Document of The WorldBank Report No: 18872-UZ PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN IN THE AMOUNT OF US$29.0 MILLION TO THE REPUBLIC OF UZBEKISTAN FOR AN URBAN TRANSPORT PROJECT April 20, 2000 Infrastructure Sector Unit Central AsiaCountry Unit Europe and Central Asia Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document ofThe World Bank
Report No: 18872-UZ
PROJECT APPRAISAL DOCUMENT
ONA
PROPOSED LOAN
IN THE AMOUNT OF US$29.0 MILLION
TO THE
REPUBLIC OF UZBEKISTAN
FOR AN
URBAN TRANSPORT PROJECT
April 20, 2000
Infrastructure Sector UnitCentral Asia Country UnitEurope and Central Asia Region
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CURRENCY EQUIVALENTS
(Exchange Rate Effective October 31, 1999)
Currency Unit = Soum1 Soum =US$ 0.0074
US$ 1 = 135 Soums
FISCAL YEARJanuary 1 - December 31
ABBREVIATIONS AND ACRONYMS
APL Adaptable Program LoanCAS Country Assistance StrategyCTC City Transport CommissionCTD City Transport DepartmentERR Economic Rate of ReturnFSU Former Soviet UnionFY Financial YearGDP Gross Domestic ProductIFC International Finance CorporationJSC Joint Stock CompanyMOF Ministry of FinanceNPV Net Present ValuePIP Public Investment ProgramPIU Project Implementation UnitSOE State-Owned EnterpriseVAT Value Added TaxUAART Uzbek Agency for Automobile and River TransportUATT Uzavtotrans Taminot
Vice President: Johannes Lirm, ECAVP,Country Director: Kiyoshi Kodera, ECCO8Sector Manager: Eva Molnar, ECSIN
Task Team Leader: Jean-Charles Crochet, ECSIN
UZBEKISTANURBAN 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 33. Sector issues to be addressed by the project and strategic choices 5
C. Project Description Summary
1. Project components 52. Key policy and institutional reforms supported by the project 63. Benefits and target population 64. Institutional and implementation arrangements 6
D. Project Rationale
1. Project alternatives considered and reasons for rejection 82. Major related projects financed by the Bank and other development agencies 93. Lessons learned and reflected in proposed project design 104. Indications of borrower commitment and ownership 115. Value added of Bank support in this project 12
1. Sustainability 182. Critical risks 183. Possible controversial aspects 19
G. Main Loan Conditions
1. Effectiveness Condition 192. Other 19
H. Readiness for Implementation 20
I. Compliance with Bank Policies 21
Annexes
Annex 1: Project Design Summary 22Annex 2: Project Description 27Annex 3: Estimated Project Costs 30Annex 4: Cost Benefit Analysis Summary 31Annex 5: Financial Summary 36Annex 6: Procurement and Disbursement Arrangements 39Annex 7: Project Processing Schedule 49Annex 8: Documents in the Project File 50Annex 9: Statement of Loans and Credits 51Annex 10: Country at a Glance 52Annex 11: Urban Passenger Transport Development - Strategy Statement 54
MAP(S)IBRD 30846
UZBEKISTAN
Urban Transport Project
Project Appraisal Document
Europe and Central Asia RegionECSIN
Date: April 20, 2000 Team Leader: Jean-Charles CrochetCountry Manager/Director: Kiyoshi Kodera Sector Manager/Director: Eva MolnarProject ID: P050508 Sector(s): TU - Urban TransportLending Instrument: Specific Investment Loan (SIL) Theme(s): Private Sector; Transport
Poverty Targeted Intervention: N
Project Financing DataX Loan O Credit 0 Grant CIl Guarantee O Other (Specify)
For Loans/Credits/Others:Amount (US$m): US$29.0 million
Proposed Terms: Variable Spread & Rate Single Currency Loan (VSCL)Grace period (years): 5 Years to maturity: 20Commitment fee: 0.75 %Front end fee on Bank loan: 1.00%Financing Plan: Source Local Foreign TotalGOVERNMENT 2.45 0.00 2.45IBRD 0.00 29.00 29.00IDA
Total: 2.45 29.00 31.45
Borrower: REPUBLIC OF UZBEKISTANResponsible agency: UZAVTOTRANS
Estimated disbursements ( Bank FY/US$M):FY 2001 2002 2003 2004 2005
Efficient and sustainable urban passenger transport services in Samarkand (population 400,000),Namangan (380,000), Bukhara (270,000), Nukus (250,000) and Almalyk (120,000).
2. Key performance indicators: (see Annex 1)
(i) Adequacy of the supply of urban passenger transport services in the five cities to satisfy demand;.
(ii) Adequacy of urban transport operators' management of their operations and maintenance of theirvehicles in the five cities;
(iii) Allocation of bus route franchises in the five cities on the basis of a sound competitive bidding process;
(iv) Quality of the planning of urban transport systems and administration of franchise contracts by the cityadministrations in the five cities;
(v) Ability of the efficient transport operators in the five cities to fully recover their costs (including thecost of transporting privileged passengers), and generate a reasonable profit.
B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: 17376 UZ Date of latest CAS discussion: 03/10/98
Given that the Govemnment is cautious in liberalizing the economy and has implemented only partialmacroeconomic reforns, the Bank's general strategy for Uzbekistan, as expressed in the latest CAS, is tocreate incentives for deeper structural reforms through carefully selected investment operations in sectorswhere the Government is willing to experiment with reforms, in parallel with a continuing policy dialogue.In this context, one of the four major objectives which the Government and the Bank Group have agreed towork on is the removal of inefficiencies in resource utilization in the municipal services, infrastructure, andsocial services.
The proposed project is fully consistent with this strategy. It is included in the CAS and fits the objective ofremoving inefficiencies in municipal services and infrastructure. It is also in a sector, urban transport,where the Government has taken forceful measures in the past two and a half years to improve theregulatory and institutional framework and to open the provision of services to the private sector (as isexplained later). It is expected that the proposed project will help satisfactorily complete the recent sectorreforms in five pilot cities, as well as improve the delivery of services in these cities by providing muchneeded transport capacity and improving the capability of urban transport operators.
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2. Main sector issues and Government strategy:
The Government has often expressed the view that the urban transport sector is among the country'spriority sectors. Indeed, Uzbek cities have special features (shared with most other cities in the formerSoviet Union) which make urban passenger transport of special importance for their population. Thesecities are unusually spread out with low overall population densities and long distances between residentialand work areas. Commerce, markets and social services are also not within walking distance of people'sresidences in most cases. In addition, the climate is difficult, with cold temperatures during the winter andvery hot summers. Finally, there are few alternative means of transport (car ownership is about 65 vehiclesper thousand people, one of the lowest in the former Soviet Union, and motorcycles are beyond the reach ofmost of the population). For all these reasons, urban passenger transport is essential for access to jobs andservices, and, more generally, for the efficient functioning of the labor and product markets as well as theeffectiveness of social and political life. This is particularly relevant for those with unstable employmentand uncertain access to support networks, who constitute the majority of the poor.
Until about two and a half years ago, urban passenger transport services were provided almost exclusivelyby companies of the Uzavtotrans group. Uzavtotrans, the Uzbek State Corporation for AutomobileTransport, is a very large holding company which took over seven years ago most regulatory andoperational functions of the former Ministry of Automobile Transport. It provides international anddomestic freight and intercity passenger transport services in addition to urban passenger transport. Manyoperting enterprises of the Uzavtotrans group have now been established as joint stock companies.However, only about 10-20 % of these companies' capital has in general been sold to private investors(mostly employees of the companies) and the central organization of Uzavtotrans has responsibility for theremaining State-owned share of the capital. This responsibility is carried out by regional managementsubsidiaries of Uzavtotrans called the Oblasttrans. These keep the operating companies under relativelystrict supervision.
Starting with the Urban Transport Law of April 1997, the Government has implemented some radicalchanges in the organization and regulation of urban transport services in Uzbekistan. Increasingresponsibility has been delegated to the city administrations to organize and manage the provision of urbantransport services on the basis of exclusive bus route franchises. These franchises are allocated through acompetitive tendering process open without any restrictions to the Uzavtotrans operating companies (hereinreferred to as the Joint Stock Companies, or JSCs) as well as to private companies and smallowner-operator associations. The tendering process is in each city under the responsibility of the CityTendering Commission (CTC), chaired by a Deputy Mayor, with all technical work (starting with theplanning of routes and services) carried out by the City Transport Department (CTD). The CTCs andCTDs perform under relatively precise instructions and control from the central Government, particularlythe newly created Uzbek Agency for Automobile and River Transport (UAART), which has authority atthe national level for sector regulation and licencing. This franchising system has been implemented bysteps over the past two and a half years, and continuously improved with the assistance of the Bank andinternational consultants. The system is now in place for most public transport routes in almost allimportant cities except Tashkent. In general, a healthy competition has developed (particularly for therapidly growing minibus services) and private operators have gained a substantial share of the publictransport market. In the five cities which would participate in the project, private operators (including theinformal owner-operators who have developed since the mid 1990's) now function under the franchisingsystem and provide on average about 50% of all urban transport services.
The Government has also progressively (i) reduced the number of citizens entitled to fare exemptions (nowmainly veterans and invalids, who constitute about 5% of all passengers), (ii) increased fares paid by
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passengers who benefit from reduced fares (students, school children, and pensioneers, who generallyconstitute about 20% of all passengers), and (iii) increased fares paid by all other passengers to about thecost recovery level.
Recently, as a condition of Board presentation of the project, the Government has in addition implementedsome key improvements to the franchising system in the five project cities. These include in particular: (i)a better standard form of contract for bus route franchises, which adequately defines the respectiveresponsibilities of the transport operators and their clients (the city administrations), provides remedies incase of disputes, and includes a process for adjusting passenger fares fairly to reflect inflation in the priceof inputs; and (ii) measures to ensure that transport operators, private as well as State-owned, arecompensated for the transport of passengers who benefit from fare exemptions or reduced fares.
There are still some important issues, however, which the Government will need to address in the comingyears to increase the efficiency and sustainability of the urban passenger transport sector in the five projectcities, in particular as explained below.
(i) The regulatory and institutional framework for bus route franchising should still be improved, takinglessons of experience into account. In particular, the evaluation procedures and criteria for the competitivetendering of bus route franchises should be adjusted and refined to ensure that selected bids are the mosteconomic. The institutional capability of the CTCs and CTDs (in terms of systems and procedures,equipment, as well as staff numbers and competence) also need to be developed in order to ameliorate theplanning of urban transport services and the administration of franchise contracts. In addition, theremaining, often informal, links between the CTD/CTC and the Oblasttrans, and between UAART andUzavtotrans need to be fully severed.
(ii) The condition of the bus fleets needs to be improved rapidly. Although the JSCs in the project citieshave more than a thousand medium size and large buses on their books, only about two hundred have notexceeded their service life. As a result, bus availability is low (on average, 60% of the buses consideredoperable) and the number of daily breakdowns is extremely high (of the order of 25% of the buses startingservice each day, and sometimes more). Partly for this reason, the JSCs have lost about 50% of the marketto private transport operators in the past few years. However, because they lack capital and are notcreditworthy, these private operators typically own one small bus (generally a microbus manufactured byDaewoo in Uzbekistan, or a second hand Soviet made van) funded from family savings. These buses arenot appropriate for large volume public transport and are more costly to operate.
(iii) The managerial and technical capability of the JSCs and the private transport operators is generallylow. They need improvement in accounting and financial management, in vehicle maintenance and stockmanagement, and in their tools, equipment and facilities.
(iv) Although the Government has the intention to privatize the JSCs, it has made little progress in this, to alarge extent because the JSCs are presently in poor financial situation and not attractive to any investor.
The Government is aware of these issues and has expressed its intention to design and implement with theassistance of the project adequate measures to correct deficiencies. In order to make its policies explicitand define the actions to be taken, the Government has adopted a strategy for the developement of urbanpassenger transport services in the project cities for the next five years. This stategy (see Annex 11), whichis acceptable to the Bank, was issued on April 17, 2000, as a condition of Board Presentation of theproject. In addition, as a loan condition, the Government would (a) by November 30, each year starting inyear 2000, review the technical and economic efficiency of the urban bus route franchising system in the
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project cities and discuss the result of such review with the Bank, and (b) by March 31, the following year,issue instructions to the City Tendering Commissions in the project cities, acceptable to the Bank, toimprove the methodology for evaluation of bids for bus route franchises, the terms of the bus routefranchise contracts, and the procedures for supervision of the bus route franchise contracts.
3. Sector issues to be addressed by the project and strategic choices:
The project would address selectively most of the issues presented above in Part B.2, by concentrating onthe measures which are critical in the next few years to improve the delivery of urban passenger transportservices to the population and to establish a sound framework of policies and incentives for the sector'ssustainable development.
In particular, the project would provide technical assistance, training, and equipment for improving busroute franchising regulations, strengthening related institutions, improving mechanisms for compensatingurban transport operators for fare privileges, and developing the technical and management capability oftransport operators, whether State-owned or private. The project would also include the provision of newvehicles and the rehabilitation and repair of existing ones. Both are critical for the cost effective delivery ofurban transport services.
The project would not include assistance for privatization of the JSCs because such privatization does notseem feasible in the medium term and might lead to some weakening of the JSCs' corporate governance.Instead, it is felt that the Government and the Bank should concentrate for the time being on theimprovement of the institutional, financial, and regulatory framework for the sector, in particular because itwould ensure open entry to the market for urban transport services and promote efficient competition,which are prerequisite for improving the JSCs.
C. Project Description Summary
1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):
The project would include: (i) provision of new buses and the establishment of a commercial leasingscheme for their allocation to competent private and State-owned operators on the basis of full costrecovery; (ii) rehabilitation and repair of existing buses of the JSCs; (iii) strengthening of urban transportoperators through the provision of technical assistance, training, and office and workshop equipment; (iv)improvements in the institutional, financial, and regulatory framework for urban transport services throughthe provision of technical assistance, training, and office equipment; and (v) support to the ProjectImplementation Unit in project management and procurement through the provision of technical assistance,training, office equipment, and funding of its incremental operating costs.
Indicative Bank- % ofComponent Sector Costs % of financing Bank-
|__________________ _(US$M) Total (US$M) financing1. Provision of New Buses and 23.46 74.6 23.14 79.8Establishement of a Leasing Schemefor these Buses.2. Rehabilitation and Repair of 4.83 15.4 3.22 11.1Existing Buses.3. Strengthening of Urban Transport 1.42 4.5 0.90 3.1Operators.
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4. Improvements in the Institutional, 0.32 1.0 0.32 1.1Financial, and Regulatory Frameworkfor Urban Transport Services.5. Project Management. 0.63 2.0 0.63 2.26. Refunding of PPF Advance. 0.50 1.6 0.50 1.7
2. Key policy and institutional reforms supported by the project:
The key reforms supported by the project in the five project cities are: (i) the improvement of the bus routefranchising system (including bidding procedures, bid evaluation, and franchise contracts); (ii) thestrengthening of the City Transport Departments' ability to plan the urban transport system and administerthe franchise contracts; and (iii) the implementation of an adequate policy for compensation of the transportoperators for the carrying of privileged passengers.
3. Benefits and target population:
The main benefits of the project would be the improved quality, reliability, and sustainability of urbantransport services in the five project cities. These improvements would in turn translate into better access toemployment, markets, social services, and social networks for the residents of the project cities, a totalpopulation of approximately 1.4 million people, many of whom are poor and highly dependent on urbantransport services. The project is also expected to develop a track record which would later help for thedevelopment of the bus leasing sector in Uzbekistan.
4. Institutional and implementation arrangements:
Implementation Period. 2000 - 2004
Executing Agencies. Uzavtotrans would have overall responsibility for implementing the project. For thispurpose, it has already set up a Project Implementation Unit (PIU) to perform the monitoring,disbursement, accounting, supervision, coordination, and reporting functions related to the project. The PIUwould also have responsibility for procurement of all consultants' and training services. Procurement of allproject goods would be the responsibility of Uzavtotrans Taminot (UATT), a large subsidiary ofUzavtotrans specialized in procurement of new vehicles, spare parts, and supplies for all daughtercompanies of the group.
In addition, responsibility for implementation of each project component would be as follows: (i) the busleasing scheme would be established and managed by UATT, which would also have responsibility for theestablishment of the new bus maintenance centers; (ii) rehabilitation and repair of the existing buses wouldbe carried out by the JSCs with spare parts procured by UATT; (iii) strengthening of the JSCs and theprivate operators would be carried out by the central office of Uzavtotrans and the JSCs; and (iv)improvement of the institutional, financial, and regulatory framework would be the responsibility of theUzbek Agency for Automobile and River Transport assisted by the Interministerial Commission ontendering of public passenger transport and in coordination with the City Administrations of the fivc projectcities.
UATT and other agencies and enterprises involved in the project would provide to the PIU all the
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information it would require for fulfilling its supervision, coordination and reporting functions.
At Negotiations, it was agreed that: (i) as a condition of loan effectiveness, the PIU would be strengthenedwith such structure, functions, and staffing acceptable to the Bank; and (ii) the PIU would be maintaineduntil completion of the project. PIU strengthening would include in particular: (i) training of staff inprocurement and disbursement matters; (ii) making staff salary and benefits comparable to those offered tostaff in similar positions in other organizations; and (iii) purchase of necessary office equipment.
Channeling ofIBRD Assistance. The Borrower would be the Government of Uzbekistan. Proceeds of theloan (except for those corresponding to Project Component 4 - Improvements in the Institutional, Financial,and Regulatory Framework) would be passed on to Uzavtotrans by the Ministry of Finance under termsand conditions acceptable to the Bank. These would include an interest rate equal to that of the Bank loanto the Governnent, a maturity of ten years, a grace period of two years, and a 1% front-end fee.Uzavtotrans would bear the foreign exchange risk. Signature of a subsidiary loan agreement, acceptable tothe Bank, between the Ministry of Finance and Uzavtotrans would be a condition of loan effectiveness. Itis expected that, in turn, the central management of Uzavtotrans would conclude agreements with UATTand the JSCs in the project cities for the repayment of the specific parts of the loan proceeds from whichthey would benefit.
Financial Management and Auditing. The accounting and financial management systems of the PIU wereassessed as part of the projecVs pre-appraisal. It was concluded that they needed to be strengthened inorder to meet international standards and provide accurate and timely information on project resources andexpenditures as mandated by the Bank's Operational Policy 10.02. This strengthening is being carried outin accordance with an action plan agreed at Negotiations. The action plan includes two main stages. First,the PIU has taken action to ensure that minimum Bank requirements are met before Board Presentation.This includes in particular: (i) the preparation of an operations manual that describes the allocation ofresponsibilities to PIU staff and documents the PIU's internal controls (this manual is based on andcomplements the instructions which already exist in Uzavtotrans); and (ii) the purchase of computers andinstallation in the PIU of a computerized accounting and project management system (with a chart ofaccounts specific to the project) that can produce reports in a format and substance acceptable to the Bank.Second, the PIU's financial management system will be further strengthened and the capability of the PIUin accounting, record keeping, reporting, and, more generally, project management, developed so that it canprepare, starting on June 30, 2001, quarterly Project Management Reports acceptable to the Bank.
The project financial statements, the Special Account, and the Statements of Expenditure would be auditedat the end of each fiscal year during project implementation, in accordance with international standards onauditing, by independent auditors acceptable to the Bank. Selection and engagement of auditors for thefirst year of project implementation would be a condition of loan effectiveness. The audit would include: (i)an assessment of the adequacy of accounting and internal control systems to monitor expenditures andother financial transactions; (ii) a determination as to whether the PIU has maintained adequatedocumentation on all relevant transactions; (iii) verification that expenditures submitted to the Bank areeligible for financing; and (iv) identification of any ineligible expenditures. Copies of the audit reportswould be submitted to the Bank within six months of the close of the country's fiscal year. Terms ofReference for the audit and the selection of the auditor would be reviewed by the Bank every year.
Leasing and Maintenance Arrangements for the New Buses. It was agreed at Negotiations that the newbuses would be leased by UATT to private and State-owned operators under operational and financialpolicies and procedures acceptable to the Bank, based on sound business principles, and detailed in anagreed manual of policies and procedures. These would include in particular: (i) transparent and uniformly
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applied procedures for appraising potential lessees, fixing the level of lease payments, covering againstrisks of damage or loss, supervising that buses are properly used, and dealing with cases of inadequateperformance of their obligations by lessees; (ii) full cost recovery, with depreciation and a financial returnon fixed assets in line with standard practices included in the calculation of cost; and (iii) the promptretrieval of leased buses in case of termination of a lease agreement. UATT would also maintain adequatefinancial management systems for this purpose. Preparation of the manual and establishment of financialmanagement systems, acceptable to the Bank, would be a condition of disbursement of loan proceedsallocated to the purchase of new buses. UATT's financial statements related to the bus leasing operations,and the extent to which UATT has consistently applied its operational and financial policies andprocedures, would also be audited every six months during the first two years of project implementationand every year thereafter by independent auditors acceptable to the Bank.
It was also agreed at Negotiations that the new buses would be maintained under a maintenance contractacceptable to the Bank, and that the Government would provide all necessary authorizations to the vehiclemaintenance enterprise(s) for the import of spare parts and supplies necessary for the maintenance of thesebuses during the post-warranty period. It is anticipated that the maintenance contract (which would be paidout of UATT's leasing revenues) would be with the bus supplier. Finally, it was agreed at Negotiationsthat the Government would prepare not later than December 31, 2003, a plan acceptable to the Bank forprivatization of the new bus fleet and the leasing organization and would take actions for theimplementation of this plan under a timeframe agreed with the Bank. The project would include servicesfor preparation of the privatization plan and support in its implementation. It is understood that the planwould be consistent with the lease contracts and, in particular, any commitment that the lessees may havereceived contractually from the lessor that they may purchase the buses at the end of the lease period.
Monitoring and Evaluation. Quarterly progress reports would be prepared by the PIU and furnished to theBank within thirty days from the end of each quarter. Agreement would be reached with the Government onthe substance and format of the reports during the project launch workshop. Progress on achievement ofagreed project performance indicators would be reported annually. A Mid-Term Review would be carriedout jointly with the Government in May 2002 to monitor procurement and implementation progress againstschedules, and review implementation capacity.
D. Project Rationale
1. Project alternatives considered and reasons for rejection:
Specific investment loan (SIL) versus adaptable program loan (APL). The Bank considered an APLapproach, especially in view of the Government's desire for a larger loan ($60.0 million) and a widercoverage of cities. The first phase would have covered the five project cities and the second phase a muchlarger number of regional centers, once institutional, financial, and regulatory reforms would be fullyimplemented. This approach was not retained, however, since there was uncertainty as to whether theleasing mechanism used for the first phase would be appropriate for the second phase. In addition, it wasfelt that once reforms would be implemented, the sector should be amenable to private sector funding, forexample with the participation of IFC. An APL approach was also considered just for the five project citieswith a smaller first phase focused on completing reforms and rehabilitation and repair of the existing busfleet, and, once this would be achieved, a second phase focused on the establishment of a leasing company.This approach was also not retained because of the need for a prompt increase in the capacity of the busfleets in the five cities, and the Government's expectation that Bank financial assistance would recognizethe progress achieved so far in sector reforms.
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Number of cities to participate in the project. The Government initially proposed to include a largenumber of cities (12 to 24) in the project. After discussions with the Bank, it has agreed to initially includefive cities, to keep the reform program and Bank support focused. The five selected cities vary inpopulation size and economic base, and provide a good geographical coverage of the country. This allowsmany of the variations which can be expected across other cities to be reflected in the results of this project.In this way, conclusions reached and lessons learnt would be relevant to most Uzbek cities.
Arrangements for making new buses available to transport operators. Various options to channel the newbuses to transport operators were examined for their compatibility with the long term objective of creatinga competitive, privately supplied market. Options included: (i) creation of a State-owned bus pool withbuses leased to private and State-owned transport operators under full cost recovery; (ii) development of abus leasing company owned by commercial investors (particularly commercial banks); (iii) development ofintermediary financing for vehicle purchase by operators through a line of credit; and (iv) development of aguarantee arrangement to support private sector vehicle leasing. After discussions with the Government andthe private sector, it was concluded that the limited size of the market, together with the unfamiliar legaland political systems, was likely to preclude efficient direct foreign investment in the bus industry in theshort run. It was also concluded that, given the lack of experience and track record with the bus routefranchising system, its remaining shortcomings, and general economic uncertainty in the country, anyoptions involving a line of credit and commercial bank loans to transport operators would be implementedvery slowly at best. Because of the requirements for collateral, this option would also most likely excludethe independent private transport sector, and hence may limit competition in the sector. Operating leasearrangements were found a sound way to avoid this bias, as well as to ensure that buses were wellmaintained and operators forced to consider the full costs of their vehicles in making franchise bids.However, extending finance to commercial leasing companies was found premature at this stage, due to theunwillingness of potential investors to bear the presently high risks of vehicle leasing in Uzbekistan. Allthese considerations being taken into account, it was therefore found necessary at this stage for theGovernment to underwrite the leasing arrangements. The option retained in the project provides suchsupport for a few years, during which the franchising arrangements would be strengthened, financialsustainability established, and leasing experience gained, so as to later provide a satisfactory basis forpurely private financing arrangements.
2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).
T .Latest SupervisionSector Issue Project (PSR) Ratings
_________________________________ . __________________________ (Bank-financed projects on _lyImplementation Development
Bank-financed Progress (IP) Objective (DO)
Strengthening the regulatory and Kazakhstan Urban Transport S Sinstitutional framework for urban bus Project (completed)services, improving cost recovery,strengthening transport operators, andimproving the condition of the busfleets.
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Same as above (except for the Russia Urban Transport Project U Ustrengthening of the regulatory (on-going)framework).
Same as above (except for the Budapest Urban Transport HS Ustrengthening of the regulatory Project (on-going)framwork).
Same as above (except for the Turkmenistan Urban Transport S Ustrengthening of the regulatory (on-going)framework).
Same as above (except for improving Kyrgyzstan Urban Transportthe condition of the bus fleets). (planned)
Other development agencies
1P/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)
3. Lessons learned and reflected in the project design:
The Bank is playing an important role in the improvement of urban transport services in Central andEastern Europe and the Former Soviet Union. Past and present Bank projects have made importantcontributions towards these objectives. However, the experience has underscored (to varying degrees) thefollowing key issues: (i) the speed with which sector reforms are likely to progress depends on theGovernment's understanding, commitment, and ownership of the reform program; (ii) project executionagencies generally have a weak implementation capacity, and have been slow in gaining familiarity withBank procurement procedures; (iii) insufficient attention has usually been given to the maintenance of thevehicles acquired through the project; (iv) State-owned enterprises have generally been slow to understandand accept their deficiencies in management and financial practices and need support to implementcorrective measures; (v) financial problems (especially those related to fare policies and compensation forspecial fares which are politically sensitive) have been the most difficult to address, particularly in thecontext of drastic fiscal constraints and decreasing per capita income; and (vi) inadequate fiscal andpolitical decentralization may be an impediment to urban transport reforms.
The unsatisfactory ratings of the Russia and Budapest Urban Transport Projects are due to circumstanceswhich in essence are independent of these projects. In Russia, a disagreement between the project cities andthe Central Government over the repayment of their subsidiary loans (which have increased substantiallyafter the mid 1998 devaluation of the Rouble) has led to the dismissal of the Project Implementation Unitand a stop in project implementation. A new PIU has now been nominated, part of the loan undisbursedbalance (US$25 million) has been cancelled, and the remainder of the project is being restructured with aview to completing it by the middle of 2001. In the case of the Budapest Urban Transport Project, theunsatisfactory allocation of responsibilities between the Budapest municipality and the Central Governmentover fare policies and provision of subsidies (as mentioned in (vi) above), as well as political discordbetween the two, has resulted in the main public transport enterprise of Budapest, BKV, being underfundedand not able to meet a main (operating ratio) loan covenant.
To the extent possible, the design of this project incorporates these lessons of experience. The Governmenthas demonstrated in particular an up-front commitment to sector reforms by implementing in the past two
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and a half years major changes in the institutional, financial, and regulatory framework for urban transportservices. It has also agreed to review lessons of experience with these reforms and formulate furtherimprovements in the organization and regulation of the sector on an annual basis with the Bank. Newvehicles would not be provided directly to State-owned enterprises, but would be made available to bothprivate and State-owned operators through a commercially based leasing scheme. Maintenance of the newvehicles would be entrusted to a separate maintenance contractor. Technical assistance would be providedas part of project implementation to strengthen the management and financial systems of the bus companiesand the planning and procurement capacity of the Project Implementation Unit. Measures to improvefinancial sustainability of urban transport services have also been implementated prior to the project's finalapproval.
The design of the leasing scheme also uses the experience of IFC with leasing in Central Asia in generaland Uzbekistan in particular. New bus leasing operations will be run by an existing organization (UATT)rather than a new one which may have been very slow to start. UATT was selected because of itsexperience with urban transport operations and contract administration, and will be strengthened bytechnical assistance. Also, giving the present lack of bus dealerships and maintenance capability inUzbekistan, operating leases rather than finance leases will be used.
4. Indications of borrower commitment and ownership:
The Government is strongly committed to making the urban passenger transport sector commercial,competitive, and financially sustainable. For this purpose, as explained earlier, it has implemented somemajor policy changes in the past few years. In particular, it has:
(i) enacted a framework law on urban transport (April 1997) creating the basis for competitively tenderedbus route franchises as well as decentralization of urban passenger transport planning and monitoringfLnctions to each City Administration;
(ii) introduced the franchising system on a few bus routes in the five pilot cities late in 1997, includingneeded institutional arrangements, and designed and implemented progressive refinements since then;
(iii) progressively extended the franchising system to cover all urban transport services throughout thecountry, except Tashkent, by the end of 1999;
(iv) established in 1998 the Uzbek Agency for Automobile and River Transport to rationalize the licensingof transport operators and progressively take over road transport sector regulation;
(v) encouraged the private sector to develop associations and participate in tendering for bus routefranchises; and
(vi) issued a strategy, acceptable to the Bank, for development of urban passenger transport services in theproject cities in the next five years.
The reform process has been led by the Cabinet of Ministers. Numerous meetings have been held over thepast two and a half years with staff at the regional (Oblast) and city (Hakimiyat) levels and with the privatebus operators to explain the reform agenda and discuss and assist with implementation of refonrs.
The Government has also shown its commitment to the project itself The project is the result of a requestby the Government to the Bank to design a program for improving urban transport operations in all main
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cities in the country except the capital, Tashkent. Project preparation was supported by a PPF advance.
5. Value added of Bank support in this project:
The role of the Bank in Uzbekistan's urban transport sector is essentially two fold. First, drawing upon itsinternational experience and particularly its experience in working with other CIS countries, the Bank is ina strong position to assist the Government in formulating the strategies necessary to ensure that efficientand sustainable public transport services are available to city residents. Second, the Bank can assist theGovernment in implementing these strategies through direct Bank analytical support,supervision/enhancement of the technical advice and training provided by consultants through the project,and helping correct the course of action whenever necessary in view of the experience.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)
1. Economic (see Annex 4):
* Cost benefit NPV=US$7.8 million; ERR = 60.4 % (see Annex 4)O Cost effectivenesso Other (specify)
The economic analysis of the investment in the new buses compared the "with project" solution with thealternative of delaying investment in new vehicles for three years and providing a reduced level of service,eighty per cent, in the interim with the existing fleet at relatively high maintenance costs. This alternativewas selected as it is the most stringent from the economic standpoint.
The main quantifiable economic benefits accounted for were benefits due to savings in time for passengers,and operational and maintenance cost savings for bus operators. Maintenance cost savings were estimatedby using costs required to maintain a vehicle in good condition over its economic life. Also included in theanalysis were small benefits from improved comfort levels and reduction in overcrowding. Other benefits,naamely reduction in unreliability of service and environmental improvements, were not quantified. Due tolack of reliable information on which to base travel growth estimates, travel demand was assumed toremain constant over the investment horizon.
A comprehensive financial and economic model was used for the economic analysis. The net present valueswere calculated from incremental costs and benefits of the proposed investments. The overall net presentvalue of investment in new buses is US$7.8 m, based on a discount rate of 12%. The ERR for theinvestment in the new buses is 60.4%. On a city by city basis, the results were as follows:
Sensitivity analysis showed that the project justification is robust and the economic return remains wellabove the assumed opportunity cost of capital. If capital costs increase by 20%, savings in maintenancecosts decrease by 30%, value of time is reduced by 50%, and there is no generated demand due to new andrehabilitated buses, economic rates of return remain well above 12%, as shown in Annex 4.
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The investment in bus rehabilitation, which is a much smaller part of the project was also analyzed. Theeconomic rate of return for the rehabilitation of the Turkish made Belde buses, which accounts for the bulkof the rehabilitation undertaken under the project, was found to be slightly above 15%, as also shown inAnnex 4.
2. Financial (see Annex 5):NPV=US$ 2.7 million; FRR = 9.2 % (see Annex 4)
A financial analysis of the bus leasing operations was carried out on the basis of relatively conservativeassumptions regarding maintenance cost, depreciation, and cost of funds (which are the main costs by far inoperating leases). Simplified assumptions were also made regarding the development of the leasingbusiness. In addition, the analysis was carried out for a homogeneous fleet of nine meter buses. Revenues(lease rentals) were estimated on the basis of a standard model used by leasing companies known to theproject preparation consultants. This model produced monthly lease rentals varying from about US$2,300,the first year, to about US$1,800 the fifth year. Down time due to maintenance or unused time betweenleases was assumed to be 6%. On this basis, the leasing scheme turns a profit every year. The cumulatedfunds balance over the first five years, taking account of losses during the scheme's settling-in period beforeoperations start, would be about US$3.3 million.
The calculation was carried out in US$ under the assumption that the lessees would make payment to thelessor, UATT, in Soums at the official exchange rate. This is acceptable since UATT's main costs (spareparts, interest payments, depreciation) will de facto be in US$ expressed in Soums at the official exchangerate. All fluctuations in the official exchange rate would be passed on to the lessees. As could be expected,the profitability of the scheme over a five-year period depends very much on the ability of UATT's clients(the urban transport operators) to pay adjusted rentals in case of currency devaluation. This in turn woulddepend on the clients' ability to raise passenger transport fares above the rate of inflation. During the pasttwo years, the Government has been willing to regularly increase passenger fares to meet rising operatingcosts, and it may be assumed that this will continue. However, in case of a major devaluation, it is likelythat, in order to cushion the social impact, UATT will be able to raise lease rentals only gradually. A twoyear grace period in the repayment by UATT and Uzavtotrans of their subsidiary loan from MOF wouldprovide a financial cushion which would allow UATT to maintain liquidity during the price adjustmentperiod. The down side of this cushion is that the net worth of the leasing scheme at the time of itsprivatization (expected to take place in 2004) could be negative. The implied subsidy would not be felt bythe State until later because of the long grace and repayment periods of the Bank loan to the Government.
The lease rentals produced by the above mentioned model and validated by the analysis, were then used tocalculate the operating cost of a standard nine meter bus in urban transport service. Operating costs werebased on actual costs of the JSCs regarding fuel and lubricants, tires, personnel, and overheads. Assumingthat each nine meter bus would carry on average 1100 passengers per day (which is realistic if bus routesare properly designed and operations adequately organized), the cost per passenger trip would be US$0.12in 1999 terms, an average result for a country with very low labor costs. At the official exchange rate inMay 1999, this was equivalent to about 13 Soums per trip, well below the then prevalent fare of 20 Soums,which provides an acceptable margin for profits and risks. These results would not be affected insubstance by a decision to procure, instead of nine meter buses, a mix of seven, nine, and twelve meterbuses as anticipated earlier in project preparation, or only seven meter buses as recently decided byUzavtotrans.
The analysis therefore shows the leasing scheme to be financially sound. The main risk relates to currencydevaluation.
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Fiscal Impact:
The project would not result in increased recurrent costs for the Government as project goods would beoperated by commercial companies. However, the project could impact Government finances in two ways.First, as the system of compensation for fare exemptions and discounts has been rationalized, theGovernment may have to spend more than it has in the recent past on compensation payments to transportoperators. The total amount of compensation that will need to be provided in the next few years by thecentral Government may be estimated at US$1.0 million equivalent annually for the five cities, which isvery small compared to the State budget. Second, as explained above, gradual adjustment of lease rentalsin case of a major currency devaluation, would reduce the net value that the Government would realizefrom the leasing scheme at the time of its privatization. The Government has the ability to control bothimpacts by better targetting fare privileges and by allowing speedier fare adjustments.
3. Technical:
Uzavtotrans and its consultants carried out during project preparation and appraisal an analysis of optionsregarding the size and technical standards of the buses to be procured, and the pros and cons of procuringone single bus type compared to a mix of different bus types. This included a review of the internationalbus market and thorough surveys of passenger demand in the five project cities. On this basis, it wasagreed to procure a medium size (about seven meter) bus with simple and proven technologies, andtechnical standards which minimize the costs of operating and maintaining the buses while ensuring that asatisfactory level of comfort is offered to the passengers. This selection is well justified. To limit thepurchase to one bus model would make procurement easier and faster, which is important given the lack ofexpericnce in Uzbekistan with international competitive procurement and the present shortage of urbanbuses in the project cities. It would also ensure that there is a fleet of identical buses in each city, which islarge enough to achieve scale economies in maintenance. In addition, medium size buses are easier tooperate and would put lower financial requirements (in terms of down payments and collateral for example)on small private operators.
Draft bidding documents, including technical specifications, have already been prepared taking into accountthe experience gained in previous bus procurements under Bank financed projects. Before launching thebidding process, the bidding documents would need to be revised in order to incorporate the results of anon-going consultation with manufacturers of the selected bus type, as well as provisions for maintenanceservices to be provided by the winning bidder during and after the warranty period.
4. Institutional:
a. Executing agencies:
The distribution of responsibilities for carrying out the project is presented in Section C4. The projectexecuting agency, Uzavtotrans, is a large organization issued from the Uzbek Ministry of AutomobileTransport. It is highly decentralized with a small central office controlling more than 250 autonomous jointstock companies. It is also the main custodian of expertise in urban transport services in the country.Throughout the transition period, since 1992, despite extremely difficult financial and operationalconstraints, Uzavtotrans has maintained a high degree of organization and discipline. It has managed toretain a good part of its staff, usually skilled and competent, and these have succeeded in making ends meetin sometimes admirable ways. Uzavtotrans, however, still has management weaknesses, and itsinformation systems are sorely lacking. The project includes assistance to address these problems withinthe JSCs.
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UATT, which would be in charge of procuring project goods and managing the bus leasing scheme, isUzavtotrans' subsidiary organization for all procurement activities. Having to deal with a very largenumber of suppliers (many of them outside Uzbekistan) and clients, and the intricate payment systems usedin the Former Soviet Union, UATT is organized, well versed in financial matters, and has the potential togrow. It also has a good knowledge of the passenger transport business, although no previous experiencein the operating lease business (there is not a single operating lease company in Uzbekistan). UATT willtherefore need to be supported by technical assistance, continuously during the first year of projectimplementation and at regular intervals thereafter. This assistance will also train UATT's staff and preparethe manual of operational and financial procedures and policies mentioned earlier in Section C4. Thismanual will rule the way in which the leasing operations will be carried out. As mentioned earlier, also,UATT's financial statements with regards to bus leasing, as well as the degree to which it will havecomplied with the stipulations of the manual, will be audited every six months during the first two years ofthe project and annually thereafter.
An assessment of Uzavtotrans' and UATT's procurement capacity was carried out during projectpreparation. Based on the assessment's findings, an action plan was prepared, which includes a schedulefor designation of procurement committees, definition of detailed internal procurement arrangements,provision of training, and recruitment of international procurement assistance. The main objective of thisplan is to enhance Uzavtotrans' capacity to conduct competitive procurement and apply Bank procurementguidelines under the project. The action plan was finalized and agreed upon with the Borrower duringNegotiations.
b. Project management:
The PIU is a newly created unit, and it lacks knowledge of the Bank procurement guidelines and practices,as well as disbursement procedures. Although it has functioned well during the preparation of the project,it will need to be strengthened for project implementation. Actions needed to do so were agreed atNegotiations and loan effectiveness will be conditional on their implementation (Section C4). In addition,the PIU (as well as UATT) will need assistance in project management, procurement, and contractadministration; this will be provided by a foreign consulting firm under the project.
It is proposed that the loan finance 100% of the PIU incremental operating costs during projectimplementation. The rationale for this is the following: (i) there is doubt that, in this period of drasticresource constraints, the PIU would be financed adequately if a share of its incremental operating costs isleft to local funding sources; (ii) satisfactory functioning of the PIU is critical for the sound and timelyimplementation of the Project; (iii) PIU incremental operating costs are of the order of only 0.7% of totalproject costs; (iv) these costs will decline considerably after the first three years of project implementation;and (v) PIU incremental operating costs are costs to be incurred for the creation of capital assets, andshould be viewed as investment costs (in the same way as the costs of setting up the leasing unit), and notas recurrent costs.
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5. Social:
The project is expected to have a positive social impact since it will lower the cost and increase the qualityof a service, public transport, which the population of the five project cities considers as essential. In orderto assess the projects social impact, a social assessment (SA), including a household survey and a surveyof urban bus operators, was carried out in 1998 as part of project preparation. The SA was in particularused to: (i) prepare a socio-economic profile of public transport users; (ii) identify travel behavior ofhouseholds and their valuation of time; (iii) assess public perception of service standards provided bydifferent transport modes; (iv) identify the most critical interventions to improve urban transport services,and (v) assess specific concerns of the private bus operators in operating and maintaining large buses.
The household survey, which was carried out in Samarkand and Almalyk, indicated that about six per centof the average monthly family expenditure of $74 equivalent was spent on transportation. Work tripsconstituted the largest share of bus passenger trips, followed by trips to the market. Affordability ofmotorized transport emerged as one of the main concerns of passengers, especially lower income ones. Thisconcern was reflected in the high share of personal trips for which people preferred walking. The projectwould potentially address this concern, as the vehicles to be provided would be medium size buses with alower cost per passenger than the minibuses which, in the past few years, have replaced the larger vehicleswhile charging higher fares. This is of special interest as about 34 per cent of the surveyed population inSamarkand and Almalyk has declared a monthly family expenditure below $36 equivalent. The projectwould also improve the frequency and reliability of urban transport services which is generally essential tofacilitate people's mobility. The survey data also revealed that women walked more than men; to the extentthat larger vehicles are more affordable than smaller vehicles, the project is likely to benefit women as agroup.
It was agreed that, under the project, the social assessment would be repeated in 2002 in order to (i) updateknowledge of the social impact of urban transport in the project cities, and (ii) review changes resultingfrom the project, particularly on the mobility of lower income groups and their access to jobs and socialservices.
6. Environmental assessment: Environment Category: B
As shown by an environmental analysis carried out during project preparation, the project would not resultin any major negative environmental impact. Instead, a number of environmental benefits are expected to berealized as explained below. First, the current vehicle stock consists of end-of-life vehicles (LAZ, LiAZ,PAZ, RAF, KAvZ, Ikarus and Belde) which are predominantly gasoline-powered engines (except forIkarus and Belde) with high emission levels. The project would provide new vehicles and therefore helpgradually decommission old vehicles. Each replacement vehicle has the potential to perform significantlybetter in terms of emissions, noise and fuel consumption than the existing vehicles which it replaces.Second, although each vehicle would operate more kilometers per annum due to higher availability, theoverall number of kilometers operated is unlikely to increase, if compared to a few years ago, so thatimproved emission levels and fuel consumption would not be offset by increased use. Third, bettermaintenance, supported by improved maintenance facilities and equipment, would ensure that existingvehicles remain within their specifications throughout their operating life.
The generation of wastes such as scrap metals, used parts, tires, oils, and batteries (including in particularthose due to the decommissioning of old buses) is the main potential environmental concern related to theproject. There is a developed body of regulations and instructions in Uzbekistan regarding the disposal andrecycling of wastes in particular related to road transport vehicles, and these are known and implemented atthe local level. However, in the current context of resource shortages, there are shortcomings in
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environmental practices, and some improvements would in any case be desirable. At Negotiations, theGovernment agreed to prepare not later than December 31, 2000, an Environmental Management Plan.(EMP), acceptable to the Bank, for the project, and to take actions for implementation of the EMP under atimeframe agreed with the Bank. The EMP would comply with the requirements under OperationalPolicy/Bank Procedures/Good Practices 4.01 (Environmental Assessment), and address, inter alia, the issueof waste management. It would be available prior to arrival of the new buses and rehabilitation or repair ofthe existing ones. The EMP would include a monitoring plan, the results of which would be summarizedannually in the PIU's project implementation progress reports.
As part of the technical assistance provided by the project, consultants would also help the Governmentimprove the recycling and recovery of urban transport related wastes in the five project cities. Their workwould include: (i) a review of existing waste management practices and the extent to which they complywith environmental regulations; (ii) a review of recycling opportunities in terms of financial andtechnological constraints; (iii) a review of the adequacy of concerned staff and facilities; and (iv) thepreparation of recommendations for improvements, and assistance in their implementation.
7. Participatory Approach (key stakeholders, how involved, and what they have influenced or mayinfluence; if participatory approach not used, describe why not applicable):
a. Primary beneficiaries and other affected groups:
The primary beneficiaries of the project would be the residents of the project cities. Their socio-economicprofile, urban transport needs, and views on priority improvements in the sector were analyzed through asocial assessment (see Section E 5 above).
b. Other key stakeholders:
State-owned and private urban transport operators have been consulted throughout project preparation,especially in the assessment of their capabilities and the condition of their assets, and the identification ofpriority investments. The social assessment included in particular a survey of private bus operators. Theproject component for improving the institutional, financial, and regulatory framework for urban transportservices was also designed with the main stakeholder, the Uzbek Agency for Automobile and RiverTransport, in consultation with the administrations of the project cities.
Participation of key stakeholders as well as academic institutions thoughout project preparation,implementation, and operation has been, and is expected to continue, as presented in the Table below. Thesocial assessement has been the main vehicle for consulting with the residents of the project cities and theacademic institutions.
The long term sustainability of the main project investments would depend on the sustainability of theurban transport sector in the project cities and, therefore, on the full implementation of the reforms whichthe project would be promoting, particularly the financial reforms. This has been and would continue to bethe main focus of the Bank dialogue with the Government in the sector, especially through the annualreviews of the franchising system. The Government policy in these regards is well spelled out in its urbantransport strategy statement of April 17, 2000. In the medium term, the sustainability of the investment inthe new buses would also depend on the quality of the operational and financial management of the leasingscheme. This would be in accordance with policies and procedures acceptable to the Bank. Preparation ofa manual of operational and financial policies and procedures, and establishment of financial managementsystems for the leasing scheme, acceptable to the Bank, are conditions of disbursement of loan proceedsallocated to the purchase of the new buses. The degree to which these policies and procedures are appliedwould be subject to regular audits by independent auditors.
2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):
Risk 7777 Risk-Rting-- T RXik Minimization Measure From Outputs to Objective1. Insufficient political and institutional S 1.1 Annual review of the franchising system.will within the Government, Uzavtotrans, 1.2 Regular audits of the new bus leasingand the transport operators to use the scheme.new/improved systems and procedures 1.3 Bank continuous dialogue with senior(for bus route franchising, bus leasing, Government decision makers, particularly asand enterprise management), and to fully part of the implementation of the Government'sbase decisions on their results. urban transport strategy statement.
1.4 Dissemination of information oninternational best practice and potential benefitsfrom taking action.
2. Inadequate increase in transport fares S 2.1 Same as 1. 1, 1.3, and 1.4 abovefollowing a devaluation of the nationalcurrency.
3. Formal and informal barriers to entry M 3.1 Same as 1.3 and 1.4 above.into the urban transport business.
4. Constraints put on entrepreneurship S 4.1 Same as 1.3 and 1.4 above.and investment in the sector by the 4.2 Commitment by the Government to provideGovernment's general economic policies, all necessary authorizations to the vehicleand restricted access to spare parts for maintenance enterprise(s) for the import ofbus maintenance. goods necessary for the maintenance of the new
buses.
From Components to Outputs
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1. Disruptive reorganization of N 1.1 Bank continuous dialogue with seniorUzavtotrans, and the JSCs and the City Government decison-makers on the efficiency ofAdministrations in the five project cities. administrative organization, and the benefits of
better corporate governance.
2. Low willingness of managers and staff M 2.1 Mid-term project implementation review.of the Central and City Administrations, 2.2 Dissemination of information onUzavtotrans, and the JSCs to learn new international best practices and potentialknowledge and to implement new systems benefits from change.and procedures. 2.3 Bank continous dialogue with the managers
of the concerned organizations.
3. Inability of sector organizations to S 3.1 Same as 2.1, 2.2, and 2.3 above.retain or hire competent staff in sufficientnumbers.
Overall Risk Rating S
Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)
3. Possible Controversial Aspects:
There are risks associated with the ownership of the new buses and management of the leasing schemebeing entrusted to a State corporation, Uzavtotrans. However, other options, especially that of providingBank funds to a joint stock leasing company owned by commercial investors (especially commercial banks)have been considered and not found feasible at this time. The risks of State ownership would be mitigatedby the establishment of strict operational and financial policies and procedures, the auditing of the extent towhich these would be applied, the contracting out of bus maintenance, and the privatization of the newbuses and the leasing scheme after four years.
G. Main Loan Conditions
1. Effectiveness Conditions
(i) PIU to be strengthened with structure, functions, and staffing acceptable to the Bank.(ii) Independent auditors, acceptable to the Bank, to be selected to undertake the audit of the projectfinancial statements for the first year of project implementation.(iii) Signature of a subsidiary loan agreement, acceptable to the Bank, between the Ministry of Financeand Uzavtotrans.
2. Other [classiiy according to covenant types used in the Legal Agreements.]
Condition of Disbursement (for loan proceeds allocated to the purchase of new buses)
Preparation of a manual of operational and financial policies and procedures, and establishment of afinancial management system, acceptable to the Bank, for the new bus leasing scheme.
Loan Covenants
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(i) PIU to be maintained during the entire life of the project with funds, facilities, and resources,including qualified and experienced staff, necessary, as may be deemed by the Bank, for successfulimplementation of the project.(ii) Uzavtotrans to carry out an action plan acceptable to the Bank for the strengthening of the PIU'sfinancial management system in order to enable the PIU, not later than by June 30, 2001, to preparequarterly Project Management Reports acceptable to the Bank.(iii) The Government, (a) by November 30, each year starting in year 2000, to review the technical andeconomic efficiency of the urban bus route franchising system in the project cities and discuss theresult of such review with the Bank, and (b) by March 31, the following year, to issue instructions,acceptable to the Bank, to the City Tendering Commissions in the project cities, to improve themethodology for evaluation of bids for bus route franchises, the terms of the bus route franchisecontracts, and the procedures for supervision of these contracts.(iv) New buses to be leased to private and State-owned transport operators in accordance withoperational and financial policies and procedures acceptable to the Bank.(v) New buses to be maintained in accordance with a maintenance contract acceptable to the Bank.(vi) The Government to provide all necessary authorizations to the vehicle maintenance enterprise(s)for the import of spare parts and supplies necessary for maintenance of the new buses during thepost-warranty period.(vii) UATT's financial statements related to the bus leasing operations and the extent to which UATThas consistently applied its operational and financial policies and procedures, to be audited every sixmonths during the first two years of project implementation and every year thereafter by independentauditors acceptable to the Bank.(viii) The Government to prepare not later than by December 31, 2003, a plan acceptable to the Bankfor privatization of the new bus fleet and the leasing organization in the project cities and take actionsfor the implementation of this plan under a timeframe agreed with the Bank.(ix) The Government to prepare not later than by December 31, 2000, an Environmental ManagementPlan (EMP) acceptable to the Bank, and take actions for the implementation of the EMP under atimeframe agreed with the Bank.
H. Readiness for Implementation
1 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.
1 1. b) Not applicable.
1 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.
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):
Draft bidding documents for the purchase of new buses have already been prepared, but need to be revised,particularly in order to incorporate the results of an on-going consultation with bus manufacturers (seeSection E 3). This is expected to be completed shortly.
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1. Compliance with Bank Policies
1 1. This project complies with all applicable Bank policies.Dg 2. The following exceptions to Bank policies are recommended for approval. The project complies with
all other applicable Bank policies.
( L_ \ _ _ k __ _
Jean- arles Crochet Eva Molnar Kiyoshi Kodera //i
Team Leader Sector Manager/Director Country ManagerlDirector
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Annex 1: Project Design SummaryUZBEKISTAN: Urban Transport Project
4 e Perff ance'
Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)1. Removing the 1.1 Increased level of cost 1. Bank economic and sector 1. Complementary measuresinefficiencies in resource recovery. work. are taken in other spheresutilization in the municipal 1.2 Strengthened institutional (agriculture, credit, efficiencyservices, infrastructure, and capacity. of markets, governance, etc) tothe social services. 1.3 Introduction of raise the living standards of
competition between service the poor.providers and increasedprivatization of services.
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Key PerformnanceHierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions
Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:1. Efficient and sustainable 1.1 Supply of urban passenger 1. Bank supervision missions 1. Senior decision makers areurban passenger transport transport services in the five assessments. convinced of the effectivenessservices in Samarkand, project cities is adequate to of the changes introducedNamangan, Bukhara, Nukus, satisfy demand. 2. Updated social assessment. through the project andand Almalik. willing to scale-up these
1.2 Urban transport operators 3. Annual survey of urban changes to other cities andin the five cities adequately transport operators. possibly other sectors.manage their operations andmaintain their vehicles.
1.3 Bus route franchises inthe five cities are allocated onthe basis of a soundcompetitive bidding process.
1.4 City administrations inthe five cities take sounddecisions regarding the (i)planning of their respectiveurban transport systems and(ii) the administration offranchise contracts.
1.5 Efficient urban transportoperators in the five citiesfully recover their costs(including the cost ofprivileged passengers) andgenerate a reasonable profit.
Output from each Output Indicators: Project reports: (from Outputs to Objective)component:1. New modem urban buses 1.1 About 350 new buses are 1. PIU quarterly and annual 1. There is the political andare made available to urban available by mid 2002. reports. institutional will within thetransport operators 1.2 Sound leasing Govemment, Uzavtotrans, and
arrangements are in place to 2. Bank supervision missions the transport operators to useprovide the buses on a full cost assessments. the new/improved systems andrecovery basis by mid 2001. procedures (for bus route
franchising, bus leasing, andenterprise management), andto fully base decisions on theirresults.
2. Increased availability of 2.1 About 60 existing "Belde" 2. The cost impact of aexisting vehicle fleets buses are rehabilitated by end devaluation of the national
2002. currency are reflected into2.2 Most existing buses with transport fares within aremaining service life are reasonable period of time.operable by mid 2002.2.3 Daily Availability ofoperable buses is increasedfrom about 60% presently to75% by end 2002.
3. Increased capability of 3.1 Better financial 3. Entry into the urbanurban transport operators. management and maintenance transport business remains
systems/procedures are in widely open.place in the JSCs by end ofproject. 4. General economic policies3.2 Sufficient tools and do not restrainequipment are available to the entrepreneurship andJSCs for maintenance of their investment in the sector, andbus fleets by end of project. in particular, do not restrict3.3 About one hundred and access to spare parts for busfifty staff of JSCs and private maintenance.operators are trained infinancial management, vehiclemaintenance, and bus routefranchising by end of project.
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4. A sound bus route 4.1 Sound systems andfranchising system is in place procedures are in place in the
city transport departments to(i) plan urban transportservices; (ii) competitivelytender bus route franchises;(iii) compensate urbantransport operators for thetransport of privilegedpassengers; and (iv)administer franchises by endof project.4.2 About seventy five CTC,CTD, and UAART staff aretrained in subjects (i) to (iv)above by end of project.
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W0X* ~~~~Key Peroiiiaice
Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)1. Provision of new buses and $23.46 million 1. PIU quarterly and annual 1. There is no disruptiveestablishment of a leasing reports. reorganization of Uzavtotrans,scheme. and the JSCs and the City
2. Bank supervision missions Administrations of the fiveassessments. project cities.
2. Rehabilitation and repair of $4.83 million 2. Management and staff ofexisting buses. the Central and City
aAdministrations,Uzavtotrans, and the JSCs arewilling to learn newknowledge and implementnew systems and procedures.
3. Provision of technical $1.42 million 3. Competent staff inassistance, training, and sufficient numbers areequipment for strengthening retained or hired, asurban transport operators necessary.
4. Provision of technical $0.32 millionassistance, training, andequipment for improving theregulatory, institutional, andfinancial framework for urbantransport services
5. Project management $0.63 million
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Annex 2: Project DescriptionUZBEKISTAN: Urban Transport Project
By Component:
Project Component I - US$23.46 millionProvision of New Buses and Establishment of a Leasing Scheme:
1. In recent years, the available fleet of medium size and large urban buses in the five project cities hasbeen declining at about 10% per annum because of lack of funds for capital replacement and maintenance.On average, such buses are nearly 10 year old, and in most State enterprises, nearly two-thirds of the busfleet exceeds the planned life of 8-10 years, and about 30% of the fleet is over 12 years old. As a result,there is a shortage of operable buses, which has constrained residents' mobility and encouraged the use ofmini- and micro-buses which are far more expensive to operate on bus routes with sizable passengerdemand. The objective of this project component is therefore to provide new buses to satisfy the estimatedpassenger demand on these bus routes. Calculation of requirements for new buses in each of the cities,prepared by project preparation consultants, has followed three steps: (i) estimation of the total number ofbuses required to satisfy passenger demand in the base year (1998); (ii) estimation of the total number ofcurrently operable buses, including those which can be returned to service with rehabilitation and bodyoverhaul; and (iii) calculation of requirements for new buses by subtracting (ii) from (i). With relativelyconservative estimates of passenger demand and assuming a high utilization factor, it was concluded thatthe total requirement was for about three hundred and fifty seven meter equivalent new buses. The totalcost of these buses (including contingencies) is estimated to be $ 20.45 million (net of custom duties, localtaxes, and VAT, as is the case for all costs in the project cost estimate). Draft technical specifications havebeen prepared which emphasize sturdiness, proven and simple technologies, and easy maintenance.Assumed unit prices are based on discussions with manufacturers.
2. The buses will be owned by Uzavtotrans and leased to private and State-owned operators on acommercial basis, including especially full cost recovery. Uzavtotrans' procurement unit, UzavtotransTaminot (UATT), will have responsibility for leasing and maintenance of the buses, and, therefore, willneed to establish the leasing scheme in detail at the beginning of the project. This will include among otherthings: (i) preparation of an operations manual covering in particular policies and procedures for selectionof lessees, calculation of lease rentals, and administration of lease. contracts; (ii) establishment ofappropriate accounting, financial management, and information systems for the bus leasing operations; (iii)developing procedures for supervising the maintenance of buses; and (iv) developing a small group ofcompetent staff and strengthening UATT's management capability. The bus leasing operations will also besubmitted to a regular technical and financial audit every six months during the first two years of theproject and annually thereafter. For thes purposes, the project includes the provision of technical assistanceand training services as well as office equipment. The cost estimate is $0.58 million for the services and$0.06 million for the office equipment
3. The buses will be maintained under a maintenance contract with the bus supplier. This contractwill be paid out of the bus leasing revenues. However, in order to limit risks to the supplier and ensure thelowest possible maintenance costs, the project includes the setting up of the maintenance centers (includingprovision of facilities and workshop equipment), and the establishment of an initial stock of spare parts.The cost estimate is $0.29 million for the facilities, $0.29 million for the workshop equipment, and $1.52million for the spare parts.
4. The project also includes services for (i) ensuring that the new buses are manufactured in
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accordance with stipulated quality assurance procedures and conform to the technical specifications; and(ii) preparing a plan for privatization of the new bus fleet and leasing scheme before December 31, 2003.The cost estimate for these services is $0.27 million.
Project Component 2 - US$4.83 millionRehabilitation and Repair of Existing Buses
4. Capital Repair. As a result of insufficient preventive maintenance in the past, the operating costsof buses have increased while their performance and availability have decreased substantially. "Capitalrepair" (i.e. a full rehabilitation) is therefore necessary to restore the full technical performance and earningpotential of the vehicles and reduce the cost of operation. The viability of such an exercise depends both onthe anticipated cost of capital repair in relation to the replacement price of a new vehicle, and age of thevehicle in relation to its potential economic life-cycle. Basic judgement used in estimating the number ofbuses to be rehabilitated is that any bus of CIS origin that has alteady been in operation for half its optimallife would not be economic to rehabilitate, whereas the breakeven point for non-CIS bus comes at 60% ofits life-cycle.
5. Given the types of buses operating in each of the participating cities and their age profile, it isestimated that mostly Turkish Belde buses, procured in 1993, will fall within the economic criteria definedabove. Performance of these buses has been hampered by lack of spare parts throughout their life. It isestimated that capital repair can be done to 60 Belde buses at an average cost of US$16,500 each. 17 busesof 7m length can also be rehabilitated at an average cost of US$6,200 each. Total cost of capital repair(including contingencies) is estimated at US$1.15 million.
6. Intermediate OverhauL The objective of intermediate overhaul is to raise the standard ofpresentation and comfort of the bus in order to increase its level of passenger acceptability. It wouldinclude such items as: repairing and re-upholstering all seats, repairing and re-covering floor and steps,reinstating all stations and grabrails, repairing door operating mechanisms, repairing cracked windows andwindscreens and repainting inside and outside. Such works are relatively labor intensive and can be carriedout comparatively cheaply. The total cost of intermediate overhaul on the existing bus fleet in the five citiesis estimated to be US$1.27 million.
8. Spare parts for emergency repairs and reconstitution of an adequate stock This componentincludes spare parts to quickly return existing buses to service and improve their service conditions. Forlack of funds, JSCs have kept expenditures on spare parts to a minimum for more. than five years, with thebulk of maintenance expenditure being deferred as long as possible. As a result, the operable bus fleet hasdecreased to record low numbers, and reliability has been very poor. Maintenance activities in all JSCs arealso supported by negligible stock levels and spare parts are acquired as and when needed, which results inunnecessary delays. The approach to estimate spare parts requirements includes: (i) preparation of aschedule of missing parts for all vehicles still within their economic life; and (ii) identification of partsrequirements for the planned maintenance program and predicted unit failures in relation to planned fleetactivity. The total costs of required spare parts is $ 2.42 million.
Project Component 3 - US$ 1.42 millionStrengthening of Urban Transport Operators.
9. The project includes the provision of consultants' services and training to (i) improve the financialand maintenance management of the JSCs and the private transport operators (in particular theiraccounting and cost estimating systems, ability to prepare bids for bus route franchises, and vehicle
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maintenance policies and organization); and (ii) design and implement measures to improve environmentalpractices of the JSCs and related organizations, including in particular the recycling of materials and safedisposal of wastes. The estimate is $0.23 million.
10. To complement these services and increase the quality and efficiency of the JSCs' vehiclemaintenance operations, the project includes (i) improvement of workshop buildings (at a total estimatedcost of $0.52 million), (ii) provision of tools and workshop equipment (at an estimated cost of about$30,000 for each of the seventeen JSCs operating in the five project cities, or $0.52 million in total) and(iii) provision of office equipment and software (at a total estimated cost of $0.16 million).
Project Component 4 - US$0.32 millionImprovement of the Institutional, Financial, and Regulatory Framework for Urban TransportServices
11. The project includes consultants' services and training to (i) help the Central Government improveurban transport policies and regulations, assist city administrations in the management of urban transport,and monitor developments in the sector; (ii) improve the capabilities of the city transport departments(CTDs) of the five project cities in all their activities, in particular the collection of data, planning of urbantransport investments, designing of bus routes, administration and supervision of the franchising system,and improvement of fare policies; and (iii) update the social assessment which was carried out in 1998, inorder to deepen the CTDs' knowledge of the population's urban transport needs. The estimated cost ofthese services is $0,23 million.
12. To strengthen the CTDs, the project also includes the provision of office equipment and softwarefor an estimated cost of $0.09 million.
13. In order to help the PIU procure goods and services for the project, administer contracts, improveits financial management systems, and generally manage the project, the project includes consultants'services and training for an estimated cost of $0.35 million and office equipment and software for anestimated cost of $0.06 million.
14. The project also includes the incremental activities of the PIU related to project management(estimated to cost about $0.23 million) comprising in particular office rental, operation and maintenance ofoffice equipment, travel, provision of utility services, communications, and supplies, audit of projectaccounts, and provision of adequate staff, based on an annual budget acceptable to the Bank.
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Annex 3: Estimated Project CostsUZBEKISTAN: Urban Transport Project
I. Provision of New Buses and Establishment of a Leasing 0.36 19.99 20.35Scheme for these Buses.2. Rehabilitation and Repair of Existing Buses. 1.07 3.13 4.203. Strengthening of Urban Transport Operators. 0.48 0.75 1.234. Improvement of the Institutional, Financial, and Regulatory 0.03 0.24 0.27Framework for Urban Transport Services.5. Project Management. 0.20 0.35 0.556. Refunding of PPF Advance 0.00 0.50 0.50
Total Project Costs 2.45 28.71 31.16Front-end fee 0.29 0.29
Total Financing Required 2.45 29.00 31.45
All costs are net of custom duties, local taxes, and VAT.
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Annex 4: Cost Benefit Analysis SummaryUZBEKISTAN: Urban Transport Project
Summary of Benefits and Costs:
1. The two main project components for which an economic analysis was undertaken are: (i) busrehabilitation (or "capital repair"), and (ii) purchase of new vehicles, in the five project cities ofSamarkand, Namangan, Bukhara, Nukus, and Almalyk. The economic analysis focused on the calculationand comparison of costs and benefits brought about via rehabilitation and purchase of new vehicles forpublic transport. Urban public transport in other urban areas would not be affected by these investments,though the sector will benefit from the regulatory and institutional changes that the project is expected tobring about. The main results of the analysis are presented below.
Economic Analysis of Bus rehabilitation
2. For the economic analysis of the rehabilitation of the existing vehicles owned by the JSCs in the fivecities, the age and mechanical condition of the buses in the five cities was first assessed. Life cycles of eachof the vehicle types was then estimated under the two scenarios of preventive maintenance and correctiverepair; variations were included for corrosive repair in Bukhara and Nukus. The financial costs ofrehabilitation are presented in Table 4.1. For each of the vehicles, the following scenarios were compared:(i) capital repair to allow completion of economic life, (ii) operate as is for three more years and thenreplace, (iii) replace immediately. Option (ii) was not economic and therefore discarded. The results of thecost-benefit analysis, based on a comparison of (i) and (iii), are shown in Table 4.2.
Table 4.1: Financial cost of rehabilitation (US$ '000)
Vehicle Type Number Total Rehabilitation Cost
Belde 60 918.0
PAZ 22 136.4
LAZ 28 274.4
Total 110 1328.8
Table 4.2: Economic Analysis of Bus Rehabilitation
3. The following scenarios were considered as plausible alternatives for the "without project" case. Thefirst alternative was to assume that the enterprises would be able to replace their fleets in three years,operating at the current service levels in the interim and continuing to bear high maintenance costs. Thesecond alternative allowed for a reduced service level of 80% with the existing fleet, and assumed that thevehicle fleets would be replaced in 2003. The third alternative assumed that the transport enterprises wouldbe unable to find resources for fleet renewal and the decline in enterprise service would be compensated bya private sector expansion of minibuses. A comparison of the "without project" optionsshowed the second option to be the most stringent; this has therefore been used as the "without project"case.
4. On the basis of the above mentioned values and assumptions, the economic evaluation of the projectyields an economic rate of return of 60.4%. The net present values, at a 12 percent discount rate, amountsto 1.4 billion Soums. the results are robust to major changes in the assumptions for the economic prices.Investment in new vehicles has been evaluated separately for each vehicle type, and for each city. Each ofthe investments is individually viable - the individual returns vary between 45 to 80%. Table 4.3summarizes the results of the incremental costs and benefits, both financial and economic. This analysiswas carried out assuming that the new vehicles would be a mix of seven, nine, and twelve meter buses aswas anticipated at that time. The results are not affected in substance by Uzavtotrans' recent decision topurchase only seven meter buses.
Table 4.3: Financial and Economic Analysis of New Buses
Almalyk 7 m 17,837 51.9 21,500 60.89 m 117,300 46.9 148,006 56.612m 3,051 45.4 8,341 63.1
Namangan 7 m 58,035 41.2 74,564 49.49 m 93,182 49.9 115,700 59.812m 7,626 144.7 14,991 204.8
Nukus 7 m 15,304 27 22,536 34.99 m 20,476 57.4 24,570 68.712m 154,270 62.6 171,509 78.6
Total _ 1,133,035 49.3 1,408,341 60.4
(1) NPV is calculated at a discount rate of 12%.The financial values are those which are the basis of the economic analysis.
Main Assumptions:
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5. The methodology and key assumptions used in the analysis to estimate total fleet requirements and thesize of investment in rehabilitation versus new vehicles, and to calculate the economic benefits of theseinvestments are described below.
General Methodological Approach
6. The economic analysis encompasses the comparison of incremental costs and benefits that the proposedinvestment will bring about to targeted urban transport systems and consequently to the economy as awhole. Both costs and benefits are calculated for the situation with and without the project to generate theincremental costs and benefits over the life of the vehicles. Investments in capital repair and in purchase ofnew buses are analyzed separately. The economic appraisal is conducted in domestic currency at thedomestic price level, as the project benefits are non-tradable. All conversions to dollar values have beencalculated at a shadow exchange rate of 180 Soums/$ to take account of the overvaluation of the domesticcurrency at the time data was collected for the economic analysis (mid 1998).
7. The number of buses required to service travel demand, in the base year 1998, is calculated for eachcity. This number is compared with the existing fleets of the transport enterprises and the supply of vehiclesby the private sector. It is assumed that half the supply of minibuses (including the "Damas", a 7 seatmicrobus manufactured by Daewoo in Uzbekistan, which has become extensively used by privateoperators), will be replaced by large buses. The number of buses in each city which can be economicallyrehabilitated is subtracted from the total vehicles required to service demand; this yields the number of newbuses to be purchased
8. Alternative scenarios were developed for both capital repair and investment in new vehicles. The optionof capital repair to extend the operational life of the vehicles by at least three years was compared with thealternative of replacing the vehicles immediately. Both the immediate replacement and rehabilitationalternatives were compared with the base scenario of operating the existing vehicles for three more yearsand then replacing them. For new investments, the without project scenario considers a delay in investmentof three years, during which time a reduced level of service, at 80%, is provided. The alternative of largevehicles being replaced by minibuses, owned and operated by private entrepreneurs, was also considered.This was rejected in favor of the selected without project case as the latter provided a more stringent testagainst the with project case.
Travel Demand
9. Urban public transport in the project cities is provided by a mix of enterprise buses ranging fromseven to twelve meters, private sector minibuses, and trolleybuses. The estimated demand by mode is givenin table 4.4. The share of the private sector in public transport lies between 25% to 68%.
Table 4.4: Estimated passenger demand by mode ('000 /day), 1998
10. Ideally, the size of a city's vehicle fleet and its required growth over time would be derived from dataon travel demand, expected population and economic growth rates of the project cities, changes in incomedistribution, motorization rate, land use planning and related changes in travel patterns. In practice, we donot have reliable projections for these variables on either an aggregate urban or dis-aggregate city level.Urban and rural populations are in flux, and for some time urban areas have been net losers of populationdue to emigration. The economic crisis in Russia has had an adverse impact on the regional economy, withdifferential and uncertain impacts on individual countries. Also no detailed passenger surveys had beencarried out by the time of the economic analysis (they were completed just before Negotiations). For thesereasons, assumptions used in the economic analysis are on the conservative side.
11. It is assumed that there is no growth in travel demand due to the above factors. The project focuses onreplacement of vehicles rather than fleet expansion. Generated demand has been included. It is estimatedthat the higher quality of new and rehabilitated buses will have a modest impact on demand of 5% and 2%,respectively. This demand is expected to be accommodated without running additional vehicles.
12. Based on available surveys, travel demand elasticity is taken to be 0.3. Since passenger travel issensitive to bus frequencies, a frequency elasticity of 0.15 has also been included. Passengers attach utilityto the improved comfort of rehabilitated and new buses and disutility to overcrowding. These costs andbenefits, though small, have been assessed and included in the analysis. Passenger benefits of 0,6 soumsand 0.24 soums have been included for new and rehabilitated vehicles.
Public Transport Fares
13. Break even fares by vehicle type were calculated, using the optimal operations and maintenance costprofile for vehicles. This analysis shows that the lowest break-even fare is provided by the bigger vehicles.The break-even fare is between 9 and 10 Soums per passenger for a bigger bus, and 16 to 18 Soums for aDamas (at mid 1998 costs). These fares include depreciation and capital costs (valued at internationalprices). At the time of the economic analysis, fares, although they varied by city, were set around 12 Soumsfor large buses and 20 Soums for minibuses. The fares were thus quite adequate for cost recovery(provided that the Government compensates operators for the transport of privileged passengers). Throughcontinuous fare adjustments, this has been maintained since mid 1998. Any change in the average farewould affect total demand, and demand elasticities change as one moves up the demand curve.
Financial and Economic costs
14. The total financial cost of bus rehabilitation and purchase of new vehicles is estimated in the economicanalysis at US$21.2 m. The costs included in the financial analysis are operations and maintenance costs,administrative costs, vehicle depreciation costs, interest on debt, taxes and an allowance for risk andprofits. To calculate the economic costs, the following adjustments were considered. Taxes were discountedfrom the pertinent financial costs. Profits have been excluded and passenger time costs have been includedin the economic costs.
15. Vehicle Operating and maintenance costs. There is a complex relationship between expenditure onmaintenance and optimum vehicle life. As a result of insufficient preventive maintenance in the past,operating costs of vehicles have increased rapidly with age. Rehabilitation of the buses will restore the full
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technical performance and earning potential of the vehicles and reduce the ongoing maintenance costs.O&M costs used in the analysis, for both rehabilitated and new vehicles, are based on estimates required tomaintain a vehicle in good condition over its economic life.
16. Passenger time costs. The time savings of passengers are accounted through the inclusion of theeconomic value of time. The value of travel time is considered a function of the local hourly wage rate. It isassumed that the value of travel time is half the hourly wage rate of 25 Soums. Waiting time is valued attwice the in-vehicle time.
Sensitivity analysis I Switching values of critical items:
17. The estimated net present value and economic rate of return are sensitive particularly to two sets ofassumptions: an increase in capital costs and a decrease in maintenance cost savings. A 20 percentincrease in capital costs causes the ERR to drop by 15.5 percent, while a 30 percent reduction inmaintenance costs leads to an overall economic rate of return of 39.4 per cent. A combination of a 20percent increase in capital costs and a reduction in maintenance costs (16 percent for new vehicles and 30percent for old vehicles) gives an net present value of 0.74 billion Soums. The ERR is 30.1 percent, wellabove the 12 percent cut-off rate.
18. Several other sensitivity tests were completed, including a halving of passenger valuation of time,exclusion of passenger benefits due to comfort and less crowding, exclusion of generated demand; theproject results are robust with respect to all these changes. The outcomes of these tests are summarized inTable 4.5 below.
Table 4.5: Sensitivity test results
Test NPV ('000 Soums) ERR (%)
1. Capital costs increase by 20% 1,238,200 44.9
2. Maintenance costs decrease by 896,522 39.430%
3. Value of time is halved 1,342,399 57.8
4. Generated demand and passenger 1,028,813 45benefits of new vehicles are excluded
5. Capital costs increase 20%, and 740,487 30.1maint. costs decrease 16% or 30%
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Annex 6: Financial SummaryUZBEKISTAN: Urban Transport Project
Years EndingJune 30
S~~~~1P~~TT•pRo __________
Year 1 Year2 | Year 3 Year 4 Year 5_ Year 6 Year -7Total Financing RequiredProject CostsInvestment Costs 2.7 15.0 10.0 3.5 0.0 0.0 0.0Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total Project Financing 3.0 15.0 10.0 3.5 0.0 0.0 0.0
Main assumptions:Numbers are rounded to the first decimal
Financial Management Assessment
Assessment of Financial Management System
Although Uzavtotrans has overall responsibility for project implementation, the ProjectImplementation Unit (PIU) will be responsible for project accounting, administration of the SpecialAccount, all loan disbursements, procurement of consultants, and project supervision.Procurement of goods will be carried out by Uzavtotrans Taminot (UATT) under supervision andmonitoring by the PIU. UATT is a large subsidiary of Uzavtotrans, specialized in procurement ofnew vehicles, spare parts, and supplies for all 'daughter' companies of the Uzavtotrans group.
The financial management system of the PIU was reviewed by the Bank and found adequate withrespect to staffing and internal controls. Accounting and administrative policies and proceduresadopted by the management of Uzavtotrans, documented and issued to all its companies, includingthe PIU, were also found satisfactory. However, the existing manual accounting system,particularly because it was not computerized, was originally found not to meet Bank accountingand financial reporting requirements under OP/BP 10.02.
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As a condition of Board Presentation, with funding from the PPF Advance, the PIU thereforepurchased personal computers and a project management software which had already been usedwith satisfaction in several FSU countries, including Uzbekistan. A financial consultant was alsorecruited to help install and test the software and improve the PIU's operational and financialmanagement manual.
More specifically the main actions taken included: (a) procurement and installation of accountingand financial reporting software and personal computers for the project; (b) design of a chart ofaccounts for the project to ensure the availability of the information required and for consistency inclassification of financial data; (c) updating of the operational and financial management manual;and (d) formulation of the audit arrangements which will be applied during project implementation.The computerized system is commensurate with the size of the project and provides betterclassification, compilation, analysis of accounting data, and improved controls over data integrity;it also ensures timeliness and quality of accounting and financial reporting.
Internal Control Systems
Internal controls within Uzavtotrans on: (a) operation of budgeting system and regular monitoringof actual financial performance with budget and targets; and (b) clear written administrative,operational, financial and accounting policies and procedures, are considered adequate. Thefollowing internal controls within the PIU were also streamlined and documented as part of theabove mentioned consultancy: (a) accounting, financial reporting and operation procedures for thefinancial management system, including format for the PMRs; (b) procedures on flow of funds asthey relate to responsibilities, processing, and authorization by management of all transactions andactivities relating to the project; (c) control over project assets; (d) budgetary procedures includingmonitoring of actual financial performance with budgets and targets, and monitoring of physicaland financial progress; and (e) timely feedback on operation of the financial management system.
Project Accounting and Financial Reporting
A double entry accrual accounting system will be maintained by the PIU to record and report allproject activities. Consolidated Project Management Reports (PMRs) and Project FinancialStatements will be prepared for the whole project and generated from the computerized financialmanagement system. The format of such reports was agreed with the PIU during projectpreparation. PMRs comprising of financial reports, progress reports, and procurementmanagement reports will be prepared quarterly while Project Financial Statements will be preparedannually to provide financial information to the Bank and Borrower. The financial managementaction plan is included in the PIP and agreed format for PMRs is in project files.
Staffing
The PIU currently has a staff of five, including director, deputy director, accountant, procurementspecialist, and secretary/translator. The PIU will also get support from UATT in the procurementof goods. In addition, training in financial management, accounting, Bank disbursement, andprocurement procedures is planned. During the key stages of project implementation, the PIU willbe assisted by international project management and procurement specialists.
Auditing Arrangements
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The PIU will be responsible for engaging external private auditors before commencement of projectactivities to ensure that the audit will be completed on time. The Ministry of Finance confirmedduring project preparation that it had approved three to four international auditing firms from the'big five' operating in Uzbekistan to carry out audit of Bank projects. The audit will cover ProjectFinancial Statements, Special Account, Statements of Expenditures and PMRs, and assessment ofadequacy of accounting and internal control systems, in accordance with International Standardson Auditing. The terms of reference for the audit will be agreed with the Bank.
Readiness for Implementation
(a) The PIU's accounting and financial management systems are being strengthened to ensurethat they meet international standards and provide accurate and timely information onproject resources and expenditures as mandated by the Bank's OP 10.02. Thisstrengthening is being carried out in accordance with an action plan which was agreed atNegotiations and attached to the Agreed Minutes of Negotiations. The action planincludes two main stages. First, the PIU has taken action to ensure that minimum Bankrequirements are met before Board Presentation. This included in particular: (i) thepreparation of a simple operations manual that describes the allocation of responsibilitiesto PIU staff and documents the PIU's internal controls (this manual is based on andcomplements the instructions which already exist in Uzavtotrans); and (ii) the installationin the PIU of a computerized accounting and project management system (with a chart ofaccounts specific to the project) that can produce reports in a format and substanceacceptable to the Bank. Achievements under this first phase were reviewed by a Bankfinancial management specialist who issued a "4B" financial management certificate.Second, the PIU's financial management system will be further strengthened and thecapability of the PIU developed so that it can prepare starting on June 30, 2001, quarterlyProject Management Reports fully acceptable to the Bank. The action plan is beingimplemented with the assistance of financial consultants.
(b) A fully operational PIU is in place and includes a director, deputy director, accountant,and procurement specialist. Staff will be trained and supported by internationalspecialists in project management and procurement, the recruitment of which has alreadybeen initiated.
(c) Private independent auditors will be engaged before commencement of Project activitiesto ensure that the audit will be completed in a timely manner.
Risks
A new project management and accounting software has just been satisfactorily installed at thePIU. Although the system is operational and the staff have been trained, it will take some timebefore the use of the system becomes a routine. Consultants financed under the project willtherefore need to continue supporting the PIU during project implementation. To facilitateprogress and staff replacement if required, staff involved in financial management and informationtechnology in the central office of Uzavtotrans have also participated in the installation of the newsoftware. The PIU will also be supported by Bank staff at the resident mission on day to dayproject implementation, as needed.
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Annex 6: Procurement and Disbursement ArrangementsUZBEKISTAN: Urban Transport Project
Procurement
Procurement of goods financed by the Bank would be conducted in accordance with the Bank's "Guidelinesfor Procurement under IBRD Loans and IDA Credits" of January 1995, revised January 1996, August1996, September 1997 and January 1999. Procurement of consulting services would follow the Bank'sGuidelines "Selection and Employment of Consultants by World Bank Borrowers" 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) the Bank's Standard Request forProposals for Selection of Consultants.
Procurement responsibility would reside with the implementation agency, Uzavtotrans, and, morespecifically, its procurement unit, Uzavtotrans Taminot (UATT), with support, supervision, and monitoringby the PIU. A procurement capacity assessment of the agency was conducted during project preparation.Based on the assessment's findings, an action plan (including recommended procurement arrangements andprovision of training and international procurement assistance) was prepared. The main objective of thisplan is to enhance the implementation agency's capacity to conduct competitive procurement and applyBank Procurement Guidelines under the project. The action plan was finalized and agreed upon with theBorrower during Negotiations.
Advance procurement is being carried out by Uzavtotrans. Draft bidding documents for procurement ofnew buses, in particular, have already been prepared with assistance from a consultant financed by the PPFAdvance. The recruitment of consultants for assistance in project management and procurement, and inestablishing the leasing unit is expected to start before Board approval.
Advertisement: A General Procurement Notice (GPN) was published in the Development Business onDecember 16, 1999, announcing the bidding opportunities under this project and inviting interested eligiblesuppliers, contractors and consultants to express interest and request any additional information fromUzavtotrans. The GPN was also published in the local press. In addition, two requests for expressions ofinterest for the consultants' services mentioned in the previous paragraph were published in the sameDevelopment Business isssue
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 assessment of Uzavtotrans' capacity in procurement and itstechnical assistance requirements. A procurement plan detailing the packaging and estimated schedule ofthe main procurement actions is presented in Table E.
Procurement methods (Table A)
(i) GoodsInternational Competitive Bidding (ICB): would be used to procure goods (including about 350 buses,spare parts, tools and equipment) for contracts estimated to cost US$100,000 or more each.International Shopping (IS): would be used for procuring spare parts, workshop equipment and officeequipment estimated to cost less than US$100,000 per contract, up to an aggregate amount ofUS$500,000. Under international shopping, the Borrower shall obtain quotations from at least three
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suppliers in two different countries.National Shopping (NS): would be used to procure locally available goods for contracts to cost less thanUS$50,000 per contract up to an aggregate amount of US$100,000, with at least three quotations obtainedfrom local suppliers.Direct Contracting (DC): would be used, subject to the Bank's prior approval, to procure spare parts of aproprietary nature for the existing fleet of buses up to an aggregate amount of US$500,000.
(ii) ServicesQuality and Cost Based Selection (QCBS): would be used to hire consulting firms to provide technicalassistance and training under contracts estimated to cost above US$100,000.Selection based on Consultants Qualifications (CQ): would be used for hiring consulting firrns toprovide technical assistance and training under contracts estimated to cost less than US$ 100,000 each, upto an aggregated amount of US$200,000.Individuals: would be hired to provide legal, procurement and expert assistance in urban transport andprivatization up to an aggregate amount of US$200,000. Individual contracts would be below US$50,000each.
(iii) PIU Incremental Operatin! CostsItems for operation of the PIU (US$230,000) would be procured in accordance with an agreed annualbudget and schedule, and with prior Bank approval.
Table A: Project Costs by Procurement Arrangements(US$ million equivalent)
(0.00) (0.00) (0.29) (0.00) (0.29)6. Refunding of the PPF 0.00 0.00 0.50 0.00 0.50Advance (0.00) (0.00) (0.50) (0.00) (0.50)
Total 25.25 0.00 3.75 2.45 31.45
(25.25) (0.00) (3.75) (0.00) (29.00)
1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies
Includes goods to be procured through international and national shopping, direct contracting, consultingservices, training, and PIU incremental operating cost.
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Table Al: Consultant Selection Arrangements (optional)(US$ million equivalent)
Consultant Selection MethodServices
Expenditure Q£CS QBS SFB LCS CQ Other N.B.F. Total Costcategory _
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 Loan.
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Prior review thresholds (Table B)
All the ICB goods contracts, the first IS and NS contracts, all direct contracts, all consulting contracts forfirms, and contracts exceeding US$ 20,000 for individuals, will be subject to prior review. For the otherconsultants' assignments, TORs and CVs of the individual consultants will be subject to prior review by theBank.
Table B: Thresholds for Procurement Methods and Prior Review
, R~~~~~oi~rc Vle CS° t-rcs *Subj P ectw to
1. Works
2. Goods >or = $100,000 ICB All ($25.25 mil.)
<$100,000 International Shopping First contract ($0.1 mil.)(aggregate $0.5 mil.)
<$50,000 National Shopping First contract ($0.05 mil.)(aggregate $0.1 mil.)
(aggregate $0.5 mil.) Direct Contracting All contracts ($0.5 mil.)
3. Services >$100,000 QCBS All ($1.23 mil)Firms
<$100,000(aggregate $0.2 mil) CQ All ($0.2 mil.)
Individuals(aggregate $0.2 mil.) Individuals All contracts above
$20,000 ($0.1 mil.)
Total value of contracts subject to prior review: US$ 27.43 million or98% of Bark financed
contracts
Overall Procurement Risk Assessment
High
Frequency of procurement supervision missions proposed: One every 6 months (includes specialprocurement supervision for post-review/audits)Ex-post review would cover one out of five contracts not submitted to prior review.
Thresholds generally differ by country and project.
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Disbursement
Allocation of loan proceeds (Table C)
Table C: Allocation of Loan Proceeds
Expenditure Category Amount in US$million Financing Percentage1. Goods 23.83 100% of foreign expenditures,
100% of local expenditures(ex-factory cost),
and 80% of local expenditures for otheritems procured locally.
2. Consultants' Services and Training 1.50 100%3. Refunding of Project Preparation 0.50 Amount due pursuant to SectionAdvance 2.02 (c) of the Loan Agreement.4. PIU Incremental Operating Costs 0.20 100%5. Unallocated 2.68
Total Project Costs 28.71Front-end fee 0.29 Amount due pursuant to Section 2.04 of
the Loan Agreement.
Total 29.00
Use of statements of expenditures (SOEs):
Disbursements will be fully documented, except that Statements of Expenditures (SOEs) will be used for:(i) contracts for goods of less than US$100,000 equivalent; (ii) contracts with consulting firms of less thanUS$100,000 equivalent; (iii) contracts with individual consultants of less than US$20,000 equivalent; and(iv) training and PIU incremental operating costs. Full documentation in support of each SOE will beretained by the PIU for at least one year after receipt by the Bank of the audit report for the year in whichthe last disbursement was made for the relevant SOE. This information will be available for review byBank missions during supervision, and by auditors. The minimum application size for payments directlyfrom the loan account and for issuance of special commitments is 20% of the current Special Accountauthorized allocation. When the PIU has gained experience with its financial management system and hasshown full effectiveness with financial management as well as with preparation of project managementreports (PMRs), the Bank may agree to change the disbursement method for one based on PMRs. Thedecision would be taken at the mid-term project implementation review.
Special account:To facilitate timely project implementation, the Borrower would establish and maintain, under conditionsacceptable to the Bank, a Special Account (SA) in US$ in a commercial bank. The selection process andcriteria for selection of the commercial bank would follow Bank standard procedures. During the earlystage of the project, the initial allocation of the SA would be limited to US$0.2 million. However, when theaggregate disbursements and sum of all outstanding special commitments under the Loan have reached thelevel of US$7.5 million, the initial allocation may be increased up to the authorized allocation of US$0.4
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million. Replenishment applications would be submitted at least every three months, and include reconciledbank statements as well as other appropriate supporting documents. The authorized allocation for the SAwould be reviewed if a PMR-based disbursement method is used.
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Table DCapacity of the Implementing Agency in Procurement and
Technical Assistance Requirements
Brief Statement
A capacity assessment of the Borrower and its implementation agency, Uzavtotrans, was conductedduring project pre appraisal. It was found that UATT, the procurement unit of Uzavtotrans, hadqualified staff and extensive experience in the procurement of buses and spare parts underinternational contracts. However, Uzavtotrans' existing procurement procedures were found not inaccordance with current internationally acceptable principles for public procurement. Therefore, anaction plan was prepared to enable the Borrower to conduct procurement under the project inaccordance with Bank procurement procedures. This plan includes in particular: (i) hiring aninternational consulting firm with experience in procurement under Bank rules and projectmanagement to assist UATT and the PIU (the request for expressions of interest for these serviceswas included in the December 16, 1999, issue of Development Business); (ii) defining thecomposition of the Government's tender committees for the project as well as all internal proceduresrelated to procurement under the project not later than 45 days after Loan signing; (iii) trainingselected staff of Uzavtotrans in Bank procurement (in the second quarter of year 2000); (iv) usingBank standard bidding documents under the project; and (v) organizing a project launch workshopshortly after Loan signature. This action plan was agreed at Negotiations and attached to the AgreedMinutes of Negotiations
Country Procurement Assessment Report: Are the bidding documents for the procurementA country procurement assessment has not yetbeen conducted. However, he Bank is currentlyassisting the Government with the preparation Bidding documents for new buses and requestsof its Public Procurement Law. for proposals for technical assistance in project
management and procurement, and inestablishment of the leasing unit are in an
Iadvanced stage of preparation.
TRAINING INFORMATION AND DEVELOPMENT ON PROCUREMENT
Estimated Date of Indicate ifthere is procurement subject Domestic DomesticDate of publication of to mandatory SPN in Development Preference PreferenceProject General Business: for Goods. for Works,Launch Procurement ifWorkshop: Notice: Yes, for procurement of buses and Yes. applicable:
consultants' services for: (i) projectSeptember December 16, management and procurement, (ii) N/A2000 1999 establishment of leasing unit, and (iii)
improving transport operators and thesector's institutional, financial, andregulatory framework.
Explain briefly the Procurement Monitoring System:All project documentation which requires prior review will be cleared by a PAS and the relevanttechnical staff. A procurement consultant will assist the Government in monitoring the procurementprocess and building up in house experience. Procurement information will be collected andrecorded by the Borrower and submitted to the Bank as part of quarterly progress reports preparedby the PIU. This information will include: (a) cost estimates for individual contracts; (b) timing ofprocurement 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 Staff or Bank's staffpart of Task Team responsible for theprocurement in the Project:
Name: Irina Luca Extension: 87092
Explain briefly the expected role of the Field Office in Procurement:
The Field Office will provide back up on the procurement issues to the project team.
Spare Parts G 4 1.2 ICB No 1. Dec. 1, 2000 1. Jan. 15, 2001 June 1, June 1,for BELDE 2. Dec. 15, 2000 2. March 1,2001 2001 2001buses and 3. April 30, 2001IKARUS buses 4. May 15,2001
Spare Parts 1 1.0 ICB No 1. Feb. 1, 2001 1. April 15, 2001 Sept. 1, Sept. 1,for PAZ and 2.Feb.15,2001 2. June 1, 2001 2001 2001LAZ buses 3. July 1, 2001
4. August 1, 2001Equipment for G 1 0.3 ICB No 1. July 15, 2000 1. Sept. 15, 2000 April 15, April 15,maintenance 2. Sept. 1, 2000 2. Nov. 15, 2000 2001 2001centers 3. Dec. 15, 2000
_ =____ _ _______________ 4. March 15, 2001Workshop G 1 0.5 ICB No 1. June 15, 2001 I.August 1, 2001 Dec. 15, Dec. 15,equipment and 2. July 15, 2001 2. Sept. 15, 2001 2001 2001tools 3. Oct. 15, 2001
4. Nov. 15,2001
Office equipment G 2 0.25 ICB No 1. Aug. 1, 2001 1. Sept. 1, 2001 Nov. 30, Nov. 30,for JSC and city 2. Aug. 15, 2001 2. Oct.15, 2001 2001 2001transport 2. Nov. 1, 2001departments 3. Nov. 15, 2001Spare parts G 2 0.15 IS No 1. June 15, 2001 1. Sept. 1, 2001 Dec 1, Dec 1,for BELDE 2. Aug. 1, 2001 3. Oct. 15, 2001 2001 2001buses 4. Nov. 1, 2001
Spare parts G 2 0.15 is No 1. Nov 1, 2001 1. Nov. 30, 2001 Feb. 15, Feb. 15,for IKARUS 2. Nov. 15, 2001 3. Jan. 1,2002 2002 2002buses 4. Jan. 30, 2002Spare parts G 2 0.1 IS No 1. Nov. 15, 2001 1. Dec. 15,2001 March 1, March 1,for LAZ and 2. Nov. 30, 2001 3. Jan. 15, 2002 2002 2002PAZ buses 4. Feb. 15, 2002 _Office G 2 0.1 IS No 1. Jan. 15, 2001 1.Feb. 15,2001 June 15, June 15,equipment 2. Jan. 31, 2001 3. April 15, 2001 2001 2001(leasing company 4. May 15, 2001and PIU)Spare parts for G 10 0.1 NS 1. Aug. 1,2001 1. August 31, 2001 Jan. 1, 2002 Jan. 1,2002LAZ and PAZ 2. Aug. 15, 2001 3. Oct. 15, 2001buses 4. Nov. 15, 2001
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Spare parts G 4 0.5 DC As needed(misc.)
CONSULTING Ty No. of Est. Procurem Pre- A. Request for A. RFP sent to short Contract ContractSERVICES pe Con- Cost ent qualifi- expressions of listed firms Signing Signing
tracts US$ method cation interest (SPN) B. Submission ofMil. B. Draft RFP to proposals
Bank C. Bank no objectionC. Bank No for technicalObjection evaluation;
D. Opening financialproposalsE. Bank no objectionfor contractnegotiationF. Bank no objectionto negotiated contract
Technical CS 1 .300 QCBS No A. Dec. 16, 1999 A. April 25, 2000 Sept. 15, Sept. 15,assistance to the B. Apr. 15, 2000 B. June 16, 2000 2000 2000PIU (project C. Apr. 22, 2000 C. July 14, 2000management, D. July 28, 2000procurement, E. August 12, 2000training) F. August 28, 2000Technical CS 1 .500 QCBS No A. Dec. 16, 1999 A. June 25, 2000 Nov. 15, Nov. 15,assistance and B. June 15, 2000 B August 16, 2000 2000 2000training for the C. June 22, 2000 C Sept. 14, 2000establishment of D. Sept. 28, 2000the leasing E. Oct.12, 2000operations F. Oct. 28,2000Technical CS 1 .300 QCBS No A. Sept. 1, 2000 A. Nov. 1, 2000 May 1, May 1,assistance for B. Oct. 15, 2000 B. Jan. 1, 2001 2001 2001improving JSC C. Oct. 25, 2000 C. Feb. 15,2001and private bus D. March 5, 2001operators as well E. March 15,2001as urban F. April 15, 2001transportinstitutional,financial andregulatoryframeworkTechnical CS 1 .100 CQ No A. Dec. 1, 2000 B. March 15, 2001 June 1, June 1,assistance to JSC B. Feb. 1,2001 E. April 15, 2001 2001 2001and private bus C. Feb. 15, 2001 F. May 15,2001operators (wastemanagement)
Technical CS 1 .150 QCBS No B. Aug. 15, 2000 A. Sept. 10, 2000 March 1, March 1,assistance for C. Sept. 1, 2000 B. Oct. 10,2000 2001 2001quality control of C. Nov. 20, 2000new buses D. Dec. 10, 2000manufacturing E. Dec. 20, 2000
F. Jan. 15, 2001
Technical CS I .100 CQ No A. Jan. 1, 2003 B. April 15, 2003 July 1, July 1,assistance in B. March 1, 2003 E. May 15,2003 2003 2003privatization of C. March 15, F. June 15, 2003bus operations _ _ 2003Individual CS 6 .200 Other As neededConsultants
G=Goods, CS=Consultancy Services, ICB=Intemational Competitive Bidding, IS=International Shopping, NS=National Shopping,DC=Direct Contracting, QCBS=Quality and Cost Based Selection, CQ= Selection based on Consultant Qualification Assistance
-48 -
Annex 7: Project Processing Schedule
UZBEKISTAN: Urban Transport Project
Project Schedule Planned Actual
Time taken to prepare the project (months) 10 18First Bank mission (identification) 09/01/97 09/01/97Appraisal mission departure 01/15/99 10/18/99Negotiations 04/01/99 02/28/2000Planned Date of Effectiveness 08/15/99 09/30/2000
Name SpecialityJean-Charles Crochet Transport Economist
Kenneth Gwilliam Urban Transport AdviserOleg Borovikov Operations Officer
Ajay Kumar Urban Transport SpecialistIrina Luca Procurement Specialist
Kavita Sethi Transport EconomistNjeri Muhoho Financial Management SpecialistHiran Herat Financial Management SpecialistHannah Koilpillai Disbursement OfficerNikolai Soubbotin CounselMarie Laygo Team Assistant
- 49 -
Annex 8: Documents in the Project File*UZBEKISTAN: Urban Transport Project
A. Project Implementation Plan
Project Implementation Plan, November 1999.
B. Bank Staff Assessments
1. Back to Office reports of identification, preparation, pre-appraisal, and appraisal missions, October1997, May 1998, December 1998, June 1999, and November 1999.
2. Analysis of Options for Financing the Acquisition of New Buses, note of March 1999 and intemalmessage of July 1999.
3. Results of Quality at Entry Review, September 1999, internal memorandum.
4. Procurement Assessment, July 1999, prepared by Irina Luca.
5. Financial Management Assessment, September 1999, prepared by Njeri Muhoho.
C. Other
1. Study of Urban Passenger Transport, Final Report, December 1998, prepared by CIE ConsultIMVA.
2. Study of Urban Passenger Transport, Working Papers, September 1998, prepared by CIEConsult/MVA.
3. Study of Urban Passenger Transport, Institutional Component, December 1998, prepared by CIEConsult/MVA.
4. Social Assessment Report, July 1998, prepared by the Center for Social Research "Expert-Fikri".
5. "Designing Competition in Urban Passenger Transport - Lessons from Uzbekistan", June 1999, byKenneth Gwilliam, Richard Meakin, and Ajay Kumar.
6. Financial Analysis of Leasing Scheme, July 1999, prepared by CIE Consult.
7. Updated Financial Analysis of Leasing Scheme, February 2000, prepared by Zvi Ranaan.
8. Agreed Minutes of Negotiations, March 3, 2000.
*Including electronic files
- 50 -
Annex 9: Statement of Loans and CreditsUZBEKISTAN: Urban Transport Project
Difference between expectedand actual
Orginal Amount in US$ Millions disbursementsProject ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Revld
Poputation f%) 1.9 0.1 1,1Labor force I(%) 2.7 0.6 i's N Gross
Most recent estImate Itatest year available, 19924$) ~~per primaryMos rcen etimte(laes Ver vaiabe, t"capita /enrollment
Poverty (% of paopuatiorsbe/ow national povertv line)Urban population (% of total popuation) 42 88 58Life expectancy at birth (years) 69 69 68Infant mortality (per 1,000 five births) 24 23 38Child malnutrition (% of children under 5) 19 . ,Access to safe waterAcceas to safe water (9% of population) 57 ., 75Illfiteracy 5. of populat/on age 15+) -. 4 14Grossprimary enrollmernt (%6 of school-apepopulat!on) 78 100 103 -"" UIzb.kistan
Male 79 101 105 -- -Lower-middle-income groupFemale 77 9 0
Gross domestic investment 30...Imports of goods and services . .. -7.3 -23.7 -~'.~Exports -- *Imports
Gross national product . .. 1.9 3.0
Note: 1998 data are preliminary estimates.
The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.
EXTERNAL DEBT and RESOURCE FLOWS1977 1987 1997 1998
(US$ millions) Composition of total debt, 1998 (USS millions)Total debt outstanding and disbursed .. .. 2,760 3,322
IBRD .. . 155 177IDA .. .. 0 0 G: 419 A 177
Total debt service .. .. 5516 446IBRD 10 11IDA . .. 0 0
Composition of net resource flows a eo0Official grants - 18 - F: 9343Official creditors .. .. 24Private creditors .. .. 150Foreign direct investment .. .. 285 E963Portfolio equity .. . 0 .
Worid Bank programCommitments .. .. 75 82 A- IBRD E - BilateralDisbursements - 13 12 B - IDA D - Other multilateral F -PrivatePrincipal repayments 0 0 C - IMF G - Short-termNet flows .. .. 13 12Interest payments .. .. 10 11Net transfers .. .. 3 1
Development Economics 9/22/99
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AdditionalAnnex No.: 11
UZBEKISTAN: Urban Transport Project
Urban Passenger Transport DevelopmentStrategy Statement
(Forwarded to the Bank under Letter, Dated April 17, 2000, No 06/46-24, from Mr. Ataev, DeputyPrime Minister)
BACKGROUND
The urban passenger transport services in the medium- and small-size cities in the country arefaced with a number of problems resulting from the aged and deteriorating fleet of the traditional busoperators. These problems have arisen due to the combination of the inability of the operators tofinance the procurement of new buses received by bus enterprises to provide for vehicle replacement,procurement of operational equipment and spare parts from internal sources. The collapse oftraditional trade links have further contributed to the problems of the aging vehicle fleet. Theemergence of unsubsidized private sector operations, often using small vehicles has nevertheless helpedalleviate these problems. However, the regulatory, institutional, and financial arrangements that arebeing put in place still do not ensure provision of efficient and quality transport services to thepopulation.
The Government has been faced with the following tasks in the urban transport sector:
improving the quality of transport services provided to the public;creating a fair regulatory basis for setting up a competitive and commercial transport sector;establishing a proper financial basis to ensure the sustainability of operating enterprises;separating regulatory and operational responsibilities to improve efficiency;strengthening technical and financial capacity of planning agencies; andcreating equal conditions for the private sector.
In order to address these issues, the Government has initiated a number of important structuralchanges. The Government is committed to transforming the urban transport into a more commercialand competitive sector, based on financial autonomy and self-dependency. In the past two years, theGovernment has created the legal basis for a number of far reaching reforms to introduce a competitiveenvironment in the urban transport sector, decentralize decision-making, restructuremanagement of public companies, reduce exemptions and improve the financial condition of operatingenterprises. Specifically, the Government has:
* enacted a framework law on urban transport (April 1997), creating the basis for competitivelytendered bus route franchises as well as decentralization of urban passenger transport planning andmonitoring functions to each City Administration;* introduced the system of competitive franchises on a few bus routes in the five pilot cities ofAlmalyk, Bukhara, Namangan, Nukus, and Samarkand late in 1997, including needed institutionalarrangements, and designed and implemented progressive refinements since then;
progressively extended the franchising system to cover all urban transport services throughoutthe country and completed this process in the first half of 1999;
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* established the Uzbek Agency for Automobile and River Transport to rationalize the licensingof transport operators and progressively take over road transport sector regulation andresponsibility for development and provision of recommendations to the City TransportCommissions in the design and management of franchises for urban, suburban, intercity andinternational routes;* Substantially reduced the number of nationally established categories of exempt passengers(from 17 to currently seven);* encouraged the private sector to develop associations and participate in the bus route tenderingprocess;* adopted "the Concept for the Development of Urban Passenger Transport in the Republic ofUzbekistan"; and* regularly increased passenger fares in line with increases in the cost of the main inputs.
THE MEDIUM TO LONG TERM STRATEGY OF THE GOVERNMENT OF UZBEKISTAN
The Government is committed to developing a financially, economically and environmentallysustainable urban transport sector able to meet the transport demand of the city residents in an efficientand effective manner. Urban transport sector ranks high in Government's priorities because of theexisting problems and the demonstration effect on other sectors of the economy. The steps that arebeing taken by the Government to improve the quality and quantity of public transport available in thecities will be aimed at attraction of investment in new vehicles coupled with necessary institutional,regulatory, and financial reforms. The aim of the reforms, introduced by the Government over the pasttwo years, is to progressively mobilize all forms of operations, both public and private, to improveurban transport on the basis of fair competition for the right to provide transport services. TheGovernment will use all the necessary expertise available nationally and internationally to implementthe various elements of its reform program.
A. INCREASING URBAN TRANSPORT CAPACITY
It is the Government's objective to put in place the conditions conducive to the development ofa financially self-supporting urban transport sector capable of sustaining their operations and renewingtheir vehicle fleets without financial support from the central and municipal authorities. However, giventhat the reforms are still recent and the urban transport business is still perceived as a risky sector byprivate investors, we believe that it would be unrealistic to expect that this objective can be attained inthe short term without the Government's intervention. In view of the urgent need to maintain and, asnecessary, expand the existing transport capacity of both the JSCs and private operators throughvehicle replacement, the Government has applied to the World Bank for a loan a portion of which willbe used for procurement of new vehicles to be passed on to operators in the five project cities on aleasing full cost recovery basis. It will set up a leasing scheme under UzavtotransTaminot (UATT), theprocurement branch of Uzavtotrans Corporation, which would have the responsibility for theestablishment of new commercially independent bus maintenance centers in each of the five projectcities. The bus supplier will be responsible for maintaining the new buses under contracts with UATT.The Government will privatize the leasing scheme by end of 2004.
The Government will ensure that the new buses to be procured under the World Bank loan willbe equally accessible to both the JSCs and private operators, who have won open competitive tendersfor urban bus routes, on a leasing basis.
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B. INSTITUTIONAL REFORM
Strengthening of the City Transport Commissions and Departments:
Associations and Concerns , the regional subsidiaries of Uzavtotrans Corporation, havehistorically been the location of all high level experience and skills in the formal urban public passengertransport sector performing the functions as: i) provider of technical services to the operatingcompanies on demand assessment and operational planning ii) advisor to the City TransportCommissions on network planning and franchising issues; and iii) administrator of the interests of thestate as residual owner of shareholding in the joint stock companies iv) direct controller of theremaining state owned companies. This combination of these functions remains as a potential conflictof interest.
Recognizing the importance of creation of a genuinely independent and commercially orientedurban transport sector, the Government is committed to clearly separate the regulatory and operationalfunctions in the urban transport sector. To this end, it will continue the process of decentralizing theresponsibility for the planning functions, including network planning and supply and demandassessment and procurement of transport services to the City Transport Commissions, and to devolveoperating responsibilities to independent commercial companies. City Transport Commissions will beresponsible for the development of a long term strategy for the procurement of public transport servicesin the city and ensuring their safe operation.
The responsibility for appraisal and financial provision for any infrastructure investment introlleybus systems shall also rest with the City Transport Commission. The Commissions shall onlyapprove such investments when they are shown to be economically beneficial and consistent with theoverall urban strategy for public transport provision.
In order to perform these functions, it is necessary for the Commissions to be supported by atechnically skilled and adequately staffed secretariat in the City Transport Departments (CTDs). Underthe authority of the City Commissions, the main responsibilities of the CTDs will include (i) planningand designing the public transport network on the basis of sound analysis of passenger demand; (ii)administering the competitive tendering of bus route franchises; (iii) monitoring the performance oftransport operators; (iv) ensuring that the terms of the franchise contracts are complied with by both thetransport operators and the client including the adjustment of passenger fares whenever required.
The Government is aware that the skills available to the City Transport Departments arepresently inadequate, usually consisting of staff seconded from the oblast association of Uzavtotrans.This is partly a consequence of their lack of finance, and of the traditional role of Uzavtotrans as theplanner as well as provider of services. In line with the adopted "Concept for the Development ofUrban Passenger Transport in the Republic of Uzbekistan", the government will take steps towardstrengthening the status and role of the CTDs and will ensure that these have permanent staff to carryout planning and management work (including network planning and supply and demand assessment).The Government's intention is that the CTDs will be fully staffed by December 31, 2000, and thatequipment and training necessary for the CTDs to fully perform their functions will be delivered byJune 30, 2002.
The Government (mainly the Uzbek Agency for Automobile and River Transport) will assist the CityTransport Commissions and Departments in the perfornance of their functions especially through the
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following: (i) review and improvement of the franchising arrangements; (ii) development of appropriateprocedures; (iii) creation of a data base incorporating the results of passenger flow surveys that will becarried out on an annual basis; and (iv) development of appropriate planning methods. It will alsointroduce measures to facilitate the provision of services (such as major transport demand surveys andanalysis, or social assessments).
The City Transport Commissions will be empowered to charge a fee on the issue of franchisesto help finance their operations. The maximum permissible level of that fee will be determined by theHokimiayt, after consultation with the City Transport Commission.
Development of the Transport Enterprises Under Uzavtotrans:
The operating units which constituted the state enterprise Uzavtotrans have been established asindependent legal enterprises. In most cases these have been established as joint stock companies(JSCs), although some are retained under direct state control for certain reasons. The Government iscommitted to make these units genuinely independent, and to stimulate competition between theseenterprises. Where there is only one bus park providing large bus services (Auto Column 2533 inBukhara), a plan will be developed and implemented to divide the company into two separateindependent units with a view to ensuring effective competition for large bus routes.
C. REGULATORY REFORM
The Government will further develop the franchising arrangements to ensure contractualrelationships which are fair, balanced, and create a predictable business environment for thecommercial development of public transport provision.
The Government has been cautious in limiting the initial franchises to very short periods, fromsix months to one year, and flexible in adapting the procedures and decision criteria to its developingunderstanding of the effectiveness of alternatives. Both of those characteristics were very desirable inavoiding being locked in to unsuitable long tern commitments.
Firstly, while it is clear that the selection criteria and processes have been improved to increasethe incentives to provide a high service quality (reflected in the type of vehicle used) at the lowestpossible cost (reflected in the fare to be charged), there is scope for further improvement to secure thoseobjectives. For that reason, it is desirable to continue the process of refinement of criteria.
The Government recognizes that transport operators should not be so constrained by the tenderrequirements as to be unable to propose a bid that would provide a reasonable profit. If the passengerfare is capped, the bidder will be allowed to propose a combination of frequency and vehicle size andage which ensures that operations are profitable.
Second, it is clear that the currently very short term of the contract makes investment in newcapacity risky, and makes it difficult to secure either loan or lease financing of new vehicles. For thatreason it is desirable to extend the duration of contracts to around the three to five year duration. Thiswill be achieved when the economy has stabilized and the business environment for urban transportoperators has become more predictable. The City Commissions will be given the duty of deciding onthe phasing of the introduction of new longer franchise periods, taking into account the stage reached inthe strategy for the development of a competitive, commercial, urban transport sector. Extension ofcontract duration itself carries the risk associated with inflation. No commercial entity would be willing
- 57 -
to commit itself to a contract which specified the fare, or capped the fare, over such a long period,unless there existed a well specified process for fare adjustment. To address this concern, theGovernment will incorporate in the contract legal commitments to fare adjustments on an objectivelyverifiable basis. It will also incorporate necessary provisions for operators to adjust, subject to reviewand approval by tender commissions, the quantity of passenger transport supply in proportion to thatproposed in the bid in case there is a change in the passenger demand.
Third, it is desirable to develop a means of ensuring competitive pressure on the operators oflarge buses. This could be achieved by defining the route requirements in terms of total capacityrequirement and fare cap, but allowing large and small vehicle operators to compete, on the basis of thecombination of vehicle quality and fare offered, for the franchise for any route.
The monthly pass system will be administered by the City Transport Commissions without anydistinction between operators.
The Government will clarify the legal powers of the City Commissions to enter into bindinglegal franchise contracts with operators. Cities which do not adopt binding franchise contracts will notbe eligible for access to new vehicles acquired under the World bank loan or any other governmentsupported arrangement.
The Government will continue to devolve the overall responsibility for the franchising system atthe national level to the Uzbek State Agency for Automobile and River Transport which will review andanalyze the workings of the franchising system throughout the Republic. The Agency will regularlyreview the franchising selection criteria and procedures to improve the competitive incentives to costreduction and quality improvement and prepare, for approval by the COM, proposals to the CityTransport Commissions for further improvements to the franchising arrangements.
The Government will encourage the establishment of one or several national bodiesrepresenting the interest of private sector operators on the national and local levels.
The Government will continue to review, on an annual basis, the franchising arrangements andintroduce necessary refinements in consultation with the World Bank.
D. FINANCIAL REFORM
The Government is committed to the establishment of financial conditions such that any wellmanaged urban transport operator will be able to recover its costs fully and make a reasonable profit.
Compensation and financial sustainability.
While it is recognized that urban public transport operators provide an important socialobligation of carrying passengers with special needs, there is clearly a need to ensure that suchnon-commercial obligations be properly funded. Currently there are seven nationally establishedcategories of passengers who enjoy the right to use urban public transport free of charge, with theexception of taxi and route taxi. In addition, there are a number of special groups of population whoare entitled to pay discounted fare when using public transport. While these latter categories areestablished by city municipalities and vary from city to city, typically these include pensioners,students, and school pupils. Under the Urban Passenger Transport Law adopted in April 1997, thecompensation to the urban bus operators for the carriage of exempt and reduced fare passengers is to
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be paid from the State Budget.
The Government will therefore ensure that, starting in 2001, compensation will be paid throughthe City Administrations to the transport operators irrespective of ownership for the costs incurred inthe carriage of exempt passengers. This commitment will be stipulated in the franchise contracts. Inthe next few years, given fiscal constraints, the Government will also ensure that City Administrations(i) set the single trip passenger fares above the average transport costs per passenger to balance thelosses from the transport of those passengers who benefit from a monthly travel card at reduced price;(ii) allocate the proceeds of the monthly travel card to all operators without discrimination and as aproportion of the total number of passenger transported; and (iii) progressively increase the price of themonthly travel card so as to maintain the cross subsidy to a reasonable level.
Seasonal Works.
Uzavtotrans urban transport operating companies have traditionally performed importantfunctions in meeting seasonal demands for movement of urban population to cotton fields forharvesting, summer camps, etc. Although these services have usually been paid for and some operatorsconsider the payments to have been adequate, the payments have often been severely delayed
While the Government reserves the right to employ powers of using city passenger transport insituations of unpredicted national emergency, it has already discontinued the current practice ofrequisitioning the urban buses for meeting the demand for regular annual seasonal or occasionalservices
(signed)
Secretariat of the Fuels, Energy, Transport andTelecommunications ComplexCabinet of MinistersRepublic of Uzbekistan
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IBRD 30846
55'0 6S7 70'
.1 -yUZBEKISTAN
KAAKHSTAN / t "' URBAN TRANSPORT PROJECTKAZAKHSTAN / : i &) f
l1:
. PROJECT CITIES
45- reynru , ., ~ ' ' j "i '/ W 9 ° SELECTED CITIES
/ \\ ¢ '-"'- ®qlt t i-;; X \ A@ OBLAST CAPITALS
-(to i i .:X:.'>,' ® @ NATIONAL CAPITAL
M MAIN ROADS
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