the cities and throughout thecountry. Assistance will be provided in establishing and implementing a computerized maintenancemanagement system for monitoring, evaluating, forecasting and budgeting annual maintenance activities.

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(ii) A Municipal Road Finance Study will address the need of municipalities to access additionalfunding resources to sustain the road investments by continuing the maintenance and rehabilitationactivities following the investment program. The study will include both municipal finances and theNational Road Fund.

(iii) Passenger Reform in Bishkek. The review will suggest a time bound action plan to increase costrecovery for urban passenger transport services through measures such as route franchising to reducerevenue leakages, fare structure and subsidies revisions. This study will be financed separately under anongoing grant.

Project Component 3 - US$ 0.80 millionC. PIU Operating Costs and Project Preparation Facility.

(i) Project Management and PIU Operations. This will fund the activities of the ProjectImplementation Unit in the Ministry of Transport & Communications, including staff salaries and officeexpenses at a total cost of $0.50 million. This will also include PIU financial audits.

(ii) Project Preparation Facility. This provides for repayment of $0.3 million of funds advanced underthe PPF for preparation of the project.

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Annex 3: Estimated Project CostsKYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

Local Foreign TotalProject Cost By Component US $rilion US SmrilIon US SmIfflon

A: Civil Works 0.00 0.00 0.00Road Rehabilitation and Maintenance - Bishkek 4.47 10.44 14.91Road Rehabilitation and Maintenance - Osh 0.95 2.20 3.15Road Rehabilitation and Maintenance - Jalalabad 0.55 1.29 1.84

B. Goods - Misc. Road Management and Project Management 0.00 0.11 0.11EquipmentC: Consultant's Services and Training 0.00 0.00 0.00

Engineering Services (design, construction supervision) 0.00 1.45 1.45Urban Road Finance Reform 0.00 0.10 0.10Environmental Monitoring 0.00 0.03 0.03Audit Fees 0.00 0.08 0.08

D: Project Preparation Advance. 0.00 0.30 0.30E: Project Management (PIU salaries, training, official travel 0.04 0.34 0.38and communications)Total Baseline Cost 6.01 16.34 22.35

Physical Contingencies 0.30 0.70 1.00Price Contingencies 0.24 0.63 0.87

Total Project Costs 6.55 17.67 24.22Total Financing Required 6.55 17.67 24.22

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Annex 4: Cost Benefit Analysis SummaryKYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

[For projects with benefits that are measured in monetary terms]

Present alue of Flows Fiscal impactEconomic Finanbdal AnalysiseAnalysis _ __Taxes S__ubsMiss

Benefits: 111.23

Costs: 4.94

Net Benefits: 111.23

IRR: 175

If the difference between the present value of financial and economic flows is large and cannot be explained bytaxes and subsidies, a brief explanation of the difference is warranted, e.g. "The value of financial benefits is lessthan that of economic benefits because of controls on electricity tariffs."

Summary of Benefits and Costs:A cost-benefit analysis was carried out for the road sections included under the first year priority worksprogram. The road investment component includes three activities: (i) routine and periodicrepairs/maintenance; (ii) rehabilitation; and (iii) reconstruction. A set of maintenance, rehabilitation andreconstruction strategies were compared using the Highway Design Model (HDM). The priority programwas selected based on the following criteria: Economic Rate of Return (ERR) and Net Present Value(NPV). The latter was based on a 12% discount rate and 20 years of simulation period. Costs of institutionbuilding activities, such as technical assistance, design, supervision, monitoring and physical contingencieswere incorporated into the investment costs to perform the economic evaluation.

The ERR and the NPV of the priority works are estimated to be in excess of 50% and US$112.0 millionsrespectively. ERRs are between 47 % to 54% for reconstruction, and between 33% to 316% forrehabilitation works. These indicators show clearly that the proposed investments are highly profitable.

Rehabilitation ERR (%) NPV, US$ million

Bishkek 208 90

Osh 124 13.1

Jalalabad 61 3.2

Totalprogram 175 106.3

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Main Assumptions:Main assumptions, data and economic analysis are briefly described in the following. Ideally, a prioritizedinvestment program for urban roads in Bishkek, Osh and Jalalabad would be developed from acomprehensive survey of the traffic and physical road conditions over the entire network underconsideration. However, the scope of the surveys have to be balanced against funds and time available fordata collection, design, and civil works. Given that the bus networks represent the principal paths of traveldemand and in view of financial constraints on survey work, the assessment of alternatives was focused onthe municipal bus route networks in the three project cities. It is expected that these cover their mostimportant roads.

Routine and Periodic repairs include routine maintenance, pothole repairs, paintings, 2 cm overlays ofasphalt, and single surface dressing treatment on no more than I OOm per km. Routine and periodic repairswill cover approximately 18 kmns spread over the entire public transport network. The average InternationalRoughness Index (IRI) on this network was estimated in excess of 6.0, with an averge daily traffic of20,000 vehicles per day in 1999. Traffic on this network is projected to rise at annual rates varyingbetween 2% to 5 % upto 2005 and at 5% beyond that. Traffic forecast is based on the projected GDPgrowth over 1999-2005 and beyond.

Sensitivity analysis / Switching values of critical items:A worst case sensitivity analysis was performed to determine how much the economic returns would beaffected by a substantial variation of the main factors in the road investment program. The worst casescenario assumed that there were no passenger time benefits and zero traffic growth. Under theseassumptions, the lowest IRR is 13%, while the average is 132%. It is noted that the lower traffic in the nogrowth scenario would result in slower road deterioration and thus lower road roughness in both with andwithout cases. These changes have been ignored and the benefits might consequently be slightly overstated,but given the very high initial benefits it seems unlikely that including these would alter the recommendedprogram.

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Annex 5: Financial Summary

KYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

Years EndingDecember 31

USS million

| Year i Year 2 | Year 3 | Year 4 Year 5| Year 6| Year 7Total Financing Required

Project CostsInvestment Costs 5.0 9.3 9.5 0.0 0.0 0.0 0.0Recurrent Costs 0.1 0.1 0.1 0.1 0.0 0.0 0.0

Total Project Costs 5.1 9.4 9.6 0.1 0.0 0.0 0.0Total Financing 5.1 9.4 9.6 0.1 0.0 0.0 0.0

FinancingIBRDIIDA 4.7 8.5 8.7 0.1 0.0 0.0 0.0Govemment 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financlers 0.0 0.0 0.0 0.0 0.0 0.0 0.0Beneficiaries 0.4 0.9 0.9 0.0 0.0 0.0 0.0

BlshkekUS$1.63

OShUS$0.34

Jalal-AbadUS$9.20

Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Financing 5.1 9.4 9.6 0.1 0.0 0.0 0.0

Main assumptions:

- All costs net of taxes and duties- Physical Contingencies of 10%/o on civil works- Price contingencies at 2.2 % per year

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Annex 6: Procurement and Disbursement ArrangementsKYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

Procurement

General. Procurement of works and technical services financed by the Bank would be conducted inaccordance with the Bank's "Guidelines for Procurement under IBRD Loans and IDA Credits" of January1995, revised January 1996, August 1996, September 1997 and January 1999. Procurement of consultingservices would follow the Bank's Guidelines "Selection and Employment of Consultants by World BankBorrowers" of January 1997, revised September 1997 and January 1999. For procurement under the Loan,the Borrower would use: (i) the Bank's standard bidding documents for ICB procurement; and (ii) theBank's Standard Request for Proposals for Selection of Consultants.

Procurement Responsibility. All procurement under the proposed project is carried out by the ProjectInplementation Unit (PIU) within the Ministry of Transport and Communications. The PITJ has conductedadvance procurement for the first year contracts with the assistance of international consultants financedunder a PHRD grant fund and a PPF. A procurement capacity assessment of the agency was conductedduring project preparation. Based on the findings of this assessment, an action plan (includingrecommended procurement arrangements and provision of training and intemational procurementassistance) was prepared by the Bank. The main objective of this plan is to enhance the implementationagency capacity in conducting competitive procurement and apply Bank Procurement Guidelines under theproject. The actions under this plan have been agreed upon with the Borrower during appraisal and havebeen confirmed at negotiations. According to the Action Plan, the PIU is staffed with a full timeprocurement specialist. The responsibilities of the procurement specialist include inter alia: (i) to prepareand submit to the Bank all procurement documents which require Bank's prior review; (ii) carry out anyprocurement action; (iii) prepare and submit to the Bank at the beginning of each calendar year a detailedprocurement schedule; (iv) update the General Procurement Notice and prepare Special ProcurementNotices; (v) ensure that the procuremnent process is conducted based on principles of efficiency, economyand transparency.

Notification of business opportunities. A General Procurement Notice (GPN) was published inDevelopment Business on August 16, 1999, announcing the bidding opportunities under this project andinviting interested eligible suppliers, contractors and consultants to express interest and request anyadditional information from the PIU. The GPN was also published in the local press. In addition, tworequests for expressions of interest for the design and supervision consultants and a special procurementnotice for the first year civil works contracts have also been published in Development Business. TheGeneral Procurement Notice will continue to be updated annually.

Table A and Al provide details of procurement arrangements for main expenditure categories, includinggoods and consultants services. Table B provides information on thresholds for prior review andprocurement methods. Table D refers to the capacity assessment of the PIU and technical assistancerequirements. A procurement plan detailing the packaging and estimated schedule of the main procurementactions is presented in Table E. The Action Plan to strengthen the PIU procurement capacity is presented inTable F.

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Procurement methods (Table A)

(i) WorksInternational Competitive Bidding (ICB): would be used to procure works for contracts estimated to costUS$200,000 or more each.(u) GoodsInternational Shopping: would be used to procure road management equipment estimated to cost less thanUS$50,000 per contract, up to an aggregate amount of US$70,000.National Shopping: would be used to procure project management equipmnent estimated to cost less thanUS$25,000 per contract up to an aggregated amount of US$ 40,000.

(ii) Consulting Services:Quality and Cost Based Selection (QCBS): would be used for to hire consulting frms to providetechnical assistance and training for contracts estimated to cost more than US$100,000 each.Selection Based for Consultants Qualifications (CQ): would be used for hiring a consulting finm toprovide technical assistance in environmnental monitoring for a contract amounting to less thanUS$100,000.Least Cost Selection (LCS): would be used to hire an auditing firm.Individuals would be hired to provide assistance in urban finance up to an aggregate amount ofUS$100,000.

(iii) PIU Incremental Operating Costs:Items for operation of the PIU will be procured in accordance with an agreed budget and schedule.

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

Proureent MethodExpenditure Category ICB NCO Other2 N.SF TOtl Cst

1. Works 21.71 0.00 0.00 0.00 21.71(19.53) (0.00) (0.00) (0.00) (19.53)

2. Goods 0.00 0.00 0.11 0.00 0.11(0.00) (0.00) (0.10) (0.00) (O.I )

3. Services 0.00 0.00 1.71 0.00 1.71(technical assistance and (0.00) (0.00) (1.71) (0.00) (1.71)training)4. Miscellaneous 0.00 0.00 0.39 0.00 0.39

Operating cost (0.00) (0.00) (0.35) (0.00) (0.35)

5. PPF Repayment 0.00 0.00 0.30 0.00 0.30(0.00) (0.00) (0.30) (0.00) (03

Total 21.71 0.00 2.51 0.00 24.22

(19.53) (0.00) (2.46) (0.00) (21.99)

"Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies2'Includes civil works and goods to be procured through national shopping, consulting services, services of

contracted staff of the project management office, training, technical assistance services, and incrementaloperating costs related to (i) managing the project, and (ii) re-lending project funds to local governmentunits.

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Table Al: Consultant Selection Arrangements (optional)(US$ million equivalent)

61011- -met""-

E,tltw.ft" QCSBC QBS. SF6! LCS etar N.H.". TOW Ct t

A. Fi 1.50 0.00 0.00 0.08 0.03 0.00 0.00 1.61(1.50) (0.00) (0.00) (0.08) (0.03) (0.00) (0.00) (1.61)

B. Individuals 0.00 0.00 0.00 0.00 0.00 0.10 0.00 0.10_ (0.00) (0.00) (0.00) (0.00) (0.00) (0.10) 0.00) (0.10

Total 1.50 0.00 0.00 0.08 0.03 0.10 0.00 1.71(1.50) (0.00) (0.00) (0.08) (0.03) (0.10) (0.00) (1.71)

1\ Including contingencies

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = selection of individual consultants (per Section V of Consultants Guidelines),Commercial Practices, etc.

N.B.F. = Not Bank-financedFigures in parenthesis are the amounts to be financed by the Bank Credit.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

Conatact Value Contrew Subjel t XThrshold Prouremet Prir Review

Expanditure Cateory (US$ thousands) Method (US$ rnml s)1. Works >200 ICB All contracts (21.71)

2. Goods <50 Is N/A<25 NS _ _ _ _ _ _ _ _ _

3. Services >100 QCBS All contracts aboveFirms LCS $50,000 (1.58)

<100 CQ

Individuals (aggregate US$ 100) Individuals All contracts

above $30,000 (0.1)

Total value of contracts subject to prior review: 23.4 (96%)

Overall Procurement Risk Assessment

High

Frequency of procurement supervision missions proposed: One every 12 months (includes specialprocurement supervision for post-review/audits)

in the first two years of the project. The post-reviews will be I in 5.

'Thresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.

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Disbursement

Allocation of credit proceeds (Table C)

The proposed IDA Credit of US$22.0 million would be disbursed over a period of 4 years. The expectedClosing Date is May 31, 2004.

initial Credit disbursements would be made on basis of traditional disbursements procedures. TheBorrower may choose to substitute traditional disbursement procedures with PMR-based (LACI)disbursements once the Bank has certified that the project has in place a project financial managementsystem that can provide, with reasonable assurance, accurate and timely information on the status of theproject (PMR) required by the Bank, and after mutual agreement between the Association and theBorrower.

Table C: Allocation of Credit Proceeds

Expediture Catgory Amount In US$million Financing Perceitage

1. Works 17.92 90%2. Goods 0.11 100% of foreign, 100% of local

expenditures ex-factory, and 90% oflocal expenditures

3. Consultant's Services including 1.66 100%audits, training and studies4. PIU Operating Costs 0.35 Declining basis beginning with 100%/o in

the first year; 90% second year and 80%third year

5. Refunding of Project Preparation 0.30 Amount due pursuant to Section 2.02 (b)Advance of the Credit Agreement5. Unallocated 1.66

Total Project Costs 22.00 _ _ _ _

Total 22.00

Use of statements of expenditures (SOEs):

Disbursements made on basis on SOEs procedures will be made for contracts of. (i) civil works valued atless than US$200,000; (ii) goods valued at less than US$100,000; (iii) PIU1s operating costs and contractsfor audits; and (iv) contracts for consultant's services for firms and training valued less than US$50,000and consultant's services contracts for individuals valued less than US$30,000. Supporting documents willbe maintained by the PIU and made available for review by Bank staff and independent auditors. Thismethod of disbursement will however be discontinued with the approval and introduction of ProjectManagement Reports (PMR) based disbursements.

Special account:To facilitate timely project implementation, the Borrower would establish, maintain and operate a SpecialAccount in US dollars in a commercial bank under conditions acceptable to the Bank. The selection process

-42 -

and criteria for selecting a commercial bank to hold the Special Account would follow the World Bankstandard procedures. During the early stage of the project, the initial allocation of the Special Accountwould be limited to US$400,000. However, when the aggregate disbursement and sum of all outstandingspecial commitments under the Credit have reached the level of SDR 3.0 million, the initial allocation maybe increased up to the authorized allocation of US$800,000 by submitting the relevant application fromwithdrawal. Replenishment applications would be submitted at least every three months, and includereconciled bank statements as well as other appropriate supporting documents. The authorized allocationfor the Special Account would be reviewed when PMR-based disbursement procedures are adopted.

The following procedures will be applicable under PMR-based procedures: (i) withdrawals from the CreditAccount shall be deposited by the Bank into the Special Account based upon eligible Credit categoriesindicated in Table C; (ii) withdrawal applications would be supported by PMIRs and Special Account bankstatements covering the reporting period; (iii) the Quarterly PMRs would be sent to the Bank within 45days from the end of the preceding quarter, whether or not further advances are required. Format of thePMRs and timing of reporting was confirmed during Negotiations.

Financial Management (detailed financial management capacity assessment in project file)

Assessment of financial management systems of the Project Implementation Unit (PIU) within the Ministryof Transport and Communications was caiTied out to determine whether the project has in place adequatefinancial management systems for project implementation and Credit disbursements in accordance withOP/PB 10.02 Bank requirements. Overall responsibility for project accounting, reporting, administration ofthe Special Account and auditing arrangements will be carried out by the PIU. A time-bound Action Plan tostrengthen the financial management capacity of the PIU was discussed and agreed with the PIU and theBorrower during preappraisal, and confirmed at negotiations. The Action Plan will be implemented byDecember 31, 2000.

Staffing. The PIU currently has a staff of eight, including director, accountant/disbursement officer,procurement specialist, transport expert, road expert, municipal finance expert, economist and translator.The municipal finance expert who will work closely with the participating cities and the Ministry ofFinance (MOF) in assisting the municipalities improve revenue generation was recently transferred to thePIU from the MOF. Although the PIU has some experience in implementing Bank projects through thePHRD Grant and the PPF, they require additional training in financial management, disbursementprocedures, international accounting and auditing standards. Some staff training will be provided throughthe Credit.

Project Accounting and Internal Controls. Existing semi-automated accounting system will be replacedwith a new accounting and financial reporting software. Carana Corporation selected to install the systemhas already started the installation process including designing Project Chart of Accounts, related books ofaccounts and PMRs. The project accounts will be based on the Chart of Accounts drawn up by thepreappraisal mission, with the assistance of the MOF and the PLU. The Chart will acconmmodate theproposed project capturing all sources and uses of funds, assets and liabilities in sufficient detail to satisfyPMR-based reporting requirements. The accounting system will be maintained in accordance withintemational standards, based on principle of double-entry cash basis of accounting. The Caranaconsultants will also train the PIU staff on applications and maintenance of the system. Further training onaccounting, auditing, disbursements and overall financial management will be provided by the Bank.

Internal controls are considered acceptable subject to streamlining documentation flow from the

-43 -

participating cities to the PIU to avoid delays in Credit disbursement, and documenting operationalprocedures and guidelines for project financial management in a Financial Management and OperationalManual. The draft Manual has been submitted to the Bank for comments and will be updated and finalizedby the consultants installing the accounting and financial management system, incorporation accountingand operational procedures for such system.

Financial Reporting. The format and frequency of submission of Quarterly Project Management Reports(PMRs) was discussed and agreed with the Borrower and the PIU during the appraisal and confirmed atnegotiations. The PMRs which link project expenditures with actual physical progress made by the Projectwill be generated from the integrated computerized financial management and monitoring system andsubmitted to the Bank. These reports will include: (i) financial report summanizing sources of projectfinancing and project expenditures, disbursement, and forecast project expenditures; (ii) reconciliation ofthe Special Account; (iii) project progress report comprising output monitoring and summary of projectprogress; and (iv) procurement management report on status of procurement and contract management. Afixed asset register will be maintained and updated regularly by the PLU.

Auditing Arrangements, Accounting and Auditing Standards. Three short-listed auditing firms havesubmitted proposals for the audit of the Project. The independent auditors selected will sign a three yearcontract for the duration of the Project. The accounting and auditing standards applicable in the KyrgyzRepublic are based on Tax Law, and are not fully in compliance with international standards. The KyrgyzRepublic is in the process of converting the national standards to international standards. The Bankinformed the PIU of Bank requirements on maintaining accounts and records in accordance withInternational Accounting Standards (IAS) and conducting audit in accordance with International Standardson Auditing (ISA). Auditors selected are required to be members of the International Federation ofAccountants (IFAC), and if local auditors also be affiliated with the 'big five' international auditing firms.The PIU will be responsible for auditing arrangements. Audit report with accompanying certified copies offinancial statements will be submitted to the Association not later than six months after the end of each yearaudited. Audit arnangements and applicable standards confirmed at negotiations.

Readiness for Implementation and Risks. The PIU has shown great commitment to ensure a satisfactoryfinancial management system will be in place before project start. They have already hired an accountant,municipal finance specialist, and have started the installation of an accounting and financial managementsystem. Also, the PIUJ has prepared draft Accounting Procedures and Financial Management Manual, andare in the process of selecting independent auditors for the Project. The Bank project team will work closelywith the PIU to mitigate any delays in the implementation of the financial management action plansummarized below.

- 44 -

Table D: Capacity of the Implementing Agency in Procurement andTechnical Assistance Requirements

Brief Statement

A capacity assessment of the Borrower was conducted during pre appraisal. The procurement unit of the Borrower, establishedfor the purpose of this project, has no public procurement experience and limited experience with Bank procurement.Therefore, an action plan was prepared to enable the Borrower to conduct procurement under the project in accordance withBank procurement procedures. This plan includes: (i) hiring competitively a local specialist to conduct procurement under theproject (by March 2000); (i) hiring an international procurement specialist experienced in Bank financed procurement (July2000); (ii) defining the composition of the tendering committee by negotiations; (iii) training selected staff in the PIU in Bankprocurement (June-July 2000); (iii) use of Bank standard bidding documents under the project; and (iv) organizing a projectlaunch workshop immediately after loan approval (September 2000).

Country Procurement Assessment Report, was not yet conducted. Are the bidding documents for the procurement actions frO

However, Kyrgyz Republic has a public procurement systemn and thefirst yeor r-ay by negotiations:standard bidding documents prepared under a Bank IDF grant.

Yes.

TRAnuNc INFORMATION AMN DEVELOPMENT ON PROCUREMENT

Estimated Date of Date ofpublication of Indicate if there is Domestic Domestic PreferenceforProject Launch General Procurement procurement subject to Preference Works, if applicable:

WorArs2op0 Notice: August 16, 1999 mandatory SPN in for Goods: YesDevelopment Business:Yes, for hiring the Yes.supervision consultants.

Retroactive Financing: Yes Advance Procurement:Explain: First year construction contracts to be pre financed by Government Yes for the first year contracts.until effectiveness.Explain briefly the Procurement Monitoring System:All project documentation which requires prior review will be cleared by a PAS and the relevant technical staff. Aprocurement consultant will assist the Government in monitoring the procurement process and building up in houseexperience. Procurement information will be collected and recorded by the Borrower and submitted to the Bank as part ofquarterly progress reports prepared by the PIt. This information would include: (a) revised cost estimates for individualcontracts; (b) revised timing of procurement actions including advertising, bidding, contract award and completion time forindividual contracts; and (c) compliance with aggregate limits on specific methods of procurement.Cofinancing: Explain briefly the Procurement arrangements under co-financing: N/A

PROCUREMENT STAFFING

Indicate name of Procurement Staffor Bank's staffpart of Task Team responsiblefor the procurement in the Project:

Name: Irina Luca Extension: 87092

Explain briefly the expected role of the Field Office in Procurement: The Field Office will provide support to the project team duringproject implementation.

-45 -

Table E: Procurement Plan

2. 3. 4. 5. 6. Estimated dates

Description Tye No. of Est. Procure Pre- Bidding Contract ContractCon- cost meat qual Doements 1. Invitatlon Signing Completlontracts USS method Ifi- 1. Draft to 2. Opening

mn catl Bank 3. Evaluadtonon 2. BankNo and

Objection Rclonmenda-don.

_______ ____________ 4. AwardWORKS

Contract CW 1 2.60 ICB N/A 1. 10.03.00 1. 16.03.00(SPN) 23.06.00 15.11.00Bishkek 2. 16.03.00 2. 28.04.00(year 1) 3. 12.05.00

4. 29.05.00

Contract Osh CW 1 0.87 ICB N/A 3. 10.03.00 5. 16.03.00(SPN) 23.06.00 15.11.00(year 1) 4. 16.03.00 6. 28.04.00

7. 12.05.00______ 8. 29.05.00

ContractJalal CW 1 0.57 ICB N/A 5. 10.03.00 9. 16.03.00(SPN) 23.06.00 15.11.00Abad (year 1) 6. 16.03.00 10. 28.04.00

11. 12.05.00_____ _______ _____________ ~~~12. 29.05.00

Contract CW 1 6.78 ICB N/A 1. 01.12.00 1. 01.01.01 15.04.01 31.10.01Bishkek 2. 15.12.00 2. 20.02.01(year 2) 3. 10.03.01

4. 01.04.01

Cntract Osh CW 1 2.60 ICB N/A 3. 01.12.00 5. 01.01.01 15.04.01 31.10.01(year 2) 4. 15.12.00 6. 20.02.01

7. 10.03.01______ _______ ~~~ ~~~~~~8. 01.04.01

Conutct Jalal CW 1 1.45 ICB N/A 5. 01.12.00 9. 01.01.01 15.04.01 31.10.01Abad (year 2) 6. 15.12.00 10. 20.02.01

11. 10.03.0112. 01.04.01

Contract CW 1 6.84 ICB N/A 1. 01.12.01 1. 01.01.02 15.04.02 31.10.02Bishkek 2. 15.12.01 2. 20.02.02(year 3) 3. 10.03.02

4. 01.04.02GOODS

Road G 2 0.07 IS N/A N/A As neededmanagement

Office G 2 0.04 NS N/A N/A As neededmanagementeauiipm ett _ _ _ _ _ _ _ ___ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

-46 -

1 2 3 4 5 6CONSULTANTS 1. RFP to the 1. Issue RFP Contract Contract

Bank 2. Submission Signing Completion2. Bank no 3. Technical ev.objection 4. Financial ev.

5. ContractI _ negotiations

Supervision, CS I 1.50 QCBS N/A 1. 10.02.00 1. 20.03.00 05.07.00 01.06.03design, training 2.17.03.00 2. 19.04.00and procurement 3. 25.04.00

4. 17.05.005. 29.05.00

Environmental CS 1 0.03 CQ N/A TORs to the Contrct to themonitoring Bank Bank:

June 30, 2000 August 15,2000

Auditor CS 1 0.08 LC N/A 1.21.04.00. 1. 26.05.00 15.08.00 01.06.042. 25.04.00 2. 26.06.00

3. 08.07.004. 27.07.005. 06.08.00

Technical CS I 0.1 Other Initiate July 10, 2000 15.09.00assistance inmunicipal finance

Project 0.39Management -Operational cost(PIt])

PPF repayment 0.30

TOTAL 24.22

CW=Civil Works, G=Goods, IS=International Shopping, CS=Consultancy Services, QCBS=Quality and Cost Based Selection, LS= leasecost selection, Other =-Individuals, TA=Technical Assistance, TR=Training

-47 -

Table F: Procurement Action Plan

ACTION DUE DATEPIU to hire competitively a local consultant with experience in By appraisal (MarchBank procurement. 2000)PIU to define the composition of the Tendering Committee April 2000decide on procedures, flow of documents and signatory powers.Technical assistance in procurement during project Process was launchedimplementation by an intemational consulting company; an (issue of proposals -expatriate procurement specialist (PS) would be assigned to mid March). Expectedassist the Borrower in implementing procurement activities for date for thethe project. The PS shall have experience with World Bank assignment to start-procurement procedures and practices. mid July.The latest version of the Bank standard/sample bidding Hard copies anddocuments shall be used: electronic versions ofFor purchasing Goods: these documents to be* Standard Bidding Document: Procurement of goods dated made available to the

January 1995; Corrigendum #1 of October 6/96 on Fraud Borrower by theand Corruption; and Corrigendum # 2 of January 1/99 on Procurement specialistthe EURO; in charge of the project

* Standard Bid Evaluation Form of January 1/96. and by the ResidentFor civil works: Mission.* Standard Bidding Document for the Procurement of Works,

January 1995 revised January 1999 and corrigendum # 4.* Standard Bidding Document for Procurement of Works,

smaller contracts, of January 1995; Corrigendum #2 Oct. 61996 on Fraud and Corruption, Corrigendum on Euro ofJan. 1, 1999 and Corrigendum # 3 of Oct. 21 1999 ondomestic preference.

* Standard Bid Evaluation Form of January 1/96.For hiring Consultants:* Standard Request for Proposals, Selection of Consultants,

July 1997, revised April 1998 and July 1999;* Sample form of evaluation report for Selection of

Consultants of October 1999Procurement staff to be further trained by attending formal September 2000training in Bank procurement organized by the Bank or by ILO.Bank to organize a project-launching workshop to provide September 2000additional procurement knowledge about Bank procurementprocedures tailored to the specific needs of the project.Bank assistance and advice in procurement during project Procurement person inimplementation charge of the project

and the Resident

-48 -

Annex 7: Project Processing Schedule

KYRGYZ REPUBLIC: Kyrgyz Urban Trnsport Project

Piojt SchedLe pWainni . ActualTime taken to prepare the project (months) 18 24,First Bank mission (identification) 03/25/98 03/25/98Appraisal mission departure 03/06/2000 03/06/2000Negotiations 05/18/2000 06/26/2000Planned Date of Effectiveness 09/15/2000

Prepared by:

Kavita Sethi

Preparation assistance:

Lorraine McCann Kosinski

Bank staff who worked on the project included:

Name SpeclaUityRichard C. Podolske Sr. Operations OfficerKavita Sethi Transport EconomistIrina Luca Procurement SpecialistNjeri Muhoho Financial AnalysttFinancial Management OfficerHiran Herat Financial Management SpecialistLaffy McCartney EngineerZoe Kolovou LawyerHannah Koilpillai Disbursement Officer

-49 -

Annex 8: Documents in the Project File*KYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

A. Project Implementation Plan

B. Bank Staff Assessments

C. Other

D. Assessment of the Project Financial Management System

E. Environmental Management Plan

F. CIE Reports on Urban Passsenger Transport Reform

G. Scott Wilson Kirkpatrick Reports on First Year Construction Program

H. Letters from Government on Commitments to Urban Road Finance Reform and CounterpartFinancing

*Including electronic files

- 50 -

Annex 9: Statement of Loans and Credits

KYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

Dlflerence between expectedand actual

Original Amount in US$ Millions disbursementsProject ID FY Borrower Purpose IBRD IDA Cancel. Undiab. Orig Frm Revd

KG-PE48589 1999 GOVT. OF KYRGYZ SOCIAL SEC. ADJUST. 0.00 36.50 0.00 17.87 -.40 0.00

KG-PE62882 1999 REPUBUC FLOOD EMERGENCY 0.00 10.00 0.00 9.42 1.01 0.00

KG-PE-44585 1999 KYRGYZ REPUBUC RURAL FINANCE 11 0.00 15.00 0.00 14.85 0.00 0.00

KG-PE-40721 1998 GOVERNMENT OF KYRGYZ AGRIC. SUPPORT. SERV 0.00 14.98 0.00 14.03 1.16 0.00

KG-PE-46042 199 GOVT. OF KYRGYZ IRRIGATION REHAB. 0.00 35.00 0.00 31.12 -1.00 0.00

KG-PE-8520 1997 REPUBUC RURAL FINANCE 0.00 16.00 0.00 3.68 4.18 0.00

KG-PE-45631 199 GOVT. OF THE KYRGYZ FINANCIAL SEC. TECH. 0.00 3.40 0.00 1.51 1.58 0.00

KG-PE-8513 1998 REPUB SHEEP & WOOL IMPROV. 0.00 11.80 0.00 6.50 2.06 0.00

KG-PE.8519 1998 KYRGYZ REPUBUC POWER & DIST. HEAT 0.00 35.00 0.00 30.72 12.39 20.56

KG-PE-8523 1996 THE KYRGYZ REPUBUC HEALTH 0.00 18.50 0.00 4.70 1.34 0.00

KG-PE-8524 1995 GOVT OF KYRGYZ PRPV. ENTERP. SUPP. 0.00 15.00 0.00 12.86 12.67 0.00

GOVT. OF KYRGYZ

REPUBLIC

GOV'T OF KYRGYZ

REPUBLIC

GOVT OF KYRGHYZSTAN

Total: 0.00 210.98 0.00 147.26 23.92 20.58

KYRGYZ REPUBLICSTATEMENT OF IFC's

Held and Disbursed Portfolio3 1-Jul-1999

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1995 Kwntor Gold 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00

Total Portfolio: 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Commitnent: 0.00 0.00 0.00 0.00

- 52 -

Annex 10: Country at a Glance

KYRGYZ REPUBLIC: Kyrgyz Urban Transport ProjectEuroe : 9122199

POVERTY and SOCIAL Kvrovs C.ntral Low.Reaubile Asim Income Development dlamond

1995PoDulation. mid-vear imillonsi 4 7 473 3 515 Lire expectsncyGNP DPt capota (Atise method USSI 360 2.190 520GNP WADis nemlhod. USS b,ilionsi 1.7 1 039 1.U44

Averase annual arowth 1902.98

Poouitalion I%i 0 7 0.1 17

Labof torce 1%I I I 0 a 1.9 GNP Grosa

Most recent estImat Ibtast veer available. 1992e981 per N .- 1rimarn

Povertv ri%, of opulation Delow national oovertv fillel 51Urban poDulation l1 of torsl ooDuielfoni 40 BB 31Lil exoeclancv at birth vestCal 67 89 63Intfnt mortstiltv lor 1 000 UIve bhitha) 29 23 89

Child malnutrition IS of chdrdmn under Si 1 I Acress to saFe *ate,Accesas ro saf water it. oJ coaulaltJnll 76 74lHiterev f% of ooD,.ulson aoo 151a 97 a 32Gross orNmayv *nrolimnet f% of sechoo-aos oovulailonl 104 100 108 Kyrgyz Reprbilc

Male 106 101 113 Lo P.V .lCom=te tgouPFamale 103 99 103

KEY ECONOMIC RATIOS End LONG-TERM TRENDS1375 1950 1997 1398

Economic ralloo

GDP (USS biionsl 1 8 1 6Gross domestic Investnent/GDP 21 7 10 0Exoorts of coOtt and sericeaslGDP 38 3 37.0Gross domestic savinoslGDP 13 B 10.9Gross national asvinoaiGDP 13 9 .12..

Current account bstaincelGODP .7 a -22.8Interest DavmantalGOP 37 4 4 mSic -

Total deDbODP 81 9 96.9 Savings investmentTotal debt servicaaxDorts 12.0 18 8Present alue of dabtIGDP 37 6Presant value of debUexoons U6 a

Indaebtecness1370-2S 1957-26 10,t1 1308 1a-3as

leversos ennde orowthliGDP 7.2 99 1 8 20 K Kyrgyz RepublicGNP osr capiSD 8 7 a 7 -2 0 2 0 Los-income rouExoonr of ooods arkd services 15 2 20 1 . 1 5 20

STRUCTURE of the ECONOMY1976 losS 1997 190S Growth rates of output end Investment (%t)

(18 of GDPIAoricuiture 44.8 43.6 40Industr .. .. 22.8 21.6 20 .

Manufacturlno 17.9 18.9 0 _

Services .. .. 32.6 34.9 -20

Private consumption .. .. 69.9 93.6 -40General oovernment consumDtion 16.3 17.3 .GDI -,GDPimoorts of ooods and services 46.2 58.0 L ----

1076-86 1987-98 199T7 1998(sversoo annual orrowth) Growth rates of exports and Imports (%)Aoriculture 7.0 6.0 40Industr .. .. 5.0 5.0 20

Manufacturina .

Services 20.2 -2.802 3 04 gs ye 0

Private consumotlon .. .Generai oovernment consumption .0

Gross domestic Investment . . .

ImDorts of coods and services 11.7 27.7 - rExpots ImpartsGross nationsl oroduct

Note: 1998 data are preliminary estimates.

* The diamonds show four kev indicators in the countrv (in boldt comoared with its Income-orouo avers. If date sta misinas the diamond wiiibe incomolete.

- 53 -

Kvrevz ReDublic

PRICES and GOVERNMENT FINANCE1976 1886 1997 1998 Inflation (Ik)

Domestic pric s(% change) 1.200Consumer prices 14.7 18.4 oo Implicit GOP deflator 19.3 8.5 s00

Government finance 300(% of GDP, Includes current grants) oCurrent revenue 15.8 18.1 S3 94 S5 '5 D7Current budget balance -5.2 -3.4 - GDP deflator -CPIOverall surplusldeficlt (accrual) -g.o -10.0

TRADE

(US$ millions) 1976 19t6 1997 1998 Export and Import levels (USS milliona)Total exports (fob) 631 535 1000

Electric energy 83 268Gold and gold products 185 192 750Manufactures 204 181

Total imports (elf) 725 870 wo * AFood 87 89 250Fuel and energy 200 207Capital goods 123 173 o0 _ _ _ _

Exnort orice index 11995=100 . . 97 94 s2 03 sFt ss or s7 sa

imoort orice index (1995=1001 97 94 dE,port# MlnIport.Termn nf trade (1995=1001 inn inn

BALANCE of PAYMENTS

(USSmillionst 1978 1986 1997 1998 Currant account balance to ODP ratio (%)Exports of goods and services e76 598 o mm m aImports of goods and services 817 936Resource balance -141 -338 5

Net Income -85 -78 10Net current transfers s 68 50

Current account balance -138 -365

Financing items (net) 221 359 i 0Changes in net reserves 43 6 -25

41emo:Reserves Includino oold tUSS millions) .. .. 200 194Conversion rate (DEC. IocallUSSI ..

EXTERNAL DEBT and RESOURCE FLOWS1970 19o6 1997 1098

IUSS millions) Composition of total debt, 1098 (USS millions)Total debt outstanding and disbursed 1.444 1.565

IBRD . . 0 0 G:15iDA 267 333 F: 15

Total debt service 81 112 F:359 .-

IBtRD 0 0IDA 2 2 2 2 /

Composition of net resource flows C 1aoOfficial grants 65 48OMficial creditors 172 225Private creditors 8 -26Foreign direct investment 83 102 E: 40S -

Portfolio equity 25 26 D: 2r5

World Bank programCommitments 60 102 A - lsRD E -sitateraIDisbursements 66 66 B - IDA D -Other muSlitaral F -PrivataPrincipal repayments 0 0 C IMF G -Short-termNet flows Be6.. 86 66Interest payments 2 2Net transfers e8 6

Development Economics 9/22199

-54 -

AdditionalAnnex No.: 11

TfO"5M l S 1Vm~adDacosres1uA1ES pn.Am p4w 1Veiq own

C of. nvii CO"of Bbliqk ! t Cer

C m B k Odl 0~ -. On d Oe iuuPdos bA Caw_ Pu-ut*R t Wp ^u Ws RqO F qu*W RqP-t CcztEadmin Cd 1m& of CrdtObigibi RSft Obl0b ftz Obiplcm Fi mRhiF ObIk Fuv

FbtYe _Cc,donCorta¢ 450 4.00 0.50 182 4.00 0.50 0.00 0.O0 0.0 0.0 0.00 0.00

FstYewCmucn Ca Odi 1.12 1.00 0.12 4.5 o.0o 0OO 1.00 0.12 0.00 000 0.00 0.00

FgtYew Catndmx CaMBIJai 0.79 0.70 OD 3 2 0.00 0.00 0.00 0D 0.70 0.0 .00 0.00

Sewnd &lHd You C a*dca tffc 11.85 1054 131 479 10.54 1.31 0o00 0.00 0.00 oLo0 0.00 0oo

& &m *d Yew CawkxanCoruc Dih 225 Z00 025 9.1 .OD0 0.00 20 025 0.00 0.00 0.00 0.00

Sood & TlMd Yerw CuaruC aftt JeW,6b&d 1.12 1.00 0.12 4.5 om0 oo oD 0m o0 100 0.12 0.00 0.00

B*,*S OAm "D(dqdsewid & ti*d ywmS c,buimapweri) 1.B0 1o0 o.00 82 0.00 oo0 0m o.o0 o0m Q000 1.B0 0.00

PI*ed hfnm-lt(PIUselb*ig, dM vve wtd 039 035 0.04 1.6 0.00 0.0 0.00 0.00 0.00 0.00 0.35 004

PbtedMweg--tEcAi-t 0.11 0.10 0.01 0.5 0.0 0.00 0.00 0.00 0.00 0.00 o 010 0.01

LhM=RoW unR,snxRobm 0.10 010 0.00 o5 o0 ooo o o 0.00 0.00 00 0.00 1 .oo0

Sib*orviu,~ Fwb*xig 0.03 0.03 o.oo 0.1 0.00 0.00 0.0 0.D 0.00 0.00 003 0.00

hdutft D0 0.06 000 0.4 0.00 0oo o om 0.00 0.00 008 0.00

PPF PAnut 030 030 0.00 1.4 Q00 o.00 am ooo oo 0.00 0.30 0.00

TOTAL -24 22.00 244 100 1454 1J1 320 0.37 1.70 021 276 0.06

] Patd n ugmerto s bebus d an adsb rh iv mb urt b 9D%MoIbandPi tComb

Pf* d CodUwsbvbt _m* %am momCRY $"* %Sun 21.6 SU5 Rod RjbWo&MhkwBIu*k 1635 669 1B0 7.4 P n*d8ig P9*psudCauibIISuonS)Csh 337 138 2 . 2.5 PRujedMUWrwt&AudrJbad 1.1 7.8 0.10 0.4 UbinRoDdFiioe RsbmCOm"GoAt 282 11.5 030 1.2 PPF R iertTcO 24.44 100.0 24.44 100.0 TdO

- 55-

Td)bZ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~d

oBd ChrWt ot 0r3 t COit Qu" Oa Qrkl* TdOui Qarbt TcdoQ

ffftld(plok 40D QBD 5S4 aef 5W 0B QX0 ODD 1454 18) 163409,RM* 1m01 Q12 200 QZ am 0oW GO OQ 3SO 037 337AlAbad Fbds; 070 GOD 1W 012 OQ OW OW OW 1.70 021 191Soles; sm*0 a8) Om OfO OD 04D am3 OQ am 1B GOD 1DPc W mert 010 01 010 WI 010 001 OQC OD1 03 Q04 03Ak6EtM1u 006 Q0 OW 01 OW 03 am OW 010 00 Q11

MtRsE%I*wit OW ODI QOW O OD (ND 00a OW 0QX 10 Q0m 010UbEnPadFbvm94 001 GM 0ac 01 OD am1 OO OQm Oo 003 ODD OLErgarwW Wokc OD Om (NP Om 0(2 0W 0am OWO OM OJO 0(3

t 0.102 OQ am ao2 Qm aa D OW ODD Gas QB 0 OBP:FIbWiert Q30 QC0o QcD Qm 00 w am a o Q m Q30 aO Q30

TOM 7DB 073 937 iB 553 063 O7 QO1 2?m 244 4A44

FIWRCD IT;IIO7 N t R I N lEAl£N 70

SxdadFiYew ThidYew Kamcf Ekadr TckRzb

TdEi Cd Cele F1c; I;bbe EniEbdTcil61K FWa;lsaRld LUaod S&aod Eq3s11z Bprdkzm Rdiad Red ni, dtaibbe PitdkSbn Pod Pa cnFac aiFciakn inFYew Sarudll REI Lkdl Sixd RAedal

CRY K K rro Snh fafted YesofteAgt A* SWm

Bst* 73D 8) 6D 4.0D 1054 199 4 723 11.1%

Osh 32D ffi 25 iLlD 200 39 7.8 11.7 4eYa

aAbad 3D 1O) Z3D 070 1.10 53 83 136 59%

Tci 13) 245 1135 5.7 1364 2.1 686 97.7 8ao

- 56 -

Table 4:

MUNICIPAL BUDGETS AND ROAD EXPENDITURES (in million Sam unlss otherwise specfled)

1998 1999 2000 (est)

BishkekOwn Revenues 221.7 293.0 378.3Republican Transfers 314.8 309.8 299.4Other SourcesTotal Expenditures 536.5 602.8 677.7

Amount Spent on Roads from Budget 4.7 13.6 31.0Amount Spent on Roads from National Road Fund 0.0 10.0 6.0Amount Spend on Roads from Other Sources -- -

Total Spent on Roads 4.7 23.6 37.0

Estimated Population 1100000 1100000 1100000Estimated Expenditure Per Capita from Own Budget (Som) 4 12 28Estimated Expenditure Per Capita from all Sources (Som) 4 21 34

Kilometers of Paved Roads 650 650 650Estimated Expenditure Per Km from Own Budget (Som) 7231 20923 47692Estimated Expenditure Per Km from all Sources (Som) 7231 36308 56923

OshOwn Revenues 25.2 40.5 44.7Republican Transfers 53.8 48.5 44.6Other Sources -- 3.6 0.0Total Expenditures 79.0 92.6 89.3

Amount Spent on Roads from Budget 0.6 0.8 ?Amount Spent on Roads from National Road Fund 0.0 0.0 5.0Amount Spend on Roads from Other Sources 0.0 0.2 ?Total Spent on Roads 0.6 1.0 5.0

Estimated Population 350000 350000 350000Estimated Expenditure Per Capita from Own Budget (Som) 2 2 ?Estimated Expenditure Per Capita from all Sources (Som) 2 3 14

Kilometers of Paved Roads 255 255 255Estimated Expenditure Per Km from Own Budget (Som) 2353 3216 ?Estimated Expenditure Per Km from all Sources (Som) 2353 4000 19608

Jalal-Abad

Own Revenues 18.0 24.7 24.2Republican Transfers 15.2 13.0 18.4Other SourcesTotal Expenditures 33.2 37.7 42.6

Amount Spent on Roads from Budget 0.7 0.5 ?Amount Spent on Roads from National Road Fund 0.0 0.0 3.5Amount Spent on Roads from Other Sources -- - --

Total Spent on Roads 0.7 0.3 3.5

Estimated Population (urbanized area) 120000 120000 120000Estimated Expenditure Per Capita from Own Budget (Som) 6 4 ?Estimated Expenditure Per Capita from all Sources (Som) 6 3 29

Kilometers of Paved Roads 230 230 230Estimated Expenditure Per Km from Own Budget (Som) 3043 2174 ?Estimated Expenditure Per Km from all Sources (Som) 3043 1304 15217

- 57 -

Tabe 5:

KYRGYZ URBAN TRANSPORT PROJECTON4LENDING TERMS AND CONDITKNS AS PROPOSED BY THE KYRGYZ REPUBLIC GOVERN1MENT

AnnualPrncipal +

Annual Average Annual InterestIntrnest on Prindpal + Interest Payments in

Yerws Foregn Amount of Full Assuming Level EquivalntYears to Grace on Intere Exdhwe Credt Prncipal Payments After 5 Soms (million

Credts Repay Principal Rate Risk (S mhs) (S) Years Grace(S) Som)

CentralIDA Credit the KyvK z Republic 40 10 0.75% Govemrnment 22.00 165,000 815,833 40.8

On-lendng tob Blmjc 15 5 1.00% Bish*ek 14.54 145,400 1,526,700 76.3

On4endng to Osh 20 5 1.00% Osh 3.00 30,000 215,000 10.8

On-lending to JalalaWbd 20 5 1.00% JablaAbad 1.70 17,000 121,833 6.1

Total On-Leding b CIties 1.00% CIies 19.24 192,400 1,863,533 93.2

Table 6:

KYRGYZ URBAN TRANSPORT PROJECT

INDICATIVE DESIRABLE ANNUAL ROAD MAINTENANCE BUDGETS IN RELATION TO EXISTING BUDGETS

Indicative IndicativeAnnual 1999 City Deisrable Annual

Maintenance Expenditures 1999 Road MaintenanceKilometers Budget on Roads from City Budget Expenditure as Budget in

Total kilometers Unpaved of Paved (mlns Som) City Budget 1999 (Mlns % of 1999 City Relation to 1999City of Roads (Km) Roads Roads El (mins Som) Som) Budget City Budget

Bishkek 730 80 650 32.5 13.6 602.8 2.3% 5.4%

Osh 320 65 255 12.8 0.8 92.6 0.9% 13.8%

Jaialabad 330 100 230 11.5 0.5 37.7 1.3% 30.5%

r] Assumed $1,000 or 50,000 Som per kilometer

- 58 -

fl~ ~ ~ ~ } g 9 8 sf

II ffU.. oo§c .

Table 12:NATIONAL ROAD FUND REVENUES AND ALLOCATIONS (Millions Som)

1998 1999 2000

Total Road Fund Income (Som Millions) 197 374 687

Allocated to Bishkek (Som Millions) 0 10 1.5

Allocated to Osh (Som Millions) 0 0 5

Allocated to Jalal-Abad (Som Millions) 0 0 3.5

Total Allocated to Three Cities (Som Millions) 0 10 10

Percent of Total Allocated to 3 Cities 0.0% 2.7% 1.5%

Amount to be allocated if 10% goes to cities (Som Millions) 19.7 37.4 68.7

Kilometers of Roads in Kyrgyz Republic (km) 37500 37500 37500Expenditures per Kilometer (Som) 5253 9973 18320Expenditures per Kilometer($) 105 199 366

National Road Fund Sources and Applications (Millions Som)

Fuel Tax 105 207 270Vehicle Registration Tax 100 91 113Vehicle Tax 5 7 81Road Tax (collected Mostly From businesses) 128 166 190Total 338 471 653

Amount of Road Fund Collected from Bishkek 211 346 428Amount of Road Fund Collected from Osh 15 14 27Amount of Road Fund Collected from Jalal-Abad 7 12 16Total Collected from Project Cities 233 372 471

Percent of Road Fund Revenues Collected from Project Cities 69% 79% 72%

Total Road Fund Amount Collected 338 471 653Total Road Fund Amount Disbursed 197 374 687Disbursed as % of Collected 58% 79% 105%

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Table 13:KYRGYZ ROAD FUND STATISTICS

SOURCES AND APPLICATIONS OF NATIONAL ROAD FUND BY YEAR

1998 1999 2000Som (mins) Som (mins) Som (mins)

Road Fund Expenditures 197.3 374.0 687.0

Road Fund Revenues: 1998 1999 2000Fuel Tax 104.6 207.4 270.0Vehicle Registration Tax 99.8 91.1 112.6Vehicle Tax 5.4 6.7 80.9Road Tax (collected from

businesses) 127.9 165.5 189.5Total Income 337.7 470.7 653.0

Expenditures as % of Revenues 58.4% 79.5% 105.2%

ROAD FUND REVENUE SHARES BY YEAR1998 1999 2000

Som (mins) % Som (mins) % Som (mins) %Fuel Tax 104.6 31.0% 207.4 44.1% 270.0 41.3%Vehile Registration Tax 99.8 29.6% 91.1 19.4% 112.6 17.2%Vehicle Tax 5.4 1.6% 6.7 1.4% 80.9 12.4%Road Tax (collected from businesses) 127.9 37.9% 165.5 35.2% 189.5 29.0%Total Income 337.7 100.0% 470.7 100.0% 653.0 100.0%

ROAD FUND REVENUES GENERATED BY PROJECT CITIES

1998 1999 2000Som (mins) Som (mlns) Som (mlns)

Bishkek 210.5 346.0 428.1Osh 14.6 14.1 26.7Ja_al-Abad 6.9 11.9 16.2Total 3 Cities 232.0 372.0 471.0

3 Cities Contribution to Total Road FundRevenue 68.7% 79.0% 72.1%

Bishkek Contribution to Total Road FundRevenue 62.3% 73.5% 65.6%

-61 -

KYRGYZ NATIONAL ROAD FUND SOURCES

300.0.. . ' '

250.0

200.0

100

.2

100.0

50.0

0.0Fuel Tax Vehide Registration Tax Vehide Tax Road Tax (collected from

businesses)

Source

-62 -

Estimated Revenue Sources of Road Fund in Year 2000

Road Tax (collectedfrom businesses)

29%

Fuel Tax42%

Vehicle Tax12%

Vehicle RegistrationTax17%

- 63 -

AdditionalAnnex No.: 12

Urban Passenger Transport Action Plan

KYRGYZ REPUBLIC: Kyrgyz Urban Transport Project

GOVERNMENT OFTHE KYRGYZ REPUBLIC

Bishkek city, GOVERNMENT HOUSE

of October 17, 1999 1 630

On Improvement of Urban Passenger Transport Operation

The Government of the Kyrgyz Republic notes that the existing system of public transport requires radical changesof organization principles of the urban passenger transport operation, creation of a new sustainable system whichmeets the needs of the citizens of the Cities and corresponds to the market economy conditions.

With the purpose of the implementation of the urban passenger transport system reform the Government of theKyrgyz Republic orders:

I . To approve the Final Report of the company CIE Consult on the Project of Improvement of UrbanPassenger Transport Services in the Kyrgyz Republic.

2. To confirm (attached):- the National Policy of the Urban Passenger Transport- the Action Plan on implementation of the Urban Passenger Transport Project in the Kyrgyz Republic.

3. The Mayorate of Bishkek City, Osh and JaW-Abad City Administrations:

a) to establish the Units on Urban Passenger Transport Project Advancement by November 15, 1999 making themresponsible for the Project implementation;

b) to create the Passenger Transport Agencies (PTAs) and vest them with the absolute power of forming the routenetwork for passenger transportation in the Cities (opening of the new routes and change of the existing ones)and allocation of routes on the basis of franchises awarded to the winners of the open tenders;

c) along with the Ministry of Finance to settle the issue of financing of PTAs,d) for the purpose of the increase in fare collection volume on the urban passenger transport:

- to introduce the ticketing system of payment for travel;- to abolish the unified tariff and introduce the different fare on the public transport depending on a distance

of trip;- to introduce the separate travelling tickets (depending on mode of the vehicles), as well as the unified one for

all modes of the transport.

4. The Executive Agency on implementation of the Urban Passenger Transport Project in the KyrgyzRepublic (the Ministry of Transport and Communications of the Kyrgyz Republic):

- 64 -

- to develop, if required, the necessary Standard Regulations, Recommendation Notes and other documents inaccordance with the Legislation of the Kyrgyz Republic and submit thern for approval of the Co-ordinatingComnittee on the Urban Passenger- Transport Project Advancement established by the order of theGovernment of tilt: Kyrgyz Republic of May 18, 1998, N222-p,

- to co-ordinate the operation of the Units on the Urban Passenger Transport Project Advancement andprovide them with necessary methodical support

5. The Ministry of Finance of the Kyrgyz Republic and the Ministry of Labour and Social .Defence of theKyrgyz Republic along with the Ministry of Transport and Cormunications of the Kyrgyz Republic, the Mayorateof Bishkek City, Osh and Jalal-Abad City Administrations:

- to reconsider the categories of passengers having privileges for travel on the public transport for the purposeof their reduction and submit them for consideration of the Government of the Kyrgyz Republic according tothe confirmed Action Plan-,

- to develop and bring into effect from the year 2001 a system of address payment of special moneycompensations for travel on the urban public transport to the persons having the right to fare privileges and,if necessary, to submit the proposals on alteration of the Legislation in force for consideration of theGovernment of the Kyrgyz Republic.

6. The Ministry of Labour and Social Defence of the Kyrgyz Republic in accordance with the presentResolution to make alterations to the Regulation "On Procedure for Granting of Fare Privileges on PassengerTransport of General Us* to Individual Categories of Citizens" confirmed by the order of the Minister of Labourand Social Defence of April 26, 1999 N41 and registered at the Ministry of Justic6 of the Kyrgyz Republic of May13, 1999, N39.

7. The Ministry of Finance of the Kyrgyz Republic:

a) by March 1, 2000, to submit for consideration of the Government of the Kyrgyz Republic the Draft NormativeLegal Acts providing for making alterations and additions to the prevailing norms regarding the Taxation of theurban passenger transport sector tale into account the need:

- to reduce tariffs for the settlenent of the social problems;- to reduce transportation costs for the increase of investment potential of the urban transport which ensures

timely and qualitative repairs of vehicles and infrastructure, safe transportation of passengers,- to exclude discrinination of the state and private operators with regard to tax issues;

b) by December 1, 1999 to specify the terms and conditions of recrediting of the World Bank credit to Bishikek.Osh and Jalal-Abad Cities, as well as submit proposals on the schedule of the credit repayment.

8. The State Committee on Foreign Investments and Economic Development to study, along with the WorldBank, a question of obtaining the grants for reformation of the urban passenger transport sector and identificationof the sources of finance of the urban roads repairs and maintenance.

9. To charge the First Vice-Prime Minister, the Chairman of Co-ordinating Conmmittee on the UrbanPassenger Transport Project Advancement Silaev B. 1. with a control over the fulfillment of the presentResolution.

Prime-Minister, A. Muraliev

- 65 -

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