Uzbekistan: Preparing the Regional Infrastructure (Roads) Project

Transcription

1 Technical Assistance Consultant s Report Project Number: P39669 December 2007 Uzbekistan: Preparing the Regional Infrastructure (Roads) Project Prepared by Islohotkonsaltservis Ltd. in association with Road Institute Tashkent, Uzbekistan For The Republican Road Fund under the Ministry of Finance This consultant s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project s design.

2 ASIAN DEVELOPMENT BANK GOVERNMENT OF THE REPUBLIC OF UZBEKISTAN THE REPUBLICAN ROAD FUND UNDER THE MINISTRY OF FINANCE F I N A L PREPARING THE REGIONAL INFRASTRUCTURE (ROADS) PROJECT ADB PPTA No UZB VOLUME 1 R E P O R T Submitted by: ISLOHOTKONSALTSERVIS LTD. Tashkent / Uzbekistan in association with ROAD RESEARCH INSTITUTE Tashkent / Uzbekistan October 2007

3 LIST OF ABBREVIATIONS AND ACRONYMS USED ADB AIFU AADT AOI CACOM CAREC CARs CIS CSATTF CSP EA EBRD EC ECO ECOTA ESCAP EU EurAsEC GDP GOU JSC IKS IMF JBIC KfW km mm MOF MOFER MOI m m3 m3/hr mm MPa MV PCEs PIA pkm PPTA SCO SJSC SOE sq. SSC Asian Development Bank Association of International Freight Forwarders of Uzbekistan Average Annual Daily Traffic Area of Influence Common Market in Central Asia Central Asia Regional Economic Cooperation Central Asian Republics Commonwealth of Independent States Central and South Asia Transport and Trade Forum Country Strategy and Programme Executing Agency European Bank for Reconstruction and Development European Commission Economic Cooperation Organization ECO Trade Agreement Economic and Social Commission for Asia and the Pacific European Union Eurasian Economic Community Gross Domestic Product Government of Uzbekistan Joint Stock Company Islohotkonsaltservis International Monetary Fund Japan Bank for International Cooperation Kreditanstalt für Wiederaufbau kilometers millimeters Ministry of Finance Ministry of Foreign Economic Relations, Investments and Trade Ministry of Interior Metre Cubic metres Cubic metres per hour Millimetres Megapascal motor vehicle Passenger Car Equivalents Project Impact Area passenger kilometres Project Preparation Technical Assistance Shanghai Cooperation Organisation State Joint Stock Company State Owned Enterprise square State Stock Company IKS/RRI i

4 SWOT Strengths Weaknesses Opportunities Threats TA Technical Assistance TACIS Technical Assistance for CIS Countries t.km tonne kilometers TIR Transports Internationaux Routiers TOR Terms of Reference TRACECA Transport Corridor Europe-Caucasus-Asia UARRT Uzbek Agency for Road and River Transport UNECE United National Economic Commission for Europe US$ United States dollars USSR Union of Soviet Socialist Republics FSU Former Soviet Union UTACA Uzbek Association for Transport and Transport Communications UTY Uzbekistan Temir Yullari (Uzbek Railways) UZB Uzbekistan hp Horsepower ICB International competitive bidding JICA Japan International Cooperation Agency kg Kilogram SJSC State joint stock company tonnes/hr Tonnes per hour VAT Value added tax Rate of Exchange 1 August US$1 = Soum1270 IKS/RRI ii

5 TABLE OF CONTENTS SECTION 1: INTRODUCTION 1.1 General Background Rationale of the Project The Project Impact and Outcomes Output of the TA Work Undertaken Since the Submission of the Draft Final Report Other Administrative Matters 6 SECTION 2: BRIEF OVERVIEW OF THE ECONOMY OF UZBEKISTAN AND THE PROJECT ROAD HINTERLAND, TRAFFIC COUNTSAND FINAL TRAFFIC FORECASTS 2.1 Introduction General Background Assumptions as to Progress on Main Indicators Income Elasticities of Domestic Transport Demand Factors Influencing International Trade along the Project road Traffic Counts and Count Data International Traffic Domestic and Total Traffic Final Traffic Forecast for Sections Selected For Reconstruction Domestic Traffic International Truck Traffic Traffic Forecast over the Forecast Horizon Diverted Traffic 13 SECTION 3: DEVELOPMENT PROPOSAL AND PROPOSED ASSOCIATED ACTIVITIES TO ASSIST IN RESTRUCTURING OF THE ROAD SUBSECTOR 3.1 Road Development Component Road Sustainability Component 18 SECTION 4: PRELIMINARY DESIGN AND COSTS OF ROAD REHABILITATION AND ASSOCIATED TECHNICAL ASSISTANCE 4.1 Preliminary Design and Costs of Road Reconstruction Basic Preliminary Project Design Basic Preliminary Project Design All Projects Designs Shall Meet The Environmental Requirements Alignment Road Bed Road Pavement Bridges and Pipes Intersections and Junctions Bus Stops Traffic Management Engineering Utilities Cost of Road Reconstruction 21 IKS/RRI iii

6 SECTION 5: EQUIPMENT PACKAGE AND ROAD EQUIPMENT POOL COMPANY 5.1 Introduction Parties Involved in Road Construction and Maintenance Road Fund Uzavtoyul Private Sector Contractors Road Equipment Package Proposed Road Equipment Pool Company General Organizational Structure of REPC REPC Management Expected Demand for REPC Services Financial Plan and Financial Projections of REPC Time-Bound Action Plan for Road Equipment Pool Company 42 SECTION 6: ECONOMIC ANALYSIS 6.1 Economic Analysis of Road Works and Equipment Package Sensitivity Tests Road Appraisal Sensitivity Analysis of Equipment Package Switching Values Road Works Equipment Component 50 SECTION 7: FINANCIAL MANAGEMENT ISSUES AND FINANCING PLAN 7.1 Administration of Financial Management Assessment Questionnaire Road Fund Financing Plan and Financial Analysis Financing Plan 61 SECTION 8: PRELIMINARY PROJECT IMPLEMENTATION ARRANGEMENTS 8.1 The Executing Agency Project Implementation Unit (PIU) Main Responsibilities of PIU Consulting Services Advance Contracting and Retroactive Financing Implementation period 67 SECTION 9: PROCUREMENT PLAN 9.1 Procurement for Road Construction Component Procurement of Road Equipment Component 69 SECTION 10: PROJECT DESIGN AND MONITORING FRAMEWORK 70 IKS/RRI iv

7 LIST OF APPENDICES APPENDIX 1: OUTLINE TERMS OF REFERENCE FOR CONSULTANTS APPENDIX 2: ASSESSMENT OF EQUIPMENT FINANCING OPTIONS APPENDIX 3: FINANCIAL MANAGEMENT ASSESSMENT QUESTIONNAIRE APPENDIX 4: BUDGET FORMULATION AND APPROVAL PROCEDURES APPENDIX 5: RATES OF CONTRIBUTIONS TO THE REPUBLICAN ROAD FUND UNDER THE MINISTRY OF FINANCE APPENDIX 6: CHART OF ACCOUNTS (NATIONAL ACCOUNTING STANDARDS NO.21) APPENDIX 7: PROJECT IMPLEMENTATION ARRANGEMENTS APPENDIX 8: PROCUREMENT PLAN AND TENTATIVE CONTRACT PACKAGES APPENDIX 9: PROJECT IMPLEMENTATION SCHEDULE FIGURES FIGURE Public roads FIGURE Asian highways FIGURE 2.1 Alternative route to A380 through Kazakhistan FIGURE 3.1 Project sections FIGURE 5.1 Uzavtoyul organization FIGURE 5.2 The organizational arrangements of REPC FIGURE 5.3 Management structure of REPC FIGURE 5.4 Management Structure of One of the Branches of REPC FIGURE Road Equipment Pool Company Financing Arrangement: IKS/RRI v

8 1.1 General SECTION 1: INTRODUCTION 1. Under a Contract signed between IKS Ltd. (the Consultant) and the Asian Development Bank (the Bank), IKS Ltd. undertook the Technical Assistance (TA) assessing the feasibility of rehabilitation and upgrading of Road A380 Guzar-Bukhara-Nukus-Beyneu. The road links the area southeast of Karshi in Kashkadarya Oblast with Beyneu on the border of Kazakhstan. The route forms part of the Asian Highway being promoted by the Economic and Social Commission for Asia and the Pacific of the United Nations. (ESCAP). Should the feasibility of the proposed rehabilitation and upgrading works be confirmed, it is anticipated that a Loan Proposal for the foreign component of Project inputs would be presented to the Board of the ADB in December, This Final Report commences with a discussion of the Impacts and Rationale of the Project which are revised versions of the Impact and Rationale presented in the Inception Report of the TA submitted 18 May, 2007 and modified at ADB request in the Interim Report submitted on 18 June The output of the TA is also presented as are activities undertaken since 18 June 2007 including the submission of several sections of the Draft Final Report submitted to an ADB Mission which visited Uzbekistan between 24 July and 6 August In Section 2, final traffic forecasts are shown for the sections of the road selected for upgrading following receipt of the latest information on border passages received from the Dautata Customs post in late June Section 3 presents the development proposal indicating proposed physical investment and Technical Assistance interventions in support of the restructuring of the road subsector. 4. Section 4 presents a preliminary design and costs of the development proposal and associated TA activities. Section 5 presents the proposals for equipment acquisition and management, and establishment of Road Equipment Pool Company (REPC). 5. The economic analysis is presented in Section 6. The preparation of safeguard analysis is discussed in Volumes II and III. The results of the administration of the relevant sections of the ADB s Financial Management Assessment Questionnaire are presented in Section 7 along with the Financing Plan and Financial analysis of Project implementation activities and loan repayment. Implementation and procurement plans are discussed in Sections 8 and 9. The Report concludes with a discussion of the variables to be included in a benefit monitoring framework. 6. A series of appendices supports the Report. 1.2 Background 7. Uzbekistan s major public roads, totaling 42,530 kilometres (km), are divided into international (3,626 km), national (16,909 km), and regional (local) roads (21,995 km). (Figures 1.1 and 1.2). In addition, there are about 140,000 km of urban, rural and departmental roads. Road transport carried about 85% of Uzbekistan s freight in tonne-km and 93% of its passengers in Traffic volume grew about 4% per year over the period Freight and passenger transport are expected to increase by 4.4% and 5.1% per annum, respectively. 2 1 The Mission comprised Olly Norojono, Transport Economist (Mission Leader) and Hee Young Hong, Financial Specialist. Sean M. O Sullivan, Director CWID, lead meetings with high level officials of the Government on July Rafael Nadyrshin, Portfolio Management Officer, participated in the wrap-up meeting. 2 ADB TA 6579-UZB: Transport Sector Strategy. Consultant Report (Final Report). IKS/RRI 1

9 Figure1.1 IKS/RRI 2

10 Figure 1.2 IKS/RRI 3

11 8. In general, despite a few missing links, the road network has good coverage and sufficient capacity to accommodate the moderately growing traffic demand. Most major corridors are dual carriageway and the current volume capacity ratios are relatively low. Part of the network is in poor condition and requires rehabilitation. The road quality is deteriorating because of a maintenance backlog. Poor signposting and road markings on some roads have been observed, thus raising road-safety concerns. 1.3 Project Rationale 9. The Government s primary objective in the transport sector is to improve the efficiency of international road corridors. The reconstruction of A-380 Guzar-Bukhara-Nukus- Uzbekistan /Kazakhstan Border (1,204 km) is a government priority project in which work on some sections is ongoing. 3 The pavement condition of the A-380 has deteriorated due to deferred maintenance and an increase in traffic. 10. The A-380 serves as an increasingly important international corridor between Afghanistan/Tajikistan/Turkmenistan and Kazakhstan/Russia. The reconstruction of A380 will reduce vehicle operating costs and travel time of the domestic, regional, and transit traffic, thereby contributing to the growth of domestic and international trade in the area, and promoting regional cooperation with neighboring countries. 11. The Government also plans to improve other international road corridors and strategic roads, including M-49, which has been reflected in the Government Program for The planned road rehabilitation and reconstruction needs adequate maintenance to ensure its sustainability. Uzavtoyul is responsible for maintaining 42,530 km of common roads. The routine and periodic maintenance works are delegated to 20 state-owned road construction enterprises across the country. The lack of modern road construction and maintenance equipment mainly from the difficulties associated with securing hard currency has resulted in inefficient implementation of routine and periodic maintenance of road works. It also limits their capacities to bid for larger projects. 12. A systematic approach to prioritizing road maintenance interventions and development planning would help the Government better assesses the real need for road maintenance and development. Although ad hoc surveys are undertaken, there is no network condition database for rural and local roads. This is urgently required. Only with comprehensive data can the extent of the maintenance backlog be quantified and a prioritized remedial maintenance program be developed. The enhancement of those practices as necessary and arrange appropriate training to ensure that sector staffs are proficient in their implementation. 13. The role of the Road Fund 4 has been expanded since Revisiting the operations of the Road Fund and examining the effectiveness of the current operating, financing, and quality control procedures would be timely. Drafting of a new road law is in progress which will introduce road tolling system providing a legal basis for improving sustainability of road management and operations. After the new road law is enacted, a government regulation needs to be issued for the implementation of the tolling system. 14. The number of accidents is reported at about 10,000 per year resulting in about 2,000 fatalities. At about 15.4 fatalities per 10,000 vehicles, this rate is very high by developed 3 This project is included in the Program for Road Development ( ). This priority is also confirmed by the transport sector strategy prepared under ADB Technical Assistance to the Republic of Uzbekistan for Transport Sector Strategy ( ) (Financed by the Japan Special Fund). Manila. (TA 4659-UZB, approved on 3 October 2005). 4 The Republican Road Fund, established under the Ministry of Finance (MOF) in 2003, is the government agency responsible for road investment planning, project implementation, and financial management of road construction and maintenance, and policy making. IKS/RRI 4

12 countries standard but low for developing countries. There has been a coordinated effort for improving road safety. The restoration of the pavement on the A 380 is expected to reduce accident frequency. 1.4 The Project Impact and Outcomes 15. The Project will help provide an adequate, efficient, safe, and sustainable road network in Uzbekistan that provides for domestic and regional connectivity which will contribute to sustainable economic development and increased domestic and international trade Output of the TA 16. The output will be (i) newly rehabilitated and reconstructed of 131 km road sections of A380 between Guzar Bukhara Nukus Uzbekistan/Kazakhstan border; (ii) a set of road equipment to be managed by an equipment pool under Uzavtoyul, and (iii) a comprehensive road sector planning and management system introduced at the Road Fund office. 1.5 Work Undertaken Since the Submission of the Draft Final Report 17. The Interim Report was submitted on 18/24 June (English/Russian) Draft Final Report was submitted on 14/21(English/Russian) to the Executing Agency (EA), the Republican Road Fund under the Ministry of Finance and to the Asian Development Bank (ADB). An Interim Report tripartite meeting was held on 3 July Some variations have been made to the contract since Inception report was submitted. Subsequent to negotiations and contract signing on 29 March 2007, the Government of Uzbekistan indicated a desire to include a package of road construction equipment for use in construction works to be included in the proposed Project Loan as identified in the course of the TA. Given this development, the Consultant proposed the following modifications to the scope of work which were accepted by the ADB: (i) (ii) Engagement of the services of an experienced Road Construction Plant and Equipment Pool Specialist to examine options for the disposition and management of road construction equipment to be procured with loan funds. Mr. Terry Boyce, a qualified Civil Engineer was proposed as Plant and Equipment Engineer. Mr. Boyce arrived in Uzbekistan on 18 June The work carried out during his assignment is included as Section 5 of this Report. Mr. Roger McIntyre, the scheduled Social Development Specialist was no longer available to the TA because of a scheduling conflict. Mrs. Anna Ohhanessian-Charpin was accepted as the replacement Social Development Specialist and commenced her input on 20 June The International and Domestic Environmental Specialists have carried out two missions to the field during the periods June 2007 and July 2007 for purposes of collecting data necessary for the preparation of the Initial Environmental Examination which is under preparation. 20. At time of writing, the International and Domestic Social Development Experts are carrying out the social impact and poverty analysis having made field examinations during July 2007, following a reconnaissance mission during June The Team Leader has finalized traffic forecasts for the sections selected for rehabilitation and upgrading in consultation with the Road Fund. He has carried out a IKS/RRI 5

13 preliminary economic appraisal of the rehabilitation of the sections between km in Khorezm Oblast and km in Karakalpakstan Republic. 22. Three seminars have been given to Road Fund and Uzavtoyul staff as follows: (i) Seminar on ADB procurement procedures and guidelines 6 July 2007 (ii) Seminar on equipment disposition and management options 13 July 2007 (iii) Seminar on Medium-Long Term Investment Plan for the Road Subsector 16 July Other Administrative Matters 23. The Road Fund has assisted the Consultant in the arrangement of meetings with various organizations and assisted in writing letters to the Ministry of Foreign Economic Relations, Trade and Investment and State Customs Committee of the Republic of Uzbekistan in collecting data on international trade and getting permission to conduct cross border survey. The ADB has facilitated the application for visas for International Team Members. The Consultant hereby registers its appreciation for this assistance so graciously given. IKS/RRI 6

14 SECTION 2: A BRIEF OVERVIEW OF THE ECONOMY OF UZBEKISTAN AND THE PROJECT ROAD HINTERLAND, TRAFFIC COUNTS AND FINAL TRAFFIC FORECASTS 2.1 Introduction 24. This brief overview of the economy of Uzbekistan is being presented for the purposes of preparing final traffic forecasts. It is anticipated that a Loan for Upgrading of the Project Road would be negotiated in late 2007, early It is assumed that all rehabilitation and upgrading works would take place starting in late 2008 and 2010 with all rehabilitated and upgraded sections being opened for traffic in Benefits are assumed to flow for 20 years after improvement entailing that forecasts of main indicators are carried out to General Background 25. Although rich in resources, Uzbekistan s distances from markets arising from its doubly landlocked status presented serious challenges to the fledgling nation following the breakup of the Former Soviet Union. Post 1991, GDP initially declined with the GOU following a cautious policy stance that resulted in Uzbekistan experiencing less economic shock than other CIS countries. It was also the first CIS country to exceed its 1991 GDP following independence. 26. In 1997, growth rates again started to decrease with low prices for major export commodities. At that point, the GOU implemented foreign trade restrictions, primarily on imports, and foreign exchange controls. Uzbekistan remains a relatively undeveloped country with a per capita income of US$ 292 in Commodity (cotton, gold) and energy exports, and agriculture continue to dominate the economy. Increasing remittances from Uzbeks working outside the Nation have also contributed to recent growth. 27. Recent high prices of cotton, gold and for energy products have entailed relatively high GDP growth rates in excess of 6 % pa between 2004 and Recognizing the exposure of the economy to global commodity price volatility, the GOU set up a Uzbekistan Reconstruction and Development Fund in 2006 in order to help dampen the impact of external price swings on the economy. Half of the intended UD$ 1.0 billion commitment to the fund has been made Reform has continued since the late 1990 s. Recent accomplishments include: (i) Commencement of the development of a Treasury Function; (ii) Tax reform aimed at reducing the burden on enterprises, small and medium businesses, and individuals; and, (iii) The pending launch of a financial sector reform program. Despite these advances, trade practices remain closely controlled, partly to buttress enterprises set up early after the collapse of the FSU as part of an import substitution policy. 2.3 Assumptions as to Progress on Main Indicators 29. In the short term, the Bank is forecasting growth in GDP of 7.4 % in 2007 and 7.1 % in In the medium to longer term, the Bank analysed possible growth paths for Central Asian economies in 2006, through to Three scenarios were postulated: (i) Continuing moderate policy reform; (ii) A stronger commitment to policy reform, opening of markets to all comers, and enhanced regional cooperation; and, (iii) A decline in reformist tendencies, and limited regional cooperation. The forecast growth rates associated with each growth path are shown in Table Asian Development Outlook, GDP calculated on a five year moving average basis. 6 Ibid. 7 Ibid. 8 ADB Working Paper Central Asia: Mapping Future Prospects to 2015, April, 2006 (no longer available on Bank Website). IKS/RRI 7

15 Table 2.1 Growth Rates Under Different Policy Assumptions Policy Assumption + GDP % pa 2015 GDP/Capita (US$) Poverty Incidence (%) (i) Moderate policy reform and regional cooperation (ii) Enhanced policy reform and regional cooperation (ii) Declining commitment to policy reform and regional cooperation Source: ADB Working Paper Central Asia: Mapping Future Prospects to 2015, April, 2006 as presented in ADB TA 4659, Transport Sector Strategy Study. 30. For purposes of the traffic forecast, the Consultant s have assumed that a mixture of policy options (i) and (ii) will prevail, with a central forecast rate for GDP growth of 5.8 % post 2010 through to 2020, declining to 4.5 % by One relatively bright spot for Uzbekistan has been its success in lowering the rate of population growth thus allowing it to address health, education and social welfare issues in a more effective fashion than relatively poor countries with rapidly expanding populations. Table 2.2 shows the recent population growth rates characterizing Uzbekistan and its neighbors. Table 2.2 Population Growth Rates of Selected CIS Economies in Transition Country Population Growth Rate (% pa ) Armenia -0.5 Azerbaijan 0.9 Kazakhstan -0.4 Kyrgyzstan 1.4 Russian Federation -0.6 Tajikistan 0.9 Turkmenistan 1.5 Uzbekistan 1.5 Source: The State of World Population The data for Armenia, Kazakhstan and Russia is typical of countries with minimal controls on population movements and a tendency to emigrate in search of better economic opportunities. Amongst the countries with more settled populations, Turkmenistan, Kyrgyzstan and Uzbekistan are those characterized with relatively high growth rates. However, Uzbekistan s growth rate of 1.5 % per annum represents a significant decline from the growth rates prevailing between 1985 and 1990 which were of the order of 2.3 % per annum. 9 Further, the last few years have seen an increase in the numbers of Uzbeks working abroad while maintaining their families at home, as has happened in Europe with the accession of former Warsaw Pact nations to EU membership. Over the forecast horizon, it is assumed that the population growth rate will decline from 1.5 % per annum to 1.0 % pa. 33. GDP, population and GDP per capita forecasts at intervals over the forecast period are presented in Table UNDP Human Development Report Uzbekistan, Tashkent, IKS/RRI 8

16 Table 2.3 Assumed Population and GDP Per Capita by Five Year Intervals Year GDP (US$ billion) Population (million) GDP per Capita (US$) Note: GDP in constant 2004 prices. Sources: ADO 2007 and Consultant s estimate. 2.4 Income Elasticities of Domestic Transport Demand 34. Income elasticities of demand characterizing several indicators of the transport sector are shown in Table 2.4. Table 2.4 Income Elasticities of Demand Characterizing the Transport Sector Transport Demand Indicator Income Elasticity of Demand 2006/ /2005 Total freight transport tonnes Total freight transport tkm Road freight transport tonnes Road freight transport-tkm Total passenger transport pax Total passenger transport pkm Road passenger transport pax Road passenger transport pkm Source: ADO 2007 and Statistical Review of Uzbekistan, It can be seen from Table 2.4 that the income elasticities of demand were above the medium term trend in Only the tonnage carried by road freight grew at less than the rate of GDP, although the 2006 income elasticity of demand for road tonnage is slightly higher than the medium term elasticity. Uzbekistan s fleet of vehicles of four wheels or more per 1000 persons is slightly above the world mid-point but there is considerable likelihood of a continuing increase of the vehicle fleet in excess of income growth. Nevertheless, in the medium term the income elasticity of road passenger demand (pax) can be expected to decline towards a rate influenced by the rates of growth of per capita GDP and population. Assumptions as to income elasticities governing the forecasts of domestic traffic for the Project Road are presented in Section 2.8 below. 2.5 Factors Influencing International Trade along the Project Road 36. The A380 is classified as a Northwestern Route by Uzavtoyul, leading to Russia, Ukraine and Europe via Kazakhstan. Short to medium growth rates for the trading partners serviced by the Project Road are shown in Table 2.5. IKS/RRI 9

17 Table 2.5 Short Medium Term Growth of Economies Accessed by the Project Road/ Northwestern Route Country/Region EU Russia Ukraine Sources: 1. ADO Ukraine Economic Update, World Bank, April, Wall Street Journal, 8 May, Traffic Counts and Count Data International Traffic 37. Table 2.6 shows the tonnage and implied number of loaded and empty trucks passing through the Dautata Customs Post near the Kazakhstan Border between 2003 and A forecast for 2007 is also shown. Table 2.6 Truck, Tonnage and Trade Value Flow through Dautata Customs Post Item * Trucks per year Volume of goods/year (tonnes) 31,571 28,658 18,797 17,783 23,710 Value of Goods (US$ million) 41,350 50,985 35,886 22,154 29,539 Trucks per Day Note: * figures are forecast. Source: Uzbekistan Customs. 38. It can be seen that tonnage through the border post fell between 2003 and 2006, but appears to have recovered according to 2007 forecasts. The number of trucks currently passing the post is of the order of 10 per day. The value of goods handled by the Dautata Customs Post is about 0.27 % of the value of total trade turnover between Uzbekistan on the one hand and Kazakhstan, Russia, and the Ukraine on the other hand. Despite the relatively small proportion of traffic handled by the Dautata Post and the A-380, a high quality international route obviously has significant potential traffic on offer Domestic and Total Traffic 39. Classified traffic counts were carried out over 24 hours on sections of the Project Road away from the influence of towns and cities between 22/23May and 05/06June International truck trips are identified separately. Table Traffic Flows on Project Road Sections Section Domestic International Trucks Trucks Buses Cars Other Total Khorezm (km 481) Karakalpakstan (km 886) Source: Consultant s Traffic Count 40. It can be seen that the flows on the line haul portion of the Project Road are considerably lower the flows presented in the Inception Report. Discussions with those familiar with previous counts indicate that they were often carried out in and close to towns and cities on the A-380 indicating that they are possibly inflated by urban traffic flows. IKS/RRI 10

18 2.7 Final Traffic Forecast for Sections Selected for Rehabilitation Domestic Traffic 41. The formulae for utilizing the income elasticities of road transport demand to derive growth rates are shown below: Growth Rates for Demand for Passenger Transport Services PT = ((( GDP ca * E p )/100+1) * ( POP/100+1)-1) * 100 Where: PT is the growth in demand for passenger transport services; GDP ca is growth in per capita GDP; E P is the income elasticity of demand for passenger transport services; and POP is the growth in population. Growth Rates for Demand for Freight Transport Services FT = GDP * E F Where: FT is the growth in demand for freight transport services; GDP is the growth in GDP; and E F is the income elasticity of demand for freight transport services As can be seen, passenger traffic growth is influenced by the growth in population and per capita GDP, as modified by evident passenger transport income elasticities of demand. The demand for freight transport is tied closely to the growth in GDP as influenced by the income elasticity of demand for freight transport services. 43. As regards domestic demand for freight transport, the analysis of elasticities was presented in Table 3.4 of Section It can be seen from the Table 3.4 that the income elasticity of road transport demand (tones) was 0.95 between 2003 and 2006 rising to 0.99 in 2006, while the elasticity in terms of tkm was 1.41 in 2003 and 2.85 in It is argued that the dominance of urban traffic in road measures can mask differences between urban growth and interurban growth. 45. Freight income elasticities of demand are often understood to lie between 1.2 and 1.5. In a situation where there are still some limitations on access to foreign exchange for imports, there is a case for assuming that as liberalization and reform continue, there is still some unsatisfied domestic demand for freight vehicles. In addition, the fact that the road freight elasticity (tkms) leads that the total freight elasticity indicates an increasing role for road in interurban transport the Consultant has assumed that freight elasticities will be 1.5 for domestic traffic declining to 1.0 over the forecast horizon. 46. As regards passenger transport, it is evident from Table2.4 that the most recent income elasticities of demand characterizing road passenger transport are somewhat higher than those characterizing passenger transport in general. There is still a strong possibility of rapid growth in the acquisition of passenger transport vehicles as incomes increase and 10 These formulae have been utilized on previous TAs for the CAREC Subregion. See for example the Draft Final Report of ADB TA 4875, Preparing the Western Regional Road Development Project, submitted 22 January, IKS/RRI 11

19 liberalization continues in the economy. Similar income elasticities of demand are assumed to characterize road passenger demand growth over the forecast horizon as is shown in Table 2.8. Case/Item/ Period Without Road Improvement Table 2.8 Forecast Growth Rates of Main Domestic Traffic Indicators GDP (%pa) Main Indicator Growth Rates Population (% pa) GDPca (% pa) Passenger Elasticity Average Passenger Growth Rate (% pa) Freight Elasticity Average Freight Growth Rate (% pa) Source: Consultant s estimate International Truck Traffic 47. Factors likely to influence international traffic flows on the A-380 are shown in Table 2.9. Table 2.9 Trade Turnover of Uzbekistan with Kazakhstan, Ukraine and Russia Trading Partner 2006 Turnover (US$ million) Percentage of Uzbekistan Foreign Trade Turnover Percentage Increase over 2005 Kazakhstan Russia Ukraine Total Uzbekistan Source: Statistical Review of Uzbekistan. 48. It can be seen from Table 2.9 that the three countries to the North and Northwest of Uzbekistan accounted for 38.6 % of total trade turnover in Furthermore, growth in two way trade between each country and Uzbekistan exceeded over 3 times the growth recorded nationally. The high prices currently prevailing for Uzbekistan exports make it difficult to speculate about volume trends. For the basis of a working assumption, the Consultant has assumed the growth rates in international truck volume shown in Table 2.10 below. Table 2.10 Assumed Growth Rates in International Truck Traffic along the Project Road Time Period Assume Growth Rate (% pa) Note: Derived from an assumption that volume of goods will Increase at these rates. Substitution of larger vehicles not taken into account at this point. Source: Consultant s estimate. IKS/RRI 12

20 2.7.3 Traffic Forecast over the Forecast Horizon 49. Table 2.11 shows traffic forecasts for the road sections selected for rehabilitation. Average Annual Daily Traffic (AADT) is shown by vehicle type. Table 2.11 Annual Average Daily Traffic by Vehicle Type Normal Domestic Traffic Section/Year Domestic Trucks International Trucks Buses Cars Other Total PCEs 2007 Khorezm Karakalpakstan Khorezm Karakalpakstan Khorezm Karakalpakstan Khorezm Karakalpakstan Khorezm Karakalpakstan Khorezm Karakalpakstan Source: Consultant s estimate. 2.8 Diverted Traffic 50. Two Sources of diverted traffic have been calculated. Firstly, rail traffic through the Nukus-Oasis Line has been estimated at some 1,718,800 mt per year. Discussions with the Marketing Office of UTY has indicated that small consignments make up about 35 % of tonnage on this line. It has been assumed that up to 10 % of tonnage on the line could divert to the improved A 380 resulting in an additional 121 heavy trucks per day by A second source of diverted traffic for the improved road is the alternative route through Chimkent (Figure 2.1) which is also grouped with the A 380 in the so called Northern and Northwestern Routes. Discussions with a leading Uzbekistan trucking firm indicate that using the alternative Northern route is more costly because fees are levied at six Kazakh oblasts en route to Russia and the Ukraine as compared to two Kazakh oblast boundaries which are passed utilizing the A 380. Additional diverted Northern Route could be expected to total 57 heavy trucks by Generated traffic has been assumed to total about 20 % of the flow of forecast normal domestic traffic once all sections of the A 380 have been rehabilitated by Table 2.12 shows the final traffic forecasts for the two sections selected for rehabilitation. IKS/RRI 13

21 Figure 2.1 IKS/RRI 14

22 Table 2.12 Final Traffic Forecasts of Normal Traffic, Generated Traffic and Diverted Traffic Average Annual Daily Traffic Section/Year Domestic Trucks International Trucks Bus, Microbus Car Other Total PCE 2007 Khorezm Karakalpakstan Khorezm Karakalpakstan Khorezm Karakalpakstan Khorezm Karakalpakstan Khorezm Karakalpakstan Khorezm Karakalpakstan Source: Consultant s estimate. 53. Neither section will require widening in the later stages of the forecast horizon. IKS/RRI 15

23 SECTION 3: ROAD DEVELOPMENT COMPONENT AND ROAD SUSTAINABILITY COMPONENT 3.1 Road Development Component 54. ADB will finance reconstruction of A-380 highway. The A-380 highway is the main route between the north-west and south-east of Uzbekistan. It serves as an increasingly important international corridor between Afghanistan (via Termez)/Tajikistan/Turkmenistan and Kazakhstan/Russia. The A-380 highway is designated as CAREC 6 Corridor, Asian Highway 63, TRACECA Corridor 28, and European Highways E-40/60. The adjoining 84 km Kazakhstan section Uzbekistan Border-Beyneu is included in the Kazakhstan Road Sector Development Program for reconstruction. Reconstruction of the Beyneu-Aktau (Caspian Sea) and Beyneu-Russian border sections is also in the program for completion by The A-380 highway is part of CAREC 6 that is considered high priority for completion by The pavement condition of the A-380 highway Guzar Bukhara Nukus Dautata (Uzbekistan /Kazakhstan Border) has deteriorated due to deferred maintenance and an increase in traffic. With the existing traffic of about 5,500 passenger car equivalent (PCE) per day in Khorezm section, the A-380 highway traffic is expected to reach 13,000 PCE/day in Reconstruction of this international road is technically justified. Out of 1,204 km of A- 380 highway, 260 km will be reconstructed and 700 km will be repaired during ; while the remaining road sections need adequate routine maintenance. ADB s investment in reconstruction of A-380 highway will help the Government accelerate the completion of the overall program and introduce international best practice. 56. Civil works under this component will comprise reconstruction of 131 km of the A380 highway in Karakalpakstan Autonomous Republic and Khorezm Province to meet two-lane international design standard with four-lane road bed within the existing right-of-way. The Project will not involve land acquisition and resettlement nor create significant environmental impacts. The sections of highway are as follows (Figure 3.1): (i) (ii) Section 1: Km (40 km) in Karakalpakstan Autonomous Region. Section 2: Km (91 km) in Khozarasp District of Khorezm Province and Tortkul District of Karakalpakstan. 57. Advisory support for procurement of contractors and recruitment of consultants will be provided. An international procurement consultant will work in the project implementation unit (PIU) to strengthen its procurement capability. Advisory support for project management and construction supervision will also be provided to assist PIU in managing, implementing, and supervising the overall project. The scope, objectives, TORs and other details of above captioned TAs are described in Appendix ADB TA 6347-REG. 2007: CAREC Transport Sector Strategy Study. Consultant Draft Final Report. IKS/RRI 16

24 Figure 3.1 IKS/RRI 17

25 3.2 Road Sustainability Component. 58. This component will primarily assist the Government strengthen road sustainability in Uzbekistan through improvement of road sector institutions, the introduction of competition leading to further commercialization of enterprises and eventually privatization, road sector planning, and budgeting system; and provision of road equipment to ensure timely and effective road maintenance program. This component will involve the following activities: (i) (ii) Advisory Support for Road Sector Planning and Management System. The advisory support will review the current road sector planning and financing system, study the impact of possible application of road user charges and tolling systems, study separating road agency and business entities including possible outsourcing and competitive bidding of road maintenance, introduce computerized road sector planning and management, develop a data base system, train staff, and prepare a long-term program for country-wide application. At the end of the Project, a Planning Unit will have been fully established at the Road Fund. Provision of Road Equipment. The Project will finance the procurement of a set of road equipment to be managed by a Road Equipment Pool Company (REPC). The company will be set up as an independent commerciallyoperated state-owned enterprise. REPC will provide services for utilizing the equipment to be procured under ADB financing on a full cost recovery basis. Advisory assistance support will be provided to establish the REPC as a viable and sustainable enterprise. This will include developing a business plan; an equipment service provision system; introducing proper administrative, accounting and financial procedures; identifying workshops, stores, and equipment operations manuals; establishing equipment hire charge system; and providing on the job training for operators and workshop personnel. IKS/RRI 18

26 SECTION 4: PRELIMINARY DESIGN AND COST OF ROAD RECONSTRUCTION AND ASSOCIATED TECHNICAL ASSISTANCE 4.1 Preliminary Design and Cost of Road Reconstruction Basic Preliminary Project Design 59. The total length of the road section is 131 km. Road sections are located in Khorezm region and the Republic of Karakalpakstan. Road category before reconstruction is III, after reconstruction II. Meanwhile, the road bed will be designed for category I. Estimated year of prospective traffic forecast is Estimated traffic forecast: Km Km PCE/day 3375 PCE/day All Projects Designs Shall Meet The Environmental Requirements. 60. It is necessary to stipulate environmental safeguards in line with requirements set forth in section on environment Alignment 61. The road alignment remains without changes, except for individual sections, where due to increase of curve radiuses in plan view road baseline will be shifted. Final drawings of project sections shall be submitted with the final report Road Bed 62. Existing roadbed of road sections is constructed in compliance with category III technical standards. The width of roadbed varies from 11.5 to 13.0m. The subsoil used for roadbed is represented by barkhan sands (km ), (km ) and sand loam with limestone and argillaceous deposit ( km). The fill slope ratio is 1:2 and 1: The depth of fill varies from 1.5 to 4.5 m the depth of cut is up to 4m. Individual roadbed sections will be rectified to ensure road visibility in profile. It is proposed to accept the following main parameters: Roadbed width m; Fill slope ratio - 1:3; Cut slope ratio: Inner - 1:3; Outer - 1:4; Road bed projection at least - 0.8m; Maximum longitudinal grade not more than - 4%; Traffic lane width -3.75m; Margin strip width -0.75m. 64. A 2.6m wide central reserve is provided to separate opposite directions. It is envisaged to establish Group I reinforced concrete road guard on a central reserve. The accepted project designs on road parameters in plan view and in profile (radius at bend, vertical curves, slopes, etc.) shall meet the requirements and ensure visibility in plan view and longitudinal profile, as well as safe flow of traffic with the estimated speed of 120km/h. IKS/RRI 19

27 65. The road bed is recommended to be constructed from borrow pits. It would be necessary to determine a subsoil building features in borrow pits during detailed designing at the stage of detailed geological engineering survey Road Pavement 66. The present road cross section consists of a 5 to 18 cm thick wearing course (constructed by mixing the constituent materials in place) laid over a mixed sand and crushed rock base course 12 to 21 cm in thickness. This cross section does not meet present project requirements. 67. It is recommended that the existing wearing course should be removed by milling its full thickness over the entire length and breadth of the existing road. The resultant materials should be stored in stockpiles to be located as required along the road length and then be reused in the base course of the rehabilitated pavement. The existing road base should be loosened to a depth of 0.3m 68. The resilient modulus of the rehabilitated pavement structure should be a minimum of 215 megapascal (MPa). 69. The recommended rehabilitated pavement structure should be: Sub-base course: Base course: Binder course: Wearing course: 20 cm of mixed sand and crushed rock 6 cm of materials milled from the existing wearing course mixed with up to 50% of additional sand and crushed rock, all stabilised with 8% cement 7 cm of hot mixed coarse porous asphalt 5 cm of fine dense asphalt 70. The rehabilitated pavement structure should extend across the entire width of the new carriageway, including all speed change lanes and shoulders Bridges and Pipes 71. There are no pipe culverts on section km , and no need to arrange them. There are 10 pipes on section km and 32 on section km The pipes will be replaced in accordance with the standard. A table below shows the location of bridges along the road, which should be expanded to the four-lane carriageway: Location of bridge, km Bridge material Bridge length, meter Bridge dimensions, meter Republic of Karakalpakstan reinforced concrete 109,5 9,7+2x1, reinforced concrete 23 8,3+2x1, reinforced concrete 75 10,2+2x1, reinforced concrete 12,3 12,1+2x1, reinforced concrete 42 10,1+2x1,0 IKS/RRI 20

28 Intersections and Junctions 72. Existing intersections, road ramps and junctions will be arranged as category III-IV roads Bus Stops 73. No bus stops are required on section km The arrangement of 2 bus stops with enclosed bus stops is envisaged on section km and 5 - on section km Traffic Management 74. Traffic management elements are envisaged in the form of road signs, road marking, barriers and sign posts. Barrier type road guards in the form of curved bar shall be installed on dangerous road sections with a depth of fill more than 3m. Signposts are recommended to be arranged on road shoulders within curves in plan and on approaches to them, on road straights with the depth of fill more than 2m, as well as near pipe culverts Engineering Utilities 75. The rearrangement of gas pipeline, watercourses, communications and power transmission lines will be required on the sections km and km Cost of Road Reconstruction 76. The reconstruction cost of sections selected for treatment under the project is determined through the cost analysis of reconstruction performed or ongoing on adjacent sections. The consolidated cost estimates include only major construction and assembly works. Expenses on construction of buildings and facilities serving road transport vehicles, drivers and passengers are not in cost estimates. The cost of each type of work will be refined at the detailed designing stage. The summary calculations for the subsection of km and are shown in Tables 4.1 and 4.2. IKS/RRI 21

29 Table 4.1 Consolidated cost estimate of major road construction works proposed under the project by sections Name of works and costs Volume of works km km km Cost, $ (000) Volume of works Cost, $ (000) Volume of works Cost, $ (000) Road bed Road bed arrangement, km Road pavement Road surfacing, km Engineering structures Bridges, running metre Pipe curverts, running metre Road furniture and facilities Road signs, road guards and marking, km Bus stops, units Engineering unilities Rearrangement of gas pipeline, watercourse, communications and power transmission lines Total: IKS/RRI 22

30 Table 4.2 Consolidated cost estimate of major road construction works proposed under the project by sections Name of works and costs Volume of works km km km Cost, $ (000) Volume of works Cost, $ (000) Volume of works Cost, $ (000) Road bed Road bed arrangement, km Road pavement Road surfacing, km Engineering structures Bridges, running metre Pipe curverts, running metre Road furniture and facilities Road signs, road guards and marking, km Bus stops, units Engineering unilities Rearrangement of gas pipeline, watercourse, communications and power transmission lines Total: IKS/RRI 23

31 SECTION 5: EQUIPMENT PACKAGE AND ROAD EQUIPMENT POOL COMPANY 5.1 Introduction 77. The ADB requested the Consultant to consider three options for the provision and management of the Government of Uzbekistan requested road equipment: (i) (ii) (iii) provision of the equipment directly to UZAVTOYUL, the State Joint Stock Company responsible for coordinating the operation and maintenance of primary roads; leasing of the equipment to UZAVTOYUL; and, establishment of an equipment pool to hire equipment to private contractors. 78. The findings of the Team s Plant and Equipment Specialist were presented in the Draft Final Report submitted on 20 August He concluded that: 79. Based on an examination of the three options, the desire to encourage the commercialization of Uzavtoyul enterprises and the need to maintain probity and fair dealing in the awarding of the road works contracts under the Project, the most suitable course of action would be to make the equipment available to Uzavtoyul enterprises on some form of repayment basis and through a third party arrangement, either a contracted leasing entity or through an equipment hire pool. 80. A preliminary version of the analysis of equipment management options including the fourth option (establishing credit line facility) that was added later formed the basis of the discussions between the Bank Mission of 24 July 6 August 2007 and the Government of Uzbekistan as to the final details of the equipment portion of the road sustainability component. Chief amongst the agreements reached between the Mission and the Government of Uzbekistan was a decision to establish a Road Equipment Pool Company (REPC) Section 5.2 briefly describes the parties involved in Road construction. The same section also describes the list of equipment proposed for delivery under the Project. Section 5.3 describes the steps to be taken to establish the REPC with preliminary financial analysis of the REPC. 5.2 Parties Involved in Road Construction and Maintenance 82. Public roads are considered state property and responsibilities for road construction and maintenance in Uzbekistan are defined by the Law for Highways, which was passed on 3 July 1992 and is now being updated. At present, road policy development, planning, construction, and maintenance are coordinated by the following four bodies: i) the Uzbekistan Transport and Transport Communication Association (UTACA) is a policy formulation body which coordinates the activities of the transport sector s main stakeholders; ii) the Road Board is a policy formulation body which focuses on the road sector and is chaired by the deputy prime minister; iii) the Republican Road Fund, established under the Ministry of Finance (MOF) in 2003, is the government agency responsible for road investment planning, project implementation, and financial management of road construction and maintenance; and, 12 This is in line with the Transport Sector Strategy which recommended the establishment of an Equipment Management and Utilization Organization providing construction equipment to road companies as a means of enhancing their operational capacity and hence ability to compete on a broader market front. IKS/RRI 24 TASHKENT, OCROBER 2007

32 iv) Uzavtoyul is a state joint stock company responsible for the operation and maintenance of major public roads. 83. Prior to 2003, Uzavtoyul was responsible for almost all road-sector activities covering road infrastructure and road transport services, and ranging from planning, construction, maintenance, financing, and supervision. The Road Fund now plays most of these roles, particularly investment planning and the execution of projects Road Fund 84. The Road Fund is the government agency responsible for road investment planning, project implementation, and financial management of road construction and maintenance. It tenders and supervises new road construction and rehabilitation (capital repairs) road maintenance contracts. Currently, more than 400 projects are being implemented under the Fund s supervision. In an international contractual sense, the Fund is the Employer s Representative where the Employer is the Government of Uzbekistan. 85. For the number of projects they handle, the Road Fund s capacity in planning and execution, including contract procurement and management, is considered to be inadequate. 13 They have minimal experience engaging private sector contractors but a good level of experience letting contracts to Uzavtoyul enterprises Uzavtoyul 86. Uzavtoyul is a state joint stock company responsible for the operation and, periodic and routine maintenance of major public roads. 87. Provincially based subsidiary enterprises are responsible for local, as distinct from national, roads. Within each province there are district road maintenance and repair enterprises which only work on local roads. There are also seven specialized international and national road repair and maintenance enterprises. These geographically based enterprises are responsible for the repair and maintenance of national and international roads. (International roads can generally be described as those roads which connect other countries though Uzbekistan.) Their operations cross provincial boundaries. It is these enterprises which bid for Road Fund capital works contracts. There are a number of specialist companies and enterprises specializing in activities such as quarrying and the manufacture of concrete bridge components. 88. The Uzavtoyul organizational structure is shown in Figure ADB UZB, Republic of Uzbekistan: Preparing the Regional Infrastructure (Roads) Project, Technical Assistance Report, December 2006 IKS/RRI 25

33 Figure 5.1 Uzavtoyul Organization 14 SJSC Uzavtoyul Regional Road Maintenance Enterprises Karakalpakavtoyul Andijonavtoyul Bukharaavtoyul Jizzakavtoyul Kashkadaryaavtoyul Navoiavtoyul Namanganavtoyul Samarkandavtoyul Surkhandaryaavtoyul Syrdaryaavtoyul Tashkentavtoyul Ferghanaavtoyul Khorezmavtoyul District Road Maintenance and Repair Enterprises (161 units) Specialized Bridge Repair and Maintenance Enterprises (12 units) Specialized International and National Roads Repair and Maintenance Enterprises (SINRRME) Avtomagistral (Tashkent) North-western (Nukus) Bukhara-Navoi (Bukhara) Southern (Kashkadarya Province) Samarkand (Samarkand) Central (Syrdarya Province) Eastern (Kokand) Industrial Enterprises Kuyluk experimental bridge reinforced concrete structures production plant "Chinozyulindustry" "Yangiyeryulindustry" "Bekabadyulindustry" "Bukharayulgranite" "Uzyulmashservice" Almazar experimental mechanical repair ancillary production enterprise Road Repair and Construction Enterprises Nazarnekavtoyul Yul Loyikha Markazi (Road Design Centre) JSC Samararkand Obodonchiligi CSJC Olamalik Obodonchiligi LLC Zomoin Kukalamzorlashtirish" LLC "Kashkadaryo Yul Ta'minot" LLC "Surkhandaryo Yul Ta'minot". LLC "Angren Obodonchiligi". "Uztyumendorstroy" Trust Specialized Drilling and Blasting Enterprises Taskent (Tashkent Province) Angren (Tashkent Province) Karatau (Republic of Karakalpakstan) Procurement Department Uzdorcomplekt Training Centres Bukhara Namagan SJSC state joint stock company JSC joint stock company CJSC closed joint stock company LLC limited liability company 14 Extracted from Resolution of the President of the Republic of Uzbekistan, On measures for improvement of organizational structure of the State Joint- Stock Company Uzavtoyul, No.PP-511 of 14 November 2006 IKS/RRI 26

34 89. All companies and enterprises are required to operate on a profitable basis or at least within an annual budget. Individual Uzavtoyul companies hire resources such as equipment from each other and purchase materials such as aggregate and asphalt from specialist Uzavtoyul enterprises. They rarely, if ever, enter into partnerships or joint ventures with private sector companies. 90. The degree of commercialization varies between individual Uzavtoyul enterprises with the most commercialized ones probably being those involved in specialized activities such as quarrying, asphalt production, concrete bridge member construction etc. The Uzavtoyul enterprises provide an excellent foundation for the development of the road construction and maintenance private sector through the continued commercialization leading to privatization of Uzavtoyul enterprises. 91. Road Fund staff highlight several advantages of working with Uzavtoyul enterprises compared with working with private contractors: i) Uzavtoyul has the equipment, ii) Uzavtoyul has the skilled personnel, iii) Uzavtoyul enterprises are state enterprises and are therefore accountable, iv) the focus of Uzavtoyul is on quality not profits, v) there is cooperation and mutual assistance between individual Uzavtoyul enterprises with staff and equipment being transferred between enterprises when necessary, vi) Uzavtoyul enterprises are used to deploying around the country, and vii) competition does exist between Uzavtoyul enterprises Private Sector Contractors 92. There are very few established private sector companies capable of undertaking capital road works projects. Those that do exist do not have all the specialist equipment required for capital maintenance works, have difficulty accessing essential materials, require close supervision and are insufficient in number to provide competition in the bidding process. There are companies which undertake lower level road maintenance work, principally in urban areas. 93. In the last two years, the Road Fund has let two contracts for road reconstruction works to private contractors. Both were unsuccessful because the contractors did not have the necessary equipment, the quality of work was not up to standard and the contractors did not complete the work specified in the contracts. 94. Road Fund staff report that the main problems they face engaging private contractors are: i) the contractors lack equipment, ii) the contractors do not have enough operators, iii) difficulties in contacting the contractors because they do not have permanent iv) offices, the contractors have significant difficulties obtaining materials especially strategic materials such as bitumen, and v) the work is seasonal and contractors have difficulty activating their workforce when required. 95. The Director of the Road Fund believes that private sector contractors should have a greater role in road works but believes that the environment is not yet suitable for a concerted development of the private sector. There is no strategy for the development of private contractors. However, there is a significant consideration which must be taken into account in the development of the private sector. IKS/RRI 27

35 96. It is important to note that the national budget for road works and the volume of road works is unlikely to be able to sustain both privatized Uzavtoyul enterprises and new private sector contractors especially in the end of the market involving road construction and capital roads maintenance. This must be a consideration when developing strategies for developing the private sector and privatizing Uzavtoyul enterprises Road Equipment Package 97. The provisional list of equipment requested by the Government of Uzbekistan is shown in Tables 5.4 and includes road maintenance and bridge maintenance equipment. Table 5.4 List of Equipment Requested by Uzavtoyul Four complexes of equipment for road construction works on asphalt paved roads Total Plant and equipment Unit Quantity cost, 000 USD 1. Asphalt mixing plant, mobile, Producing capacity 100 tonnes/h set Rock-crushing and screening plant, mobile, producing capacity 100m3/h set Asphalt paver, working width 7.5 m unit Vibrating combination tandem roller, with the weight 9.2 tonnes unit Combination tandem roller, with the weight 8.6 tonnes unit Front-end loader, with 4-5m3 bucket unit Cold milling asphalt cutter, with width of 2.0m unit Dump truck with the capacity 15 tonnes unit Bulldozer, capacity hp unit Bulldozer, capacity hp unit Bulldozer, capacity hp unit Motor grader, with the weight up to 13 tonnes unit Motor grader, with the weight up to 20 tonnes unit Excavator, with 1.5-2m3 bucket unit Cold milling asphalt cutter, with width of 0.5m unit Asphalt recycling plant unit Truck crane, capacity 10 tonnes unit Chassis-mounted bitumen tanker (transporter), capacity tonnes unit Drilling-and-blasting equipment, depth 30-50m, diameter mm set Fuelling vehicle, capacity 8000l unit Mobile repair shop unit Total: Source: UZAVTOYUL IKS/RRI 28

36 Table 5.5 One complex for bridge construction works Plant and equipment Unit Quantity Total cost, 000 USD 1. Tractor-trailer rig, capacity 60 tonnes unit Truck crane, capacity 50 tonnes unit Truck crane, capacity 25 tonnes unit Dump truck, capacity 15 tonnes unit Diesel hammer, with the weight of striking part 2500kg unit Drop-hammer pile driver, mobile, capacity 10 tonnes, useful height 20m unit Boring machine, depth up to 50m, diameter 1.7m unit Total: Source: UZAVTOYUL. Table 5.6 One complex for road construction works on concrete paved roads Plant and equipment Unit Quantity Total cost, 000 USD 1. Tractor-trailer rig, capacity 60 tonnes unit Truck crane, capacity 50 tonnes unit Truck crane, capacity 25 tonnes unit Dump truck, capacity 15 tonnes unit Diesel hammer, with the weight of striking part 2500kg unit Drop-hammer pile driver, mobile, capacity 10 tonnes, useful height 20m unit Boring machine, depth up to 50m, diameter 1.7m unit Total: Source: UZAVTOYUL. Table 5.7 One complex for bridge construction works Plant and equipment Unit Quantity Total cost, 000 USD 1. Tractor-trailer rig, capacity 60 tonnes unit Truck crane, capacity 50 tonnes unit Truck crane, capacity 25 tonnes unit Dump truck, capacity 15 tonnes unit Diesel hammer, with the weight of striking part 2500kg unit Drop-hammer pile driver, mobile, capacity 10 unit tonnes, useful height 20m Boring machine, depth up to 50m, diameter 1.7m unit Immersion and plate vibrators, diameter unit mm Total: GRAND TOTAL ON 7 PACKAGES Source: UZAVTOYUL. IKS/RRI 29

37 5.3 PROPOSED ROAD EQUIPMENT POOL COMPANY General 98. The proposed loan for UZB: Central Asia Regional Economic Cooperation (CAREC) Regional Road Project (sections of A-380 Guzar-Bukhara-Nukus-Beyneu road) will consist of two component to be financed jointly by the Government of Uzbekistan (GoU) and ADB loan: i) The purchase of road maintenance equipment; ii) The rehabilitation of sections of the A The equipment to be procured under the ADB financing will be operated on cost recovery basis. The GoU, will provide a counter sovereign guarantee against the establishment of a company, tentatively called Road Equipment Pool Company (REPC) Road equipment is needed to maintain, repair, and reconstruct the roads. Road equipment is expensive to purchase and maintain. A contractor needs to have a high level of certainty of works before purchasing equipment. An alternative to purchase is for the contractor to engage subcontractors or to have access to an equipment pool from which to hire. However, a commercial plant hire company or sub-contractor will similarly need to have continuity of work to justify the purchase and maintenance of plant and operators. The establishment of an equipment pool company was based on much detailed benefit cost analyses and assessment of various equipment financing options (Appendix 2) The Government has had difficulties securing a stable stream of long term hard currency in the market and the timely investments in road sector equipment has been subsequently delayed as a result. There has been understanding in the Government that the essential road maintenance equipment investment be prioritized to spur overall facilitation of backlog of road maintenance programs. Thorough assessment of various equipment financing options were explored: providing the equipment direct to Uzavtoyul through direct credit to Uzavtoyul; establishing an equipment pool as a quasi public company to hire equipment; independent equipment pool through a leasing company; and establishing a directed credit line facility 102. Based on analysis and comparison of advantages and disadvantages of the four options, the desire to encourage the commercialization of Uzavtoyul enterprises and the need to maintain probity and fair dealing in the awarding of the road works contracts under the Project, the most suitable course of action would be to make the equipment available to Uzavtoyul enterprises on some form of repayment basis and through a third party arrangement, that is the third option in the form of establishing Road Equipment Pool Company (REPC) This is further in line with the Transport Sector Strategy financed under ADB TA 4659-UZB with the recommendation of revisiting the proposal for establishment of an Equipment Management and Utilization Organization providing arms length leasing of construction equipment to road companies as a means of enhancing their operational capacity and hence ability to compete on a broader market front. The Government will take all the necessary legal measures and actions to set up a new entity for this purpose. Establishing a corporate/business plan and the requisite administrative and financial procedures for operating the equipment unit and preparation of working operational/business manuals are prerequisite to financial and operational sustainability, which will be heavily assisted as part of the proposed Project The provision of road equipment will pave the way for strengthening private sector and Uzavtoyul s subsidiary enterprises. The subsidiary enterprises provide an excellent foundation for the development of the road construction and maintenance private sector through the continued commercialization leading to privatization of state owned road IKS/RRI 30

38 companies. Strengthening its subsidiary enterprises businesses and hence profits will be, in the long run, generally beneficial for the country as they could eventually be sold to strategic investors and private financiers/equity for profit. It expects to further promote competition amongst state owned road companies to secure necessary construction and maintenance equipment to be better equipped with future opportunities in the international as well as national projects. These state owned road companies will be strengthened through active participation in international bidding and could be gradually spun off from Uzavtoyul and converted to private sector contractors Financing support for setting up REPC and purchase of road equipment for hire will achieve several objectives: (i) meeting the government strategy to develop modern road infrastructure; (ii) encourage private sectors and, hence, competition; and (iii) improve efficiency of road maintenance and sustainability Organizational structure of REPC 106. Road Equipment Pool Company (REPC) set up will include the establishment of independent enterprise in the form of State Joint-Stock Enterprise with seven affiliated branches in the regions of Uzbekistan The government s share in REPC will come from Uzavtoyul s branches and enterprises in the form workshops, buildings or some other assets that is expected to be transferred from balance of these enterprises and REPC will be completely independent and separate state owned company. REPC will be a non-road construction enterprise and will not bid for tenders on road construction and repair The headquarters of the REPC is expected to be set up on the basis of Specialized road repair and construction enterprise «Avtomagistral» (Bardankul village, Tashkent regionin), with the transfer of required property to the assets of REPC from balance of Avtomagistral and it has to be noted that Avtomagistral will not have any influence or control on REPC as it will not have any shares in REPC and these two enterprises shall be independent and separate legal entities Affiliated branches will be set up on the basis of repair and maintenance enterprises being part of Uzavtoyul. The location of each branch will be selected based on the most optimum alternative for planned road construction and periodic repair works on the international and local common use roads across Uzbekistan up to 2013 that is consistent with the GoU s road improvement program up to 2010 and further expected 3-years period. The organizational arrangements are illustrated in Figure 5.2 below: IKS/RRI 31

39 Figure 5.2 MECHANIZATION DEPOT Head office on the basis of SRRCO «Avtomagistral» (Bardankul village, Tashkent region) Engineering, financial and administrative management Mechanization depot affiliate on the basis of North-Western SINRRME (Kungrad city, Republic of Karakalpakstan) Mechanization depot affiliate on the basis of North-Western SINRRME (Miskin village, Republic of Karakalpakstan) Mechanization depot affiliate on the basis of Bukhara- Navoi SINRRME (Tsvetuschiy village, Bukhara region) Mechanization depot affiliate on the basis of Southern SINRRME (Guzar city, Kashkadarya region) 1 road construction complex (asphalt) 1 road construction complex (asphalt) 1 road construction complex (asphalt) 1 road construction complex (asphalt) Mechanization depot affiliate on the basis of Samarkand SINRRME (Konegil village, Samarkand region) 1 bridge construction complex Mechanization depot affiliate on the basis of Tashkent SINRRME (Tashkent city) 1 bridge construction complex Provision of transport and construction-assembly services Winning bidders of the tenders on roads A-380, M-39, M-37, A-373, etc. Mechanization depot affiliate on the basis of SRRCO «Avtomagistral» (Yangiabad village, Tashkent region) 1 road construction complex (cement concrete) IKS/RRI 32

40 109. This REPC will be established under the resolution of the Government. Therefore it would be advisable to consider in this resolution a clause that REPC shall be established in the form of State Joint Stock Company that will not be a structural enterprise of Uzavtoyul and will not have any property obligations before Uzavtoyul REPC Management 110. REPC will be responsible for managing road maintenance equipment fleets, including related services to the winning contractors of tenders on road construction, reconstruction and repair works in the Republic of Uzbekistan Preliminary REPC management structure is shown in the Figure 5.3 below: Figure 5.3: Management Structure of REPC Management 1-unit Financial/Accounting 2-unts Deputy Head of Manger Head of branch 1 unit Procurement 1 unit Cost control 1 unit Operations 70 units Transport 60 units Workshop 20 units Source: ADB PPTA consultants 112. It has to be noted that the REPC s headquarters shall also include one of the branches that is responsible for technological line with concrete laying The REPC manager has the responsibility for the efficient operation of the entity in accordance with business plans and budgets. The manager also deals with policy matters such as setting hire rates and the purchase of and disposal of assets as well as developing, monitoring and controlling annual budgets. Deputy manger will be responsible for the operation of the branch located in the headquarters The duties of the administrative staff include health and welfare of personnel, employee training, legal and insurance advice, employment conditions, wage negotiations and maintaining staff personnel records The accounting staff are responsible for the payment of invoices, receipts from hire sales, cash and credit control, the preparation of monthly and annual financial and management reports and the preparation of annual budgets Taking into account the all affiliated branches will be set up as separate legal entities, a separate purchasing function for the purchase and management of spares parts and other consumables such as oils and greases may not be required The cost control staff collects and interprets data from other parts of the operation and prepares targets, in the form of budgets, against which costs and revenues can be monitored. In particular, the staff collects data for the establishment of rates for services provided. In branches, this function could be undertaken by the accounting staff The operating department manages the delivery and collection of the plant to the customer, monitors its use and manages any operators provided with the plant and equipment. Additionally, the department coordinates the servicing of the plant and IKS/RRI 33 TA SHKENT, OCTOBER 2007

41 equipment to maximize the charge out hours without compromising the plant servicing schedule A heavy transport capability is required to deliver, re-locate and collect plant. It may be possible to contract or hire heavy transport when required but the transporters must be available when and where required to avoid unnecessary plant downtime. In branches, the transport function could be included in the plant hire department The workshop services and repairs the plant. It would be usual to have a base workshop and a field or mobile workshop. A field workshop would be established where there is a concentration of plant on a work site. A mobile workshop is required if the hired plant is dispersed on numerous sites. A field workshop will usually have some form of mobile workshop capability to carry small repairs (such as broken hydraulic hoses) where the plant is working. The base workshop function could be contracted out as long as a reliable and responsive workshop contractor could be engaged To establish the hire pool operation, staff would need to be recruited and trained. This includes administrative, accounting, plant operations and workshop staff The contractors will use REPC services that would require the availability of operators and other suitably skilled operating personnel. This would increase the cost of and time taken to establish the entity if started from scratch. Administrative and operational procedures would need to be developed, documented and implemented, which will be later developed by the consultants Below Figure 5.4 illustrates the typical structure of one of the 7 branches of REPC. The other branches will also have the same organizational structure. Figure 5.4: Management Structure of One of the Branches of REPC Manger 1-unit Deputy Manger Mechanical engineer 1-unit Finance/Accounting department 4-units Operations/Transport/Workshop 150-unit Source ADB consultants 124. The manger of the branch shall be responsible for the organization of works and general commercial activity of it s branch. He or she would also directly subordinate and report to the manager of the REPC. The manger shall also report to the Procurement, Finance and Cost control Units of the headquarters in related fields of operation of REPC. Besides the departments of branches shall also keep operational contact with their appropriate departments in the headquarters Expected Demand for REPC Services 125. The is embarking on an extensive programme of construction and repair of common use road network, in pursuance of which between 2008 and 2010 only it is envisaged to reconstruct some 522 km, as well as to undertake medium and capital repair of some 2189 IKS/RRI 34 TA SHKENT, OCTOBER 2007

42 km of roads, construction of bridges and other structures, though there is not sufficient road construction plant and equipment to undertake these works It is assumed that before 2011 the equipment will be deployed on the project sections of А 380 road and 2012 и 2013 it will be deployed mainly to improve the condition of M 39 road, as well as other international and local common use roads Taking into account quasi public companies are not supplied with sufficient required equipment and transport facilities, existing equipment is highly worn-out and lack of private sector on this market, it can be assumed that newly established REPC will probably be the main entity in the best position to provide suchservices Additional competitive advantage of REPC will be the location of its affiliated branches in the regions of the Republic, which would ensure the lowest costs on transportation and servicing of equipment Financial Plan and Financial Projections of REPC A. General 129. The financial projections for the Road Equipment Pool Company (REPC) have been prepared to assess operational and financial sustainability as a corporate entity. The Government of Uzbekistan is committed to the establishment of REPC. REPC will be incorporated as a State Joint Stock Company (SJSC), independent from SJSC Uzavtoyul. REPC will own and manage the road equipment assets financed under the Project and be accountable for the associated liabilities. The estimated asset value consisting of debt financed $55.1 million 15 road equipment and capital contribution by the Government of $16.56 million in the form of facilities, plant and property, which will provide an opening balance for the company. The Government will take all the necessary legal measures and actions to set up a new entity for this purpose. The projected income statement, balance sheet and cashflow statement are in Tables B. Major Assumptions 130. Major assumptions for REPC s projected financial statements include the following: 131. The domestic inflation rates are assumed at 8.2% in FY2008, 7.5% in FY2009, 7.3% in FY2010, and 7.0% from FY2011 onward, in line with the ADB s domestic cost escalation factors The international inflation rate is assumed at 0.8% per annum during the period of analysis The exchange rate used is Uzbekistan Soum1,280 to $1.00 for FY2007 adjusted during the forecast period based on the differential between the assumed domestic and international inflation rates The estimated time for procurement of road equipment is 24 months. It is assumed that REPC will be fully operational in FY2009. Operating revenues are generated from equipment hire fees. Equipment hire fees are estimated on a full cost recovery basis (i.e. depreciation, operation and maintenance (O&M), and debt service allowing return on assets of 15%. Approximately 250km per annum is assumed to be covered with the equipment. 90% productivity factor is used. The average equipment hire fee is estimated at about $80,000 per kilometers (km), equivalent to Soum102 million/km and are adjusted to reflect local inflation. They are geared to meet minimum 80:20 debt to equity ratio, 1.2 debt service coverage ratio, and 80% operating ratio. 15 $55.1 million will be onlent to REPC from MOF. Advisory support on the establishment of $0.21 million is not assumed to be onlent to REPC. IKS/RRI 35 TA SHKENT, OCTOBER 2007

43 134. Operating expenses consist of (i) O&M (salaries and general administration expenses), (ii) depreciation/major repairs of existing and newly acquired assets. Administration costs are estimated at 6% of REPC s annual revenue. The average labor cost is projected at 3% of gross fixed assets increasing in line with the local inflation. Depreciation of assets is calculated on straight line basis at 10% depreciating the assets over its economical life of 10 years. Repairs and maintenance cost is assumed to be 1% of gross fixed assets initially and are projected to increase over time to 4% REPC is expected to get the same benefits as other road companies (private as well as public), which are exempt from payments of corporate taxation, custom duty of 20% on the import of equipment and machinery Capital expenditure on the road maintenance equipment is based on estimates from the feasibility studies financed by ADB unit is assumed to be procured in FY2008 and 136 unit in FY2009 with a total of 299 unit of equipment Inventories represent 1 month of repairs and maintenance cost and are assumed to contain all necessary spares and tools for the maintenance of the equipment Minimum debt to equity ratio of 80:20 is assumed. The Government is committed to transfer assets that are relevant to REPC operations in the form of equity contribution assumed at $16.56 million representing about 23% of REPC s total assets Financial charges are assumed to be paid as accrued during each year. The financial charges are calculated on the average balance of outstanding loan liability during the year. ADB OCR loan of $55.3 million will be on lent to REPC at an additional premium of 0.2%. The same repayment period is assumed to apply: 4 year grace period and 20 year debt amortization schedule. LIBOR is estimated at 5.6% (6 months LIBOR at 5.0% as of 22 October 2007) including 0.6% fixed spread. 0.35% commitment charge on undisbursed loan amount. Foreign exchange fluctuation will be borne by REPC Accounts receivable and payable represents one month and three months value of revenue, respectively Based on preliminary calculations it can be assumed that such REPC shall be sustainable and shall have sufficient cash flow proceeds for on time return of loan proceeds. Net profit shall be not less than 4% annually and debt service coverage ratio shall be not less than 1.7. The share of its own capital in the balance shall be ensured at the level not less than 20% The fund flow for regional project is illustrated in below Figure ADB TA4889-UZB Preparing the Regional Infrastructure (Roads) Project IKS/RRI 36 TA SHKENT, OCTOBER 2007

44 Table Financing Plan of REPC: Local currency (mln. USD equivalent) Hard currency (mln.usd) Total Structure (%) Equity REPC % Total equity: % 23.04% Loans ADB LOAN % Total loans: % 76.96% Total financing: % IKS/RRI 37 TA SHKENT, OCTOBER 2007

45 Table Financial Analysis of Proposed REPC: GENERAL PROFIT AND LOSS ACCOUNT PROJECTION 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year Total Sales VAT Cost of product sold Gross Profit Period costs Operating profit Interests Road payment Payment to Pension Fund Profit before tax Profit after tax Profitability rates (%) Gross Profit / Total Sales 38% 41% 43% 45% 46% 48% 49% 50% 51% 52% Net Profit / Total Sales 8% 12% 15% 18% 21% 24% 26% 28% 30% 32% IKS/RRI 38 TA SHKENT, OCTOBER 2007

46 Table 5.10 Total Cash Flow Statement: 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year Total Sales VAT Depresiation & Amortisation Change in Working Capital Cash from Sales Costs of Product Sold Gross Cash Income Period costs Operating Cash Income (A) Equity Investment (70.01) Interest, Management & Committment fees ( Taxes (C) Period expenses Other Financial Costs Contingency (0.15) Net Cash Income (52.09) Debt Amortisation (D) Cash after Debt Amortisation (52.09) Financial Requirement Cash Flow Cumulative Cash Flow Debt Service Ratio [(A-C-F)/(B+D)] IKS/RRI 39 TA SHKENT, OCTOBER 2007

47 Table 5.11 Balance Sheet Projection 0 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 year Cash Accounts Receivable VAT & custom duties (import) Spare parts Stock Current Assets Fixed Assets Net Fixed Assets Total Assets Accounts Payable Current Liabilities Long Term Loans Share Capital Retained Earnings Equity Total Liabilities Equity / Total Liabilities 23% 25% 27% 30% 35% 40% 45% 51% 56% 61% 66% IKS/RRI 40 TA SHKENT, OCTOBER 2007

48 Figure Road Equipment Pool Company Financing Arrangement: Ministry of Finance Loan Repayment ($) Loan agreement ADB Pay ($) ($) EQUIPMENT SUPPLIERS Road Fund Subloan Agreement Guarantee Equipment Maintenance equipment REPC ASSET OWNER - Consultant Team - Procurement - Management - Technical assistance - Business development - Maintenance Fund flow Fee, Charge Equipment (Soum) Document flow Physical asset flow State Owned Road Enterprises and Private Companies IKS/RRI 41 TA SHKENT, OCTOBER 2007

49 5.3.6 TIME-Bound Action Plan for Road Equipment Pool Company Road equipment pool company (REPC) will be incorporated as a state joint stock company (SJSC) to manage and maintain road equipment procured under the ADB financing. The below table specifies necessary actions to be fulfilled prior to full fledged operations of REPC. Milestone Hiring of Management Advisory Team financed under ADB loan Issuance of Resolution by Cabinet of Ministers for the establishment of REPC Charter documents Preparation and development Approval Registration Appointment of REPC Director Signing sub loan agreement with MOF Formation of Capital Charter Issuance of shares State Appointment of Board of Directors Hire of REPC Personnel Development of internal business procedures and relevant operations manuals for: Corporate plan Company structure Staffing plan/hr Policy Accounting and reporting Financial Management Setting up of hire fees/charges Budgeting system On the Job Training Approval and transfer of fixed assets including land, plants and property and capital to REPC Preparation of relevant infrastructure and facilities for REPC to be fully operational. Acceptance and commissioning of equipment and full operation of REPC Target Date 01 Dec Dec Dec Dec Dec Dec Feb Feb Feb Feb July Sep Sep Dec 2008 Responsible Party Road Fund Ministry of Finance (MOF), Cabinet of Ministers (COM) REPC MOF, COM Project Director/REPC MOF, COM MOF REPC REPC COM MOF REPC REPC Director Management Advisory Team Project Director/REPC COM MOF REPC REPC, PIU REPC, PIU IKS/RRI 42 TA SHKENT, OCTOBER 2007

50 SECTION 6: ECONOMIC ANALYSIS 6.1 Economic Analysis of Road Works and Equipment Package 147. The Consultant s economic analysis is carried out in two parts utilizing the costs presented in Table 4.1. Costs are expressed net of VAT, Customs Duties and excise tax. As regards the civil works and associated advisory services, an economic appraisal utilizing RED HDM-4 VOC has been prepared. The equipment package has been analyzed separately Costs are summarized in Table 6.1. Table 6.1 Project Capital and Maintenance Costs for Roadworks Works Cost Capital Works $77.1 million (base cost and physical contingencies) Routine Maintenance $1,390 per kilometer Periodic Maintenance 10 % of capital cost in years 6 and 12; and 25 % of capital cost in year 18 Source: Consultant s estimate In the RED analysis, the following benefit types have been identified: (i) (ii) (iii) (iv) (v) Vehicle Operating Cost (VOC) savings to existing users. Domestic generated traffic benefits which are assumed to equal 50 % of the benefit accruing to domestic users of the A 380. Domestic generated traffic is assumed to equal 20 % of the volume of of existing traffic by Benefits to traffic diverting from the more expensive Northern Route. The benefits to diverting road traffic been conservatively valued as a proportion the savings in passage costs through Kazakhstan accruing to traffic diverting from the Northern Route to the A380.. Benefits to small rail consignments which are diverted by shippers from the UTY to reap the benefits of the quicker service offered by the road mode. These benefits are Arise from the assumption that 17.5 % of rail traffic, being half the amount of UTY traffic on the Nukus - Oasis line that is accounted for by small consignments, A benefit is also calculated for avoided rail tonne-km. Road Accident Savings. These benefits have been calculated by assuming a 10 % reduction in accident losses once the A 380 is improved. The ADB and other International Financial Institutions have found that annual losses in property damage and forgone production in member countries can easily approach 3 % of GDP. 17 The annual km of vehicles traveling along the 151 km of the A 380 to be improved were calculated as a % of total national vehiclekm for the purposes of allocating traffic losses attributable to the 151 km. A 10 % reduction in losses was then assumed to accrue to the improvement of the A 380, representing the minimum estimate The VOC-IRI equations calculated by RED-HDM-4 VOC were utilized in the calculation of benefits. The current International Roughness Index (IRI) of the km under consideration for rehabilitation is estimated to be 12 for the Khorezm Province Section (km ) and 14 for the Karakalpakstaan Province Section (km ). Following rehabilitation, roughness is assumed to rise from 3.0 back to 3.97 before the next scheduled periodic maintenance intervention in year 6 lowers it back to 3 as measured on the IRI. 17 See for instance the Final Report of ADB TA 6195 Greater Mekong Subregion Transport Sector Strategy Study, December 2005 which shows data on Member Country losses arising from road traffic accidents. IKS/RRI 43 TA SHKENT, OCTOBER 2007

51 151. The input data to RED-HDM-4 VOC includes vehicle prices which have been calculated on the basis of Uzbekistan vehicle prices obtained from local dealers as of 23 July 2007 net of duties and tax.. A world price for petroleum and lubricants has been calculated based on a price per barrel of US$ 70. Uzbekistan crew wages, mechanics charge and utilization rates have been adapted from previous studies carried out by the Consultant Table 6.2 presents the preliminary EIRR calculation for the reconstruction of km while Table 6.3 presents the calculation for km The reconstruction of both sections is viable under the Consultant s assumptions. IKS/RRI 44 TA SHKENT, OCTOBER 2007

52 Year Table 6.2 Economic Analysis - km Capital Costs Routine Periodic Cost Plus Advisory Mainte- Mainte- Physical Services nance nance Contingency Total Cost Benefits Existing Traffic Benefits Generated Traffic Benefits Diverted Rail Traffic Diverted From Other NW Road Routes Accident Savings Total Benefits , ,0 448,0-448, ,5 569, , , ,3 535, , , ,4 524, , , ,4 55, ,7 1061,4 756,1 4865,0 665, , , ,4 55, ,6 1113,0 811,6 5383,2 703, , , ,4 55, ,3 1165,1 870,8 5956,5 744, , , ,4 55, ,4 1214,5 931,9 6590,8 787, , , ,4 55, ,9 1238,8 976,0 7167,5 833, , , ,3 5235, ,0 1347,0 1080,4 7794,7 881, , , ,4 55, ,1 1451,6 1187,6 8476,7 932, , , ,4 55, ,8 1494,2 1252,9 9218,4 987, , , ,4 55, ,3 1537,2 1321, ,0 1044, , , ,4 55, ,4 1559,5 1369, ,8 1091, , , , , ,8 1638,3 1462, ,1 1140, , , ,4 55, ,0 1759,3 1594, ,3 1191, , , ,4 55, ,8 1804,3 1667, ,8 1245, , , ,4 55, ,8 1837,4 1732, ,5 1301, , , ,4 55, ,5 1851,3 1777, ,1 1359, , , ,4 55, ,8 1859,6 1819, ,7 1421, , , , , ,4 1933,9 1919, ,3 1485, , , ,4 55, ,8 2055,7 2067, ,2 1551, , , ,4 55, ,5 2087,5 2135, ,6 1621, , , ,2 55,4-6849, ,1 2119,9 2205, ,3 1694, , ,5 Notes: 1) 20 % salvage value of road works. Net Present 12 % (000) 80608,4 2) Generated traffic benefits build up from 2011 to EIRR (%) 30,0 Net Cash Flow IKS/RRI 45 TA SHKENT, OCTOBER 2007

53 Year Table 6.3 Economic Analysis - km Costs Benefits Capital Cost Routine Periodic Existing Plus Advisory Total Mainte- Mainte- Traffic Physical Services Cost nance nance Benefits Contingency Generated Traffic Benefits (20 % of Existing@ 0.5 value) Diverted Rail Traffic (0.5 value) Diverted From Other NW Routes Accident Savings Total Benefits ,3 196,9 7987, ,4 250, , ,3 235,5 3625, ,5 230,5 828,4 82,8 420,2 1954,1 21,9 3307, ,4 24,4 997,0 99,7 452,2 2162,2 23,4 3734, ,4 24,4 1056,6 105,7 486,6 2392,5 24,8 4066, ,4 24,4 1117,7 111,8 522,6 2647,3 26,2 4425, ,4 24,4 1179,8 118,0 549,7 2929,3 27,8 4804, ,4 24,4 1237,8 123,8 660,5 3185,6 29,4 5237, ,2 2474,2 1499,2 149,9 720,4 3464,3 31,1 5864, ,4 24,4 1609,7 161,0 762,8 3767,4 32,9 6333, ,4 24,4 1674,9 167,5 807,4 4097,1 34,8 6781, ,4 24,4 1742,5 174,3 840,3 4455,6 36,8 7249, ,4 24,4 1808,4 180,8 972,1 4762,6 38,9 7762, ,1 8907,1 2102,8 210,3 1047,4 5090,7 41,2 8492, ,4 24,4 2236,6 223,7 1097,8 5441,5 43,6 9043, ,4 24,4 2311,3 231,1 1145,7 5816,4 46,1 9550, ,4 24,4 2378,2 237,8 1180,9 6217,1 48, , ,4 24,4 2445,2 244,5 1315,7 6545,4 50, , ,4 24,4 2729,3 272,9 1380,6 6891,0 52, , ,5 6185,5 2834,8 283,5 1466,9 7254,8 55, , ,4 24,4 2982,5 298,2 1519,2 7637,9 57, , ,4 24,4 3056,2 305,6 1573,3 8041,2 60, , ,42 24,4-4924,1 3131,8 313,2 1629,5 8362,8 62, ,0 Notes: 1) 20 % salvage value of road works. Net Present 12 % (000) $9 286,8 2) Equipment economic life likely over by ) Generated traffic benefits build up from 2011 to EIRR (%) 16,21 IKS/RRI 46 TA SHKENT, OCTOBER 2007

54 153. The appraisal of the equipment package has been carried out utilizing the assumption that the equipment will be deployed on periodic maintenance of the international road network. It is assumed that up to 2011, roughness will be reduced from an average of 12 on the A 380 project sections to 3.0. In 2012 and 2013, it is assumed that the equipment will be deployed in reducing the M39 road from a roughness of 12 to a roughness of 3.0. Thereafter, the average roughness of International Road sections programmed for periodic maintenance is assumed to fall from 8 to 3 as a result of the equipment deployment Operating costs of equipment have been adopted from a UZAVTOYUL analysis of hourly operating costs. An enhanced allowance for depreciation has been made in light of the relatively higher capital cost characterizing the equipment being delivered under the Project as compared to the bulk of the current national equipment fleet. A provision for annual insurance premiums at 2 % of the replacement value of the equipment has been included in the annual costs. The equipment cost is reckoned to account for 37.5 % of total reconstruction costs. The equipment is assumed to be working on 3.4 % of the International Road Network per annum. Data from the Transport Sector Strategy has been utilized to estimate total vkm traveled over the International Road network in a year. In the absence of detailed data, the percentage vehicle composition on the A 380 has been applied to International Road Traffic Flows. The savings in the ten years the equipment will be utilized are calculated by RED VOC relationships, given the roughness reductions identified previously Table 6.4 presents the economic appraisal of the equipment package. Table 6.4 Equipment Package Appraisal (US$ million) Table 6.4 Equipment Package Appraisal (US$ million) Year Capital Operating Depreciation, and Insurance Total Costs Benefits NCF % $47.48 IRR (%) Sensitivity Tests Road Appraisal 156. Table 6.5 presents the sensitivity analysis of the road works proposed for km under various assumptions. IKS/RRI 47

55 Table 6.5 Summary of Sensitivity Tests km Variation Variation 12 % (%) (%) (US$ 000) EIRR (%) Capital Cost 0 Normal Traffic ,8 16,21 Generated Traffic 0 Diverted Traffic 0 Capital Cost +20 Normal Traffic ,1 14,12 Generated Traffic 0 Diverted Traffic 0 Capital Cost 0 Normal Traffic ,3 15,54 Generated Traffic 0 Diverted Traffic 0 Capital Cost 0 Normal Traffic ,8 14,61 Generated Traffic -100 Diverted Traffic 0 Capital Cost 0 Normal Traffic ,7 1,84 Generated Traffic 0 Diverted Traffic -100 Capital Cost 0 Normal Traffic ,7 12,69 Generated Traffic 0 Diverted Traffic -20 Capital Cost +20 Normal Traffic ,0 10,08 Generated Traffic 0 Diverted Traffic -20 Capital Cost 0 Normal Traffic ,7 12,69 Generated Traffic -20 Diverted Traffic -20 Source: Consultant s estimate The analysis shows that it is only under extreme conditions such as an increase in Capital Costs of 20 % and a decrease in diverted traffic of 20 %; or, the non-diversion of diverted traffic that the reconstruction of the Section between 876 and 916 km is rendered non-viable. Neither, condition is likely to eventuate given the conservative nature of the Consultant s assumptions Table 6.6 presents the summary of the sensitivity tests carried out in relation to the economic analysis of the section between km 490 and 551. IKS/RRI 48

56 Table 6.6 Summary of Sensitivity Tests km Variation (%) Variation (%) 12 % (US$ 000) EIRR (%) Capital Cost 0 Normal Traffic ,4 30,04 Generated Traffic 0 Diverted Traffic 0 Capital Cost +20 Normal Traffic ,5 26,46 Generated Traffic 0 Diverted Traffic 0 Capital Cost 0 Normal Traffic ,5 26,34 Generated Traffic 0 Diverted Traffic 0 Capital Cost 0 Normal Traffic ,3 22,77 Generated Traffic -100 Diverted Traffic 0 Capital Cost 0 Normal Traffic ,1 20,20 Generated Traffic 0 Diverted Traffic -100 Capital Cost 0 Normal Traffic ,9 22,49 Generated Traffic 0 Diverted Traffic -20 Capital Cost +20 Normal Traffic ,3 22,95 Generated Traffic 0 Diverted Traffic -20 Capital Cost 0 Normal Traffic ,9 22,49 Generated Traffic 0 Diverted Traffic -20 Source: Consultant s estimate It can be seen from Table 6.6 that the reconstruction of the Section between km 490 and 581 remains viable under all sensitivity tests Sensitivity Analysis of Equipment Package 160. The sensitivity analysis for the economic criteria of the equipment component is shown in Table 6.7 for various combinations of capital cost and total cost variations of ± 20 % on the one hand and similar variations of benefits on the other hand. The NPV and EIRR are greater than required values of 0.0 and 12 % respectively in all cases except those combining capital or total cost increases of 20 % and benefit decreases of 20 %. IKS/RRI 49

57 Table 6.7: Summary of Sensitivity Analyses of Equipment Package NPV (US$ 000) ±20 % Capital Costs Total Costs Domestic Total Benefits Benefits No +20 % -20 % Variation +20 % % % % % % Domestic Total IRR (%) Benefits Benefits No Variation Capital Costs Total Costs Source: Consultant's estimates. 6.3 Switching Values Road Works 161. As regards capital costs, an increase of 220 % would be required to render the Khorezm section from km non-viable. An increase in total cost of 180 % would be required for non-viability. A similar result is obtained when benefits decrease by 64 %. Even if there were no diverted traffic from the Northwest road route and the rail line, the reconstruction of the section remains viable For the Karakalpakstan section between km 876 and 916, a 28 % reduction of benefits would render the project uneconomic, as would an increase in the capital cost of 47 %. If less than 39 % of the assumed diverted traffic diverts to the road, then the reconstruction of the section is non-viable Equipment Component 163. The switching value analysis indicates that it would require an increase in the capital cost of the equipment of 107 % to render the acquisition of the equipment non-viable. A 33 % reduction in benefits would have the same impact. IKS/RRI 50

58 SECTION 7: FINANCIAL MANAGEMENT ISSUES AND FINANING PLAN 7.1 Administration of Financial Management Assessment Questionnaire Road Fund 164. It is concluded that the Road Fund currently meets ADB s minimum financial management requirements for EAs. The Road Fund has satisfactory financial management capability to (i) record required financial transactions and balances, (ii) provide regular and reliable financial statements and monitoring reports, (iii) safeguard the financial assets. A summary of FMA findings is in table 8.1. Particulars A. Executing Agency B. Funds Flow Arrangements C. Staffing D. Accounting Policies and Procedures E. Internal Audit F. External Audit G. Reporting and Monitoring H. Information Systems Source: PPTA consultants Table 7.1: Summary of the FMA Conclusions Road Fund is a separate entity that is accountable to the Ministry of Finance (MOF) of the Republic of Uzbekistan. Road Fund is well experienced in managing and implementing large scale projects. However, it has not previously implemented any project with participation of international financial institutions/multinational development banks. Entities funds flow arrangements are reliable, predictable and secure. Road Fund has enough capability to work under the proposed funds flow arrangements acceptable to ADB. For the Regional Road Project funds flow arrangements are identified in consultation with Road Fund representatives. Road Fund is well staffed with experienced financial specialists. Since the proposed Project Implementation Unit (PIU) scheme requires additional hire for the Project, it is recommended that trainings and workshops on ADB financial management procedures be provided. It is expected that on-the-job trainings provided by the PIU staff of other ongoing projects will also be beneficial. The Road Fund s accounting policy is based on the Uzbekistan National Accounting Standards, which are progressively being modernized in accordance with International Accounting Standards. For the Regional Road PIU, separate accounting policy and financial management manual will be established in accordance with requirements of ADB and the MOF of Uzbekistan. There is no internal audit unit within the structure of the Road Fund. The Road Fund is audited annually by Chamber of Accounts. In case of other projects in the country, PIU is audited by independent external auditors on an annual basis. If stipulated in the loan agreement, audit of the project accounts will be done in accordance with the International Standards on Auditing (ISA), which complies with the requirements of ADB. The Road Fund reports comply with the reporting requirements of the MOF, the Ministry of Economy (MOE), the State Tax Committee, and other government bodies. Acceptable reporting requirements for the proposed PIU shall be stipulated in the Loan Agreement between ADB and Government of Uzbekistan The Road Fund operates accounting system 1S Accounting budget module. Reports are prepared with help of the program and using spreadsheets. 1S Accounting is not costly and not complicated system, which can well suit the requirements of the Project, although some reports cannot be automatically generated. Many ADB financed projects in the country are using this system. IKS/RRI 51

59 A. Introduction 165. The purpose of the present financial management assessment (FMA) is to study the financial management capacity of the Republican Road Fund under the Ministry of Finance of the Republic of Uzbekistan (Road Fund), the Executing Agency for the implementation of the proposed ADB-financed Regional Road Project Within the frame of the FMA, followings were undertaken: review of the EAs structure and management framework with regards to financial management, assessment of the Road Funds resources, including its personnel, the sources of income, its information technology equipment and software, etc. Consequently, analyses of the EA accounting, reporting, auditing, internal control systems, information systems, and capacity of the personnel were carried out. Additional follow-up interviews, discussions with authorities, international financial institution s representatives, reviews of relevant national legislation and supporting documents were conducted The FMA is based on ADB s Financial Management and Analysis of Projects (2005). The instrument used for assessment was ADB s standard financial management assessment questionnaire (FMAQ), carried out in June 2007 and is in Appendix 3. B. Project Description 168. The Project will (i) reconstruct 131 kilometers (km) road sections of A-380: Guzar Bukhara Nukus Dautata (Uzbekistan/ Kazakhstan border); (ii) establish Road Equipment Management Unit (REPC) with a set of equipment purchased under the Project; and (iii) introduce at the Road Fund a comprehensive road sector planning and management system and conduct studies on road sector financing and road sector institutions The Project will have three components: (i) road construction component; (ii) road equipment component; and (iii) advisory support component for introducing a comprehensive road sector planning and management system, establishing of a road construction equipment unit, and procurement of civil works, consultants, and equipments. C. Country Issues 170. The existing practices of financial management and reporting including budget preparation, allocation, accounting, reporting and auditing in Uzbekistan and the Road Fund for the proposed loan, have been summarized in the context of ADB s loan requirements. Law on Budgetary System 18 regulates the budgeting process in Uzbekistan. This law provides the legal basis for preparation, review, approval and execution of the state budget. In the state budget, organizations are entitled to budgetary allocation through provincial administrations, state-trust-in funds and republican funds. MOF prepares the draft budget after compiling all the draft budgets and submits it to Cabinet of Ministers (COM) for approval by September 15th. COM after reviewing it finally submits the budget to Oliy Majlis 19. In case of Projects financed jointly with International Financial Institutions (IFI), PIU is responsible for providing forecasted project budget for the subsequent year to the MOE for approval in May of the current year. Structural chart on budget formulation and approval is presented in Appendix National accounting and financial reporting system rationalization in Uzbekistan started with, State Program on Transition into International Accounting Standards (IASs) in The legal basis of accounting and financial reporting was established by Law of the Republic of Uzbekistan No on Accounting dated 30 August Subsequently, 18 Law of the Republic of Uzbekistan No. 158-II on Budgetary System dated 14 December 2000 and amended on 23 May Parliament of the Republic of Uzbekistan IKS/RRI 52

60 National Accounting Standards (NAS) were formulated, which define the general accounting principles, roles and responsibilities of organizations, accounting practices and procedures, and financial reporting requirements in Uzbekistan In Uzbekistan in the early 90s, internal control revision departments of the government agencies were dismantled, partly because of ineffective operations of these departments, and partly because of the budgetary restrictions. The institution responsible for internal financial control is the Control and Revision Department (CRD) of MOF. It is the organization that is closest in concept to Supreme Audit Institution. Control and monitoring on the compliance with budget discipline at republican and provincial levels is the main administrative task of the CRD. D. Risk Analysis 173. During the implementation phase, the proposed project implementation unit might face some risks that can generally be divided in two main categories for the purpose of this review: (i) country level; and (ii) organization / project level. Unavailability or delay in disbursement of counterpart funds and weak public procurement legislation can be attributed as major country specific risks for the project Experience of other externally financed projects in the country reveals that availability of counterpart funds is subject to seasonal or local fluctuations in revenue generation and control of cash flows. Therefore, a risk of counterpart fund releases exists, which can often be late or sometimes not disbursed at all. Therefore written guaranties at MOF and Road Fund level are required to ensure the timely disbursement of funds Public procurement procedures and practices, legislative and institutional framework, and its control are found to be vulnerable in Uzbekistan. Even after one and a half decades some features of Soviet system of public procurement, which are characterized by absence of competitiveness, transparency and reliability, remain in the republic In the country, for ADB-financed projects, in general, foreign consultant is invited for the establishment of procedures and preparation of procurement documentation. On the basis of framework created by foreign expert project implementation units manage further procurement transactions. Furthermore, ADB makes procurement guidelines and manuals available, and regularly conducts training courses and seminars on procurement to the PIU staff, and the Government officials involved in the project implementation. Seminars on Project Implementation and Administration and Use of Consulting Services include trainings on appropriate procurement procedures. As a result, executing and implementing agencies personnel are found to be informed about ADB procurement requirements and guidelines. Inherent Risk Risk Risk Assessment* 1. Country-specific Risks M 2. Entity-specific Risks M 3. Project-specific Risks N Overall Inherent Risk M Control Risk Risk-Mitigation Measures Written guaranties at MOF and Road Fund level are required to ensure the timely disbursement of counterpart funds Proposed institutional and procurement arrangements need to be stipulated in the Loan agreement Lack of the experience of the Road Fund in implementing ADB financed projects will be compensated by creating necessary PIU IKS/RRI 53

61 Risk Risk Assessment* 1. Implementing Entity M 2. Funds Flow M 3. Staffing M 4. Accounting Policies and Procedures 5. Internal Audit N 6. External Audit H H Risk-Mitigation Measures Organizational capacity augmentation with the induction of new staff at the PIU is proposed to support the existing organizational structure Timely availability of counterpart funds will be ensured by implementing the proposed funds flow arrangements Dedicated accounting and financial management staff at PIU level is required. The minimum qualification required for such personnel are bachelors and masters in commerce and accounting with at least three years of work experience preferably on an externally agency funded project in Uzbekistan. Project supervision consultant will assist the Road Fund to determine training needs of the new staff. It will assist them to design and implement the training program especially for ADB financial reporting requirements and their integration into overall national financial reporting requirements as per NAS and other statutes. Accounting Policy should be drafted taking into account the national accounting standards and the requirements of ADB. Internal commission can be activated for PIU or an internal auditor should be appointed especially for PIU by the Road Fund, conditioned to the agreement by ADB and Road Fund. Audit of the project accounts should be done in accordance with the International Standards on Auditing, by the Auditor acceptable to ABD. Three of major four international auditing companies have local offices in Uzbekistan. 7. Reporting and Monitoring H Project implementation unit will be required to report in accordance with ADB requirements with inherent adequate control mechanisms 8. Information Systems S Program 1S-Accouting should be installed at PIU for the project needs Overall Control Risk S * H High, S Substantial, M Moderate, N Negligible or Low. Source: PPTA consultants E. Executing Agency and Implementing Entities 177. The Republican Road Fund under MOF is a Government fund, operated under Regulations 20 issued by the President of Uzbekistan. In carrying out its activities, the Fund is 20 Appendix 2 to the Resolution of the Resolution of the President of the RU No PP-499 of 25 November 2006 on Regulation on Republican Road Fund under the Ministry of Finance of the Republic of Uzbekistan IKS/RRI 54

62 accountable to the MOF. Funds main purpose, functions, its rights and obligations, and organizational arrangements were approved by the same resolution The Road Fund was instituted in 2003 by the Decree of the President of Uzbekistan. The purpose of the fund is to accumulate and effectively utilize funds for financing the projects for developing roads networks and their operations and maintenance. Main functions of the Fund consist of followings: Formulating the annual and quarterly balance of income and expenditures of the Fund. The Road Fund develops and presents to the MOF drafts of the annual income and expenditures statements forecasts. Together with State Taxation Committee and State Customs Committee takes measures to ensure the full and timely receipt of contributions and fees of the Fund. Together with MOE, MOF and SJSC Uzavtoyul approves the list of projects to be included in the state budget. Verifies the design documentation of road construction and maintenance projects and is involved as a customer of the construction. As a part of this process, organizes competitive biddings and enters into agreement with contractors. Based on budget, finances the projects and carries out financial and technical control In the Regulations, there are no restrictions on cooperation of the Road Fund with foreign partners Supreme management body of the entity is the Fund Management Board, members of which are appointed by the Resolution of the COM. Executive function of the Road Fund prepares the statements on income and expenditures of the Fund, which after approval by the Management Board is presented to the MOF. Fund is headed by executive director appointed by the COM For the implementation of Regional Road Project establishment of new PIU at central level is proposed. At this stage organizational structure of the PIU is not finalized, but it is planned to be created on the basis of previous ADB financed project implementation experience in Uzbekistan. F. Funds Flow Arrangements 182. The Road Funds income is generated from: (i) obligatory contributions made by companies and fees paid at the registration of vehicles in local currency; and (ii) fees for entering the territory of Uzbekistan by vehicles from abroad in foreign currency. Rates of the collections and fees are set by the Presidents Resolution annually in December for upcoming year. Comparative data on types of the fees and collections for the last 4 years is provided in Appendix Contributions and fees to the fund are paid by entities on a monthly based on the estimates presented to the local Taxation administrations. Taxation administration on 1 st of every month sends report to Road Fund on accrued and received income and accounts receivable and advances received During the last years income of the Road Fund has been increasing steadily, more specifically by 22% and 32% in years 2005 and 2006, respectively. Information on the income for the last 3 years is provided in table 8.2. IKS/RRI 55

63 Table 7.2 Income of the Road Fund in million UZS Particulars Year 2004 Year 2005 Year 2006 Income 168, , ,498.9 Annual Increase 22% 32% Source: The Road Fund 185. Funds expenditures are allocated through following entities: a. The Road Fund for design, construction and repairs of the roads of international importance b. Single Customer Service of regional administrations for design, construction and repairs of the roads of local importance c. SJSC Uzavtoyul for O&M and current repairs of the roads and for purchasing of the necessary equipment 186. At Road Fund all budgets are made based on allocated budget and forecasted income; and the information received from the Road Fund suggests that actual results of received income usually exceed the forecasts Taking into account the lessons learned from externally financed projects being implemented in Uzbekistan and consultations with Road Fund representatives appropriate funds flow arrangements for the Road Reconstruction Component of Regional Road Project have been identified and given in table 8.3. Funds flow arrangements for the Equipment Component are comprehensively reviewed in the section devoted to Road Equipment Pool Company (REPC). Table 7.3.: Fund Flow of Road Reconstruction Component Ministry of Finance ADB Direct payment Road Fund PIU Counterpart funds - Contractors - National/Foreign Consultant Flow of funds Lending Loan Repayment 188. For large scale contracts, payments are released either directly by ADB or it can be made through the account of the Road Fund. Whereas counterpart financing schedule is annually approved by the resolution of the COM. Based on this, Road Fund transfers counterpart funds to the accounts of contractors, suppliers and local consultants In case of Regional Road Project, the Road Fund will establish sub-account for the PIU, so all counterpart funds may be transferred through these accounts. IKS/RRI 56

64 190. During the implementation of previous projects, PIUs came across delays in counterpart funding in settlement of payment requests of the contractors and suppliers tendered at the local level. This is related to: (i) inappropriate practices of PIU in sending the request for funds to the MOF; (ii) unavailability of cash contributed at local levels, which came as a result of failure in assessment of the financial condition of local beneficiaries during the project preparation. However, in case of Regional Road Project, it is not expected to face such delays in counterpart funding, since counterpart funds are distributed centrally by the Road Fund The Road Fund is not experienced in managing foreign exchange risks. MOF needs to be consulted regarding this issue prior to the loan agreement. G. Staffing 192. For the Regional Road Project, establishment of PIU is still in early stages. However, EA should start identifying the appropriate personnel for the project As for staffing the project with adequate financial personnel, it is proposed to assign one accountant who will be also doing the functions of the financial specialist, who can meet the project needs even after commencing in full scale operations Since the Road Fund has no experience in managing the projects financed by ADB or foreign institutions, its personnel is not aware of financial management and reporting standards of ADB. Therefore, in selecting the project financial personnel through tendering, special attention should be paid to the experience of the staff with international financial institutions. Project accounting and finance staff is expected to be trained in ADB procedures Usually, it is practiced to contract the PIU personnel for the duration of one year, which is prolonged for the subsequent year if the satisfactory performance of the staff is confirmed Preliminary organizational of the proposed project implementation unit is as follows: HEAD OF PIU OF REPUBLICAN ROAD FUND CONSULTING SERVICES OF ADB DEPUTY HEAD OF PIU International Procurement Expert Financial expert Road engineer Mechanical engineer Local Procurement Expert Local Procurement Expert TRANSLATOR/ INTERPRETER SECRETARY/ ADMINSTRATOR DRIVER IKS/RRI 57

65 H. Accounting Policies and Procedures 197. Accounting System, Policies and Procedures. The Road Fund and proposed PIU use accrual method of accounting in their regular and project operations. The accounting system of the Fund, as well as of all state and private legal entities in Uzbekistan, is based on the NAS, which has being developed based on IAS and the national accounting guidelines of the MOF. As it is practiced in other ADB financed projects, PIU shall develop project accounting manual in accordance with ADB and MOF requirements. The manual shall be updated annually to include project accounting policy changes issued by the MOF. The PIU shall follow the procedures stipulated in ADB s Financial Management and Analysis for Projects (2005). Chart of accounts based on NAS 2121 will be applied by the PIU, which is given in Appendix All reports and supporting documents on all transactions will be stored and retained by the project accountant until documents are inspected by state controlling agencies (Tax Inspection, MOF, Chamber of Accounts), after which documents are kept in archive Clear segregation of duties shall be implemented at PIU, and job descriptions should provide for that. The project manager is authorized to execute the project transactions. The project financial expert/accountant handles recording of the transactions. Depending on circumstances project accountant or office manager should bear the responsibility for the custody of assets per transaction. Payments are approved and made by project manager and accountant. In order to increase the transparency, practicing double checking system (i.e. requiring the documents to be signed by two persons) for bank reconciliations is found to be the best alternative, since the number of PIU accounting personnel is limited in the case of non-revenue earning projects Budgeting System. The Road Funds and PIUs budgeting systems will be separate, also budget of the latter will be included in consolidated budget of the Road Fund. Budgeting procedures for public institutions is described above in part C. The project budgets will be prepared annually by the financial specialist in consultation with PIU head. PIU develops detailed budget that set annual physical and financial targets. The budget is to be presented to ADB, the Road Fund, MOE, which after approval, is submitted to MOF for final approval During the budget execution, actual expenditures are compared with planned expenditures on a monthly and quarterly basis, and report on analysis of variations is prepared. Significant variations need to be approved prior to the ascertainment of the fact. Project financial specialist (accountant) will be responsible for budgeting, monitoring and controlling the execution of the budget Payments. All project payments are made with payrolls through bank transfer. In accordance with national accounting procedures, payroll is stamped (PAID) and assigned an accounting code. Payrolls prepared by the accountant are checked by the project manager Cash and Bank. PIU head and the project accountant shall be duly authorized signatories to all project-bank transactions. Cash is deposited to the project accounts leaving minimal amounts necessary for the office operations. For the proposed project, it is recommended to install accounting software 1S Accounting, which allows to maintain the cashbook in the electronic system. Bank reconciliation is undertaken at the end of each month or at any time as, if necessary Safeguard over Assets. The Road Fund and PIU shall assure that sufficient controls are undertaken over project assets, and safeguards are undertaken to protect assets from fraud, waste and abuse. Annual physical inventory of all stocks and materials must be 21 Decree of the MOF on Approval of the National Accounting Standard of the RU (NAS 21) IKS/RRI 58

66 carried out as per the requirements of NAS. Fixed assets inventory is required every two years. Stock-taking is also practiced when chief accountant or office manager is replaced. I. Internal Audit 205. As it is mentioned above, there is no internal audit unit in any government ministry or entity in Uzbekistan. Road Fund also does not have a department for conducting internal audit of either Funds or project operations in the future Control Revision Department 22 (CRD) of the MOF is the equivalent form of Supreme Audit Institution, which carries out internal audit of State entities once in a two-year period. CRD is mainly concerned with inspecting the compliance of the entities with budget rules and regulations. However, CRD does not conduct value-for-money analysis and department is not involved in identifying the gaps in internal control systems and strengthening them, which are the essential features of modern internal audit. J. External Audit 207. State agencies are not required to undergo external auditing, but the Road Fund is annually audited by the Chamber of Accounts of Uzbekistan. The PIU to be created under Road Fund will be subject to annual external audit. In other ADB financed projects, external auditors are selected based on competitive bidding process in accordance with ADB requirements 23. For the Regional Road Project, external auditor shall be required to apply international standards on auditing. EA expects Terms of Reference (TOR) for auditing services to be prepared by the financial specialist of the PIU to be created at beginning of project implementation The project is subject to central Government audit by MOF only at project completion, unless any major accountability issue is raised that would warrant it sooner PIU shall (i) maintain separate accounts for the Project, and (ii) have such accounts and related financial statements audited annually by independent auditors acceptable to ADB and in accordance with the provisions of the Loan Agreement to be signed and as specified in the ADB guidelines The SOE records will also be audited as part of the annual audit. PIU will submit to ADB certified copies of such audited accounts and financial statements, and the related reports of auditors, within 6 months of the close of every financial year. K. Financial Reporting and Monitoring 211. Road Fund financial reporting follows the NAS procedures and requirements. The project financial statements should be prepared using a computerized accounting system and in spreadsheets and submitted to MOF, MOE and ADB on monthly, quarterly and annual basis. The quarterly project progress reports to be prepared following ADB formats highlight the physical accomplishments and financial progress. Spreadsheet analysis and reports are prepared to adapt to special and supplementary reporting requirements Types of the reports required by the ADB will be provided to the PIU together with ADB instructions and policies. List of the reports required by ADB, their frequency, due submitting dates are summarized in table 8.4 below. 22 Discussed in more detail in Uzbekistan: Country Diagnostic Studies Review 23 There are more than 500 registered auditing firms in the county, including such multinationals as PWC, E&Y, Deloitte & Touche IKS/RRI 59

67 Table 7.4. Summary of Required Financial Reports to be prepared and submitted by PIU Report Frequency Basis Duration Due date Project expenditures forecast Semiannual Annual Term of project Every 6 months after commencement of loan project Operation plan Annual Annual 12 months January 10 QP-01 Annual Quarterly 12 months January 10 Project expenditures report Monthly, Quarterly, Annually Monthly, Quarterly, or Annually Monthly, Quarterly, or Annually Monthly Audited annual financial statements Annual Annual Annual Source: summary of ADB guidelines and instructions L. Information Systems September 1 of the subsequent year 213. The Road Fund operates accounting program 1S Accounting, however the system does not have all features of the contemporary management information system. For the PIU under Road Fund, it is proposed to make use of the same program, which has enough capacity to meet the requirements of the project. The system enables the PIU to (i) respond to operational and project-related queries pertaining to specific accounts, and (ii) prepare financial reports on the transactions that occurred in the reporting period. The accounting system is capable of generating financial reports for both external and internal use. For some types of reports, PIUs will make use of spreadsheets. The Road Fund gave assurance on confidentiality of the financial information. M. Conclusions 214. Overall, the FMA rated the Road Fund as an EA, and its financial management, reporting and monitoring systems satisfactory. Road Fund shall ensure the project unit to be adequately staffed with efficient and experienced personnel. Newly created PIU should pay special attention to train the project staff in procedural and reporting requirements of ADB. Road Fund welcomes further training to enhance the staff professional capacity Accounting and financial reporting practices of the Road Fund are found to be reliable. Accounting policy of the PIU is to be established following both national and ADB regulations, which are not contradictory. Since in the case of non-revenue earning projects number of accounting and financial personnel is limited, reliability of the accounting documentation will be ensured by the current system of authentication that requires double signatures (i.e. signing by two persons) for the most of the accounting documents. As it is practiced with other PIUs operating in the country, Regional Road Project financial reporting will be computerized, and it will not necessitate any changes in Road Fund financial reporting system There is no department within the structure of Road Fund responsible for internal audit. The Fund is audited by the Chamber of Accounts annually. For the projects being implemented in Uzbekistan jointly with IFI, external annual audit is carried out in line with external donor institutions requirements. N. Financial and Other Covenants (i) Road Fund and MOF should ensure timely availability of counterpart funding as per project financing plan IKS/RRI 60

68 (ii) Foreign consultant should be invited for the establishment of procedures and preparation of procurement documentation (iii) Annual audit of the project accounts should be done in accordance with the International Standards on Auditing, by the Auditor acceptable to ABD (iv) Road Fund should ensure that a satisfactory financial management system including financial management and reporting and auditing is maintained throughout the duration of ADB funding. 7.2 Financing Plan and Financial Analysis Financing Plan 217. The financing plan is shown overleaf. The proposed ADB financing of $82.5 million represents 47.4% of the total project cost and will finance the direct and indirect foreign exchange cost, interest and other charges during construction. The Government will provide the remaining local currency costs of $91.5 million ADB will provide a loan of $82.5 million from ADB s ordinary capital resources to help finance the civil works for the Project, road equipment, and consulting services. The loan will have a 24-year term, including a grace period of 4 years, an interest rate determined in accordance with ADB s London interbank offered rate (LIBOR)-based lending facility, and a commitment charge of 0.35% of the Loan per annum. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB The Government will relend the proceeds of the ADB loan for the equipment to the REPC in local currency with additional 0.2% spread on the terms and conditions as the ADB loan to the Government. The Government will assume the foreign exchange risk. IKS/RRI 61

69 Table Cost Estimates and Financing Plan Cost Estimates ($ million) Financing Plan ($ million) Asian Development Bank Government Item Foreign Local Foreign Local Subtotal Exchange Currency total Foreign Local Sub- Total Exchange Currency Exchange Currency A. Investment Costs 1. Civil Works Road Construction Equipment Consulting Services A. Procurement Specialist B. Project Management and Supervision C. Establishment of Equipment Pool D. Road Planning and Management System Sub-total (A) B. Incremental Project Cost C. Taxes and Duties D. 1. Physical Price Sub-total (D) Total before Financing Charge E. 1. Interest during implementation Commitment charges Front end fees Sub-total (E) Total Project Costs Cost Composition 46.3% 53.7% 100.0% 47.4% 52.6% IKS/RRI 62

70 220. Table 7.6 shows the incremental costs of project works and project financing to the Road Fund. These costs include incremental routine maintenance costs which are higher than the amounts projected by the Road Fund on a per km basis. Capital costs, periodic maintenance costs, interest during implementation, commitment fees, repayment of principal and interest due over the payback period. IKS/RRI 63

71 Year Capital Expenditure Road Table 7.6 Incremental Financial Analysis of Road Fund Project and Financing Expenditure Equipment Periodic Maintenance Routine Maintenance Advisory Services Plus Incremental Project Cost Total Incremental Project Expenditure Interest During Construction Commitment Fee Repayment of Principle Interest on Remaining Balance Total Expenditure Loan IKS/RRI 64

72 SECTION 8: PRELIMINARY PROJECT IMPLEMENTATION ARRANGEMENTS 8.1 The Executing Agency 221. The Republican Road Fund (the Road Fund) will be the executing agency (EA) for the Project. Project Implementation Unit (PIU) under the Road Fund will be headed by a Head of PIU, acceptable to ADB, who is a qualified civil engineer with experience in the road sector. The Road Fund will ensure that during the entire period of project implementation, the PIU is adequately staffed with qualified engineering, financial, administrative, and secretarial staff, and equipped with the necessary office space, equipment, and facilities. 8.2 Project Implementation Unit (PIU) 222. The Road Fund will appoint Head of PIU responsible for implementation of the (i) Road Construction Component, (ii) Road Equipment Component and Advisory Support for Establishment of REPC, and (iii) Advisory Support for Road Sector Planning and Management System. On item one the Head of PIU would coordinate the work through contact officer who is the head of department for technical inspection of road construction in Road fund. On item two the contact officer would be the head of mechanical department of Uzavtoyul and on item three the work would be coordinated through the contact officer who is the head of department for developing yearly and mid term road construction programs and conducting biddings for civil works of the Road Fund PIU shall be established in the central office of the Republican Road Fund under the Ministry of finance as structural unit to implement the project. PIU shall not be a separate legal entity with its bank account and will rather serve as a separate department of Republican Road Fund to ensure Project completion successfully The proposed project implementation arrangements are in Appendix Main responsibilities of PIU 225. The main responsibilities of the PIU on implementing the Project are; Planning the Project; Coordination of the Project team up all the participants of the Project, (Government, Executing Agency, Implementing agency, Bank, Consultants, Suppliers and Construction companies) into one distinctly functioning unit; Staffing and planning of the Project Hiring and training the appropriate staff; Project implementation Management of all aspects of Project activities and implementation; Control on the management of the Project application of control system on cost, schedules, technical quality of the work and reporting procedure as well as submitting the reports to the Bank on the activities in accordance with requirements of Loan and Project agreements and Bank s rules; Management of procurement ensure that all the requirements on inspection and testing indicated in various contracts are met; Communication with the Project setting up the procedure of interaction and cooperation with other organizations and parties involved in the Project as well as with the Government departments of the Borrower; Regulating the conflict resolution of disputes between the participants of the Project in accordance with the agreements and contracts; Management of changes control on changes and functioning of the progress of the Project; IKS/RRI 65

73 Financial management o the Project allocation of funds, cost control, support of effective system of accounting, preparation of financial reports for the Bank in accordance with Loan and Project agreement; Compliance with the covenants of Loan and Project agreement; Transferring and acceptance of the project preparation of procedures and recourses for transferring it after its completion. 8.4 Consulting Services 226. International consultants in association with national consultants will be selected and engaged using ADB s quality and cost-based selection procedures in accordance with Guidelines on the Use of Consultants by the Asian Development Bank and its Borrowers (2007 as amended from time to time) An international consulting firm in association with national consultants will provide support for bidding, design review, and supervising construction of 6 civil works packages. An international consulting firm in association with national consultants will provide advisory for establishing the Road equipment pool company (REPC). Another international consulting firm in association with national consultants would also be recruited to carry out advisory services for road sector planning and management system Detailed engineering design is being undertaken by locally recruited consultants and financed from the Road Fund resources. The Road Fund will also engage a procurement specialist with external funded projects experience to help implement advance action for procurement of contractors and consultants The international procurement consultant whose services will be financed by ADB (Bank) shall work in PIU to strengthen its procurement capability. It is anticipated that an international expert will be required to assist in project procurement and offer on the job training including seminars on selected procurement topics to PIU staff. Usually it is practiced to contract the international consultant for the duration of one year, which is prolonged for the subsequent year if the satisfactory performance of the consultant is confirmed. The international procurement expert shall be hired by Road Fund prior to loan becomes effective who would consequently help Road Fund PIU to hire other consultants and procurement of goods and services The proposed tentative contract packages are as follows. Table 8.1: Proposed Consulting Service Package Consulting Service Package Estimated Contract Value ($ Thousand) Procurement Mode a Number of Contract CSP-1 Project Management and Supervision 2,453.0 Firm 1 Establishment of REPC Firm 1 CSP-3 Road Sector Planning and Management 1,692.2 Firm 1 INV-1 Procurement Specialist Individual b 1 a Consulting services will be conducted by international firms in association with national consultants that will be selected using international competitive bidding b Retroactive financing. CSP=consulting service package. INV=individual consultant. IKS/RRI 66

74 8.5 Advance Contracting and Retroactive Financing 231. It is highly recommended to have advance contracting for procuring goods and services which could be done through retroactive financing of up to 20% of the loan amount provided that expenditures are in accordance with ADB agreed procedures and it should take place during the 12 months before the signing of the loan agreement. Retroactive financing is sought for eligible expenditures including civil works, goods, and consulting services. Such financing will be subject to safeguard compliance. Furthermore, the Road Fund should be informed that approval of advanced contracting and retroactive financing does not commit ADB to finance the proposed project. Such retroactive financing shall be applied in this project for hiring procurement expert and preparatory civil works on two packages of civil works contracts. 8.6 Implementation Period 232. The Project will be implemented over 4 years inclusive of procurement and construction activities and is expected to be completed by 31 December The implementation schedule is in Appendix 9. IKS/RRI 67

75 SECTION 9: PROCUREMENT PLAN 9.1 Procurement for Road Construction Component The Project will comprise the road reconstruction of the following 2 sections of the A380 to meet 2 lane international design standard with 4-lane road bed within the existing right-of way: (iii) (iv) Section 1: Km (40 km) in Kungrad District of Karakalpakstan Autonomous Republic. Section 2: Km (91 km) in Khazarasp District of Khorezm Province and Tortkul District of Karakalpakstan Procurement of civil works, and related services financed from the ADB loan will be done in accordance with ADB s Guidelines for Procurement. To ensure competitive bidding, international competitive bidding (ICB) contract packages will be adopted. Civil works contracts will be procured through ICB among pre-qualified bidders. Civil works contracts with an estimated value less than $2 million will be procured using national competitive bidding through ADB s standard prequalification procedure. Supply contracts will use limited international bidding for contracts with an estimated value of $100,000 1,000,000, and shopping arrangements for contracts of less than $100,000. Goods in excess of $1 million will be procured through ICB. The procurement plan is in Appendix The Project involves 6 ICB contract packages for road civil works. Furthermore, to enable bidders to prepare proposals quickly, the bidding period has been reduced to 45 days In order to ensure on time implementation of Governments road program for the period of , it is recommended to split packages one and two into preparatory works and reconstruction works. Given some limited time, the procurement of preparatory civil works on package one and two shall be carried out using national competitive bidding and actual reconstruction work shall be carried out on these two packages using international competitive bidding. The proposed tentative contract packages are as follows. Package Table 9.1: Proposed Civil Works Length (km) Estimated Contract Value a ($ Million) Procurement Mode Financing CWP-1A: Km NCB Retroactive CWP-1B: Km ICB Project CWP-2A: Km NCB Retroactive CWP-2B: Km ICB Project CWP-3: Km ICB Project 4: Km ICB Project 5: Km ICB Project 6: Km ICB Project Total: 90.7 ICB = international competitive bidding, Km = kilometer, NCB=national competitive bidding, CWP = civil works package. a Including physical and price contingencies, but not including interest during construction. IKS/RRI 68

76 9.2 Procurement of Road Equipment Component The Project will finance the procurement of a set of road equipment to be managed by a Road Equipment Pool Company (REPC). The company will be set up as an independent commercially-operated state-owned enterprise. REPC will provide services for utilizing the equipment to be procured under ADB financing on a full cost recovery basis. Advisory assistance support will be provided to establish the REPC as a viable and sustainable enterprise. This will include developing a business plan; an equipment service provision system; introducing proper administrative, accounting and financial procedures; identifying workshops, stores, and equipment operations manuals; establishing equipment hire charge system; and providing on the job training for operators and workshop personnel Procurement of Road Equipment and related services financed from the ADB loan will be done in accordance with ADB s Guidelines for Procurement. To ensure competitive bidding, international competitive bidding (ICB) contract packages will be adopted The equipment list provided by Uzavtoyul includes 4 complexes of road construction equipment for works with asphalt laying, one complex of road construction equipment for works with concrete laying and two complexes of bridge construction equipment. Accordingly the packaging of contracts of equipment to be procured under the project was therefore done by Uzavtoyul based on these complexes The proposed tentative contract packages are as follows. Table 9.2: Proposed Packages for Road Equipment Package Quantity Estimated Contract Value ($ Million) Procurment mode CP-1: 58 10,4 ICB CP-2: 10 4,3 ICB CP-3: 37 7,4 ICB CP-4: 58 10,4 ICB CP-5: 58 10,4 ICB CP-6: 58 10,4 ICB CP-7: 20 1,6 ICB TOTALS 55,1 IKS/RRI 69

77 SECTION 10: PROJECT DESIGN AND MONITORING FRAMEWORK DESIGN AND MONITORING FRAMEWORK Design Summary Impact Performance Targets/Indicators By 2018: Data Sources/Reporting Mechanisms Assumption Assumptions and Risks Increased trade growth Outcome Increased gross domestic product from $9 billion (est. 2007) to $17.5 billion Increased external trade with Russia, Kazakhstan, and Ukraine from $4.2 billion (2006) to $10.5 billion By 2013: National socioeconomic statistics from the Central Statistics Office Government sustains policies conducive to economic growth and committed to enhanced policy reform and regional integration. Assumptions Improved traffic operation on the reconstructed regional road (A-380) Improved road sector management and efficiency Outputs Newly reconstructed road sections of A380 between Guzar and Dautata border REPC established Increased total traffic volume of A380 in Karapakalstan from 360 vehicles per day (vpd) in 2007 to 800 vpd and in Khorezm from 1,900 vpd to 3,600 vpd Increased number of crossborder trucks on A380 (Daudata Custom Post) from 10 trucks/day (2007) to 17 trucks/day Accident rate reduced by 10% on A-380 Road financing plan prepared by the newly developed system. REPC s financial performance improved. Recommendations under road sector institutional strategy implemented. By 2011: 131 km road reconstructed on time, within budget, and meeting technical specifications Pavement international roughness index of less than 3 m/km. Guidance for development of the equipment unit prepared. National, provincial, and district socioeconomic statistics from the Central Statistics Office ADB s project completion report and project performance evaluation report Periodic traffic counts and surveys Freight Forwarder Association Statistics ADB s project performance evaluation report Financial statement ADB s project performance evaluation report Government Resolution. ADB s project performance evaluation report Consultants progress reports ADB review missions Increased availability and quality of transport services following improvement of the project road. Improved cross-border facilities and procedures at the border point between Uzbekistan and Kazakhstan. Mobile scan is in place by the State Custom. The Road Fund continues reconstructing the remaining sections of A380 as scheduled. Risk Inadequate financial resources for road maintenance. Assumption Government commitment to further reform the road sector and adopt good governance and cost recovery principles. Assumption Timely provision of counterpart resources and support for the Project. Risk Road Fund is not familiar with foreign-funded projects. Risk IKS/RRI 70

78 Design Summary and operational Comprehensi ve road sector planning and management system introduced at the Road Fund office Performance Targets/Indicators Business plan prepared. About 300 units of road equipment purchased. 20 staff trained. A road sector institutional strategy prepared. Computerized road sector planning and management system installed. Data base system and manual developed The system tested. 30 Road Fund staff trained. Long-term system improvement program developed. Activities with Key Milestones Data Sources/Reporting Mechanisms Assumptions and Risks Government s willingness to move toward commercialization and privatization of REPC. Assumption Government is committed to further reform the road sector. Road Fund s committed to improving its planning capacity. Inputs Road Construction Component Award civil works contracts by October 2008 (first package under the Project) Completion of civil works by December 2011 ADB loan $85.8 million (OCR) Government counterpart budget of $91.5 million. Road Equipment Component REPC set up by September 2007 Procurement by December 2009 Advisory Support for Road Sector Planning and Management System Recruitment of Procurement Specialist by September 2007 Recruit consultants for project management and construction supervision by September 2008 Recruit consultants for establishment of REPC by March 2008 Recruitment of consultants by March 2009 Consulting services completed by December 2011 ADB = Asian Development Bank, km = kilometer, OCR = ordinary capital resources, REPC = road equipment pool company. IKS/RRI 71

79 APPENDIX 1 OUTLINE TERMS OF REFERENCE FOR CONSULTANTS A. PROCUREMENT SPECIALIST 1. Introduction 1. A procurement specialist will be required to assist the Road Fund, the Project s executing agency (EA), in procurement of civil works for reconstruction of 131 km of A-380 Guzar Bukhara Nukus Dautata, procurement of road reconstruction and maintenance equipment, and recruitment of consulting services for the Project (Table A9.1) Table A9.1: Proposed Contract Packages P P Package Number of package Procurement mode Civil works package 2 NCB 6 ICB Equipment 7 ICB Consulting services 3 QCBS ICB=international competitive bidding, NCB=national competitive bidding, QCBS=quality- and cost-based selection 2. Scope of services 2. The procurement specialist will be responsible for overall coordination of procurement activities carried out under the project, as well as for procurement on Project level and shared activities, and ensuring that procurement is carried out in compliance with the procedures agreed with the Asian Development Bank (ADB). 3. The tasks of the procurement specialist will include but not be limited to: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) Undertake procurement activity as per the draft Procurement Plan which provides the estimated costs and the basis for the procurement methods for each procurement item under the project. Prepare technical specifications for procurement of good and services together with EA. Prepare bidding documents. Prepare tender notices, and invitations for bids. Receive, open, and assist in evaluation of bids, and finalize contracts. Administer contracts to ensure compliance with the contract conditions, payment terms, variations, dispute resolution, and monitoring etc. Maintain all the records relating to procurement. Maintain a separate record relating to complaints and their redressal. Periodically update the Procurement Plan in agreement with the EA to reflect the actual project implementation needs and improvements in institutional capacity. Prepare procurement implementation reports in accordance with the reporting requirement acceptable to ADB. Assist EA in their procurement activities and help them in developing reports in agreed format. Obtain all necessary clearances within the GOU and ADB. Keep all procurement records in proper order, acceptable to the EA and the ADB, Assist the ADB staff during procurement post-review missions; Contribute to the preparation of project documents, studies and materials for ADB and the EA. IKS/RRI 1

80 (xvi) (xvii) Provide partial back-up, be familiar and participate in the activities of the PIU Financial Management Officer in all areas, including preparation of financial and status reports, maintaining financial management system, preparation of document for payment, books and records keeping, etc. Training on procurement for the EA staff. 4. If so required by the Employer, the procurement specialist will provide any of the following as additional services: (i) prepare reports, additional contract documentation, and/or review and comment on the contractor s proposals, as may be required for the successful completion of the Project; and (ii) provide any other specialist services as may be required from time to time. 5. The Employer will authorize all additional services, other than minor extras that do not materially affect the scope of the procurement work, at the rates mutually agreed upon when the services require the use of specialists not listed in the contract. 3. Input 6. The services will be carried out by an individual international consultant, to be selected by the Road Fund in accordance with ADB s Guidelines on the Use of Consultants. A total of 12 person-months of international consultant inputs are estimated for the procurement activities. He or she should be a procurement specialist preferably having experience with ADB guidelines on procurement of civil works, goods, and services. The services will be implemented over a 12- month period. 4. Deliverables 7. The consultant will submit the following reports: Table A9.2: Required Reports Type of Reports Recipient Road Fund ADB Inception Report (month 1) 6 2 Progress report (monthly) 6 2 Draft Procurement Report 6 2 Final Procurement Report 6 2 IKS/RRI 2

81 B. ESTABLISHMENT OF ROAD EQUIPMENT MANAGEMENT UNIT 1. Introduction 8. A team of consultants is required to help the Road Equipment Unit (REMU) start operating the unit. The assistance will be provided to ensure the viability and sustainability of REMU in developing efficient equipment management mechanism, introducing proper administrative, accounting and financial procedures, identifying workshop, stores and equipment operations manuals, establishing equipment costing system, and providing on the job training for operators and workshop personnel. 2. Scope of Services 9. The scope of services will include: (i) (ii) (iii) (iv) (i) (ii) (iii) (iv) (v) Financial assistance to rent equipment, acquire operating facilities and business systems and, to hire and train staff. Business development assistance to develop management and business development systems. Management development assistance to develop the hiring and cost control systems (including the calculation of rentals), the maintenance systems and equipment replacement strategies and processes. Training assistance to train all staff in their duties and to train staff to be able to train contractors in the operation and maintenance of the equipment. Procure a suitable system together with any necessary computers and associated software and hardware; for selected staff of the trial enterprise, procure and manage training in an overseas organization using the proposed system and undertaking road construction or maintenance operations similar to those being undertaken by the trial enterprise; install the system in the trail enterprise and train all staff of the enterprise who will use the system; prepare a user manual in English and Russian; after one budgetary cycle, review the operation of the system and assist the trial enterprise implement any necessary improvements to the system including any necessary revisions to the user manual; 3. Input 10. The services will be carried out by a firm of international consultants in association with national consultants to be engaged in accordance with ADB's Guidelines on the Use of Consultants. The services will require a total of about 10 person-months of international consultants and 12 person-months of national consultants. The Services will be implemented over a 6 month period. The international consultants will have expertise in the fields of management and finance corporate law, and marketing. The national consultants will have expertise in the fields of financial analysis, legal, contract, and mechanical engineering.. 4. Deliverables 11. The Consultant will submit the following reports: IKS/RRI 3

82 Table A9.3: Required Reports Type of Reports Recipient Road Fund ADB Inception Report (month 1) 6 2 Progress report (monthly) 6 2 Draft Final Report 6 2 Final Report 6 2 IKS/RRI 4

83 P TA 4889-UZB: PREPARING THE REGIONAL INFRASTRUCTURE (ROADS) PROJECT C. PROJECT MANAGEMENT AND CONSTRUCTION SUPERVISION 1. Introduction 12. The Project will involve the improvement of the road sections noted below. Table A9.4: Proposed Civil Works Package Estimated Length Contract Procurement (km) a Value Mode Financing ($ Million) CWP-1A: Km NCB Retroactive CWP-1B: Km ICB Project CWP-2A: Km NCB Retroactive CWP-2B: Km ICB Project CWP-3: Km ICB Project CWP-4: Km ICB Project CWP-5: Km ICB Project CWP-6: Km ICB Project ICB = international competitive bidding, Km = kilometer, NCB=national competitive bidding, CWP = civil works package. a PIncluding physical and price contingencies, but not including interest during construction. 13. Civil works will be carried out based on the Federation Internationale des Ingenieurs Conseils (FIDIC) contract. A Consultant Team will be engaged for the Project to perform as the Engineer. The Consultant will administer the construction contracts and ensure that the contractual clauses for both quality and specifications of work are complied with and the works are constructed in accordance with the provisions of the construction contracts, The Engineer s representative in accordance with the provisions of the construction contracts will be a full-time professional resident engineer in the Project area under each package. 14. The Supervision Consultant while supervising construction works will make all necessary arrangements for quality control and implementation of the works. The Consultant in consultation with the Road Fund will make all engineering decisions required for the successful and timely completion of the construction contracts, and have all the powers defined as those of the Engineer. 15. The Engineer will carry out a critical review of the detailed design prior to the commencement of works to identify defects or omissions that comprise on consistency of the design and completeness of works. This review will be carried out immediately after the services commence and will be complete within 5 weeks. On completion of the review, the Supervision Consultant will prepare a report, setting out all findings and recommendations for correcting any defects or omissions identified. Notwithstanding these, the Supervision Consultant will immediately inform the employer of any defect or omissions that may have a substantial impact on the Project at the time the defect or omission is uncovered. The Consultant will submit four copies of the review report to the employer. 2. Scope of services 16. The tasks of the Consultant will include but not be limited to: (i) ensure that the construction methods as proposed by the contractor for carrying our the works are satisfactory, inspection of contractor s construction IKS/RRI 5

84 (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) equipment; and safety of the works, property, personnel, and general public; the schedule of mitigation measures for adverse environmental impacts; ensure that road safety design requirements are implemented in accordance with the contract; establish efficient procedures for verifying contractor performance and reporting progress and problems, in a timely manner, including quality control reports, quantity survey records, requests for variation or change orders; contractor s claims and invoices; undertake project performance monitoring and evaluation in accordance with the Project Framework and ADB s Project Performance Management System (PPMS) Handbook including the baseline data survey and the following annual survey and reporting up to project completion; ensure that the contractor does not involve child labor for the execution of the civil works contracts in accordance with the provisions of the contract agreement; prepare and issue the following reports, the format and content of which are to be acceptable to the employer: an inception report, a brief monthly progress report, a detailed quarterly report, a detailed project completion report; check that as built drawing are prepared for all works as construction processes; carry out the following duties related to environmental mitigation with particular reference to the technical requirements of sound environmental standards on the basis of ADB s Environmental Guidelines for Selected Infrastructure development Projects (Highways and Roads) during construction: (i) ensure that all the environmental mitigation measures required to be implemented are incorporated into the contract documents; (ii) supervise and monitor the implementation of environmental mitigation measures required; (iii) in the event of occurrence of any unexpected environmental impacts, coordinate with the Project Implementation Unit (PIU) of the Republican Road Fund, to provide necessary mitigation measures for submission to the Republican Road Fund and ADB; Land acquisition and resettlement: (a) assist the Republican Road Fund to prepare and update the resettlement plan for each subproject which involves land acquisition and resettlement, based on the resettlement Framework agreed by the Republican Road Fund and ADB; and (b) assist the Republican Road Fund to implement all activities outlined in the Resettlement Plan; HIV/AIDS and Human Trafficking. Monitor that the contractors comply and carry our required actions as provided in the respective contract documents, such as awareness and education of laborers and workers; Project completion report draft report at 90 percent physical completion; Project completion report final report two months after project physical completion or alternative date as agreed with the Republican Road Fund; and Other detailed requirements are provided separately. 17. The Supervision Consultant will process interim and final payments to the contractors. 18. If so required by the employer, the Supervision Consultant will provide any of the following as additional services: (i) prepare reports, including technical appraisals, additional contract documentation, and/or review and comment on the contractor s proposals, as may be required for the successful completion of the Project; and (ii) provide any other specialist services as may be required from time to time. 19. The employer will authorize all additional services, other than minor extras that do not materially affect the scope of the supervision work, at the rates established in the construction supervision contract, or at the rates mutually agreed upon when the services require the use of specialists not listed in the contract. IKS/RRI 6

85 3. Input 20. The services will be carried out by a firm of international consultants in association with national consultants to be engaged in accordance with ADB's Guidelines on the Use of Consultants. The services will require a total of about 70 person-months of international consultants and 226 person-months of national consultants. The Services will be implemented over a 39 month period. The international consultants will provide the following experts (i) chief resident engineer; (ii) contract specialist; (iii) material engineer, and (iv) highway engineer. The national consultants will have expertise in the fields of (i) assistant chief resident, (ii) highway engineer, (iii) bridge engineer, (iv) road design engineer, (v) structural engineer, (vi) materials engineer, (vii) drainage engineer, (viii) environmental specialist, and (ix) quantity surveyors. 4. Deliverables 21. The Consultant will submit the following reports: Table A9.5: Required Reports Type of Reports Recipient Road Fund ADB Inception Report (month 1) 6 2 Progress report (monthly) 6 2 Draft Procurement Report 6 2 Final Procurement Report 6 2 IKS/RRI 7

86 TP PT Highway PT TA 4889-UZB: PREPARING THE REGIONAL INFRASTRUCTURE (ROADS) PROJECT D. ROAD SECTOR PLANNING AND MANAGEMENT 1. Introduction 22. The Road Fund has identified the organization s limitations as regards road and highway planning in general and prioritization of maintenance works in the face of budgetary constraints in particular. Since becoming operational in March 2006, the Road Fund has been primarily concerned with the procurement of roads works contracts. The programming of works is carried out based on ad hoc surveys, and does not reflect adequately road traffic and road condition throughout the network. Now that Road Fund staff has been introduced to the HDM-4 based approach to asset management widely utilized in the developing world, the time is considered appropriate to install modern transport planning and highway engineering approaches in the Road Fund A team of consultants is required to help strengthen the Road Fund s capacity in road sector planning and management, and prepare the Road Fund to adopt a modern asset management approach to one of Uzbekistan s most valuable capital assets. The Road Fund will establish a road works planning unit after completion of this support component. 24. The objective of the technical assistance is to enable the Road Fund to raise the general standards of condition and capacity of the network through utilization of: (i) systematic road traffic censuses, and transport planning and highway techniques; (ii) scientifically-based monitoring of road surface condition (roughness) and roadbed conditions (structural number) on a regular basis so that the status of the entire network is known with a reasonable degree of certainty on a continuous basis; (iii) prioritization of road periodic maintenance and construction works utilizing HDM-4, in light of current and projected available financial resources to be carried out every 3 years on a rolling basis, and (iv) appropriately designed and maintained databases to support the above activities. 2. Scope of Services 25. The consultants will carry out the following tasks: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) Review the current road sector planning and financing system. Study the impact of possible application of road user charges, tolling system, and asset management systems including, in the longer term, Public Private Partnerships. Assess institutional framework of the road sector and prepare an institutional development strategy focusing on (i) need for a road agency, and (ii) ways of introducing private sector competition in the provision and maintenance of roads. Introduce computerized road sector planning and management based on 1 HDM-IVTP Introduce appropriate transport planning tools including transport models to adequately address emerging road capacity constraint issues Develop data base systems to support (iii) and (iv) above. Develop manual for systems application. Purchase and set up the systems. Undertake a pilot data collection exercise, including appraisal utilizing HDM-IV and the transport model for the Tashkent Samarkand Termez Road (M39). Staff training and study tours to transport planning and highway engineering centers of excellence. Prepare long-term program for country-wide application of road condition and road link flow databases. 1 Development and Management Model- IV. IKS/RRI 8

87 (xii) Formalization of transport planning and highway engineering and planning through the establishment off a Road Works Planning Unit. 3. Input 26. The services will be carried out by a firm of international consultants in association with national consultants to be engaged in accordance with ADB's Guidelines on the Use of Consultants. The services will require a total of about 73 person-months of international consultants and 63 person-months of national consultants. The Services will be implemented over a 12 month period. The international consultants will have expertise in the fields of (i) transport planning, (ii) transport economics, (iii) road maintenance specialist, (iv) road financing, (v) road institution specialist, (vi) HDM-IV Specialist, and (vii) data base system and management. The national consultants will have expertise in the fields of (i) transport planning, (ii) transport economics, (iii) highway engineering, (iv) bridge engineering, and (iv) data base system and management. 4. Deliverables 27. The Consultant will submit the following reports: Table A9.6: Required Reports Type of Reports Recipient Road Fund ADB Inception Report (month 1) 6 2 Progress report (monthly) 6 2 Draft Final Report 6 2 Final Report The following will be the consultant s outputs. (i) (ii) (iii) (iv) (v) (vi) A transport planning and HDM-4 capacity installed in the Road Fund; Trained Road Fund staff capable of running HDM-4 and a transport planning model; A development plan including both condition and capacity oriented elements for the M39. Installed data bases supporting (iii) above and a plan to expand the database to include the entire common use network; A road sector institutional strategy; and Proposals for adequately funding the identified needs of the road sector in general and the M39 Development Plan in particular. IKS/RRI 9

88 APPENDIX 2 A. Background ASSESSMENT OF EQUIPMENT FINANCING OPTIONS 1. The proposed Project will finance about US$ 55,1 mln road maintenance equipment for the Government of Uzbekistan (GOU). The Government considers its road construction and maintenance equipment and plant fleet outmoded and, in many cases, past its economic life. The Uzavtoyul plant and equipment fleet includes a mixture of new items and very old items, the latter mostly of Soviet origin. Some modernization of equipment has occurred with the assistance of the Japan International Cooperation Agency in 1997 and 2004.The purpose of this section is to explore various financing options for providing the plant and equipment and identify the optimal financing structure feasible in the context of Uzbekistan. 2. There are four key players involved in public road construction and maintenance. Public roads are considered state property and responsibilities for road construction and maintenance in Uzbekistan are defined by the Law for Highways 1992, which is now being updated. At present, road policy development, planning, construction and maintenance are coordinated by the four bodies, the Uzbekistan Transport and Transport Communication Association, the Road Board, the Republican Road Fund under MOF and Uzavtoyul. For the proposed Project, Road Fund and Uzavtoyul are expected to hold major roles and functions in the smooth implementation of the Component 2 of the Project. The Road Fund as an EA will essentially be a administrator for funding and Uzavtoyul a coordinator for project implementation. 3. Uzavtoyul was further scrutinized as it holds a rather complicated corporate structure and historical background and as its perceived dual roles and functions as a government body and a company. Uzavtoyul is a designated agency of state administration of common use roads and maintains a small number of staff, ceiling of 29 people, to administer, coordinate, and implement contracting of road periodic and routine programs on behalf of the GOU. However, it was confirmed that Uzavtoyul administers state programs through budget arrangement with the Road Fund and the profits by subsidiary enterprises are not being shared by Uzavtoyul. Uzavtoyul s subsidiary enterprises can be broadly categorized into four; regional road maintenance enterprises, specialized international and national roads repair and maintenance enterprises, road repair and construction companies, and others (refer to figure 5.1: Organizational structure of Uzavtoyul). Provincially based subsidiary enterprises (regional road maintenance enterprises) are responsible for local, as distinct from national, roads. Within each province there are district road maintenance and repair enterprises which only work on local roads. There are also seven specialized international and national road repair and maintenance enterprises. These geographically based enterprises are responsible for the repair and maintenance of national and international roads 1. Their operations cross provincial boundaries. It is these enterprises which bid for Road Fund capital works contracts. There are a number a number of specialist companies and enterprises specializing in activities such as quarrying and the manufacture of concrete bridge components. 4. Two development approaches for commercialization/privatization, i.e. top down and bottom up, were scrutinized to determine whether strengthening government entities or building up private sector could be rationalized. The findings indicate that there are very few established private sector companies capable of undertaking road works projects. Those that do exist do not have all the specialist equipment required for capital maintenance works, have difficulty accessing essential materials, require close supervision and are insufficient in number to provide competition in the bidding process. There are companies which undertake lower level road maintenance work, principally in urban areas. It shows that the bottom up approach for the proposed Project could not achieve the desired results of quality, cost 1 International roads can generally be described as those roads which connect other countries though Uzbekistan. IKS/RRI 1

89 efficiency and timeliness, however, the Component 2 of the proposed Project is expected to level the playing field by availing the equipment pool to be open to securing equipment needs that private sector companies. 5. The more feasible approach is considered to be top down approach where the subsidiary enterprises provide an excellent foundation for the development of the road construction and maintenance private sector through the continued commercialization leading to privatization of state owned road companies. Strengthening its subsidiary enterprises businesses and hence profits will be, in the long run, generally beneficial for the country as they could eventually be sold to strategic investors and private financiers/equity for profit. It expects to further promote competition amongst state owned road companies to secure necessary construction and maintenance equipment to be better equipped with future opportunities in the international as well as national projects. These state owned road companies will be strengthened through active participation in international bidding and could be gradually spun off from Uzavtoyul and converted to private sector contractors. However, with the current setting of these enterprises owning, operating and managing significant length of international and regional road sections, any type of spin-off and/or partial privatization is less likely to be attainable in the immediate future unless the government buys back the strategic road sections under the enterprises control. 6. The below outlines and summarizes the findings of various options for the ownership and financing mechanisms for effective and efficient utilization of equipment. B. Assessment of Equipment Financing Options 7. The Mission explored four equipment financing options, which include (i) direct credit sale to Uzavtoyul, (ii) establishment of an equipment pool, (iii) independent equipment pool through a leasing company/ies, and (iv) creation of a credit line facility in the Road Fund. The options are summarized below. Table1: Equipment Financing and Ownership Options Description Option 1 Option 2 Option 3 Option 4 Independent Equipment Pool Equipment Pool Directed Credit under Uzavtoyul through a Line Facility leasing company Direct credit sale to Uzavtoyul Routine and periodic road equipment purchased with ADB loan to GOU to be onlent and supplied to state owned road companies. State owned road companies makes payments for equipment. Uzavtoyul is deemed a state agency for roads. It has confirmed that it ahs no capacity to own and manage the equipment. 13 state owned road companies undertake maintenance works. Especially 7 state owned road companies are viewed independent in undertaking construction as well as maintenance works. Profits are retained within companies Equipment purchased with ADB loan to GOU to be onlent to and supplied to Equipment Pool. Uzmashservice, a state owned repair and workshop company could be revamped and used as one of the operational divisions under this structure Equipment purchased with ADB loan to GOU to be onlent and supplied to an existing, i.e. Kurilish Lizing/new facility Kurilish lizing is a private leasing company and the mission was unable to identify a suitable government entity for this purpose Road fund establish a credit line facility through national bank of Uzbekistan available for all including Uzavtoyul, private sector contractors and leasing companies IKS/RRI 2

90 Method Direct purchase Equipment hire charge system Leasing Owners of state owned road companies Equipment pool Government equipment owned leasing Identification of equipment to be purchased Purchaser of equipment (ADB guidelines) Equipment Maintenance Workshop support Contributes to development of the private sector Uzavtoyul, initially as a coordinator to make alist of equipment lists, and/or state owned road companies if identified Uzavtoyul at an initial state for coordination but state owned road companies are preferred to undertake its own procurement Equipment pool coordinated and reviewed by Uzavtoyul only in the initial stage until Equipment pool becomes a legitimate entity and operational Equipment Pool company Government owned leasing company government owned leasing company Inhouse or outsourcing Inhouse or outsourcing Government owned leasing company or outsourcing In house or outsourcing No In house or outsourcing Encourage commercial activities May be needed/outsourcin g Simplicity Simple Relatively simple More complex than option 2 Time Short Longer than involved option 2 Advantages Fast, simple; Minimum technical assistance; GOU s request Marginally longer than option 1 to meet GOU s legal requirements for the establishment of Road Equipment Pool Company (REPC) Full utilization of equipment; Supported by country strategy; encourage arms length transaction; Extensive geographical coverage; Will be able to standardize and rationalize choice of equipment fee; Promote cost recovery; Generate its own replacement funding; Lending and borrowing equipment amongst road companies exist but could be a lengthy exercise. This equipment pool could provide a one shop service for road companies equipment needs at an affordable rate on a priority basis Easy performance tracking/monitoring of equipment Yes Private sector involvement; True maintenance cost; Arms length transaction guaranteed Purchase and/or leasing Credit users On a needs basis by the users of credit Credit users Suppliers/ Outsourcing Needed Yes Least simple Marginally longer than option 1 Fair opportunity to all players including private sector; Tailors to individual company s needs; Arms length transaction guaranteed IKS/RRI 3

91 Disadvantag es Source: ADB staff Only few big subsidiary companies could benefit; Credit assessment of each recipient necessary; If onlent to subsidiary enterprises, there could be several IAs; Difficulties tracking performance monitoring; Equipment may not be fully utilized; No private sector involvement Marginal private sector involvement; More costly option as additional technical assistance is necessary to set up a business development, management development, administrative and financial system Leasing law, regulation and acts need be reviewed prior to investment; Significant technical assistance necessary to involving a leasing business; Not optimal and could be considered as crowding out private leasing businesses; Only financing leasing is available; Costly option Poor results in the past using credit line facility; The credit line facility involves another layer, a bank; Difficulties in performance and safeguard monitoring C. Conclusion 8. From the assessment, it was determined that the establishment of equipment pool is a preferred financing modality under the Component 2 by both GOU and ADB. This is further in line with the Transport Sector Strategy financed under ADB TA4659 in December 2006 with the recommendation of revisiting the proposal for establishment of an Equipment Management and Utilization Organization providing arms length leasing of construction equipment to road companies as means of enhancing their operational capacity and hence ability to compete on a broader market front. However, this option could entail adverse cost and time implications. GOU and Uzavtoyul must facilitate necessary legal and regulatory requirement to establish Road Equipment Pool Company (REPC) and ADB must assist REPC all the necessary steps to start and normalize operations including establishing the requisite administrative and financial procedures for operating the equipment unit and prepare working manuals as necessary ensuring that the sector staff are fully trained in the operation of those systems and procedures. IKS/RRI 4

92 APPENDIX 3 FINANCIAL MANAGEMENT ASSESSMENT QUESTIONNAIRE Topic Response Remarks 1. Implementing Agency 1.1 What is the entity s legal status / registration? 1.2 Has the entity implemented an externally-financed project in the past (if so, please provide details)? 1.3 What are the statutory reporting requirements for the entity? 1.4 Is the governing body for the project independent? 1.5 Is the organizational structure appropriate for the needs of the project? 2. Funds Flow Arrangements 2.1 Describe (proposed) project funds flow arrangements, including a chart and explanation of the flow of funds from ADB, government and other financiers. 2.2 Are the (proposed) arrangements to transfer the proceeds of the loan (from the government / Finance Ministry) to the entity satisfactory? 2.3 What have been the major problems in the past in receipt of funds by the entity? 2.4 In which bank will the Imprest Account be opened? 2.5 Does the (proposed) project implementing unit (PIU) have experience in the management of disbursements from ADB? In accordance with the decree of the President UP-3292 dated and Resolution of the President PP- 499 of the Republican Road Fund under the Ministry of Finance is the government agency accumulating financial resources for financing of designing, construction, reconstruction, repair and maintenance of common use roads. No In accordance with the Resolution of the President PP-499 dated the Republican Road Fund shall submit the report to the Republican Road Fund management Board, with the accounting and other reporting submitted to the Ministry of Finance and other authorized agencies. Currently under development Currently under development Funds flow options are under consideration Funds flow options are under consideration N/A Cash processing centre of the main department of the Central Bank of the Republic of Uzbekistan for Tashkent City Specialists with adequate qualification and experience in this area will be hired to PMU and PIU IKS/RRI 1

93 2.7 Does the entity have/need a capacity to manage foreign exchange risks? Topic Response Remarks 2.8 How are the counterpart funds accessed? 2.9 How are payments made from the counterpart funds? 2.10 If part of the project is implemented by communities or NGOs, does the PIU have the necessary reporting and monitoring features built into its systems to track the use of project proceeds by such agencies? 2.11 Are the beneficiaries required to contribute to project costs? If beneficiaries have an option to contribute in kind (in the form of labor), are proper guidelines formulated to record and value the labor contribution? 3. Staffing 3.1 What is the (proposed) organizational structure of the accounting department? Attach an organization chart. 3.2 Identify the (proposed) accounts staff, including job title, responsibilities, educational background and professional experience. Attach job descriptions and CVs of key accounting staff. 3.3 Is the project finance and accounting function staffed adequately? 3.4 Is the finance and accounts staff adequately qualified and experienced? 3.5 Is the project accounts and finance staff trained in ADB procedures? 3.6 What is the duration of the contract with the finance and accounts staff? 3.7 Indicate key positions not contracted yet, and the estimated date of appointment. The Borrower (Ministry of Finance) has an experience in foreign exchange risks management Currently under development The Government contribution is made in accordance with target lsit, to be annually agreed with the Ministry of Finance and the Ministry of Economy in compliance with the Resolution of the President of the Republic of Uzbekistan. N/A Not required After the organizational structure is approved After the organizational structure is approved After the organizational structure is approved Finance and accounts staff with adequate qualification and experience will be hired on a competition basis This provision will be given special consideration when hiring finance and accounts staff The duration of the contract is 1 year The contracts shall be made after the organisational structure is approved IKS/RRI 2

94 Topic Response Remarks 3.10 Does the project have written position descriptions that clearly define duties, responsibilities, lines of supervision, and limits of authority for all of the officers, managers, and staff? 3.11 At what frequency are personnel transferred? 3.12 What is training policy for the finance and accounting staff? 4. Accounting Policies and Procedures 4.1 Does the entity have an accounting system that allows for the proper recording of project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds? Will the project use the entity accounting system? 4.2 Are controls in place concerning the preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained? 4.3 Is the chart of accounts adequate to properly account for and report on project activities and disbursement categories? 4.4 Are cost allocations to the various funding sources made accurately and in accordance with established agreements? 4.5 Are the General Ledger and subsidiary ledgers reconciled and in balance? 4.6 Are all accounting and supporting documents retained on a permanent basis in a defined system that allows authorized users easy access? After the organizational structure is approved N/A Annual training in the various carrier development courses and participation on ADB seminars Yes. The accounting system will be developed for the project in compliance with the existing guidelines and regulations of the Ministry of Finance and ADB In place National Accounting Standards 21 are applied with the amendments, which take into account ADB requirements, ensure accounting transparency. Yes General ledger and subsidiary ledgers are periodically reconciled. In accordance with the Law of the Republic of Uzbekistan On Accounting. IKS/RRI 3

95 Segregation of Duties Topic Response Remarks 4.7 Are the following functional responsibilities performed by different units or persons: (i) authorization to execute a transaction; (ii) recording of the transaction; and (iii) custody of assets involved in the transaction? 4.8 Are the functions of ordering, receiving, accounting for, and paying for goods and services appropriately segregated? 4.9 Are bank reconciliations prepared by someone other than those who make or approve payments? Budgeting system 4.10 Do budgets include physical and financial targets? 4.11 Are budgets prepared for all significant activities in sufficient detail to provide a meaningful tool with which to monitor subsequent performance? 4.12 Are actual expenditures compared to the budget with reasonable frequency, and explanations required for significant variations from the budget? 4.13 Are approvals for variations from the budget required in advance or after the fact? 4.14 Who is responsible for preparation and approval of budgets? 4.15 Are procedures in place to plan project activities, collect information from the units in charge of the different components, and prepare the budgets? After the organizational structure is approved. The following segregation of duties is proposed: (i) project manager (ii) accountant (iii) accountant, office-manager To be additional clarified following the approval of organizational structure After the organizational structure is approved. It is proposed that: depending on the operations functions to be segregated between project manager, accountant, procurement specialist and officemanager After the organizational structure is approved. It is proposed that: payments to be approved by the accountant. For bank reconciliation cross-check system should be applied, i.e. accountant and officemanager, accountant and procurement specialist, etc. After project and budget are approved. After project and budget are approved Yes, undertaken on a monthly and quarterly basis with explanations thereto. In advance Project manager, planner, chief accountant (to be clarified after the project is approved). Prior to commencement of project implementation it is necessary to develop procedures for project activities planning and information collection based on requirements of Executive agency (RF) and ADB IKS/RRI 4

96 Topic Response Remarks 4.16 Are the project plans and budgets of project activities realistic, based on valid assumptions, and developed by knowledgeable individuals? Payments 4.17 Do invoice-processing procedures provide for: (i) Copies of purchase orders and receiving reports to be obtained directly from issuing departments? (ii) Comparison of invoice quantities, prices and terms, with those indicated on the purchase order and with records of goods actually received? (iii) Comparison of invoice quantities with those indicated on the receiving reports? (iv) Checking the accuracy of calculations? 4.18 Are all invoices stamped PAID, dated, reviewed and approved, and clearly marked for account code assignment? 4.19 Do controls exist for the preparation of the payroll and are changes to the payroll properly authorized? Policies and procedures 4.20 What is the basis of accounting (e.g., cash, accrual)? 4.21 What accounting standards are followed? 4.22 Does the project have an adequate policies and procedures manual to guide activities and ensure staff accountability? 4.23 Is the accounting policy and procedure manual updated for the project activities? 4.24 Do procedures exist to ensure that only authorized persons can alter or establish a new accounting principle, policy or procedure to be used by the entity? 4.25 Are there written policies and procedures covering all routine financial management and related administrative activities? The proposal is: N/A (i) Accountant (ii) Procurement specialist (iii) office-manager (iv) Procurement specialist and accountant Additional adjustments will be made after the approval of the projects, budget and project implementation plan It is proposed to conduct payment procedures and account code assignment in accordance with the national standards (payment order). Verified by the top management. The accrual method is used in accordance with national legislation. National Accounting Standards After the project is approved. Job descriptions. Organisational structure of PMU/PIU, Prior to the commencement of project implementation it is necessary to develop accounting policy, which can be updated in accordance with newly introduced amendments to national legislation and ADB requirements It is proposed to reflect it in the regulation of PMU/PIU Regulation on the Republican Road Fund under the Ministry of Finance of the Republic of Uzbekistan (as executing agency) IKS/RRI 5

97 Topic Response Remarks 4.26 Do policies and procedures clearly define conflict of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them? 4.27 Are manuals distributed to appropriate personnel? Cash and Bank 4.28 Indicate names and positions of authorized signatories in the bank accounts Does the organization maintain an adequate, up-to-date cashbook, recording receipts and payments? 4.30 Do controls exist for the collection, timely deposit and recording of receipts at each collection location? 4.31 Are bank and cash reconciled on a monthly basis? 4.32 Are all unusual items on the bank reconciliation reviewed and approved by a responsible official? 4.33 Are all receipts deposited on a timely basis? Safeguard over Assets 4.34 Is there a system of adequate safeguards to protect assets from fraud, waste and abuse? 4.35 Are subsidiary records of fixed assets and stocks kept up to date and reconciled with control accounts? 4.36 Are there periodic physical inventories of fixed assets and stocks? 4.37 Are assets sufficiently covered by insurance policies? Other Offices and Implementing Entities 4.38 Are there any other regional offices or executing entities participating in implementation? To be clarified after the project is approved To be clarified after the project is approved The Project makes provisions for: Project manager and Accountant Timely cashbook record keeping and observation of cash discipline in compliance with the guidelines on cash transactions conduct. Yes Yes N/A The receipts and charges to the Republican Road Fund shall be deposited within the prescribed period in accordance with the regulation on procedure for generation and expenditure of funds of the Republican Road Fund Yes Yes Yes, annually (or in case of replacement of official) No Yes, regional territorial road maintenance entities of SJSC «Uzavtoyul» IKS/RRI 6

98 Topic Response Remarks 4.39 Has the project established controls and procedures for flow of funds, financial information, accountability, and audits in relation to the other offices or entities? 4.40 Does information among the different offices/implementing agencies flow in an accurate and timely fashion? 4.41 Are periodic reconciliations performed among the different offices/implementing agencies? Other 4.42 Has the project advised employees, beneficiaries and other recipients to whom to report if they suspect fraud, waste or misuse of project resources or property? 5. Internal Audit 5.1 Is there a internal audit department in the entity? 5.2 What are the qualifications and experience of audit department staff? 5.3 To whom does the internal auditor report? 5.4 Will the internal audit department include the project in its work program? 5.5 Are actions taken on the internal audit findings? 6. External Audit 6.1 Is the entity financial statement audited regularly by an independent auditor? Who is the auditor? 6.2 Are there any delays in audit of the entity? When are the audit reports issued? 6.3 Is the audit of the entity conducted according to the International Standards on Auditing? 6.4 Were there any major accountability issues brought out in the audit report of the past three years? It shall be developed prior to the commencement of project implementation Yes Yes, on a quarterly basis or as may be required Yes No N/A N/A N/A N/A The audit of the Republican Road Fund is conducted by the Accounting Chamber of the Republic of Uzbekistan in compliance with the national legislation Periods for issue of audit report should be defined in accordance with the ADB procedures The audit of the Republican Road Fund is conducted by the Accounting Chamber of the Republic of Uzbekistan in compliance with the national legislation N/A IKS/RRI 7

99 Topic Response Remarks 6.5 Will the entity auditor audit the project accounts or will another auditor be appointed to audit the project financial statements? 6.6 Are there any recommendations made by the auditors in prior audit reports or management letters that have not yet been implemented? 6.7 Is the project subject to any kind of audit from an independent governmental entity (e.g., the supreme audit institution) in addition to the external audit? 6.8 Has the project prepared acceptable terms of reference for an annual project audit? 7. Reporting and Monitoring 7.1 Are financial statements prepared for the entity? In accordance with which accounting standards? 7.2 Are financial statements prepared for the implementing unit? 7.3 What is the frequency of preparation of financial statements? Are the reports prepared in a timely fashion so as to useful to management for decision making? 7.4 Does the reporting system need to be adapted to report on the project components? 7.5 Does the reporting system have the capacity to link the financial information with the project's physical progress? If separate systems are used to gather and compile physical data, what controls are in place to reduce the risk that the physical data may not synchronize with the financial data? 7.6 Does the project have established financial management reporting responsibilities that specify what reports are to be prepared, what they are to contain, and how they are to be used? 7.7 Are financial management reports used by management? 7.8 Do the financial reports compare actual expenditures with budgeted and programmed allocations? The auditor to audit project financial statements will be selected on a tender basis No Yes, Accounting Chamber of the Republic of Uzbekistan Under preparation by the Technical Assistance Consultants. In accordance with the national standards of the Republic of Uzbekistan During project implementation for superior management bodies and ADB Depending on the form of reporting timely monthly, quarterly, semiannual and annual report are prepared or those requested by the top management. N/A N/A. N/A Yes, for planning and decisions making purposes Yes. IKS/RRI 8

100 Topic Response Remarks 7.9 Are financial reports prepared directly by the automated accounting system or are they prepared by spreadsheets or some other means? 8. Information Systems 8.1 Is the financial management system computerized? 8.2 Can the system produce the necessary project financial reports? 8.3 Is the staff adequately trained to maintain the system? 8.4 Does the management organization and processing system safeguard the confidentiality, integrity and availability of the data? RSCG The computerized accounting system «1С Accounting» will be introduced Yes Yes Yes, it is stipulated to carry out training programme courses for financial and accounting personnel Yes IKS/RRI 9

101 APPENDIX 4 BUDGET FORMULATION AND APPROVAL PROCEDURES Ministry of Finance City and district administrations Provincial administrations, Entities responsible for state trust-in-funds City and district administrations Recipients of republican budget funds B U D G E T I N Q U I R Y Entities receiving funds from city and district budgets Entities receiving funds from local budgets Entities receiving funds from republican budget until June 1 until July 1 Provincial Finance Departments Ministry of Finance REQUEST FOR FUNDS District and City Financial Units Provincial administrations, Entities responsible for state trust-in-funds until June 25 until July 1 Provincial Finance Departments Ministry of Finance DRAFT BUDGETS MINISTRY OF FINANCE Until Until September 15 October 15 THE CABINET OF MINISTERS OLIY MAJLIS Notes: The Cabinet of Ministers sets the sending dates of the Budget Inquiry Ministry of Finance establishes the procedures and forms for Request for Funds DRAFT STATE BUDGET IKS/RRI 1

102 RATES OF CONTRIBUTIONS TO THE REPUBLICAN ROAD FUND UNDER THE MINISTRY OF FINANCE APPENDIX 5 Table 1. Compulsory contributions No Types of contributions and fees Basis Rate (%) Entities providing intermediary services under commission basis contracts Turnover less VAT 1,0% 1,0% 1,5% 2 Warehousing, supplying entities Turnover less VAT 0,0% 1,0% 1,0% 3 Republican specialized wholesale organizations and their regional branches Gross profit 1,0% 1,5% 1,5% 4 Drug stores Gross profit 0,0% 1,0% 1,0% 5 Trade companies Turnover 0,0% 1,0% 1,0% 5 Commercial banks, credit unions, microfinance institutions, insurance companies, auctions, show business Profit 1,5% 1,5% 1,5% 6 Leasing companies Profit 1,5% 1,5% 1,5% 7 8 Heating, water and gas supplying organizations Construction companies and design institutes Turnover less VAT, cost of energy/water/gas 1,5% 1,5% 1,5% Turnover less VAT 1,5% 1,5% 1,5% 9 Auto and transportation companies Turnover less VAT 2,5% 2,5% 2,5% 10 Others Turnover less VAT, Excise 1,5% 1,5% 1,5% Table 2. Other fees No Types of contributions and fees Basis 1 Fees paid by the owners of vehicles upon registration Rate (%) Buses up to 40 seats and trucks with load capacity of up to 10t Cost of the vehicle 20% 20% 20% 1,2 All other vehicles Cost of the vehicle 6% 6% 6% 2 Income from sales of the property of SJSC "Uzavtoyul" Property sold 50% 50% 50% IKS/RRI 1

103 Rates of Collections of the Repiblican Road Fund under the Ministry of Finance for the Entrance and Transit of Vehicles to the Territory of Uzbekistan No Types of contributions and fees Rate (in USD) Fee for entering the territory of Uzbekistan by vehicle from foreign countries, per vehicle (excl. countries mentioned under 2-5) Fee for entering the territory of Uzbekistan by the truck or bus of Tadjikistan per truck or bus per one day after 8 days per truck or bus for transit of buses or trucks through the terriroty of Uzbekistan to third countries (except CIS) Fee for entering the territory of Uzbekistan by the truck or bus of Kazakstan, except transit Fee for entering the territory of Uzbekistan by the truck or bus of Kyrgiz Republic Fee for entering the territory of Uzbekistan by the truck or bus of Turkmenistan Trucks with load capacity of: up to 10 t from 10 to 20 t more than 20 t Buses with passenger capacity of: less than 12 seats from 13 to 30 seats more than 30 seats transit cars transit motorbikes * Note: When carrying the humanitarian cargo, coeficient of 0,5 is applied to the rates IKS/RRI 2

104 APPENDIX 6 No of acc CHART OF ACCOUNTS (NATIONAL ACCOUNTING STANDARDS NO.21) Name of account PART I LONG-TERM ASSETS Section 1 FIXED ASSETS, INTANGIBLE & OTHER LONG-TERM ASSETS 0100 FIXED ASSETS A 1100 Land 0111 Land Improvements 0112 Long-term Leasehold Improvements Type 0120 Buildings and Facilities 0130 Machinery and Equipment 0140 Furniture and Office fixtures 0150 Computer equipment and techniques 0160 Vehicles 0170 Draft animals and Livestock 0180 Perennial Plants 0190 Other Fixed Assets 0199 Preserved Fixed Assets 0200 DEPRECIATION OF FIXED ASSETS CA 0211 Depreciation of Land Improvements 0210 Depreciation of Long-term Leasehold Improvements 0220 Depreciation of Buildings and Facilities 0230 Depreciation of Machinery and Equipment 0240 Depreciation of Furniture and Office fixtures 0250 Depreciation of Computer equipment and techniques 0260 Depreciation of Vehicles 0270 Depreciation of Draft Animals 0280 Depreciation of Perennial Plants 0290 Depreciation of Other Fixed Assets 0299 Depreciation of Fixed Assets Received on Long-term Rent 0300 FIXED ASSETS RECEIVED ON LONG-TERM RENT A 0310 Fixed Assets, Received on Long-term Rent 0400 INTANGIBLE ASSETS A 0410 Patents, Licenses and Know-how 0420 Trademarks, Trade signs & Industrial samples 0430 Software 0440 Rights to use land and natural resources 0450 Organization Costs 0460 Franchise fees 0470 Copyrights 0480 Goodwill 0490 Other Intangible Assets 0500 AMORTIZATION OF INTANGIBLE ASSETS CA 0510 Accumulated Amortization - Patents, Licenses and Know-how 0520 Accumulated Amortization - Trademarks, Trade signs & Industrial samples 0530 Accumulated Amortization - Software 0540 Accumulated Amortization - Rights to use land and natural resources 0550 Accumulated Amortization - Organization Costs IKS/RRI 1

105 0560 Accumulated Amortization - Franchise fees No of acc Name of account Type 0570 Accumulated Amortization - Copyrights 0590 Accumulated Amortization - Other Intangible Assets 0600 LONG-TERM INVESTMENTS A 0610 Securities 0620 Investments in Subsidiaries 0630 Investments in Subordinates 0640 Investments in enterprises with foreign capital 0690 Other Long-term Investments 0700 EQUIPMENT TO BE INSTALLED A 0710 Equipment to be installed - Local 0720 Equipment to be installed - Imported 0800 CAPITAL INVESTMENTS A 0810 Work in progress 0820 Acquisition of fixed assets 0830 Acquisition of intangible assets 0840 Formation of main herd 0850 Capital Investments in Land Improvements 0860 Capital Investments in Fixed Assets received on long-term rent 0890 Other Capital investments 0900 LONG-TERM RECEIVABLES AND DEFERRED CHARGES A 0910 Notes Receivable 0920 Long-term Rent Payments Receivable 0930 Personnel Long-term Receivables 0940 Other Long-term Receivables 0950 Deferred income tax on temporary differences 0960 Long-term Deferred Expenses on Discounts 0990 Other Long-term Deferred Expenses PART II CURRENT ASSETS Section 2 INVENTORY 1000 RAW MATERIALS INVENTORY A 1010 Materials 1020 Purchased Semi-finished Goods and Components 1030 Fuel 1040 Spare Parts 1050 Construction Materials 1060 Packaging Materials 1070 Materials for Outside Processing 1080 Inventory and household fixings 1090 Other Materials 1100 ANIMALS FOR BREEDING A 1100 Animals for Growing 1120 Animals for Fattening PROVISION AND PURCHASE OF MATERIALS 1510 Provision and Purchase of Materials IKS/RRI 2 TASHKENT, SEPTEMBER 2007

106 No of acc Name of account Type 1600 DEVIATION IN COST OF MATERIALS A 1610 Deviation in Cost of Materials MAIN PRODUCTION WORK IN PROCESS 2010 Main Production Work in Process 2100 TRANSFER OF IN PROCESS INVENTORY A 2110 Transfer of in process inventory AUXILIARY PRODUCTION IN PROCESS A 2310 Auxiliary Production in Process GENERAL PRODUCTION EXPENSES 2510 General Production Expenses 2600 DAMAGE IN PRODUCTION 2610 Damage in Production 2700 ATTENDANT ENTERPRISES A 2710 Attendant Enterprises 2800 FINISHED GOODS INVENTORY A 2810 Finished Goods in Warehouse 2820 Finished Goods in Exhibition 2830 Finished Goods submitted to commission 2900 GOODS A 2910 Goods in Warehouse 2920 Goods in Retail Trade 2930 Goods in Exhibition 2940 Items for Rent 2950 Full and Empty packaging 2960 Goods submitted to commission 2970 Goods in Transit 2980 Trading Estimate 2990 Other Goods Section 3 PREPAID EXPENSES AND DEFERRED EXPENSES - CURRENT PORTION PREPAID EXPENSES A 3110 Prepaid Rent 3120 Prepaid Services 3190 Other Prepayments 3200 DEFERRED EXPENSES A 3210 Deferred income tax on temporary differences 3220 Deferred Expenses on Discounts 3290 Other Deferred Expenses No of acc Name of account Type IKS/RRI 3 TASHKENT, SEPTEMBER 2007

107 3900 Section 4 RECEIVABLES - CURRENT PORTION 4000 ACCOUNTS RECEIVABLE A 4010 Accounts Receivable form Customers 4020 Notes Receivable 4100 ACCOUNTS RECEIVABLE FROM SUBDIVISIONS, SUBSIDIARIES AND SUBORDINATES A 4110 Accounts Receivable from Subdivisions 4120 Accounts Receivable from Subsidiaries and Subordinates 4200 ADVANCES GIVEN TO PERSONNEL A 4210 Advances given for payroll 4220 Advances given for business-trips 4230 Advances for General Expenses 4290 Other Advances given to personnel 4300 ADVANCES GIVEN TO SUPPLIERS AND CONTRACTORS A 4310 Advances given to suppliers and contractors for inventory 4320 Advances given to suppliers and contractors for long-term assets 4330 Other Advances Given 4400 ADVANCE PAYMENTS TO BUDGET A 4410 Advance payments on taxes and fees to budget 4500 ADVANCE PAYMENTS TO STATE FUNDS FOR SPECIAL PURPOSE A AND ON INSURANCE 4510 Advance payments on insurance 4520 Advance payments to state funds for special purpose 4600 RECEIVABLES FROM FOUNDERS A 4610 Receivables from Founders 4700 RECEIVABLES FROM PERSONNEL ON OTHER TRANSACTIONS A 4710 Receivables for goods on credit 4720 Receivables on loans 4730 Receivables to cover material loss 4790 Receivables on other transactions 4800 OTHER RECEIVABLES A 4810 Long-term Rent Payments Receivable 4820 Short-term Rent Payments Receivables 4830 Interest Receivable 4840 Dividends Receivable 4850 Royalty Receivable 4860 Claims Receivable 4890 Other Receivables 4900 ALLOWANCE FOR DOUBTFUL DEBTS CA 4910 Allowance for Doubtful Debts Section 5 CASH, SHORT-TERM INVESTMENTS AND OTHER NON-CASH CURRENT ASSETS 5000 CASH A 5010 Cash in national currency 5020 Cash in foreign currency 5100 CASH ON SETTLEMENT ACCOUNT A 5110 Settlement account 5200 CASH IN FOREIGN CURRENCY ACCOUNTS A 5210 Foreign Currency Accounts Domestic 5220 Foreign Currency Accounts Abroad No of acc Name of account Type 5300 IKS/RRI 4 TASHKENT, SEPTEMBER 2007

108 SPECIAL BANK ACCOUNTS A 5510 Letters of Credit 5520 Cash in Checking Account 5530 Other Special Accounts 5600 CASH EQUIVALENTS A 5610 Cash Equivalents 5700 CASH (TRANSFERS) IN TRANSIT A 5710 Cash (Transfers) in Transit 5800 SHORT-TERM INVESTMENTS A 5810 Securities 5830 Short-term loans receivable 5890 Other Current Investments 5900 SHORTAGE AND LOSS FROM DETERIORATION OF VALUABLES AND OTHER CURRENT ASSETS A 5910 Shortage and Loss from deterioration of valuables 5920 Other Current Assets PART III LIABILITIES Section 6 SHORT-TERM LIABILITIES 6000 ACCOUNTS PAYABLE TO SUPPLIERS AND CONTRACTORS L 6010 Accounts Payable to Suppliers and Contractors 6020 Notes Payable 6100 ACCOUNTS PAYABLE TO SUBDIVISIONS AND SUBORDINATES L 6110 Accounts Payable to Subdivisions 6120 Accounts Payable to Subsidiaries and Subordinates 6200 DEFERRED LIABILITIES L 6210 Unearned Discounts CL 6220 Unearned Premiums 6230 Other Unearned Income 6240 Deferred Liabilities on Taxes and Obligatory payments 6250 Liabilities on Income Tax on Temporary Differences 6290 Other Deferred Liabilities 6300 ADVANCES RECEIVED L 6310 Advances Received from Customers 6320 Advances Received from Subscribers to Stock 6390 Other Received Advances 6400 DEBT ON BUDGET PAYMENTS L 6410 Debt on Budget Payments (on types of taxes) 6500 INSURANCE DEBT AND DEBT ON PAYMENTS TO STATE FUNDS FOR SPECIAL PURPOSE L 6510 Insurance Debt 6520 Debt on payments to state funds for special purpose 6600 DEBT TO FOUNDERS L 6610 Dividends Payable 6620 Debt due to leaving founders 6700 SETTLEMENTS WITH PERSONNEL L 6710 Settlements with Personnel 6720 Escrow Salary No of acc Name of account Type 6800 SHORT-TERM CREDITS AND LOANS L 6810 Short-term Bank Credits IKS/RRI 5 TASHKENT, SEPTEMBER 2007

109 6820 Short-term Loans 6830 Bonds Payable - non-bank 6840 Notes Payable - non-bank 6900 OTHER PAYABLES L 6910 Short-term Rent Payable 6920 Accrued Interest 6930 Debt on Royalty 6940 Debt on Guaranties 6950 Long-term Liabilities - current portion 6960 Payable on Claims 6970 Debt due to employees 6990 Other Liabilities Section 7 LONG-TERM LIABILITIES 7000 ACCOUNTS PAYABLE TO SUPPLIERS AND CONTRACTORS L 7010 Accounts Payable to Suppliers and Contractors 7020 Notes Payable 7100 LONG-TERM LIABILITIES TO SUBDIVISIONS, SUBSIDIARIES AND SUBORDINATES L 7110 Long-term Liabilities to Subdivisions 7120 Long-term Liabilities to Subsidiaries and Subordinates 7200 DEFERRED LONG-TERM LIABILITIES L 7210 Deferred Discounts 7220 Deferred Premiums 7230 Other Deferred Incomes 7240 Deferred Liabilities on Taxes and Obligatory payments 7250 Deferred Income Tax Liability on temporary differences 7290 Other Deferred Long-term Liabilities 7300 ADVANCES RECEIVED FROM CUSTOMERS - LONG-TERM PORTION L 7310 Advances Received from Customers - long-term portion LONG-TERM CREDITS AND LOANS L 7810 Long-term bank credits 7820 Long-term Loans 7830 Bonds Payable 7840 Notes Payable 7900 OTHER LONG-TERM LIABILITIES L 7910 Long-term Rent Payable 7920 Other Long-Term Liabilities PART IV OWNER'S EQUITY Section 8. CAPITAL, RETAINED EARNINGS AND RESERVES 8000 No of acc Name of account Type CHARTERED CAPITAL L 8310 Common Stock 8320 Preferred Stock IKS/RRI 6 TASHKENT, SEPTEMBER 2007

110 8430 Donated Capital 8400 ADDITIONAL CAPITAL 8410 Revenues from Issuance 8420 Foreign Exchange difference in forming chartered capital 8500 RESERVE CAPITAL L 8510 Assets Revaluation Adjustment 8520 Reserve Capital fixed by Legislation 8530 Property Received on Gratis 8600 TREASURY STOCK CL 8610 Treasury Stock - Common 8620 Treasury Stock - Preferred 8700 RETAINED EARNINGS (NON-COVERED LOSS) L 8710 Retained Earnings (Non-covered Loss) for Reporting Period 8720 Retained Earnings for Prior Periods (Non-covered Loss) 8800 FUNDS RECEIVED FOR SPECIAL PURPOSES L 8810 Grants 8820 Subsidies 8830 Membership fees 8840 Tax Remissions for special purpose 8890 Other funds received for special purposes 8900 RESERVE OF FUTURE EXPENSES AND PAYMENTS L 8910 Reserve of Future Expenses and Payments PART V FORMATION AND UTILIZATION OF FINANCIAL RESULTS Section 9. REVENUES AND EXPENSES 9000 REVENUES FROM MAIN BUSINESS T 9010 Revenues from Sale of Finished Goods 9020 Revenues from Sale of Goods 9030 Revenues from Sales of Works and Services 9040 Sales Return CL 9050 Discounts for Customers CL 9100 COST OF GOODS (WORKS, SERVICES) SOLD T 9110 Cost of Finished Goods Sold 9120 Cost of Goods Sold 9130 Cost of Works and Services Sold 9140 Acquisition/Purchase of Inventory in periodical accounting 9150 Inventory Adjustments in periodical accounting 9200 DISPOSAL OF FIXED AND OTHER ASSETS 9210 Disposal of fixed assets 9220 Disposal of other assets No of acc Name of account Type 9300 OTHER INCOME FROM MAIN BUSINESS T 9310 Gain from disposal of fixed assets 9320 Gain from disposal of other assets 9330 Paid fines, penalties and forfeits 9340 Income of previous years 9350 Income from short-term rent 9360 Income from writing off payables and depositor debt 9370 Income of attendant enterprises IKS/RRI 7 TASHKENT, SEPTEMBER 2007

111 9380 Financial Donations 9390 Other operating income 9400 PERIOD EXPENSES T 9410 Selling Expenses 9420 Administrative Expenses 9430 Other Operational Expenses 9440 Reporting Period Expenses excluded from taxable base in future 9500 INCOME FROM FINANCIAL ACTIVITY T 9510 Income from Royalty 9520 Income from Dividends 9530 Interest Income 9540 Income from differences in currency exchange (positive) 9550 Income from long-term rent 9560 Income from revaluation of securities 9570 Other Income from Financial Activity 9600 EXPENSES ON FINANCIAL ACTIVITY T 9610 Interest expenses 9620 Foreign Currency Exchange difference losses (negative) 9630 Expenses on Issue and Distribution of Securities 9690 Other Expenses on Financial Activity 9700 EXTRAORDINARY GAIN (LOSS) T 9710 Extraordinary Gain 9720 Extraordinary Loss 9800 UTILIZATION OF PROFIT FOR TAXATION AND FEES T 9810 Income Tax 9820 Fees and other mandatory deductions 9900 INCOME SUMMARY T 9910 Income Summary PART VI OFF-BALANCE ACCOUNTS 001 Fixed Assets on short-term rent (leased) OB 002 Inventory deposited in custody OB 003 Materials received for processing OB 004 Goods taken on commission OB 005 Equipment received for mounting OB 006 Forms under seal OB 007 Written-off bad debts OB 008 Security for debt and payment - received OB 009 Security for debt and payment - issued OB 010 Fixed Assets under long-term rent agreement OB 011 Property received under subsidy agreement OB No of acc Name of account Type 012 Expenses excluded from taxable base of the following periods OB 013 Temporary tax remissions (by types) OB 014 Inventory and household fixings in operation OB Notes: A - Assets Account CA - Contra Assets Account L - Liability & Owners Equity Account CL - Contra Liability & Owners Equity Account T - Temporary Account OB - Off-Balance Sheet Account IKS/RRI 8 TASHKENT, SEPTEMBER 2007

112 PROJECT IMPLEMENTATION ARRANGEMENTS APPENDIX 7 Project Implementation Unit Road Fund Head of PIU Project Management and Supervision (CSP-1) Procurement Specialist (INV) Contact Officer of Road Fund Contact officer of Road Fund Contact officer of Uzavtoyul Road Construction Component Road Sector Planning and Management System Consultant (CSP-2) Establishment of Equipment Unit Civil Works Contractor (CWPs 1-6) Consultant (CSP-3) Goods Suppliers (GPs 1-7) IKS/RRI 1

113 PROCUREMENT PLAN AND TENTATIVE CONTRACT PACKAGES APPENDIX 8 Project Information Country Name of Borrower Project Name Loan Reference Date of Effectiveness Project Cost Amount ($ million) Of which ADB Loan Amount ($ million) Executing Agency Approval Date of Original Procurement Plan Approval of Most Recent Procurement Plan Publication for Local Advertisement Period Covered by this Plan 1 Republic of Uzbekistan Ministry of Finance Regional Road Project TBD TBD $170.6 million $85.2 million The Road Fund TBD TBD TBD TBD Procurement Thresholds, Goods & Related Services, Works and Supply & Install Methods Threshold International Competitive Bidding (works) > $2,000,000 International Competitive Bidding (goods) > $1,000,000 National Competitive Bidding (works) </= $2,000,000 National Competitive Bidding (goods) </= $1,000,000 Shopping (works) </= $100,000 Shopping (goods) </= $100,000 Exceptional Methods Limited International Bidding (works) $100,000~$1,000,000 Limited International Bidding (goods) $100,000~$1,000,000 Procurement Thresholds, Consultants Services Methods Threshold > $1,000,000 by Full Technical Proposal Quality Cost Based Selection (QCBS) </= 1,000,000 by Simplified Technical Proposal </= $600,000 by Bio-data Technical Proposal Consultants Qualifications Selection (CQS) </= $200,000 (ex. External auditors) Least Cost Selection (LCS) </= $100,000 (ex. External auditors) Individual consultant (International Procurement Specialist). Justification: A Single-Source Selection Procurement Specialist is required to help the Road Fund undertake advance actions for procurement of contractors and consultants 1 The plan will be updated annually, on rolling 18-month basis, on the anniversary of the date of loan effectiveness. IKS/RRI 1

114 Ref Contract Description Table 1: List of Contract Packages in Excess of $100,000 Goods, Works, and Consulting Services Estimated Costs ($ million) Procurement Methods Expected Date of Advertisement Prior Review Y/N Comments 1. Civil Works 86.4 ICB/NCB October 2007 Y Financed by ADB and GOU 2. Goods 57.9 ICB October 2007 Y Financed by ADB Consulting QCBS October 2007 Y Financed by ADB Services ADB = Asian Development Bank, GOU = Government of Uzbekistan, ICB = international competitive bidding, N = no, NCB = national competitive bidding, QCBS = quality- and cost-based selection, Y = yes. Source: the Road Fund. Ref Contract Description A. Civil Works Unit Length (km) Table 2: Proposed Detailed Contract Packaging Estimated Costs ($ million) Mode of Procurement Duration (months) Contract Starting Contract Completion Responsible Agency 1. CWP-1A: Km NCB 9 Jan 2008 Sept 2008 Road Fund 2. CWP-1B: March ICB 18 Oct 2008 Km Road Fund 3. CWP-2A: Km NCB 9 Jan 2008 Sept 2008 Road Fund 4 CWP-2B: March ICB 18 Oct 2008 Km Road Fund 5 CWP-3: Km ICB 18 Jan 2009 June 2010 Road Fund 6.. CWP-4: Km ICB 18 Jan 2009 June 2010 Road Fund 7. CWP-5: Km ICB 21 April 2010 Dec 2011 Road Fund 8. CWP-6: Km ICB 21 April 2010 Dec 2011 Road Fund Total Civil Works B. Goods Set 1. GP ICB 9 July 2008 March 2009 REMU 2. GP ICB 9 July 2008 March 2009 REMU 3. GP ICB 9 July 2008 March 2009 REMU 4. GP ICB 9 July 2008 March 2009 REMU 5. GP ICB 6 July 2009 Dec 2009 REMU 6. GP ICB 6 July 2009 Dec 2009 REMU 7. GP ICB 6 July 2009 Dec 2009 REMU Total Goods IKS/RRI 2

115 C Consulting Services INV: Procurement Specialist CSP-1: Project management and construction services CSP-2: Establishmen t of REMU CSP-3: Road Sector Planning and Management Total Consulting Services Person -month (total) SSS 12 Oct 2007 Sep 2008 Road Fund QCBS 39 Oct 2008 Dec 2011 Road Fund QCBS 6 April 2008 Sep 2009 Road Fund QCBS 12 April March 2010 Road Fund Total Contract Packages CSP = consulting service package, CWP = civil works package, GOU = Government of Uzbekistan, GP = goods package, INV = individual consultant, ICB = international competitive bidding, NCB = national competitive bidding, km = kilometer, QCBS = quality- and cost-based selection. Source: The Road Fund. IKS/RRI 3

116 PROJECT IMPLEMENTATION SCHEDULE APPENDIX 9 Preparatory Works Set-up of PIU W ebsite development and uploading Recruitment of Procurement Specialist Preparatory W orks for Procurement Recruitment of Detailed Engineering Design Consultant Engineering design Civil W orks Activity Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Recruitment of Project Management and Supervision Consultant Project Management and Supervision W orks Procurement CW P-1A and CW P-2A Civil works CW P-1A and CW P-2A Procurement CW P-1B and CW P-2B Civil works CW P-1B and CW P-2B Procurement CW P-3 and CW P-4 Civil works CW P-3 and CW P-4 Procurement CW P-5 and CW P-6 Civil works CW P-5 and CW P-6 Road Equipment Procurem ent of Equipm ent G P-1, G P-2, G P-3, and G P-4 Delivery of Equipm ent G P-1, G P-2, G P-3, and G P-4 Procurement of Equipment GP-5, GP-6, GP-7 Delivery of Equipm ent G P-5, G P-6, G P-7 Advisory Support Recruitm ent of C onsultant for Advisory for Establishm ent of R EM U Establishment of REMU Recruitment of consultants Advisory services for Road Sector Planning and Management System IKS/RRI 1

117 ASIAN DEVELOPMENT BANK GOVERNMENT OF THE REPUBLIC OF UZBEKISTAN THE REPUBLICAN ROAD FUND UNDER THE MINISTRY OF FINANCE F I N A L PREPARING THE REGIONAL INFRASTRUCTURE (ROADS) PROJECT ADB PPTA No UZB VOLUME 2 Initial Environmental Examination R E P O R T Submitted by: ISLOHOTKONSALTSERVIS LTD. Tashkent / Uzbekistan in association with ROAD RESEARCH INSTITUTE Tashkent / Uzbekistan October 2007

118 Initial Environmental Examination (IEE) ADB TA 4889-UZB Regional Infrastructure (Roads) Project October, 2007

119 Table of Contents 1. INTRODUCTION PURPOSE OF THE IEE IEE BOUNDARIES LEGAL AND ADMINISTRATIVE FRAMEWORK FOR ENVIRONMENTAL PROTECTION METHODOLOGY APPLIED ACKNOWLEDGEMENT DESCRIPTION OF THE PROJECT TYPE OF PROJECT CATEGORY OF PROJECT NEED FOR PROJECT LOCATION SIZE OF OPERATION AND PROPOSED SCHEDULE OF IMPLEMENTATION DESCRIPTION OF THE ENVIRONMENT PHYSICAL RESOURCES Climate Air Quality and Noise Topography, Geology and Soils Surface Water and Groundwater Resources ECOLOGICAL RESOURCES: FOREST, WILDLIFE AND FISHES ECONOMIC DEVELOPMENT Industries and Employment Infrastructure and facilities (water supply, sewerage, drainage/control) Transportation (road, rail pipeline and air) Land Use Planning Power Sources and Transmission Agricultural and Mineral Development SOCIAL AND CULTURAL RESOURCES Population and Community Public Health Education Facilities Socioeconomic Conditions Physical and Cultural Heritage Current Use of Lands and Resources by Indigenous People Historical, Archaeological, Paleontological or Architectural Features Human Settlement in the RoW INSTITUTIONS SCREENING OF POTENTIAL IMPACTS AND MITIGATIVE MEASURES PRE CONSTRUCTION ENVIRONMENTAL EFFECTS AND MITIGATIVE MEASURES CONSTRUCTION-PERIOD ENVIRONMENTAL EFFECTS AND MITIGATIVE MEASURES ENVIRONMENTAL EFFECTS ASSOCIATED WITH PROJECT OPERATIONS IMPACT AND MITIGATION RELATED TO PROCUREMENT SOCIAL ASSESSMENT Social Impact Poverty Impact Resettlement THE ENVIRONMENTAL IMPACT MITIGATION AND MONITORING PROGRAM (EMP) The Environmental Mitigation Table (EMiP) The Environmental Monitoring Table (EMoP) Delivering Mitigation and Monitoring MITIGATION AND MONITORING COSTS INSTITUTIONAL REQUIREMENTS AND ENVIRONMENTAL MONITORING PROGRAM INSTITUTIONAL CAPACITY, NEEDS AND PROPOSED STRENGTHENING ENVIRONMENTAL MONITORING PUBLIC CONSULTATION AND INFORMATION DISCLOSURE FINDINGS AND CONCLUSIONS...30 IKS/RRI i

120 8. RECOMMENDATIONS...30 Annexes Annex A: Annex B: Annex C: Opinion of State Environmental Expertise Committee Table A-1-Environmental Management Plan Table A-2-Environmental Monitoring Plan Outline Terms of Reference for Consultants IKS/RRI ii TASHKENT, OCTOBER 2007

121 Acronyms, Abbreviations and Definitions Item Applicable Unit of Measure Definition AADT Vehicles/day Average Annual Daily Traffic Volume CO 2 mg/m 3 Carbon dioxide released into the are from burning fossil fuel CSE -- Construction Supervision Engineer dba decibals Decibals in the A-weighted or audible noise band EMiP -- Environmental Mitigation Table or Plan (part of EMP) EMoP -- Environmental Monitoring Table or Plan ( part of EMP) EMP -- The project s environmental management plan HAZMAT -- General term for any hazardous and toxic materials hr -- Abbreviation for hour L or l -- Abbreviation for the liquid measure liter MSF -- Medecins Sans Frontieres (Doctors Without Borders) NO 2 mg/m 3 Nitrogen dioxide a pollutant stemming from fossil fuel use Oblast -- Soviet era term for province PCE -- Passenger Car Equivalent; a unit used to make all road vehicles equal to passenger cars, e.g. a truck might be 3 PCEs. PIU -- Project Implementation Unit of UZAVTOYUL RoU -- Republic of Uzbekistan RoW m t or tonne -- Metric ton or 1000 kgs. SEE The width of land along a road which is owned by the government and reserved for road and related infrastructure construction; varying between 30 and 50m Uzbekistan State Ecological Expertise Department SO 2 mg/m 3 Sulfur dioxide gas produced by fossil fuel burning URF -- Uzbekistan Road Fund ( main manager or Road planning in the country) UTY -- Uzbekistan Railway Authority UZAVTOYUL -- Uzbekistan s National Road operator UZGIDROMET -- Uzbekistan s National Meteorological Service TH ug/m 3 Total hydrocarbon in the air stemming from evaporation of fuel during its handling. TPM ug/m 3 referred to as PM 10, i.e, particles less than or Measurement of particles in the air, usually equal to 10 microns in size. IKS/RRI iii TASHKENT, OCTOBER 2007

122 1. Introduction 1. This IEE has been prepared as a direct requirement of the ADB s environmental specifications for infrastructure project planning. It has classified this project as a Category B undertaking. Under the Uzbekistan EA regulation this project requires only confirmation that project activities will be confined to the RoW and that no significant realignments or interference with any natural habitat will take place. Therefore, in this case the ADB s category is more stringent than Uzbekistan s legislation. The project ToR called for the examination of the need for a full EIA. This was completed as part of the interim report (submitted to the ADB in June 2007), in which the field evidence and consultation with officials revealed that most of the project impacts were benign and/or easily mitigated, confirming that a full EIA will not be needed. 2. This IEE has been approved by the Opinion of State Environmental Expertise Committee ( GOSKOMPRIRODA ). The Opinion of the GOSKOMPRIRODA is attached in Annex A 1.1 Purpose of the IEE 3. The IEE is a RoU document. It is prepared by the TA consultant, on behalf of the Executing Agency, in this case the Uzbekistan Road Fund (URF) within the Ministry of Finance and UZAVTOYUL (Road Agency)1. The IEE identifies any likely significant direct and indirect environmental effects associated with the proposed project during key period of work, the extent, duration and severity of the impacts, the assessment of all significant impacts, and the preparation of a set of costed mitigative and monitoring actions in the form of an Environmental Mitigation and Monitoring Action Plan or EMiP/EMoP (Annex B: Table 1 and 2). The IEE also provides an examination of the institutional and technical capacity of URF and Uzavtoyul and other bodies at the provincial level likely involved in the implementation of the EMiP and EMoP s, implementation. It concludes with recommendations for follow up environmental work, such as an EIA and any other more specialized environmental analyses. Identification of the Project and Project Proponent 4. The potential project, involving a project loan to upgrade two sections of National Highway A-380 in Kharezm province and the Autonomous Region of Karakalpakstan totalling 131 km and the provision of key road construction and paving equipments to replace the old and poorly functioning existing inventory. This equipment will include 2 mobile asphalt plants, rock crushing plants, asphalt milling machines, bulldozers, large road roller and a number of large trucks. A PPTA was funded by the ADB to prepare a complete feasibility study, leading to negotiations and approval of the project loan from the ADB. The proponent (executing agency) for this project is the URF and UZAVTOYUL, with the main point of contact being the URF. The Nature, Size, Location and Importance of the Project 5. The objectives of the Project are to (i) promote economic development and regional cooperation by improving the national A-380 highway and (ii) facilitating the acquisition of modern construction equipment used to rehabilitate the key highways and roads in Uzbekistan, focusing initially on A-380 and M To achieve these objectives two key outputs will be: a project feasibility study covering a review of technical, financial and economic viability; including the examination of both environmental and social 1 UZAVTOYUL s specific involvement is not confirmed at this point, but it is likely that they will become the executing agency IKS/RRI 1

123 implications, plus institutional capacity to effectively undertake the management of the road rehabilitation work and implementation of all requirements defined in the feasibility study; and, a framework and process with which the purchase and effective use of this high tech equipment, including state-of-the-art mobile asphalt plants can be achieved. The project involves the upgrading of Highway A-380 along the following sections: Section 1: Kharezm Province and Karakalpakstan: Km ; 91 km; and, Section 2: Karakalpakstan: Km ; 40 km. 7. A total of 131 km will be rehabilitation, requiring widening and resurfacing, using more or less 484,000 m3 of asphalt and twice the amount of sub-base materials. The main working width will be 8-10m centered over the existing carriageway (Figure 1). There are no diversions or bypasses included in this work. These two sections will be important links in the rehabilitation of all of A-380 expected to be completed by 2012 or IKS/RRI 2

124 Figure 1 Cross Section showing Approximate Dimensions of the work area 3 IKS/RRI

125 8. The Road building equipment to be purchased will likely account for >40% or $75 million of the loan, and will include two mobile asphalt plants and two crushing plants, each capable of producing 100/t/hr and 100m3/hr of materials respectively. In addition there will be blasting equipment, drilling rigs, pile driving rigs and 300hp bulldozers (Table 1). The ADB has ruled that the procurement component is not to be included as part of the environmental assessment. Nevertheless a general mitigation statement is provided in Section 4.4 of the IEE. 9. Based in the social survey, more than 65% of the people in this area have incomes less than 3,600 Soum/person/month. Of these more than half have incomes of less than 2,600 Soum/person/month. Using World Bank criteria, these figures suggest low to very low incomes and associated living conditions; or in international terms, poverty and extreme poverty conditions. These conditions are particularly dire in Karakalpakstan due to the collapse of all industry associated with the Aral Sea, and the growing salinization of the land due to airborne dispersal of the Aral sea salt as it continues to shrink (at least in the Uzbek basin) and the dramatic rise is respiratory disease. 10. Upgrading of the project road sections will on their own have little socioeconomic effect and will generate few direct benefits, other than during construction when some people from local communities will be employed. As more and more sections are upgraded and the highway has a uniform level of service along its entire length, benefits in terms of reduced travel time, more reliable transport service, greater passenger comfort and generation of jobs stemming from greater traffic-induced commerce may be realized. These changes will, over the long term, gradually lead to an improved standard of living for those local families who will take advantage of new income generating opportunities. It will be better access to services such as health, schooling and markets that will be felt immediately once a section or road is improved. 11. Given the extremely harsh desert climate and almost total absence of communities in the sections to be rehabilitated the influx of people and business is not likely for many years. 12. The ToR for this project made no mention the important role the border crossing facilities have in supporting the benefits of the road as a stimulant for greater international traffic. At present crossings at both ends of the road are old, inefficient and already lead to considerable backups, during busy periods, and as such are infrequently used. As traffic grows these conditions will only worsen, negating the value of better roads. That having been said, to date there is no plan to include the border crossings in the feasibility study. Table 1. Road and Bridge Equipment to Purchase as Part of This Loan: July 2, 2007 Plant and equipment Unit Quantity 1. Asphalt mixing plant, mobile, Producing capacity 100 tonnes/h set 4 2. Rock-crushing and screening plant, mobile, producing capacity 100m3/h set 4 3. Asphalt paver, working width 7.5 m unit 4 4. Vibrating combination tandem roller, with the weight 9.2 tonnes unit 4 5. Combination tandem roller, with the weight 8.6 tonnes unit 4 6. Front-end loader, with 4-5m3 bucket unit 8 7. Cold milling asphalt cutter, with width of 2.0m unit 4 8. Dump truck with the capacity 15 tonnes unit Bulldozer, capacity hp unit Bulldozer, capacity hp unit Bulldozer, capacity hp unit Motor grader, with the weight up to 13 tonnes unit Motor grader, with the weight up to 20 tonnes unit Excavator, with 1.5-2m3 bucket unit Cold milling asphalt cutter, with width of 0.5m unit Asphalt recycling plant unit Truck crane, capacity 10 tonnes unit Chassis-mounted bitumen tanker (transporter), capacity tonnes unit 4 IKS/RRI 4

126 19. Drilling-and-blasting equipment, depth 30-50m, diameter mm set Fuelling vehicle, capacity 8000l unit Mobile repair shop unit 4 Total: 232 One complex for road construction works on concrete paved roads Plant and equipment Unit Quantity 1. Tractor-trailer rig, capacity 60 tonnes unit 1 2. Truck crane, capacity 50 tonnes unit 2 3. Truck crane, capacity 25 tonnes unit 2 4. Dump truck, capacity 15 tonnes unit 2 5. Diesel hammer, with the weight of striking part 2500kg unit 1 6. Drop-hammer pile driver, mobile, capacity 10 tonnes, useful height 20m unit 1 7. Boring machine, depth up to 50m, diameter 1.7m unit 1 Total: 10 One complex for bridge construction works Plant and equipment Unit Quantity 1. Concrete mixing plant, mobile, Producing capacity 100m3/h set 1 2. Rock-crushing and screening plant, mobile, producing capacity 100m3/h set 2 3. Concrete paver, working width 7.5 m unit 1 4. Front-end loader, with 4-5m3 bucket unit 2 5. Cold milling asphalt cutter, with width of 2.0m unit 1 6. Dump truck with the capacity 15 tonnes unit 30 Total: 37 One complex for bridge construction works Plant and equipment Unit Quantity 1. Tractor-trailer rig, capacity 60 tonnes unit 1 2. Truck crane, capacity 50 tonnes unit 2 3. Truck crane, capacity 25 tonnes unit 2 4. Dump truck, capacity 15 tonnes unit 2 5. Diesel hammer, with the weight of striking part 2500kg unit 1 6. Drop-hammer pile driver, mobile, capacity 10 tonnes, useful height 20m unit 1 7. Boring machine, depth up to 50m, diameter 1.7m unit 1 8. Immersion and plate vibrators, diameter mm unit 10 Total: IEE Boundaries 13. Based on existing regulation the national road RoW width is 50m (25 m on either side of the road centerline. While this is not officially surveyed or marked, it is generally complied with (Photo 1) even through towns. IKS/RRI 5

127 Photo 1. Km 900 in Karakalpakstan Section of the Project Road: Note Transmission line, marking left boundary of RoW. 14. Note in Photo 1 that the electrical power line is outside edge of the RoW and between it and the road shoulder is the underground gas pipeline, usually located about 30m from the shoulder. The pipeline is very clearly marked every m by special dry reed markers visible from the road and also from the air. There is no danger of the pipeline being interfered with by the road work. All work will be done within the existing subgrade width, or about 20-22m (Figure 1), with construction and movement of materials taking place from the highway, thus not requiring any access roads. The boundary of the impact zone for endangered species and for any ecologically important areas was extended to a 2 km band centered over A Legal and Administrative Framework for Environmental Protection 15. Since Independence, many laws and regulations on environmental issues have been developed in Uzbekistan. The Law on Environmental Protection (1992) established a legal, economic and organizational framework for environment protection, ensuring sustainable development and defining principles, including the conduct of environmental studies2. The State Committee for Nature Protection (Goscompriroda) is a primary environmental regulatory agency, and reports directly to the Parliament. Goscompriroda is responsible for supervising, coordinating and implementing environmental protection and controlling the usage and renewal of natural resources at the central, oblast and rayon (district) levels. The mandate of Goscompriroda is based on the Regulation on the State Environmental Committee of the Republic of Uzbekistan (1996). 16. The organizational structure of Goscompriroda consists of a central body in Tashkent, and provincial and district branches and agencies for scientific and technical support. In Tashkent, Goscompriroda consists of various authorities and departments. The authorities have responsibilities in the fields of protection of air, water and land resources. The departments have technical responsibilities related to environmental standards, environmental law, international relations, use of environmental funds, etc. Three remaining units deal with economics, publicity, EIA and ecological (environmental) review (State Ecological Expertise). 17. Goscompriroda, through its State Ecological Expertise Department (SEE) reviews, inter alia, environmental impact reports, promotes the use of low waste technologies, 2 At present Uzbekistan uses a more reactive, as opposed to preventative, approach to management of environmental impacts of development projects. IKS/RRI 6

128 prepares and implements ecological regulations and standards, coordinates environmental programs and elaborates the structure for environmental monitoring and governance of nature reserves. It approves regulations proposed by the environmental committees at various levels and issues permits for pollutant emissions and may prohibit projects and construction works that do not comply with environmental legislation. 18. In addition to the 1992 Law in Environmental Protection, Goscompriroda uses the following additional legal instruments to manage environmental issue related to road development: Law on Ecological Expertise. Approved in May 2000г.// New Laws of the Republic of Uzbekistan. Edition 23, page.189. Amendments were published in the Newspaper «Narodnoye Slovo» dated on Law on Especially Protected Environmental Areas. Law on Wildlife Protection and Management. Approved in December // New Laws of the Republic of Uzbekistan. 18th Edition, p.220. Law on Protection and Management of Flora. Approved in December // New Laws of the Republic of Uzbekistan. 18th Edition, p.207. Law on Introduction of Amendments into the Law on Nature Protection and On Especially Protected Environmental Areas. Approved in May // New Laws of the Republic of Uzbekistan. 10th Edition, p.242. Law on Atmospheric Air Pollution Including ambient air quality standards, emission standards and Guidelines for Application (# ). Law on Water Pollution Uzbekistan s Law on Ecological Expertise (Assessment) addresses Environmental Assessment and defines for which types of projects an EIA must be undertaken. A complete examination of Uzbekistan s EA process was published in 2004 by Khusnutdunova (2004)3, in which she concluded that the EA process in Uzbekistan requires strengthening before sustainable development can be fully achieved. Some of these gaps were to be filled via training workshops and in particular a World Bank project completed in Unfortunately that training was not given to the UZOVTOYUL or URF staff and a large gap remains Methodology Applied 20. Prior to the selection of the two sections as the preferred project, at least two other sections in Karakalpakstan Autonomous Region as well as in Bukhara Province were considered. The preferred option was selected by the GoU on the basis of need and confirmation that no serious environmental or social issues would need to be addressed. 21. Screening of potential impacts was completed using a windshield surveys involving a drive along the road by car; with all environmental features within the 50m-wide road RoW recorded on survey forms and with photos taken more or less every 2-3 km. Significant environmental features were flagged as well as any locations where construction methods to be applied could lead to potentially significant negative impacts. The photographic record was used to support findings and conclusions. The direct impact zone for this IEE is the 50m wide national highway RoW and a broader ecological impact boundary of 2 km (1 km on either side of edge-of-pavement). 22. The IEE was prepared using inputs of many institutions, most prominent being Goscompriroda in Tashkent and provincial officials of the URF in both Kharezm and Karakalpakstan, as well as the provincial environment departments in both provinces. 1.5 Acknowledgement 23. The IEE was completed by the ADB consultant on behalf of URF and UZAVTOYUL. Their inputs and those of its regional offices in Urgench and Nukus, the local office in Kungrad, were greatly appreciated. As well, consultations with Kharezm and Karakalpakstan 3 Khusnutdinova, Galina Environmental Impact Assessment in Uzbekistan. IAIA Journal. 22 (2): IKS/RRI 7

129 environmental departments and government entities in order to assess if there are any environmentally sensitive features within the 2 km wide ecological impact zone was completed. Information and cooperation of GOSCOMPRIRODA is acknowledged. Knowledge of local conditions gained through informal discussion with local officials and residents along the road RoW is also gratefully acknowledged. 2. Description of the Project Type of Project 24. This project involves undertaking a feasibility study and preparing a road upgrading investment package for future project-loan financing. The Project focuses on the upgrading of the existing 131 km of National Highway A-380 and procurement of two sets of high tech equipment including two mobile asphalt plants. Category of Project 25. The ADB has classified this project as a category B. This category requires the completion of an Initial Environmental Examination (IEE). The IEE authors, on behalf of the GoU, assessed the need for a complete EIA and concluded in the interim report that, given only minor environmental impacts, an IEE was indeed the only assessment necessary. This conclusion was accepted by the ADB. 2.3 Need for Project 26. Uzbekistan is rich in natural resources but landlocked and hampered by restrictive export regulations imposed by its neighbors. It borders Kazakhstan to the north, Kyrgyzstan to the east, Tajikistan and Afghanistan to the south and Turkmenistan to the West. Uzbekistan is one of the major producers of cotton, gold uranium and natural gas in Central Asia. It also has significant deposits of copper, oil, silver and limestone (for cement). For these resources to be profitably exploited, they are moved to processing facilities in very large (with some exceptions) quantities, usually by rail, and from there by truck transport. Road, particularly the national highway system is in bad repair and as a result the movement of commodities suffers significantly, not just in terms of delivery time but the quality of the goods transported over punishingly rough roads. 27. As a Soviet Republic, Uzbekistan was designed as a narrow and unbalanced economy, i.e. a component in a larger industrial base, and therefore is now struggling with economic reforms hoping that they will signal a more stabile and less risky investment climate. A cornerstone of this strategy is having a modern road network able to carry large volumes of freight across the country and internationally. The A-380 is the main road link, running N-S through Uzbekistan, linking to other central Asia countries and indeed Europe. 2.4 Location 28. The project is located in the desert of NW Uzbekistan near the border with Turkmenistan and paralleling the Amudarya River (Map 1). In Section 1 the river is 5-10 km to the south of the road section, often with desert followed by fields and small farms between it and the road, since settlement (what little there is o fit) is all clustered along the river shore. For Section 2 the river is >100 km to the north and east of the road. The corridor does not pass through settled areas (Photo 2), other than nomad camps located about 7 km distance from the road, and a few road-toll houses (Photo 3). The project road section has no farming other than the nomadic sheep and cattle herding which has taken a great toll on the Kyzylkum Desert, decreasing the sparse grass cover and increasing the problems with sand dunes and erosion. IKS/RRI 8

130 Photo 2 Km 497 Looking NW on the A 380 Corridor One nomadic camp (actually a temporary encampment, consisting of mostly goat and sheep herders ( 3-5)), were pointed out by the local consultants, 7 km from the road. These were not assessed further in the IEE, given the distance and nomadic lifestyle. 2.5 Size of Operation and Proposed Schedule of Implementation 29. In relative terms the project will involve a small number of people working in a very confined area, nearly 100% restricted to the road right-of-way. The work will likely be awarded to six contractors, who will start work at more or less the same time. A total workforce of people will be involved in each rehabilitation contract for 20km of roadway. All major construction materials will be brought a nearby storage location by rail and to the construction site by large truck. Photo 3. Military Checkpoint along A380 in Kharezm Province 30. The total area disturbed will be between ha of land, not including the existing carriageway and shoulders. The movement of more than 6.6 million m3 of earthworks for subgrade, shoulder and carriageway repair will be done primarily by ton-capacity trucks, transporting materials to the road worksites and/or the mobile asphalt plants. IKS/RRI 9

131 31. The work period for the whole rehabilitation, including preparatory time and procurement of materials and equipment is set at approximately 4 years beginning in late 2007, with the contractor being mobilized in late 2008, with actual work progressing for three years. As indicated in the feasibility study, not all work can be completed simultaneously, but much of the intensive earthworks activity will take place during years two and three of the construction period. Key environmental tasks needing to be integrated into the main project actions will be: the preparation of environmental clauses for inclusion in the bid documentation ( during Detailed Design Stage), the planning and delivery of an EA training workshop in Nukus and Kungrad, (within the 1st month of the start of construction); the preparation of a construction period mitigation and monitoring schedule by the contractor, based on the IEE s EMiP and EMoP (prior to groundbreaking by contractor). The preparation of end of construction environmental compliance checklist/report; ( within 4 months of end of construction period) and, The preparation of a operating period environmental monitoring schedule in consultation with the road operator (Within first three months of operating period). 32. Work will take place around the clock in order to take advantage of the remote location of nearly all of the project contract road sections. The section from Kungrad to Km 916 will need restrictions to reduce noise and visual intrusion impacts at night, near Kungrad. 3. Description of the Environment 3.1. Physical Resources Climate 33. The project area has a southern temperate continental desert climate, with extremely hot summer temperatures exceeding 45o C and virtually no rain. December through February is the winter period with temperatures dropping below -15o C, but more often around the freezing point or above 0o C. Temperatures begin to climb in March, accompanied by occasional rain, with not more than mm falling, sometimes accompanies by flash-flooding. In dry desert conditions the daily temperature fluctuations can be as much as 30o C. 34. These fluctuations have affected the stability of the roadway and engineering countermeasures will be designed to reduce the problems now being encountered during these extreme shifts. Frequent dust storms occur during the summer when winds exceeding 100km/hr generate large disturbances, significantly raising the levels of Total Particulate Matter (TPM) in the project area Air Quality and Noise 35. In Uzbekistan air quality data are collected at 17 observations centers, operated by by the Service of Air, Surface Water, and Soil Pollution Monitoring of the Committee on Hydrometeorology of the RoU (UZGIDROMET). Results of the monitoring on 17 Observation Stations, located throughout the country are published in a confidential annual report Review of Air Pollution Condition and Pollutant Emissions in the Cities and Territories of Uzbekistan. 36. According to the multiyear data, intensity of dust-storms, with wind speeds of kph, increase as one drives NE from Urgench to Kungrad. The average wind speed remains about IKS/RRI 10

132 IKS/RRI 11

133 km/hr. Wind is very significant for air quality since for many months of the year the project area has elevated TPM levels due to the constant wind-related dust in the air. Table 2. Ambient Air Quality as measured along A 380; 2006 (unknown averaging period) Air Quality Control Point Location and Km Single (1 hr) NO 2 (mg/m 3 ) TSP (mg/m 3 ) CO 2 (mg/m 3 ) Continuous Measurement Single Continuous Single (24 hr) Continuous Measurement Up to Not available Up to Not available 38. Monitoring data (Table 2) show that background levels of NO2 and TPM at Urgench and Nukus are within permissible standards. During the March-May windy season, TSP level will exceed permissible concentrations due to sand storms which can be enormous, sometimes covering more than 45,000 km2 during a single event. Given that there is no industry anywhere along the alignment except the Prov. Transport Department s rock crushing and batch plant facilities, and the soda mine and factory at Km 916, air remains relatively clean. During storms fine salt due past irrigation-induced soils salinization and Aral Sea recession, is dispersed into the airmass, causing serious environmental damage to all living organisms, as well as wide ranging human health effects. 39. At other times the air quality near the road is well within the RoU standards since no industrial or commercial emission source exist anywhere and traffic is at low levels. Table 3. Summary of Traffic Volume Projects By Vehicles Type and as PCEs for (Source: TA consultant). Section 1: Km Year Car medium Internaional Four- Wheel Drive Bus Mini Average Annual Daily traffic by Vehile Type Bus Heavy Truck Light Truck Medium Internaional Lint l Truck Heavy Domestic Domestic Truck Heavy Section 1: km (91km) Section 2: km (40km) RoU Standards Sources: Air Quality Yearbook, 2006 ; Note: Air Pollution Index is within normal range. Int l Arctic. Truck Domestic Domestic Artic. Truck Fore - casted Forecasted Light Trucks Sum of Col: 1-11 Sum: Col 1-11 AADT PCEs Existing Traffic Column NO Section 2: KM PCE Factor PCE=Passanger car equivalent 40. Over a nearly 25 year projection period traffic (Table 3) is expected to increase less that 4X to only 1,393 AADT by These volumes are not enough for serious air pollution problems, particularly when viewed in relation to emission control technology improvements as well as the introduction of cleaner fuels. In terms of diverted traffic from other means to this road for 2030 was estimated to be only 1,816 PCEs yielding an AADT of 15,376 PCEs, or less than 10% rise over no-project conditions. IKS/RRI 12

134 41. During the field investigation no sensitive noise sites were identified. The Daoud Ata Cemetery, within 50m or the A380 carriageway at km 888, is a marginally sensitive site and had existing traffic noise averaging dba. This is not expected to change appreciably over time. Noise levels at two stations were estimated using the RoU basic noise model as well as a noise attenuation nomograph taken from the ADB s 1998 EA Guidelines. Further Uzbekistan noise data from the Environment Department were also examined. At 20 meters from the edge-of-pavement, noise levels during the day are at 66dBA and at night are perceived to be 53 dba (Tale 4). There are levels at or below annoyance levels. 42. For section 2 the noise levels are lower, due to a much lower traffic volume. Again measured values are well within RoU standards for rural areas. Table 4. Estimated noise levels :A380 at 20m distances from source (consultant estimate 07). Sections sensitive to Noise (km from-to) Section 1: km Section 2: km Traffic Volumes AADT 2007 Section Description Distance from roadside (m) Noise Level db(a). Day Night Time Time (0700- ( ) 0659) 1924 Desert: sparsely populated km 876 to km 887 irrigated lands km 887 desert, Plateau Ustyurt RoU Standard Less than 65 Weighting includes adding 10dBA for night-time annoyance factor due to low ambient noise levels ROU Standard: residential -rural: day 65-75dBA night <65dBA: range refers to standard for sensitive landuses such as schools and playgrounds, versus fields and unused land Topography, Geology and Soils 43. The topography of the land through which the two road sections pass includes mostly desert and slightly undulating terrain as found at the boundary of the Amudarya River valley. Karakalpakstan, where all but 20km of the project road is located has two large water bodies the Aral Sea and Sarykamysh Lake which it shares with Kazakhstan and Turkmenistan respectively. Nearly all towns and villages in the vicinity of the road are located in the irrigated river plain and the delta of the Amudarya, a minimum of 5-10km away from the road RoW, leaving the project roadsides almost totally uninhabited. 44. The geology of the area consists of a mixture of sandstone and limestone, overlain with sand. The Amudarya plain has fertile soils deposited over the millennia by the river on its journey to the Aral Sea. The low levels of precipitation require that the area be irrigated, a practice ongoing for more than 2000 years, but only recently during the Soviet period, practiced to extremes with massive diversions of fresh water, leading to the demise of much of the Aral Sea. Neither of the project road sections passes across or close to the river valley proper Surface Water and Groundwater Resources 45. Aside from the occasional rainfall and flash flooding, there is no surface water over which the road passes. The shallow groundwater aquifer is >25m below the surface, is saline and polluted. Due to the intensive pesticide and fertilizer use, especially in Khorezm province and Karakalpakstan, groundwater at a depth of m is also contaminated. Groundwater for human consumption is scarce in the two project oblasts, an estimated 22,000 and 33,000 m 3 /day are available (2003 data) in Khorezm and Karakalpakstan respectively. Seven thousand and 5,000 m 3 /day have been allocated for industrial use in Karakalpakstan and Khorezm respectively, thereby seriously restricting the water use for concrete production4. While neither surface nor groundwater quality will be affected, the 4 Concrete making required very clean water, with no salt contamination and a low TDS level. IKS/RRI 13

135 local extraction of groundwater during the construction period could have serious local impacts. Hauling water from the Amudarya, at least for Section 1 is an option to be considered Ecological Resources: Forest, Wildlife and Fishes 46. The ecological zones through which the road passes is the Qizylkum desert and Ustiyurt Plateau an elevated desert region, much of it significantly modified by past irrigated agriculture and livestock over-grazing. The ecology of the project area is dominated by the desert, with different regions having variable levels of vegetation. Section 1 has no known environmental issues or environmentally sensitive features within at least a 3 km distance centered over the road. 47. The Amudarya River Basin Forest Reserve is located at km 686, more than 100km away from project road Section 1 and 100 km from Section 2; with the forest beginning about 1.5 km SE of A-380 RoW ( Map 1). While its administrative boundary (the buffer zone) is within 20 meters of the roadside. The forest extends in a long strip near the river for more than 10 km. Shoulder to shoulder width is 10-11m Photo 4. Road Section No. 1, Km , passing through the Kyzylkum desert area, looking North. Note salt bush and Saksaul Plants. Electricity and gas pipeline located on left side of road with Amudariya River located 1-4km to the SW out of view of much of this section 48. For section 2 there are no known sensitive species habitats, despite the fact that historically the area was, prior to 1980 the migratory range of the saiga antelope, an endangered species and the goitered gazelle a vulnerable species. Since that time over hunting and the shrinking of the Aral Sea has decimated the Saiga population such that now only 10% of the original numbers remain. There is no danger that the project road work will in any way interfere with these species. A less sever, but similar condition affects the goitered gazelle. 49. There are other vulnerable birds and herptiles species in the general area, but have not been sighted within 5 km of the road sections by environment officials of Gozcompriroda Nukus or Kungrad (Personal communication Gozcompriroda Nukus and Kungrad July 07) for over a decade. 5 The Amudarya is the nearest surface waterbody to either project road section; i.e., from 4-10 km distance for Section 1 and > 100km for Section 2. IKS/RRI 14

136 3.3. Economic Development Industries and Employment 50. After the collapse of the Soviet Union, Uzbekistan suffered from significant negative impact that was caused by loss of significant transfers from the Soviet Union budget and distortion of highly integrated economic ties with enterprises in the former Soviet republics. In contrast to other CIS republics, Uzbekistan followed a cautious approach to economic reforms and as a result it experienced less economic shock than its neighbours. 51. Uzbekistan was the first CIS country to exceed its 1991 level of GDP. Growth rates started to decrease in 1997 when prices for main export commodities fell, at which point the ROU imposed strict foreign exchange controls and foreign trade restrictions. As a result Uzbekistan s GDP growth rate was modest at around 4% according to official estimates for the last 6 years and lower than in most CIS countries. 52. Uzbekistan possesses rich natural resources and a skilled labour force, yet it remains an underdeveloped country with per capita income of US$ 450 (2006). Agriculture contributes 29% to GDP (2003), while industry accounts for around 15%. Industry is agriculture oriented; however Government supported the launch of an automobile industry in 1996 with South Korean automaker Daewoo. Uzbekistan still remains a major producer of raw commodities. 53. Exports and imports increased in 2003, largely due to the import of capital goods. Exports are highly dependent on primary commodities such as cotton fiber (20%), energy products (10%), and metals (6.4%). Principal imports are machinery and equipment (44%), chemical products (13%), services (10%) and food products (9%). 54. Due to a tight credit policy followed by the Central Bank, the reported annual average inflation rate remains around 10 %. Real GDP growth has been of the order of % over the last five years, but is predicted to decrease through However, if reforms recommended by development partners are adopted in the next few years, real GDP growth could approach 7.0 % per annum by Infrastructure and facilities (water supply, sewerage, drainage/control) 55. Outside the major centers, few towns have piped potable water or indoor toilet facilities. Water comes from wells and sewage is disposed of in pit privies and septic tanks. Larger towns dump sewage into water courses. Generally, in towns along the road have electricity, but little else. This is particularly true in Karakalpakstan where basic household services do not exist and people live in very primitive conditions. The loss of the Aral Sea fishery and related industries had hit Karakalpakstan very hard. 56. There are no communities close to the road and as such no services will be affected Transportation (road, rail pipeline and air) 57. The are three main surface modes of transport in Uzbekistan; road pipeline and rail. River transport also exists on the Amudariya. The network length of each major surface transport system is : Main Roads (UZAVTOYUL) 43,500 km and Rail-UTY 3,993 km 58. The rail system carries nearly 84% of all freight. Rail transport services dominate the freight and passenger transport markets in term of tons of freight and passengers carried. Road however is the dominant mode used by people, accounting for 93 % of passenger movements. The long-haul of transport of goods is dominated by pipeline (for oil and gas) and rail Land Use Planning 59. Territory along both Section 1 and 2 of the project consists mainly of dry desert with some nomadic goat, sheep and camel herding taking place. Land is used almost totally for light grazing or us unused. Some roadside areas along Section 1 are mined for sand and aggregate materials. IKS/RRI 15

137 Power Sources and Transmission 60. Power for the project Oblasts is provided by the national power grid, which uses both fossil fuelled and hydroelectric power generation. Power is supplied via low and mediumvoltage transmissions lines paralleling A 380. Despite this the rural areas experience frequent power outages, particularly in Karakalpakstan Agricultural and Mineral Development. 61. The only agriculture along the road RoW is the occasional heard of goats or sheep being driven across the sparsely vegetated semi-desert. In fact this grazing is leading to considerable environmental damage. 62. The only known mineral development along the RoW is the Comodroy Soda Mine and Factory at km 916 of A 380. Further north along A 380 future mining activity is planned. 3.4 Social and Cultural Resources Population and Community 63. Karakalpakstam, where nearly all the road improvements will take place, is a sparsely populated area (7.5 people/km 2 ) and within the road RoW almost totally devoid of any settlement. With a population of only 1.6 million and an out-migration rate of people per year, the areas has a, net population growth of only 1.25% per year; this in an area covering more than 30% of the country (MSF, 2003). This out-migration to Khazakhstan has increased since 2003, due to the draught conditions and lack of appreciable government assistance. In rural areas of the project, the average family size is 4-6 people. Along the roadway sections there are no people to speak of. 64. According to the ADB Study: Women in the RoU, the traditional Uzbek family is characterized as complex, withof more than one generation living together and based on a patrilocal residence and patriarchal authority structures on the basis of seniority and gender. The poorest families in the project areas are found >5km distance from A 380, are large and live in terrible conditions, are isolated and marginalized unemployed residents Public Health 65. Public health in Karakalpakstan is rapidly deteriorating with the health agencies spending less than USD.6.50/per person/year. As a result communicable pulmonary and cardiovascular diseases are on the rise. The notified incidence rate of pulmonary tuberculosis in Karakalpakstan in 2002 was 89 cases per 100,000 populations per year, with one of the highest rates of infection in Central Asia as well as in the region (e.g., Khorezm has 23 per 100,000 and the national average is 18 per 100,000 people). Rates of drug resistant forms of tuberculosis are also some of the highest recorded globally to date; 13% of new patients have multi-drug resistant tuberculosis. 66. Cancer services, emergency health services, maternal and child health services, public health and disease prevention activities, to name but a few, are all in need of upgrade and support. Pilot projects to tackle the alarmingly high rates of infant deaths, acute respiratory infections, and diarrhoeal disease are ongoing, but will need substantial financial support to be expanded throughout Karakalpakstan. Karakalpakstan is also threatened by complex chronic health problems linked directly to the Aral Sea environmental disaster, for which neither the causes nor measures to prevent them are clear. Potential health threats include salinisation of drinking water, dust storms and the presence of agricultural chemical pollutants in the environment and food chain. Health-care facilities suffer from years of under-investment and in many rural hospitals lack even basic amenities such as washing facilities and clean toilets. 67. Due to the recent program to aggregate of health services, clinics now exist only in main villages. Each such clinic has one or two doctors plus a staff of between 11-15, making the patient-doctor ratio more than 1 per 15,000 inhabitants. Equipment is scarce, and services at a bare minimum. In addition to more doctors and nurse practitioners, clean IKS/RRI 16

138 facilities, medicines and equipment are badly needed. Electricity to these clinics is unreliable with power shortages occurring frequently, including in winter, making operation of basic equipment and heating of the building very difficult Education Facilities 68. While rural educational facilities are rudimentary, literacy is well above 98% and equal access to education by gender is guaranteed by the constitution. In 1996, the literacy rate for women and men was almost 100%. However, some gaps remain between men and women at secondary and university levels of education, and for the poor. However, disinvestments in higher education have continued since independence and enrolments in pre-school, secondary education, and higher education all declined in the early years of the transition According to World Bank s (2001) Family Budget Survey, while cumulative enrolment at all education levels is higher for women than for men, the reduction in preschool program services have negatively affected poorer women, forcing them to remain at home longer, to care for children. In general, post independence literacy levels are falling Socioeconomic Conditions 70. GDP per capita for the two oblasts is starkly different with Karakalpakstan considerably below Khorezm. Both are considerably below the country average. Karakalpakstan is the poorest and most remote region of the country. Khorezm is somewhat more wealthy because it has a growing tourism industry (Khiva) and the fact that the Amudarya River valley is wide and fertile for much of the oblast and more than 90% of the population lives in the valley. The project is expected to create a few jobs, but generally there will be few short term benefits for the two areas and possibly more in the long term as traffic increases and there is a need for more roadside facilities which local entrepreneurs may take advantage of (project ISA) Physical and Cultural Heritage Current Use of Lands and Resources by Indigenous People 71. Since there are no indigenous people living in and around the project area, no special land uses have been identified. The native Karakalpak residents speak their own language and are traditionally herders and fishers, but are not considered indigenous peoples, separate from the Uzbek population at large. However, given their plight vis-à-vis the Aral Sea and pollution, they are in desperate need of special assistance Historical, Archaeological, Paleontological or Architectural Features 72. Two features along Section 2 of the project roads that were identified are the Topraq Qala Fort (Photo 5) and the Daoud Ata Cemetary. Topraq Qala, an adobe walled fortification is located at km 887 north of Kungrad and is a 2nd century A.D. structure from the Kushan period. Re-discovered in 1946 by Tolstov the site is spread over a 120 X 100 m are and was partially excavated in Toprak Qala s has no connection to A 380 and outer mud wall boundary is location about 150 m from A On the Ustyurt Plateau there are a series of other archaeological sites namely Kirqgiz Qalaa and Tesik Qalaa dating from the same period. These areas are known only from historical records, i.e., they have not been rediscovered. 74. The second feature is the Daud Ata Cemetary, located at km 889 on the East side of A 380. Built around the tomb of Daoud Ata who was considered a holy man throughout central asia by both Muslims and Christians, the cemetery is hundreds of years old and should contain archaeological remains. It is actively used by the four small villages located to the East of it,as well as by the people of Kungrad. Its entrance is located on the east side of the road and consists of a large gate extending to a wall surrounding the cemetery. 6 Source: World Bank, Uzbekistan Living Standards Assessment, May IKS/RRI 17

139 Human Settlement in the RoW 75. Based on the social survey, there is no human settlement within the 50m wide RoW along the entire project corridor. The four villages around Daud Ata are all away from the road and to the East of the cemetery. A number of villages were also identified in the Social Assessment Report, but they are a minimum of 5 km from the road sections; in fact not visible from the road Institutions Photo 5. A 380 Km 888 Looking South to Topraq Qala s Adobe walls 76. The transport sector is governed by the Cabinet of Ministers. For road transport the authority is UZAVTOYUL (Road Agency) as well as the URF, providing all planning, implementation and operational functions for road development in the country. Within the URF there is a research institute where environmental expertise is supposed to be located. The environmental expertise, as with many other agencies in Uzbekistan has great strength in the hard sciences such as geology, hydrology and meteorology, but almost no capacity in environmental management or the implementation of environmental mitigation and monitoring measures, such as defined in this IEE. 77. At the oblast-level, the URF Offices have no environmental capacity. Based on consultation with the Goscompriroda units who are mandated to undertake the day-to day compliance inspection compliance monitoring of the roadways, their technical capacity is in the chemical and physical sciences, with almost no knowledge of ecosystems-based environmental management or impact mitigation. Therefore, impact mitigation and monitoring is generally not undertaken. 4. Screening of Potential Impacts and Mitigative Measures 78. Potential Impacts were grouped into the periods of the project cycle when they are most likely to occur, i.e. the pre-construction, construction and operating period, and are discussed in the following subsections. 4.1 Pre Construction Environmental Effects and Mitigative Measures 79. During this period most of the impacts can be avoided through careful planning and environmentally friendly design considerations. The four impacts identified were: Design Decision to Realign Roadway 80. The decision to restrict the road upgrading to within the existing RoW and carriageway, will keep construction impacts to a minimum. New groundcover will not be IKS/RRI 18

140 disturbed and as such no unacceptable impacts are expected. Fortunately the utility transmission lines and the pipelines parallel the road and form a natural construction boundary, which can easily be A work boundary of 25m from the centerline of Sections 1 and 2, should be defined using fencing to ensure that construction equipment does not stray too far from the work sites. Planning Decision to Bring Construction Materials to Worksite By Any Means. 81. Environmentally friendly planning is reflected in a decision by the URF to bring all construction materials to the construction area in bulk by railcar and from inter-modal terminals near with work by large (up to 26 ton) truck to where they are needed. Given that all the work involves upgrading of existing road with construction equipment using the existing highway for access, no new access roads are needed. Poor Quarry/Borrow Area Planning 82. Operation of quarry/borrow sites may cause soil erosion, slope instability, siltation of surface water, damage to haul roads, landscape disfigurement, and loss of vegetation. There are 3 existing quarries that will supply Rock, Fractured crushed stone, gravel and stone-sand mixtures, need for subgrade and surface treatment. Uzavtoyul and the URF confirm that these quarries are all fully legal and licensed sites in operation for more than 10 years each. 83. The three quarries are old and have been in operation for years and will continue to operate for decades after his project ends. Rail spur lines have been built to these sites. They are essentially large limestone and sandstone rock outcrops, or mountains designated as mining sites. The extent of rehabilitation will be to ensure that the areas where materials are loaded onto rail cars are kept dust free and clean of debris. This is considered an environmentally friendly design feature as well as a construction period mitigative measure. 84. Finally, rock, crushed rock, gravel and sand will be hauled from the quarry to a local inter-modal transfer station by rail car hopper, and taken by large truck using the national highway A 380 to the site (EMiP item2(ii). 85. As part of environmentally friendly planning, UZAVTOYUL has decided that there will be no stockpiling near waterways as this is environmentally unsuitable and economically unviable. Stockpiling will be at roadside, within the RoW, given that it is almost exclusively sand and there are existing bypass lanes, to be used for such purposes. 86. Borrow pit dewatering will not be an issue since only between mm of rain fall per year and quite a number of years with 0 mm. When rain falls it disappears instantly! 87. Finally here will be no borrow pits beyond the three quarry sites. Lack of Environmental Clauses or Covenant in Contracts 88. The IEE is an environmental statement coming from The URF and UZAVTOYUL. While it is prepared by the consultant it is a commitment by the RoU, through the proponent and its contractors and consultants, to implement the mitigative and monitoring actions listed in the IEE. For the measures proposed in the IEE s mitigation (EMiP) and monitoring (EMoP) plans to be taken seriously they must become legally binding through inclusion as environmental clauses in the loan agreement between the ROU and the ADB as well as the specifications in the contract-bid documents. For the construction period, this is often achieved by either integrating the EMP (EMiP and EMoP) into the contract specifications as a clause, or using the EMP to prepare a construction-period environmental action plan defining specific steps to be taken by the contractors and the government during the construction period. 89. This project will have a Project Implementation Unit (PIU) assisted by a construction supervision engineer (CSE), likely an international consultant, with responsibility for environmental mitigation and monitoring oversight. It will be the CSE s responsibility to establish specific pay-items for the environmental mitigation and monitoring activities, with IKS/RRI 19

141 payments made only after verification that each work component has been completed as prescribed. Lack of Construction Compliance Inspection Services and Environmental Training 90. With environmental mitigation, the saying that a plan is only as good as its enforcement program is very true. While the EMP and the environmental covenants can be very clear and specific, if there is no one knowledgeable to undertake compliance monitoring, inspection and regular reporting, little of the EMP will be implemented or completed. 91. Neither UZAVTOYUL or the URF have skills in environmental compliance inspection/monitoring and reporting. This is particularly true for the Oblast-level units who will be responsible for the inspection reporting duties7. In addition to the translation and distribution of the IEE, including its EMP, the PIU will organize and coordinate two workshop, each approximately 2 days long, for managers and Oblast-level inspectors. The topics will include the management of environmental assessments, mitigation inspection, enforcement and reports. Workshops will be held in Nukus and Kungrad Karakalpakstan (See Annex B). 4.2 Construction-Period Environmental Effects and Mitigative Measures 92. Construction period impacts associated with road rehabilitation in such an extensively disturbed, arid and remote area are few and involve, noise, dust, failure to apply good housekeeping practices during construction and wind and rain-related erosion of exposed surfaces. Therefore, the likely eight impacts and the proposed mitigative actions will be: Improper Management of Earthworks Storage and Transport Operations 93. Large volumes of quarry rock, aggregate and sand will be transported and stored near the roadworks. These operations and storage areas will be constantly exposed to the elements and will create primarily dust during the frequent windy conditions (sediment laden drainage water is not an issue since there is no water for this to drain to thus simply percolating back into the surrounding soils during the rare rains. Dust control will be very difficult given the scarcity of water. Dust at worksites will be controlled by watering, using shallow acquifer saline water but along the haul roads, properly loaded trucks with canopies preventing spillage onto the highway and blowing dust will be mandatory, becoming the primary mitigative measure. Any spills on the haul roads will be cleaned up by the contractor within a 24-hour period. Inappropriate Management Of Desert Topsoil 94. In deserts there is no topsoil as is commonly found in non-desert conditions. There is however a microphytic (or cryptobiotic) crust a few cm deep, comprised of blue-green algae fibers, mosses and bacteria, held together with fibers and gelatinous materials produced by the algae and bacteria, etc., forming a kind of nutrient rich (relatively speaking) surface layer able to trap water and serving as a medium for desert plant growth. This layer is fragile, and can easily be disturbed by construction works or other actions such as heavy equipment traffic and human t trampling, leading to wind erosion, the formation of sand dunes etc. If the disruption is short-lived and focused in a limited area the microphytic crust can reestablish within a few months. 95. It can be very carefully harvested and reseeded on the freshly disturbed desert to help with the reformation of the crust. Very little is know about the success of such labourintensive work. This is a very tricky given that the layer is so thin and that too much sand can destroy the living elements of the crust. One case examples were found during an internet search ( 7 Since the previous environmental study completed by the consultant in 2004, there remains in the ROU no tradition of distributing environmental assessment and indeed environmental mitigation plans to inspectors and/or contractors. Inspectors enforce on the basis of existing rules and regulations and contractor follow the same rules. In other word the EAs are really not used. The IEE completed in 2004 remains unused. IKS/RRI 20

142 96. The problem in the study area is that due to the disruption by utility maintenance activities, as well as the regular goat and sheep grazing this layer has not been allowed to reestablish, therefore leading to ever increasing sand dune problems and severe desert conditions, along both road sections. For this reason all construction activity will be strictly confined to a narrow as possible corridor within the RoW. Inadequate handling, Storage and Use of Reclaimed Asphalt 97. To avoid any pollution problems with the asphalt removed from the existing road surfaces, it will be stored along the section where it will be reused, in the reserve, or bypass lanes that now exist as sand tracks within the alignment. All reclaimed asphalt will be crushed, then mixed with 35-50% crushed stone and some bitumen, reheated to o C in the mobile asphalt plants and reapplied to the road as a new surface. Reusing the reclaimed asphalt and leaving as small a footprint as possible is the objective of UZAVTOYUL and URF. Failure to Adhere To Good Housekeeping Practices during Construction 98. Failure by contractors to adhere to good housekeeping practices as defined in the contract Terms and Conditions and Conditions of Special Application and a lack of enforcement by the PIU, will lead to longer term contamination at construction camp sites all along the RoW, leaving behind a generally sloppy corridor of impact, with dissatisfied, sceptical and disappointed local people. The PIUs inspectors will be expected to undertake regular environmental compliance monitoring, using the EMP as their guide8. A monitoring checklist will be prepared as part of each monitoring cycle and a monitoring report will be submitted to UZAVTOYUL AND URF at the end of the construction period. Modification Of Surface Drainage Without Repair Or Rehabilitation 99. Constrained by a meagre budget, tight schedule and an environmentally unaware client, contractors could decide to skip proper surface draining repair and management during construction, leading to potentially catastrophic problems during the rare but devastating flash-flood events in some sections. There is at least one such stretch along each of the two project sections. Therefore, as part of the detailed design work, these stretches must be identified by the local road agency staff and these conditions accommodated in the final design. Construction inspection will include the specific examination of existing culverts and water channels in those areas subject to flash flooding to reconfirm that no drainage restrictions will result due to the construction work. Uncontrolled Deep Aquifer Water Extraction for Construction Purposes 100. Given the scarcity of water, in particular water suitable for use in concrete making and a plan for contractors to extract large volumes from the deep aquifer along the road or from existing wells, a water extraction permitting and monitoring program must be prepared in close consultation with local water management authorities. In general to produce 1000m3 of concrete 176,000 L of water are needed. The extraction volumes per well will be established based on the geo-hydrological conditions as determined by experts, such that recharge and extraction will be balanced. Each well to be used will have a maximum sustainable extraction volume established and a meter will be affixed to each well with a seal. Meters will be read daily, with records sent to local authorities. Contractors exceeding allowable limits will have the water supply shut off and an investigation completed and fines paid. As an option, water could be hauled form the Amudarya R. by tanker truck, but due to the high sediment load, may need to be cleaned before use in concrete manufacturing. This 8 Small quantity sewage and septic waste management from small work camps in desert conditions can be managed through simple aerobic settling ponds, where the liquid simply evaporates leaving the dry solids behind. These must be covered with a 30-40cm-thick layer of sand, although research has shown that generally aerosol dispersion of bacteria from fecal material is of concern only within a 70m radius of the site and less so in harsh dry desert conditions. IKS/RRI 21

143 method may introduce other impacts, such as additional truck traffic on secondary and tertiary poor roads, dust and localized air pollution. Wind and Rain Erosion Due To Poor or No Erosion Prevention Actions 101. Assuming that the work is undertaken as planned, the exposure of denuded ground to the frequent wind and rare rain events should be relatively small. Clearing will involve about, 130 ha of land in partially disturbed roadside lands, which nevertheless will need to be stabilized and revegetated as soon as construction is completed. Stablization using reed mats and the planting of Saksaul seedlings according to advice from the Uzbekistan Forestry Institute9 in Tashkent will be undertaken. It may be possible to use waste sewage water to help with watering of revegetation sites. To prevent wind and water erosion, revegetation of the disturbed areas will be undertaken as the work proceeds and as soon as work on any given stretch is completed. Inadequate Construction Operation Noise Management 102. Noise will be an overall minor construction period impact, since work will take place in rural isolated terrain with no population centers along the road sections. The four small villages located around the Daud Ata Cemetery are mostly to the east of the cemetery and as such will be exposed on imperceptible increases in noise of period 3-5 dba spikes Since all the work is in uninhabited or very sparsely populated terrain10, more than 100m from any habitation, no mitigative action or monitoring will be needed. Construction Period Air Pollution 104. Construction period air pollution will be dust and emissions from operating machinery. Mobile aggregate crushing facilities and asphalt plants will emit CO2, dust and some odor. It is assumed that the new mobile plants purchased as part of this loan will have dust suppression technology installed and as such will help to control the dust plumes that usually come from crushing operations. Emissions should be kept to a minimum given that state-ofthe-art machinery will be used Despite the fact that work is in an area devoid of settlements, controls on idling and equipment maintenance will be imposed through construction inspection and regular reporting, ensuring that equipment is maintained to specifications and that dust is carefully and continuously managed. Dust control will be particularly stringent for mobile crushing plants which can produce large plumes of find dust which can become airborne for many kilometres downwind of their location. Failure of Contractor and/or UZAVTOYUL s PIU To Prepare Final Construction Period Mitigation Report 106. In order that mitigation measure are carried over into the operating period, a construction period environmental mitigation completion report will need to be prepared and submitted to UZAVTOYUL for their use during the operational period. Some measures such as revegetation will need to be continued and strengthened during the operational period if the mitigation plan is to be useful. 4.3 Environmental Effects Associated with Project Operations 107. With an expected small increase in traffic volume, associated impacts will likely be minor. Local air and noise conditions will be affected minimally. Depending on the shipping routes the transport of larger volumes of hazardous and toxic materials may marginally increase the risk of hazardous material spills. Four operating period impacts are discussed in detail as follows. 9 Uzbek Forestry Research Institute in Tashkent, Prof. Z. Novitzky, gtz_novi@globalnet.uz 10 For example for the entire 91 km of Section 1 there are only a couple of roadside police checkpoints, no other permanent habitation. IKS/RRI 22

144 Failure To Delivery The Construction Mitigation /Monitoring Completion Report To The Operating Unit Of UZAVTOYUL 108. The contractor is required to prepare a Mitigation/Monitoring Completion Report, which must be submitted to UZAVTOYUL s unit which will operate the road, in order that they can follow up with mitigative measures such as revegetation, initiated by the contractors and undertake measures, such as air and noise sampling, as defined in the EMP. Should this not take place, the entire EMP and monitoring program is in jeopardy. UZAVTOYUL and its PIU is committed to making certain that the contractor carries out this task Measures to continue into the operating period will be the maintenance of revegetation areas and confirmation of the record of the decommissioning of any work areas, workcamp sites including waste dumps, etc and the sealing/securing of wells newly dug for use during the construction period. Noise and Vibration Disturbance Due To Increases In Traffic 110. Noise levels 23 years into the future will be well within the standard during the daytime (Table 5). They may considerably exceed night noise standards if one assumes uniform traffic volumes over a 24 hour cycle; particularly with the perceived noise correction of 10dBA (an internationally accepted factor) is added to the estimates. Neither night-time traffic nor noise was actually measured during the project surveys, therefore the actual figures are not known. However, based on driving habits, the traffic at night along A 380 drops by 75%, therefore noise levels would drop to levels well within the RoU standard for rural residential landuses; even within 10m of the edge-of-pavement. Assuming that road conditions improve markedly and that border crossings operate 24-hours a day, future traffic volumes at night may only drop by 25-30%, enough to keep noise levels within RoU standards at 50m from the road. Since there is virtually no habitation along these two road sections, noise is a non-issue and should not be a problem so long as residential development does not take place at or near roadside. In-migration is highly unlikely given the extremely harsh desert conditions, and almost total lack of water. Table 5. Estimated Existing and Future Noise Levels at varying distances from Source (no Night-time weighting added). Estimated L eq 80 (dba) Location Year AADT PCE ROU 10 m 50m 100m Estimate Estimate Std. Section , D: ,115 15, N: <65 Section D: ,393 4, N: <65 PCE= Passenger Car Equivalent; Note: Night time weighting for perceived noise ranges from 6-10dBA Vibration is not an issue with this project. Degradation Of Local Air Quality With Increase In Road Traffic 111. Existing air quality in the vicinity of A 380 is relatively unpolluted despite the existing traffic. The tripling of the relatively small traffic volume from 4804 to 15,276 and 994 to 4041 PCEs for Section 1 and 2 respectively, coupled with the dramatic changes in emission control equipment, fuel and indeed transportation modes, will mean marginally significant changes in NO2, TSP, TH and CO2 levels. It is roughly predicted that without significantly improved emission technology11 and fuels the increased traffic will mean that at roadside day-time concentrations of NO2, SO2, TPM and TH will rise by as much as 25% above existing standards. This will occur even with the no-project scenario. 11 A scenario of no technical improvements or fuel upgrades over 30 years is virtually impossible, thus technology will play a major role in reducing emissions from internal combustion engines. IKS/RRI 23

145 112. The upgraded road is likely to attract between 384 and 1,760 PCEs per day, or 8.7 to 13% of the total traffic. This diversion will be mostly from the railway, much of it freight hauling and a more environmentally friendly mode of transport, and also some from other roads. This means that the upgraded road will contribute marginally if at all to carbon saving. In general terms only 8-13 % of the changes in local air quality could be attributable to the road improvements of the 131 km length, making up 11% of A 380 s total length The upgrading of the two project sections will, on their own, contribute minimally to air quality improvement since these short sections are located between long stretches of poor quality road, almost totally negating the travel time and fuel savings generated by the improved sections. Only when the entire A380 is upgrade will a real time/fuel saving, coupled with CO2 and carbon emission savings be apparent A further fact confounding efforts at CO2 reduction and carbon savings is the driving habits of Uzbeks, who disregard all speed limit which is nominally set at 120 kph. Instead, drivers travel at between kph as much as possible, also requiring rapid deceleration and accelerations thereby dramatically increasing the emissions per km travelled (by as much as 15%) per trip. Without speed limit enforcement this pattern will continue, and may only get worse as the road is improved. It is hoped that the average saving in travel time coupled with better emission technology and other improvements mentioned, will result in net CO2 and hydrocarbon emissions remaining at or below 2007 levels. Spill Of Hazardous And Toxic Material (HAZMAT) 115. Over the past 10 years the record on spills along A 380 has been very poorly recorded. The sparse data would indicate that most hazardous and toxic materials are shipped by rail, and therefore only minor road-based spills of less than 4000 L or 25 tons are due to truck accidents. There were no records of collisions involving the spilling of HAZMAT materials anywhere along A 380. The present risk of a spill of HAZMAT is extremely low, on the order of 1 accident for every 5-6 years. Assuming more less the same future traffic make up as shown in the traffic projections, the risk of a spill by 2029 should stay the same since improvements in shipment methods, enforcement of mandatory safety procedures, and further shift of the transport of such materials from road to rail, will balance the increased volume shipped by road At present neither UZOVTOYUL nor the URF keep reliable accident records or have a written accidental spill protocol. This in contrast to the national rail operator UTY, which not only has a spill database but a spill management protocol and procedure The consultant recommends that once the traffic volume of trucks doubles and the movement of hazardous and toxic materials increase significantly a specific spill contingency plan be prepared and that provincial offices be trained to respond to spills. UTY will be approached for assistance in development of a plan and with training. 4.4 Impact and Mitigation Related to Procurement 118. Under the Project, the following road building equipment may will be purchased: (i) mobile rock-crushing and screening plants, (ii) mobile asphalt mixing plants, (iii) heavy equipment/ vehicles such as bulldozers, asphalt paver, loader, graders, excavator, recycling equipment, asphalt cutters, rollers, crane, dump truck, drilling equipment, bitumen distributor, etc. (iv) blasting equipment, (v) mobile repair shop, and (vi) fuelling vehicle. The equipment listed above will also be used for construction and maintenance of other road projects. To minimize impacts resulting from their operation, the EA will ensure that the following mitigation measures be implemented: Operation of asphalt mixing, rock-crushing and screening plants shall not be allowed in close proximity to populated settlements. These facilities shall be located at least 1 km from the nearest residential area. IKS/RRI 24

146 All equipment and vehicles shall be fitted with appropriate pollution (including noise and dust) control device, regularly maintained and operated consistent with the national pollution control guidelines. An oil interceptor will be provided for the mobile repair shop and that oily wastewater shall be properly collected and disposed of consistent with applicable regulations. A contingency plan shall be developed for cleanup of spills and leaks of fuel, bitumen and other hazardous materials. a-d to be added in EMiP and EMoP Equipment that will generate noise level exceeding applicable standards shall only be operated between 0600 and 2000 hours within 500 m of residences. Vehicles transporting potentially dust-producing material are not overloaded, are provided with adequate side and tail-boards and are covered. Dust suppression along haul roads shall be undertaken by water spraying. 4.4 Social Assessment 119. Impacts on the local communities, households and individuals within the road corridor and the administrative areas around it, as discussed in the Social Impact Assessment completed as part of this feasibility study, will be barely measurable. The following three sections provide summary statements on the conclusions found in the social assessment Social Impact 120. None of the activities proposed will negatively affect local communities or local economies, since they are located far from the road and the work is of a small-scale. In fact the project will provide some benefit, bringing mostly temporary economic opportunities in terms of employment and provision of good and services There should be no impact on community dynamics or cohesion as a result of the project since none of the work camps will be anywhere near settlements and secondly the camps will be small and made up mostly of local people Poverty Impact 122. The upgraded 131 km of road will have only a minor positive impact on poverty since some of the poor in Khorezm and Karakalpakstan will find work during the construction period and few will benefit from the increased need for food for construction workers. There will be no negative effects Resettlement 123. No land acquisition or resettlement is needed anywhere along the two sections since all activity will take place in the wide RoW, generally between the utility corridors in each side and paralleling the road. No landless people were identified anywhere in the RoW 4.5 The Environmental Impact Mitigation and Monitoring Program (EMP) 124. The EMP s mitigation and monitoring actions that will be taken by UZOVTOYUL and/or the URF or its representatives, to prevent and mitigate unwanted negative effects,,are defined in detail in the Mitigation(EMiP) and Monitoring(EMoP) Tables. The EMP in total identifies the mitigation and compliance monitoring requirements, including specifying how, when where and by whom, the the mitigation and monitoring is to be carried out, (Annex B, Table 1-2) during the three key phases of the project; the preconstruction or planning and design period, the construction period and the operating period). Both tables are self explanatory and have been prepared such that they can be used as environmental clauses in the contract documentation to be completed. IKS/RRI 25

147 The Environmental Mitigation Table (EMiP) 125. Key actions listed in the EMiP (Annex B, Table 1) for the preconstruction period include the need for planning decisions to bring in high volume construction materials and equipment by rail, specify mitigation requirements for contractors in the bid documentation and provide training to permit the PIU, Contractors and the UZAVTOYUL to understand and manage the environmental effects of the work During construction, mitigative measures focus in assuring that contractors undertake all their work in an environmentally responsible manner, properly disposing of wastes, controlling the use of fuels and lubricants, revegetating any sites cleared during construction and being aware that construction dust must be managed as it can travel long distance Operating period mitigative actions focus on ensuring that key mitigative measures are carried over into the operating period and that a spill contingency protocol and plan be considered after 2020 when traffic volumes begin to rise above AADT 10,000 PCEs The Environmental Monitoring Table (EMoP) 128. The EMoP (Annex B, Table 2) lays out the monitoring and reporting requirements that UZAVTOYUL has committed to, using the same three key project phases as shown in the EMP. The EMoP defines five pre-construction period monitoring events, eight construction period actions and five operating period monitoring requirements. Most important with monitoring will be the consistent and regular actions dealing with compliance of UZAVTOYUL s design team with the preconstruction engineering actions to limit environmental impacts, followed by careful compliance monitoring of the contractors. Monitoring stresses stress timely recording and reporting Delivering Mitigation and Monitoring 129. The presentation of the EMiP and EMoP in this IEE is only the first step in the delivery of a credible mitigation and monitoring program. The EMiP and EMoP must be carefully reviewed revised during the design stage, to reflect any new engineering specifications and the edited to become a mitigation and monitoring timetable for use by contractors and the road operators. Key ingredient will be clear and timely reporting of the mitigative measures and associated compliance monitoring Secondly the contractor(s) must a) receive the revised EMiP and EMoP as part of their bid documentation and confirm that they fully understand how to carry out the measures and b) must conduct or retain specialist to conduct the mitigation and monitoring as prescribed in the EMiP and EMoP Finally, the delivery of the final report on the construction period mitigation and monitoring to the road operator will be essential if mitigation and monitoring measures are to be seamlessly carried forward into the operating period and a record of actions take available for all to inspect. Historically, this is a major failing and UZAVTOYUL will make every effort to avoid this problem. 4.6 Mitigation and Monitoring Costs 132. The largest construction period cost will be the purchase of the saksaul seedlings which at USD per hundred seedlings, plus a planting and maintenance charge would require a budget of USD 20,000 including labour charges for the planting of 50,000 seedlings, an additional USD 10,000/yr (for 4 years) for other items is estimated, making the total construction period cost around USD 60,000. Operating period costs would include an audit to ensure that Topraq Qala and the Daoud Ata cemetery in Kungrad have not been damaged and that a maintenance program for the newly planted trees is undertaken and maintained for at least 3 years into the operating period of the road. This maintenance of the plantings scheduled 3X/year for a 1 week cycle, over a three-year period using two people and one watering vehicle is estimated to be USD 10,000. IKS/RRI 26

148 133. The completion of monitoring of the water extraction process and volumes extracted during the production of concrete will be essential. This work would normally be costed as part of the regular construction inspection duty, but due to its importance an additional budget of USD3,000 will be included to ensure proper inspection and reporting Proper construction site and work camp good housekeeping are considered part of the contractors operating costs and will not have a separate environmental budget item. Compliance monitoring of contractors worksites and work camps will be undertaken and a special budget item of USD3,000 established for quarterly inspection and reporting during the 3-year construction period Prior to work begins along A 380, anywhere between km , in the vicinity of the Topraq Qala site, a site survey by trained professionals will be undertaken to insure that no archaeological remains, such as ancient roadbeds or bridges, are present along the sides of the road or immediately under the existing subgrade. A further budget item of USD1,500 will be allocated for this action Finally the planned 2-day training workshop will be budgeted as defined in Annex C of the IEE. The total cost including use of an international expert will be USD36,690. Replacing the international expert with a national consultant would reduce the cost to about USD15,000. Involving the international person only in the preparation of the workshop materials would bring the price down to USD 23, Therefore, assuming full-cost training the total estimated mitigation and monitoring costs would likely be about USD 112,000 for the six years the mitigation and monitoring will be undertaken. 5 Institutional Requirements and Environmental Monitoring Program 5.1. Institutional Capacity, Needs and Proposed Strengthening 138. Uzbekistan established its EA law in It is implemented on a limited basis, is poorly understood and virtually unheard of outside Tashkent and a few of the other major centers. In other words environmental capacity needs considerable strengthening12. In 2003 the World Bank funded a broad ranging study to examine and provide a plan for strengthening the country s environmental agency, delivering some training, helping to identify and fill in regulatory gaps, and clearing up confusing overlaps in jurisdiction. The benefits of this work were not clearly felt by the road transport sector The URF s Environmental staff has expertise in the biophysical sciences, such a hydrology, soils engineering and meteorology but lacks the integrative skills of ecology and environmental management, or for that matter experience the capacity needed to undertake all forms of environmental assessment The 2000 legislation states that all new projects require an environmental study, beginning with a screening, its detail depending on which of four categories a project was placed in. To date, most projects have not received full EIAs and RoU continues to lack technical skills in this area. This means that the URF and UZOVTOYUL will need considerable upgrading if they hope to be able to implement the EMP for this study and the ones to come in the future. The URF/UZOVTOYUL and its PIU must be able to plan, undertake and deliver: Environmental Screening Studies Initial Environmental Examinations (IEEs); and, Environmental Assessments (EAs) including Environmental Mitigation (EMiP) and Monitoring Plans (EMoPs). 12 Strength in specific fields such as air pollution, noise pollution, hydrology, forestry, etc. is excellent. It is the integrative skills required to undertake manage and follow-up environmental assessments that is only now being developed. IKS/RRI 27

149 141. The URF recognizes its and the PIU s weakness in this area and will, as a first step, organize two 2-days workshops (one in Nukus and one in Kungrad) on environmental management and assessment as it is applied by the ADB and in Uzbekistan for its provincial management and technical staff. Secondly, The URF will develop and deliver a capacity building plan for improving the environmental assessment mitigation and compliance monitoring function of its PIU and the URF s Road Transport Research Institute The workshop organizers, namely the URF or its PIU and CSE will require that successful contractors also participate in the workshop, with emphasis on EMiP and EMoP interpretation, implementation and reporting Terms of Reference for a short training program have been prepared and are attached to this IEE as Annex C Environmental Monitoring 144. During the project design period, monitoring (Annex B, Table 2) will focus on confirming UZAVTOYUL s commitment to arranging and participating in training programs on environmental assessment, mitigation and monitoring methods and reporting. Secondly the contract documentation will be examined to assure that appropriate environmental safeguards have been added, such as the requirement to implement and adhere to the EMoP Construction period monitoring will deal mostly with compliance monitoring of the following construction-related actions: consultation with local community people prior to initiation of work that affects their livelihoods, e.g. access restriction and traffic congestion, noise; execution and management of revegetation program; handling and delivery of construction materials; dust management at construction sites; and general good housekeeping activities by the contractor at all construction sites Monitoring during the operational period will concentrate on assuring that the mitigative measures implemented during the construction period such as the track runoff system is fully implemented and maintained 147. The monitoring timetable included as part of Annex B, Table 2 will conform to the following limits: During the design period, monitoring will take place once, just before the bids are released and will be completed by UZAVTOYUL staff. During the construction period monitoring will be every 3-4 months, based on a timetable prepared by the UZAVTOYUL, using the IEE as a baseline document, and for the 3-years construction period. This will be in addition to the daily construction inspection; Operational period monitoring will be once or twice a year, depending on the requirements, for a three year period. 6. Public Consultation and Information Disclosure 148. Two consultation sessions were undertaken. The first was in June and held in Bukhara and Urgenh and was attended by the the national and international environmental specialist who travelled the length of the project area, describing the proposed work to local officials and seeking all comments and inputs. Attendance (Table 6) included mostly government and municipal officials. but participation was mostly by local officials and small business owners. The attendees were asked if there were any problems and no IKS/RRI 28

150 environmental issues were raised and in fact 100% of the attendees were in favour of the project No specific documentation was handed out, although the map showing A-380 and an approximate cross-section of the upgraded road was used to indicate the location and scale of the work. Since the impacts are almost all benign, the project generated little interest and it was difficult to obtain opinions from the general public. Officials also had little criticism or felt it was not necessary to give any advice. During the first session UZAVTOYUL (the consultant) was shown the road sections affected by sand dune encroachment and asked for assistance. An approach was proposed and ADB approved it but the RoU considered other sections to be more important The second round of consultation was held in Nukus and Kungrad, Karakalpakstan in July and addressed specific environmental concerns, such as the existence and sensitivity of the endangered species in the vicinity of the project area, existing concerns with noise and air pollution. Local officials and municipal managers had no concerns with construction period impacts, but were interested to learn about the traffic management program during the construction, as the work would be done on the existing A380. UZAVTOYUL is consulting with its regional offices in this matter and will require that the contractor(s) prepare a traffic management program All people and groups consulted during the two sessions are listed in Table 6: Table 6. Listing of Participants in Consultation Sessions, June and July 2007 Consultation Period No. 1 Name Agency/Title Date of Meeting 1 Koroleva, Nina Goskompriroda of the republic of Uzbekistan Major ecological expert Komilov, Kalandar Major Engineer of Bukhara Highway Kayumov, Farhod Major Engineer of Bukhara Avtoyul Abdullaev, Mehrulla Head of Bukhara highway section Mahmudov, First deputy of Goskompriroda chairman Kahramon Bukhara region Kuziev, Kamol Head of land inspection Bukhara region Abdullaev, Sadulla Head of Gazlin DRSU section Safarov, Tursun Major engineer of Gazlin DRSU Polvonov, Norbek Head of Tuprokala DRSU section Doshniyazov, Aminboy Head of Khorezm DRSU Turabek Razzakov Head of Turtkul DRSU of the republic of Karakalpakistan Rustam Alimov Major engineer of DRSU Consultation Period Ruslan Erniyazov Head of North-Western Hghway department of the Republic of Karakalpakstan Shukhrat Dauletyarov Deputy Head of North-Western Hghway department of the Republic of Karakalpakstan Kamal Kalandarov Deputy Head of Karakalpakavtoyul Pulat Raimov Head of Goskompriroda of the Republic of Karakalpakstan Makhset Yuldashev Head of Kungrad district road department Urinboy Allanov Head of Kungrad district department of Goskompriroda Rustam Raymov Chief Engineer of Turtkul District Road Department of the Republic of Karakalpakstan Aminboy Doshniyazov Head of Khorezm DRSU Oibek Sobirov Chief Engineer of Khorezm Highway department Jumanazar Rakhimov Chief Engineer of Khorezm Design Institute Bakhtiyar Kalandarov Acting Head of Goskompriroda of Khorezm Province IKS/RRI 29

151 152. During the consultations, all project details known at the time, except costs, were disclosed, including the preparation of an EMP and the need to implement and monitor it and the strong commitments of UZAVTOYUL to follow the environmental guideline defined in the IEE. During both sets of meetings, participants were pleased to note the emphasis on environmental controls but felt that for this project there was little to be worried about. 7. Findings and Conclusions 153. The improvement to the two road sections will not have significant negative environmental effects on the local environment, provided that UZAVTOYUL and its contractors adhere to good construction practices as defined in contractor bid documentation and that they use the EMP and monitoring guide prepared in this IEE. The 16 key impacts and mitigative measures are summarized in this IEE and related monitoring measures defined in the EMoP The amount of residual environmental damage due to the project will be directly related to how well the UZAVTOYUL meets its environmental responsibility, and how it uses the EMP and enforces the contractors compliance with the EMP and the monitoring program. If properly used, there should be no significant residual environmental effects If one excludes the environmental inspection (which is normally a part of construction inspection by UZAVTOYUL), the mitigation and monitoring costs will be low. By making a number of key environmentally important planning decisions, such as no work outside the RoW and use of the EMP in the bid documentation major impacts will be eliminated from further consideration While the IEE identified a number endangered species, mostly found at great distance from Section No.2 on the Ustyurt Plateau, experts indicted that few if any of these species are found anywhere near the road RoW, most occurring to the North and East of km The only potentially important Impacts during the operating period, but only after 2020 will traffic levels rise above 10,000, causing noise levels of some concern. At 10m from the roadside noise levels could exceed 68 dba more than 10% of the time during any 18 hour day. At 100m from the road way this sound will drop to an average of 3-4 dba and at 250m will cut the noise level in half to around 60 dba. During the night traffic will drop by at least 60% eliminating noise issues all together. However there are no settlements within 5km of the road RoW (aside from the Daoud Ata Cemetery site) and at present there is no plan to permit strip development along the road, thereby making this effect only marginally relevant. The cemetery is located on a hill between the four small villages and the road, creating an effective noise barrier Given the lack of technical capacity to undertake and manage environmental mitigation and monitoring tasks, environmental capacity building workshops are planned for Nukus and Kungrad, and will include the contractors assigned to do the work Total estimated costs for environmental, mitigation and monitoring conducted over six years will be USD 112,000, with no contingency added Finally, this IEE reinforces the conclusion of the Screening report presented in the Interim Project Report that the IEE is sufficient to deal with all environmental matters and no EIA or further study is need. 8. Recommendations 161. UZAVTOYUL will recommend to the RoU that institutional capacity building within UZAVTOYUL in the environmental field is essential and that it needs to be done before construction begins, via a set of workshops The consultant recommended that UZAVTOYUL carefully review the IEE and its EMiP and EMoP,and incorporate these two matrices as a executable pay items in its contract IKS/RRI 30

152 with contractors, and that it assign the EMiP and EMoP compliance monitoring to a specific individual or unit Since UZAVTOYUL at present has no internal environmental expertise, it will hire a specialist to implement the EMP. Alternatively it will open a dialogue with Goscompriroda and seek their help and cooperation as needed. Without such specialized assistance the EMP and the monitoring program will likely never be implemented effectively, and the monitoring, reporting and feedback mechanism will not be initiated The consultant recommends that a short in-service training program in environmental management and assessment as related to road infrastructure program planning, construction and operations by designed and delivered to UZAVTOYUL and its contractors over a 2-day period, in Nukus and Kungrad. A summary ToR, including a cost estimate, has been prepared and is attached to this IEE. IKS/RRI 31

153 Annexes A, B and C Annex A: Opinion of State Environmental Expertise Committee Annex B: The Environmental Management Plan: Environmental Mitigation (EMiP) and Monitoring (EMoP) Annex C: Training Workshop Preparation and Delivery Terms of Reference IKS/RRI 32

154 ANNEX A State Committee for Nature Protection 31 July 2007 Ref. No. 18/267 In response to Ref. No. IKS-07/47 of TRANSLATION Opinion of State Environmental Expertise Committee Project: Environmental Impact Assessment of rehabilitation of A-380 Guzar Nukus Kungrad Beyneu, on section km and km Customer: Republican Road Fund under the Ministry of Finance Developer: Islohotkonsultservis Ltd. To: Mr. Djulibekov, Director, Republican Road Fund under the Ministry of Finance Mr. Kalandarov B.R. Acting Head of Khorezm Regional Committee for Nature Protection Mr.Reymov P.R. Chairman, State Committee for Nature Protection of the Republic of Karakalpakstan Mr. Mirakhmedov M.M. Director, Islohotkonsultservis Ltd. The materials of initial environmental impact assessment of rehabilitation of international road A-380 Guzar Nukus Kungrad Beyneu on sections km (in Khorezm region) and km (in the Republic of Karakalpakstan) were submitted for state environmental expertise. Based on project data the repair works are planned on the roads sections with no adjacent buildings and localities. The rehabilitation of this road is necessitated by bringing it to conformity with international standards and requirements to transcontinental expressway, as well as by distress of pavement and subgrade, which is more significant on the first section. The road is meant for international transport (to Kazakhstan and Russia). Travel speed after rehabilitation shall increase from 60 km/h to150 km/h, while the traffic volume from 3.5 thousand to 30 thousand vehicles per day, of which 30% will be trucks and 70% cars. In 2003 the construction of the road Kungrad-Beyneu was commenced, which extends the project road and also is a part of international road corridor linking Uzbekistan with Russia and European countries. At present the construction of subgrade base and upper layers of sand and gravel material with the length of 240 km is completed. The completion of woks on road paving with asphalt concrete is expected in Road sections envisaged for rehabilitation start in Pitnyak district of Khorezm region and extend to the border of Kungrad district of the Republic of Karakalpakstan. The total distance of the sections is 131 km. The first section crosses Kyzylkum desert, while the second section goes across the uphill and top of Plateau Ustyurt. In the course of reconstruction and construction it is planned to use 87 items of equipment (excavator, asphalt paver, rollers, truck cranes, bulldozers, motor graders, dump trucks, mobile asphalt-mixing plant, etc.) IKS/RRI 33

155 Vehicle emissions before road reconstruction generate the highest air pollutant concentration exceeding maximum allowable threshold for nitrogen dioxide, benzopyrene and aldehydes due to nonuniformity of traffic passage along damaged sections. During reconstruction the operating equipment will temporarily discharge in the air contaminants, mainly dust, soot, aldehydes, carbon oxide, nitrogen oxide, and sulfur oxide. Estimation of maximum contaminant concentration generated by special equipment emissions made in the course of expertise has demonstrated that there would be no exceeding of maximum allowable threshold beyond the buffer zone, where the highest would amount 0.3 maximum concentration limits. Estimation of maximum contaminant concentration for the period following reconstruction of the road shows that despite traffic augmentation no exceeding of maximum allowable threshold would be observed since the expected evenness of traffic flow movement with the constant and increased speed will result in reduction of concentrations generated by emissions. The project stipulates the reuse of removed layer by milling and mixing up with sand and crushed rock to be used for subgrading. Tree vegetation felling and extraction is not planned due to its absence. The problem on the first project road section is blowing sands, which are expected to be prevented by adjacent soil stabilization with reed and sand intercepting shields made of reed-fiber mat. The project considers the collision of vehicles with subsequent inflammation as most likely emergency situation. It was demonstrated that road reconstruction will lead to reduction of adverse emergency situations consequences risks and accident probability resulting from upgrading of road technical parameters and elimination of forced abrupt speed change zones. The divider bar shall prevent potential accident situations in case of riding on the opposite carriageway. The project has developed environmental safeguards stipulating revegetation of lands disturbed during construction, implantation along the road of shrub and other vegetation absorbing contaminants discharged to air by road transport. It envisages adjacent land planning with the stabilization thereof with clay mud. Environmental expertise of the project has shown that the documents submitted are in line with the requirements of legal documents. Reconstruction of the road to bring its parameters into the line with international standards is designed in the regimen of moderation not involving irreversible adverse environmental impacts, and it has no contraindications from the environmental point of view as it will result in abatement of environment pollution and reduction of accident probability. The State Environmental Expertise Committee of State Committee of Nature Protection of the Republic of Uzbekistan agrees upon Draft Environmental Impact Statement of the rehabilitation of international road A-380 Guzar- Nukus Kungrad Beyneu on the sections km and km Khorezm Regional Committee for Nature Protection and State Committee for Nature Protection of the Republic of Karakalpakstan shall take over the control of Environmental Compliance during rehabilitation of the international road A-380 Guzar- Nukus Kungrad Beyneu on the sections km (in Khorezm region) and km (in the Republic of Karakalpakstan). R.Khabirov, Acting 1 st Deputy Chairman Koroleva N.V. Tel IKS/RRI 34

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159 ANNEX B THE ENVIRONMENTAL PLAN: MITIGATION (EMiP) AND MONITORING (EMoP) Table A-1: Environmental Mitigation Plan (EMiP). Environmental Impact/Issue i) Failure to restrict road rehabilitation design to the existing RoW ii) Plan to bring construction materials by any means, without consideration of environmental factors iii) Inadequate guidance on construction material extraction sites, leading to negative effects iv) Failure to include environmental clauses in contract and covenants in loan agreements, defining mitigative actions v) No plan for provision of IEE, related documents and training in EA and EMP implementation, monitoring and reporting to UZAVTOYUL/ROAD FUND, The PIU and successful Contractors, in Nukus and Kungrad. i) Improper management of earthworks transport and Storage procedures, including cleaning; leading to dust and air pollution Ii) Improper or failure to repair haul roads damaged by heavy load haulage iii) Failure to adhere to construction related good housekeeping practices, including solid and sanitary waste management iv) Modification of surface drainage without repair and rehabilitation after construction is finished Mitigative Measures Location 2 Time Frame 1. PRE-CONSTRUCTION PERIOD Fortunately the utility transmission lines and the pipelines parallel the road and form a natural construction boundary, NA which can easily be a work boundary of 25m from the centerline of the proposed road sections. Design construction in such a way that avoids the construction if any new access roads and plan to bring bulk materials to the site by rail and then truck, in an NA environmentally friendly manner. Extraction of sand and gravel from the Amudarya R. shall be prohibited except (i) where there is no technically and economically feasible alternative, and (ii) provided specific mitigation measures are implemented to minimize impacts on the natural ecosystem. Materials shall be sourced from licensed quarry/borrow areas operations. Prepare environmental contract clauses for contractors contract Terms and conditions and Conditions of Special Application section of standard documentation using the EMP and monitoring plan as guides. Prepare an environmental loan covenant the binds UZAVTOYUL/Road Fund to implement the EMP and monitor according to the Monitoring Plan and to show proof that the work has been completed In defining the bill of quantities provide specific environmental items against which interim payments can be tagged and withheld for non-compliance UZAVTOYUL and its PIU will provide the successful contractor with the translated IEE, its EMiP and EMoP, with instructions on how the mitigative measures and monitoring are to be undertaken, as defined in a work plan prepared by UZAVTOYUL. Secondly, the PIU will provide Oblast-level inspectors with copies of the IEE and all supporting reports for use in their inspection process The oblast-level inspectors, who will be required to undertake inspection during construction, have no training in this area. UZAVTOYUL will organize workshops in Nukus and Kungrad for technical inspectors, dealing with environmental compliance monitoring and reporting, etc. At all construction sites NA Workshops to be held in Nukus and Kungrad 2. CONSTRUCTION PERIOD Large volumes of quarry rock, aggregate and sand will be transported and stored near the roadworks. These operations and storage areas will be constantly exposed to the elements and will create primarily dust during the frequent windy conditions. sediment laden drainage water is not an issue since there is no water for this to drain to thus simply percolating back into the surrounding soils during the very rare rains. Dust control will be very difficult given the scarcity of water. Dust at worksites will be controlled by watering, using shallow acquifer saline water. Along the haul roads, properly loaded trucks with canopies preventing spillage onto the highway and blowing dust will be mandatory. Any spills on the haul roads will be cleaned up by the contractor within a 24-hour period. Any roads used by the contractors for the transport of materlals and equipment will be inspected during the operations to ensure that deteriorations are patched to prevent accidents and at the end of the construction, fully rehabilitated to pre-construction conditions. Contractors will adhere to standard good housekeeping practices as defined in the contract Terms & Conditions and Conditions of Particular Application. Special considerations will be given to management of construction waste and water, equipment lubricants and fuel. This will be done in accordance with ROU and UZAVTOYUL regulations and standards; which the contractor will be expected to know. Also, the contractor shall orient all construction workers in basic sanitation and health care issues, general health and safety matters, and on the specific hazards of their work There is at least one such stretch along each of the two project sections where flash flooding could take place. As part of the detailed design work, these stretches will be identified by the local road agency staff and these conditions accommodated in the final design. Construction inspection will include the specific examination of existing culverts and water channels in those areas subject to flash Within the area where existing ballast is located Any/all haul roads Any construction site or activity which is the responsibility of the contractor At any water crossing/canal sites During project design period During project design period Planned during the design stage for compliance by contractors Before construction begins Once the contract award is made to the winning contractor(s) Prior to contractor mobilization Construction period Construction Period Throughout the construction period Throughout the construction period Responsibility Implementation Supervision UZAVTOYUL, its PIU and consultants UZAVTOYUL, its PIU and consultants UZAVTOYUL, its PIU and consultants UZAVTOYUL, its PIU and consultants UZAVTOYUL s PIU Trainers as assigned by UZAVTOYUL Contractor Contractor Contractor Contractor and Constructionperiod inspectors UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL Contractor Supv. Engineer, PIU and oblastlevel inspectors Contractor Supv. Engineer, PIU and oblastlevel inspectors UZAVTOYUL s Construction Supv. Engineer-PIU Contractor Supv. Engineer, PIU and oblastlevel Govt. inspectors IKS/RRI 38

160 Environmental Responsibility Mitigative Measures Location 2 Time Frame Impact/Issue Implementation Supervision flooding to reconfirm that no drainage restrictions will result due to the construction work vi) Uncontrolled Deep Water Aquifer extraction at construction sites for concrete production vii) Wind and rain erosion due to poor groundcover replacement at worksites viii) Excessive construction-period air pollution ix) Failure of the contractor to be aware of possible archaeological remains in area near Topraq Qala x) Inadequate traffic management leading to congestion and unnecessary delays. xi) Failure of contractors to submit final Monitoring Compliance Report i) Contractors do not prepare Mitigation Completion report and PIU fails to provide a Operating stage mitigation timetable for UZAVTOYUL s operating unit ii) Failure to address possibility of a haz. Or toxic materials spill, via a protocol and plan Failure to undertake monitoring The extraction volumes per well will be established based on the geo-hydrological conditions as determined by experts, such that recharge and extraction will be balanced. Each well to be used will have a maximum sustainable extraction volume established and a meter will be affixed to each well with a seal. Meters will be read daily, with records sent to local authorities. Contractors exceeding allowable limits will have the water supply shut off and an investigation completed and fines paid. Clearing will involve about, 130 ha of land in partially disturbed roadside lands, which nevertheless will need to be stabilized and revegetated as soon as construction is completed. Stabilization using reed mats and the planting of Saksaul seedlings according to advice from the Uzbekistan Forestry Institute in Tashkent ( see source in IEE text) will be undertaken. It may be possible to use waste sewage water to help with watering of the revegetated sites. To prevent wind and water erosion, revegetation of the disturbed areas will be undertaken as the work proceeds and as soon as work on any given stretch is completed. The new mobile crushing and asphalt plants purchased as part of this loan will have dust suppression technology installed and as such will help to control the dust plumes that usually come from such operations. Emissions will be kept to a minimum given that state-of-the-art machinery will be used. Location of such plants will be according to RoU standards and fully permitted. Controls on vehicle idling time when not in use and equipment maintenance will be imposed through construction inspection and regular reporting, ensuring that equipment is maintained to specifications and that dust is carefully and continuously managed. Dust control will be particularly stringent for mobile crushing plants which can produce large plumes of find dust which can become airborne for many kilometres downwind of its location. Contractor working Contract package No. 1 ( km ) will be required to insure that a archaeological site survey has been completed to confirm that there is no possibility that remains exist along the roadside or under the existing subgrade and could be disturbed by the construction work. A traffic management plan shall be prepared by the contractor prior to site works. Such plan shall be prepared in consultation with local authorities. The contractor will prepare a mitigation measures implementation report summarizing the entire construction period and submit it to the PIU Engineer and UZAVTOYUL All construction period extraction wells sites as yet to be determined At all work sites where construction equipment is operating Between km of A-380 near the Topraq Qala ruin At all construction sites and at all times 3. OPERATIONAL STAGE The contractor is required to prepare a Mitigation/Monitoring Completion Report, which must be submitted to UZAVTOYUL s unit which will operate the road, in order that they can follow up with mitigative measures such as revegetation, initiated by the contractors. Should this not take place, the entire EMP and monitoring program is in jeopardy. UZAVTOYUL and its PIU is committed to making certain that the contractor carries out NA this task and will provide guidance Measures to continue into the operating period will be the maintenance of revegetation areas and confirmation of the record of the decommissioning of any work areas, workcamp sites including waste dumps, etc and the sealing/securing of wells newly dug for use during the construction period. At present neither UZOVTOYUL nor the Road Fund keep reliable accident records or has a written accidental spill protocol. This in contrast to the national rail operator UTY which not only has a spill database but a spill management protocol and procedure. NA The consultant recommends that once the traffic volume of trucks doubles and the movement of hazardous and toxic materials increase significantly a specific spill contingency plan be prepared and that provincial offices be trained responding to spills. 4. ENVIRONMENTAL MONITORING In order for the mitigation program to be effective, compliance monitoring will be necessary and UZAVTOYUL is committed to making sure that it and prompt reporting takes place. NA NA Throughout the construction period Throughout the construction period Site survey completed prior to any ground breaking in this area During the construction period At end of construction period (last 5 months) Mitigation report completed before contractor received final payment and implementation schedule when operations begin Need for plan will be around 2020 when traffic volumes exceed AADTs of 10,000 PCEs Throughout project as defined in Table Annex B-Table 2 Contractor and Constructionperiod inspectors Contractor Contractor Contractor, working with UZAVTOYUL and its PIU Contractor, working with UZAVTOYUL and its PIU Contractor Contractor with help from UZAVTOYUL s PIU and later with operating unit of UZAVTOYUL responsible for that section UZAVTOYUL Pre- Construction: PIU and contractor Construction: Contractor Operating Period:PIU IKS/RRI 39 Contractor Supv. Engineer, PIU and oblastlevel Govt. inspectors Contractor Supv. Engineer, PIU and oblastlevel Govt. inspectors Construction Supv. Engineer and PIU UZAVTOYUL and its PIU UZAVTOYUL and its PIU UZAVTOYUL and its PIU UZAVTOYUL and PIU UZAVTOYUL UZAVTOYUL

161 Table A-2: The Environmental Monitoring Plan (EMoP) ITEM Monitoring Details Timing Executing Reporting Unit Responsibility PRE-CONSTRUCTION (DESIGN) PERIOD: all written confirmation and reports submitted to UZAVTOYUL s PIU for the record, and available to ADB for compliance check. I) Checking design for integration of environmental considerations; i.e. working within RoW, materials haul restrictions Prior to the completion if the design work the PIU and their consultant will complete an audit to ensure that environmentally sound design and construction measures have been integrated in the detailed design and bid documentation Prior to the end of the detailed design work UZAVTOYUL and the CSC or PIU UZAVTOYUL ii) Mitigation and Monitoring Implementation Timetable iii) Environmental specifications for contractors bid documents, Env clauses for contracts and Loan Covenant iv) Mitigation Reporting v) Confirmation of Training program i) Earthworks transport and storage monitoring ii) Construction-related good housekeeping tasks monitoring such as waste water and solids iii) Monitoring of surface drainage works at potential flash flood sites iv) Monitor Contractor water extraction v) Monitoring of revegetation program vi) Monitoring construction period air pollution vii) Monitoring of completion of Arch, site survey at Km viii) Contractor s final Monitoring report submission i) Receipt of contractor s monitoring report ii) Inspection of Construction Period Mitigation Sign-off by UZAVTOYUL that mitigation and monitoring timetable has been prepared and will become a part of contractual activities UZAVTOYUL, with the help of the Supv. Consultant, is to provide draft environmental clauses and specifications based on the EMP, for inclusion in bid documents and the Loan Agreement; or Use the EMP as the reference document Prepare and submit to UZAVTOYUL and ADB (as required) pre-construction mitigation summary confirming that all items in part one of the EMP (Pre-Construction Mitigation items), have been completed. Prepare a completion report on the training provided including copies of materials used duration, attendance and student evaluation results Before groundbreaking Prior to bids and signing of Loan Agreement between ADB & UZAVTOYUL Near end of Preconstruction period Just prior to Contractor mobilization CONSTRUCTION PERIOD -prepare and use a monitoring checklist Undertake, as part of the construction inspection, regular Every day, confirmation that earthworks are handled in an throughout the environmentally acceptable manner and dust control is construction undertaken at all time, including the use of tarpaulins by trucks period hauling fine materials. Undertake regular good housekeeping tasks as defined in the EMP and provide monthly monitoring checklist to UZAVTOYUL s PIU. Use the EMiP as the basis for the checklist. The PIU or its CSC will inspect and verify that adequate consideration and drainage works and protection have been provided for locations where the road crosses flash flooding locations. These findings will be recorded in the monitoring report to the PIU and ADB Special monitoring checklist will be prepared for each well used by the contractors for extraction of construction-water. The installation of meters and a recording system will be verified and a record of approval for extraction of a maximum volume will be recorded and record of extraction volumes/day will be checked. This documentation will be submitted to the PIU, the CSC and the Ministry of Water Resources Inspectors will examine the revegetation program by providing an accounting of the number of trees/shrubs planted, the location and survival rate at each inspection cycle. Reports are to go to PIU, UZAVTOYUL and be available for inspection by Gozcompriroda, and ADB. As part of the regular construction inspection the habits of contractors to leave vehicles idling unused for more than 2 minutes will be reported, as well failure to maintain vehicles leading to serious pollution as with diesel equipment. This reporting table must be kept separate for submission to the PIU, Gozcompriroda and ADB. The PIU will undertake to confirm in writing that a site survey was complete. That report will contain the results of the survey and a permission to proceed. Contractor must list, in tabular form, all mitigative actions completed, their timing and location, then indicate their status as % completed and the need for any future action(s). Every day throughout construction period Twice during the construction period, once to confirm that sites have been identified and secondly to verify that work was done Record of extraction will be continuous by the contractor and monitoring will be monthly, during the time when water is being extracted Inspection is to take place every 4 months along all road sections recently worked on. Inspection as part of the weekly construction inspection Prior to any work starting in this section At the end of construction OPERATIONAL PERIOD Update and continue to use checklist At the time of commissioning the contractor must confirm in writing that mitigative actions as defined in the EMP, At the Before upgraded time of commissioning the contractor must confirm and any road opens other legally binding environment document,have been completed as recorded. Based in mitigation completion report prepared by the contractor, an inspection of how well the measures were implemented will be prepared. This summary will be in the form of a checklist Within 3 months of the start of the operating period. UZAVTOYUL and its PIU UZAVTOYUL, PIU and any Supv. consultants UZAVTOYUL PIU and Construction Supv. Consultant Contractor and UZAVTOYUL or PIU inspectors Contractor and UZAVTOYUL inspectors Contractor and UZAVTOYUL inspectors Contractor and UZAVTOYUL and PIU inspectors Contractor and PIU inspectors Contractor and PIU inspectors PIU and Contractor Contractor Contractor and UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL UZAVTOYUL IKS/RRI 40

162 iii) Extraction well decommissioning ITEM Monitoring Details Timing iv) Inspection of revegetation work completed during the construction period v) HAZMAT spill contingency plan Shortly after the start of the operating period UZAVTOYUL will complete a verification survey to ensure that the wells used during construction have been secured such that groundwater will not be contaminated and/or withdrawn illegally. UZAVTOYUL or a contractor will complete an inspection of roadside revegetation sites, using the data collected during the construction period, and enumerate the survival rate and define a further planting program to replant those materials that have not survived During year five of the operating period, UZAVTOYUL will prepare a hazmat spill contingency plan, using UTY as a model and using data on spills collected during the 1 st five your of operations. The plan s distribution to the regional offices of UZAVTOYUL will be undertaken. Survey within 1 month of start of Operating period. Annually for three operating years Inspection and reporting during the 5 th operating year of the upgraded A 380 Executing Unit UZAVTOYUL or consultant UZAVTOYUL or consultant UZAVTOYUL or consultant Reporting Responsibility UZAVTOYUL UZAVTOYUL UZAVTOYUL 1. At the end of the construction period and before the final payment is approved, it is critical that an inspection of high use areas, such as waste facilities, machinery service areas, waste disposal sites, quarries, fabrication yards, be made to confirm that proper decommissioning has taken place IKS/RRI 41

163 ANNEX C OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. Consulting services in the field of capacity building in environmental management and assessment, impact evaluation and mitigation, institution development, and environmental management capacity building will be required to provide 0.6 person-months of International consultant and 1.73 months of national consultant services over a 2 month period. The assignment will include: Rapid documentation of Uzbekistan s environmental laws, regulations and standards as related to environmental assessment and infrastructure development, and its relation to acceptable international standards, such as the ADB, World Bank or EU; Examination of UZAVTOYUL s environmental capacity and updating of institutional needs assessment completed as part of the IEE, and preparation if an institutional development plan for environmental management within UZAVTOYUL and its related organizations; and, Based on the outputs of a. and b., develop and deliver a training program on general environmental management as related to infrastructure development, environmental assessment and interpretation, implementation and conduct of environmental mitigation and monitoring. This training program must be suitable for three audiences, namely UZAVTOYUL senior managers, UZAVTOYUL s project managers and Chief Engineers and UZAVTOYUL s Oblast-level inspectors. The details for each component of the work are presented below: A. Review of Environmental Legislation and Regulations 2. Briefly review and summarize the overall existing environmental legislation framework, environmental policies and plans. The consultant will review the Uzbek environmental laws, regulations, and standards currently enforced and in force under Goscompriroda administration. The consultant will identify provisions, requirements, and procedures in those laws, regulations, and standards that fall short of ADB s regulations (as defined in the 2003 Guidelines) and recommend corrective actions. 3. Using the results of this brief review, the consultant will prepare at least one module of the training program on the environmental legislation and regulations affecting road development and operations in Uzbekistan and the impact of donor lending. B. Preparation of The Basis for Environmental Capacity Building of UZAVTOYUL, its Oblast Technicians and Its Contractors 4. Analyze the existing institutional structure within UZAVTOYUL (1-1.5 days interviews with officials within UZAVTOYUL and Goscompriroda with respect to environmental management). Identify key institutions and processes required under the proposed and appropriately scaled environmental policy framework and legislation. Identify gaps in the institutional current structure and constraints, and possible policy implementation and enforcement problem areas. Discuss in detail proposed institutional capacity constraints, and requirements for administrative and organizational arrangements to implement the proposed policy and legislation enforcement with a particular focus on structures, organizational arrangements, procedures, and regulations relating to the implementation of the EIA system for new Rail sector projects. The consultant will: review the capacity of UZAVTOYUL and a sample of contractors technical capacity in EIA, their capacity to understand mitigation, monitoring, and the implementations of the monitoring program and mitigating measures of the project IEE. IKS/RRI 42

164 prepare an organizational plan that includes job descriptions, and delegation of duties and responsibilities for the team to evaluate, review, and monitor the implementation of IEE and EIA reports of future infrastructure projects; and will also, identify bond/guarantee arrangements ensuring that an appropriate length of services is required of the trainees with the new government, as appropriate. 5. The consultant will review ongoing and planned external (bilateral and multilateral) development assistance programs/projects in the road transport sector and the environmental management and EA training needs this may generate. 6. The consultant will also document the external assistance in environmental capacity building and training provided to Uzbekistan since 2000, indicating, in a matrix table, when, by whom, what type and for whom training was provided. C. Development and Delivery of Training 7. Based on findings resulting from the completion of the work defined in paragraphs 2-6, the consultant will develop and deliver a 2-day training program that will be tailored to the needs, gaps and requirements identified; however addressing as a minimum, the following key topics: For Delivery to UZAVTOYUL Senior Management: Overview of need for environmental considerations in road transport development and operations; environmental responsibility, cost savings, etc For Delivery to UZAVTOYUL Oblast Inspectors : Understanding EIA in Road Planning, Construction and Operations Identifying impacts Mitigative and monitoring options Preparing and implementing EMPs Documentation and Reporting Compliance Monitoring 8. The consultant will also prepare and deliver a ½ to 1 day training program to UZAVTOYUL project managers, chief engineers and contractors: This short lecture and discussion period style delivery will address as a minimum: EA management and implementation of the EMP Compliance Monitoring, Reporting and Documentation 9. As part of the training workshop/program delivery, the consultant will use the ADB TA 4076 or TA 4889 environmental study and EMP as a case example, working with the inspectors to prepare an mitigation plan and compliance monitoring and reporting program. 10. All training materials should be prepared using MS Powerpoint and appropriate workbooks, and should be handed over the UZAVTOYUL and Goscompriroda (or any other designated agency), for use in ongoing future training activities, once the workshops have been delivered and the overall report has been submitted. D. Reporting 11. The consultant will submit 10 copies of a completion report in Uzbek, Russian and English (bound together as one document), which will include the findings based on the tasks defined in paragraphs 2-6 above, and all training materials to the ADB and UZAVTOYUL, in both hard copy and electronic format. IKS/RRI 43

165 F. Consultant Requirements: 12. To undertake this work the Team Leader must be trained in environmental management and have a minimum of 20 years background in hands-on environmental management and assessment in a number of countries as well as in the planning and delivery of in-service environmental training in the infrastructure area. The Team leader must have an excellent command of English. 13. The consultant will be required to partner with a national expert who will have at least 10 years experience in environmental assessment and management in Uzbekistan and have a high level of familiarity with both Uzbek and IFI environmental requirements, and have has some experience in providing in-service training in the environmental field. The team member must have a good command of English and excellent language skills in Russian and Uzbek. Task Estimated Cost: Person Days (as defined in ToR) USD$/month Comments Totals A. Review Joint Effort International 2 National 10 B. Plan Prep. Joint Effort International 2 National 7 C. Training Ntn l would lead delivery International 12 National 21 D. Documentation Lead by Int l but with extensive Ntl l. input International 1 National 14 Total No. Days International 15 (0.50 mnth) 19,000 /mnth Includes mark up 8,000 National 52 (1.73 mnth) 8,000/month Includes mark up 13,840 Subtotal 21,840 Consultant Expenses Per Diems 17days USD 100/day 1,700 Int l Airfares 1 4,000 Local Travel 1,000 Misc Expenses 400 Subtotal 7,100 Trainees Costs >20 people at two locations, two to three audiences Per diems, etc. USD 75/day x2days x20 x2 Locations 6,000 Logistics Materials 1,750 Subtotal 7,750 Translation Costs Provided by ROU 00 Secretarial Costs Provided by RoU 00 TOTAL ESTIMATED COST 36, This assignment does not require that the team leader be an international specialist. On the contrary two national experts would be preferable, so long and the levels and types of experience closely match this defined in these ToR (paragraph 12). Should both the team leader and assistant be Uzbek nationals, per diems and international airfare costs would be reduced by as much as 50%. This assignment is to be completed over a 3 month period as designed by the consultant in close consultation with UZAVTOYUL and others as needed. IKS/RRI 44

166 ASIAN DEVELOPMENT BANK GOVERNMENT OF THE REPUBLIC OF UZBEKISTAN THE REPUBLICAN ROAD FUND UNDER THE MINISTRY OF FINANCE F I N A L PREPARING THE REGIONAL INFRASTRUCTURE (ROADS) PROJECT ADB PPTA No UZB VOLUME 3 INITIAL SOCIAL ANALYSIS R E P O R T Submitted by: ISLOHOTKONSALTSERVIS LTD. Tashkent / Uzbekistan in association with ROAD RESEARCH INSTITUTE Tashkent / Uzbekistan October 2007

167 ADB PPTA No UZB: PREPARING REGIONAL INFRASTRUCTURE (ROADS) PROJECT INITIAL SOCIAL ANALYSIS October 2007

168 TABLE OF CONTENTS SECTION 1: DEVELOPMENT IMPACT OF THE PROJECT IN THE AUTONOMOUS REPUBLIC OF KARAKALPAKSTAN AND THE PROVINCE OF KHOREZM 1 Background State Development and Poverty Issues in Uzbekistan and Causes of Poverty State Programs Planned for Poverty Reduction: Millennium Development Goals and Main Strategy Migration Issues Related to Poverty State Development in Rural Areas From Collectivization to Privatization: Agrarian and Land Reforms Actual Farm Types Livestock and Animal Production 8 SECTION 2: PROJECT LOCATIONS 2.1 Khorezm and Karakalpakstan Khorezm and Karakalpakstan: a Common Problem The Aral Sea Catastrophe and its Implications 11 SECTION 3: PROJECT LOCATION: SECTION 1 OF A 380 : KM FOR A TOTAL OF 111 KM, INCLUDING 18 KM IN KARAKUL-TORTQOL DISTRICT OF KARAKALPAKSTAN AND 93 KM IN KHOZARASP DISTRICT OF KHOREZM PROVINCE 3.1 Khorezm Province Description of Settlements and Location of Section 1 A 380 Km General Socioeconomic Characteristics of Khozarasp District in Khorezm Province 14 SECTION 4: THE MAIN BENEFICIARIES OF THE PROJECT (SECTION 1) AND THEIR SOCIOECONOMIC CHARACTERISTICS 4.1 The Village of Saramoy Pastoralistm in Kizil Qum The Tea/restaurants: chayxonos Truck Drivers 18 SECTION 5: PROJECT LOCATION: SECTION 2, HIGHWAY A 380 : KM , WITHIN KARAKALPAKSTAN AUTONOMOUS REPUBLIC, KUNGRAD DISTRICT 5.1 Description of Settlements and Locations of Section The Delta-Plain of Amu Darya:The first 10 Km Toprak Qalaa The Daoud Ata Cemetery The Ustyurt Plateau 31 SECTION 6: MAIN BENEFICIARIES OF THE PROJECT (SECTION 2) AND THEIR SOCIOECONOMIC CHARACTERISTICS 6.1 Kungrad District and Town Village settlements: Sample: Adabiad village The workers settlements: The Soda Plant Pastoral-nomads Animal Production and the Sovkhoz of Khojali 25 SECTION 7: VULNERABILITIES OF RURAL LIVELIHOODS IN THE PROJECT AREAS 7.1 Vulnerable groups and different stages of vulnerabilities Village Sharecroppers Village Inhabitants in Desert Area Pastoral-nomads or herders 28 IKS/RRI i

169 7.5 Workers of the Soda Plant 28 SECTION 8: GENDER AND RURAL LIVELIHOODS 30 SECTION 9: POVERTY RANKING IN THE PROJECT LOCATIONS 31 SECTION 10: DEVELOPMENT AND POVERTY IMPACTS IN PROJECT LOCATIONS: KARAKALPAKSTAN AND KHOREZM 10.1 Economic Impacts and Benefits Impacts no Cultural Heritage and Tourism Service Impacts Gender Impacts Poverty Impacts 34 SECTION 11: RECOMMENDATIONS AND SAFEGUARDS WITH A PARTICIPATORY APPROACH 11.1 Direct Involvement Indirect Involvement Workshops and Participatory Planning 37 SECTION 12: MONITORING INDICATORS 12.1 Economic Impact indicators Poverty Reduction Indicators Social Impact Indicators 39 SECTION 13: IMPACT OF ROAD SECTOR DEVELOPMENT 40 IKS/RRI ii

170 A. Background 1. The Project: The proposed Uzbekistan Regional Road Project focuses on the reconstruction of A-380: Guzar-Bukhara-Nukus-Dautata (Uzbekistan/Kazakhstan Border) of 1,204 km. This is a government priority project. The A-380 is the main route between the north-west and south/east of Uzbekistan and is the link between the historic tourist cities of Bukhara and Khiva and Autonomous Republic of Karakalpakstan. It serves as an increasingly important international corridor between Afghanistan (via Termez)/ Tajikistan/Turkmenistan and Kazakhstan/Russia. 2. The present study concerns 2 sections of the road: Km and Km The first is mainly in Khorezm Province Khozarasp district with 29 Km in the district of Tortqol that belongs to Karakalpakstan Autonomous Republic. The second stretches on a total of 40 Km, all within Kungrad district of Karakalpakstan Autonomous Republic. 3. By rehabilitating road A380 and improving connectivity and transport conditions, the project aims to have a positive impact on poverty reduction encouraging human development and economic growth. B. Development Context 4. The objective of the study is to identify and analyze development issues associated with the project focused on regional road rehabilitation. 5. A transport project is expected to contribute to poverty reduction through its indirect impacts on economic growth or its direct impacts as for social welfare of the poor (page V) 1. Enhance human capital formation and improve access to economic and social opportunities including schools and health clinics are the main contributions even if transport is an intermediate service, it is a means to an end. Transport alone cannot reduce poverty but it services a pervasive and crucial complementary role (page VI). 6. The present study is at first hand a social and poverty assessment analysis in the two above-mentioned regions with special reference to vulnerable and poor groups, socially excluded persons or groups, situation of women and the elderly. It examines the current socioeconomic situation in both regions, the opportunities available and accessible to the youth and to vulnerable groups. The analysis points out the survival strategies and the safety-nets available and accessible to the local and how these can and will be improved through the project and the improvement of communication means. 7. The rehabilitation of the road is seen by all the stakeholders, - local authorities, rural and urban population- as a very positive action that will foster new opportunities for business and improve their everyday life. Access to basic needs and social services as well as employment opportunities are restrained by the lack of adequate and reliable transport in rural areas. It can penalize cash crop farming and non farm employment opportunities. The reverse is also true. C. Methodology 8. The study was carried out in summer June-July Its main objective at first hand was to assess the poverty and social situation in the two regions concerned. For this it used 3 major sources of information: (a) secondary data which mainly referred to the country in general, (b) interviews and meetings with local authorities and different sectors representatives (agriculture, market and production, youth and social affairs, women s business associations etc.). NGO s, university programs, (c) and at last the local population being the main beneficiaries. 1 - Collin Gannon, Zhi Liu, «Poverty and Transport», TWU, 30 sept IKS/RRI 1

171 9. The field meetings were carried out in a representative sample of persons in villages. They were participative and the beneficiary population. Direct observation, visits and meetings participatory discussions and semi-conducted interviews were held in village mahallas, in other public places and private homes. Quantitative data was gathered and analyzed when it was available and accessible. 10. People were asked to discuss the effects of the road, on production and income, access to health services and education, markets, transport and employment, investment opportunities for micro, medium and macro enterprises and the status and opportunities women have as well as socially vulnerable groups. 11. The report is composed of two chapters. The first chapter examines general issues related to poverty and vulnerability issues in Uzbekistan and the situation women and livelihoods in rural areas. A special section tries to clarify the agrarian and land reform and its consequences in rural areas. 12. The second chapter provides an overview of findings on the development impact of the project in the Autonomous Republic of Karakalpakstan (district of Kungrad, Km of A 380) and the Province of Khorezm (district of Khozarasp Km of A380.). Field work and difficulties: 13. The differences observed between the 2 sections of the road were also reflected in the organization of the field work. In Kungrad, many engineers of the Road Fund accompanied us on the field and were eager to give all the information needed. However, information had also to be taken from the local population and we needed to talk to peasants, pastoralists, workers in the Soda Plant etc. No appointment was taken and introductions were difficult to make. To this was added a general ambiance of certain suspicion and hesitation to answer to questions. Much diplomacy was needed. And although the meetings were conclusive it was however difficult to gather quantitative information, figures and statistics on planned procurement or on the rural/urban population. 14. The situation was different in Khorezm, thanks to the director of the Road Fund of the Province who had organized all the field visits. Here, it was possible to talk to the governor of the district, to the village chairpersons and to some of the pastoral-nomads. The information obtained and the resulted analysis is of a different quality. Although, here too we could have few figures and most of the field-work was based on semi-conducted interviews and direct observation. 15. The Autonomous Republic of Karakalpakstan and the Province of Khorezm are concerned by the two sections of the project. 16. These two regions share in common important aspects of social life and poverty issues and at the same time represent differences on several points. 17. The range of socio-economic differences can be understood as different stages of change independence brought. In general, changes from the FSU period are slower in Kungrad and at the bottom and local level they are not yet apparent. From this point of view Khorezm Province seems already in apparent transformation. For example, animal production has still its sovkhoz transformed into a shirkat in Kungrad whereas in Khozarasp, herds are privately owned. 18. In Kungrad, 4 villages owned by shirkats occupy the first ten kilometres of the road. They have irrigated agriculture and produce the three strategic crops. The shirkat system shows little differences in these villages and the inhabitants are sharecroppers in a vulnerable situation than land-owners. With the disaster of the Aral Sea which is at some kilometers from the road, the section in Kungrad is in general much more vulnerable. IKS/RRI 2

172 19. However, with its underground oil and gas in the Ustyurt Plateau, the Soda Plant at 40 Km from Kungrad, new opportunities will soon arise in the area. The road has its major importance in the future development of the region as all communication depend from it and at the same time all relations with the bordering countries. 20. These two regions share in common a specific environment. In both cases A 380 crosses desert and arid zones. This brings to consider the situation of pastoralism and more specifically of pastoral-nomadism which is today considered to be a new activity in-spite of its being the oldest one in the whole region of Central Asia. In the Soviet period, pastoralnomads were gradually sedentarised through their relation with the sovkhozes and in a way this lifestyle was not recognized and even forgotten. With independence, pastorlism hass comeback not only as a safety-net or shock absorber but also as a major income activity. It is important to take into consideration this new pastoralism which is growing fast as for the time being rangeland and water are free of access, and limitations are very few if none. IKS/RRI 3

173 SECTION I - DEVELOPMENT IMPACT OF THE PROJECT IN THE AUTONOMOUS REPUBLIC OF KARAKALPAKSTAN AND THE PROVINCE OF KHOREZM 1. Background: 1.1 State Development and Poverty Issues in Uzbekistan and Causes of Poverty 21. Before the collapse of the USSR, the Republic of Uzbekistan was considered as one of the poorest regions of the former Soviet Union and, for some years after independence, the situation worsened. By 1996, the economic growth and measures taken by the government led to positive trends and the country started to recover. These measures targeted industry, agriculture and services while simultaneously insuring the passage from collectivism to privatization. 22. These measures had positive impact on : life expectancy that increased, on infant and child mortality which started to reduce, a generalized basic education and elimination of and illiteracy. The measures pointed also at the reduction of gender gap in education. Privatization measures started by the ownership of households and by 1996, 95 % of the households were owners of their dwelling. In rural areas the majority of households had access to plots. 23. Nevertheless, observation showed in that even if the number of the poor population was declining slowly, growth had not generated sufficient employment opportunities. 24. According to the 2002 and 2003 household budget surveys, the poverty level in the country is 27.5 percent, and concerns 6.8 million people living in absolute income deprivation2. The Interim Poverty Reduction Strategy (PRS) for Uzbekistan ( ) identifies four pillars for reducing poverty incidence: (i) high growth rates by maintaining macroeconomic stability and accelerating structural reforms, human development and social protection, reduced interregional inequalities in living standard, and improved environment protection. It takes into account the differences in the social and economic development of the regions of the country Regional variations in poverty remain high and rural populations have a higher rate of poverty: 70% of the country s poor live in rural areas and poverty rate is 30.5 percent versus 22.5 percent in urban areas 26. The highest concentration of poor households is found in the southern and northern regions, together with the Republic of Karakalpakstan that has relatively low standards of living. 27. Features related to the population and the general socio-economic situation still affect poverty and sometimes emphasize it. Poverty studies have identified causes of poverty which include: (i) demographic growth, even if in recent years demographic trends become more favorable with the birth rate decreasing, (ii) health issues with the growth of tuberculosis, chronic pathologies and HIV/AIDS. The specialized medical services on a fee basis on the other make health care more and more inaccessible to poor families. They are most vulnerable to these diseases because of the high cost of care. 28. Causes of poverty are present also in the field of education, differences exist in the quality of education by regions, and by urban and rural areas as well as access to higher education, given the high level of payment the poor sections of the population 2 WB, Living Standards Assessment, Rep. N UZ, May The Interim Poverty Reduction Strategy (PRS) for Uzbekistan ( ) IKS/RRI 4

174 have less access. Another cause of poverty more specifically in rural areas is related to the quality and productivity of land, even if 95% of families own their houses and plots. The productivity of such plots is sometimes insufficient to allow profitable agricultural activity, partially because of the low quality of these plots and lack of water. Gender aspects are also underlined as features increasing poverty, because differences exist even if women are represented in all economic sectors. For example, women form a majority in sectors of health and education where the wages are relatively low, or they represent only 14% of private enterprises Environment directly affects living standards and, primarily, socially vulnerable groups through: - decreased yields of crops and reduced cultivated areas as a result of land salinity and degradation; - decreased productivity in cattle breeding and fishing because of the reduction in biodiversity caused by imbalances in the ecosystems; - increased morbidity rates in the republic, particularly among women of fertile age; - Little financial resources for environment protection and rehabilitation measures, for health protection of the population living in ecologically unfavorable regions. 1.2 State Programs Planned for Poverty Reduction: Millennium Development Goals and Main Strategy 30. Uzbekistan has taken up obligations to achieve the Millennium Development Goals and has defined the objectives and tasks of the strategy. The basic objectives of this strategy are: - Improvement of the living standards of the population and reduction of poverty by half by Guarantee of equal access to basic education. - Achievement of gender equality and provision of women with their rights and opportunities through all sections of the Strategy. - Improvement of the living standards of mothers and children. - Prevention of the spread of tuberculosis and HIV/AIDS. Basic directions and key tasks have been defined in order to achieve the defined objectives. They underline the need to reduce regional distinctions in the living standards, through the elimination of differences in employment opportunities, access to social services and infrastructure. 1.3 Migration Issues Related to Poverty 31. Migration is also present in Uzbekistan and is directly related to poverty. The main recipient countries are Kazakhstan and Russia. Russia counts illegal Uzbek immigrants where as Kazakhstan counts 25 to 30% (Dr. Maksakova). 32. Labour migration had reached its peak by the end of the eighties and the beginning of the nineties, and had started to decrease again as a result of economic growth. Nowadays, its flow is almost twice that of Young persons, usually between 20 and 30 years old, skilled, with an important level of vocational or higher education leave the country. This loss of human resources and brain drain represents for the country the loss of an important force of adaptation and innovation 4 - The Business Women s Association of Uzbekistan makes active steps to increase employment of women, particularly in small- and medium-size businesses. IKS/RRI 5

175 and a potential capacity of development. 34. Migration has also its gender importance, although female migration is more present in urban areas that in rural ones. 35. The relation of migration to poverty and un-employment is not yet fully underlined in Uzbekistan and hence no specific strategies or measures are put forth 5. On a more local level, migration is looked at as an opportunity. Those who migrate and have obtained jobs in other countries are considered as having been successful. Departures are still considered as opportunities of success and of well-being instead of loss or failure. In soviet period, to obtain a passport and a visa to leave the country was such a hassle that departures are still achievements. Table 1: Immigrants Emigrants Migratory flows MIGRATION OF POPULATION BY GENDER Total (persons) In % Women Men Women Men 82,245 84,612 83,234 74,255 80, , , , , ,061-36,732-40,497-43,834-48,178-48,978 63,635 67,230 69,561 65,440 67,315 93, , , , ,429-29,860-37,264-39,498-44,834-47, State Development in Rural Areas 36. The two sections of the Rehabilitation Project of A 380 are situated in rural areas as well as in the desert and arid zones. Land and agrarian reforms since Independence had significant influence on the livelihoods and poverty issues in these regions and represent assets as well as survival strategies. 1.5 From Collectivization to Privatization: Agrarian and Land Reforms 37. Since Independence, Uzbekistan has been through important reforms toward a more liberal economy and privatization. From collectivism, agrarian reforms and land laws tend to insure private ownership of land and enhance private production. 38. Collectivization was well accomplished in Uzbekistan from the very beginning of soviet rule, with cotton playing a pivotal role in the political economy of the region. Uzbek cotton accounted for the 2/3rds of all cotton production in the Soviet Union 5 - This is also the reason a cause and effect relation why reports on poverty or country strategies seldom include the issue of migration related to poverty. IKS/RRI 6

176 and the acreage devoted to cotton expanded continuously. And already in 1980, the water resources of Amu Darya and Syr Darya were fully utilized. And soil exhaustion by unfit crops and high uses of chemical fertilizers and pesticides to affect on the yield that started to decline considerably. 39. The development of cotton was at the expenses of grain and more specifically wheat, which had become an un-significant by-products losing land and importance. The yield had dropped from 57% of the sawn area in 1940 to 35% in 1979 and finally to 20% in Following the break-up of the soviet-union, the economic recession and crisis in public finance prompted a dual process of demonetarization and re-agrarianization. Rising unemployment, a greater reliance on domestic economy for basic goods brought agriculture and farming to act as shock-absorbers. 41. Today, agriculture provides the main source of revenue for state budget. It accounts for 60% of the GDP and 6% of the foreign exchange receipt and about 40% of employment. 42. On the other hand, the situation and the choices presented to the government were also dual and opposing each other; on one hand, prioritize reforms and measures that would improve market economy with increased privatization, and on the other hand, take measures that would help keep control over the production of cotton. The break-up of the collective farm system as well as the pressures for privatization would destabilize this system of extraction. 43. The country ranks as the world s 4 th largest cotton producer and thus the state has a major stake in keeping in place a system of governance that ensures the continued extraction of surplus from agriculture. Prices for cotton and wheat became subject to a mandatory system of production quotas and state order. 44. The production of wheat followed the same system and wheat became a strategic crop. This because of shortages of wheat and flour the country went through just after independence as trading links were disrupted with other republics. As a result and in order to insure a certain level of autarchy, wheat became also a strategic crop. The acreage of land devoted to wheat production was expanded. With a production of an estimated 3.7 tones of wheat in time the yield of 1991 the country had achieved the goal and had reduced drastically its grain imports and ensures a certain level of self-sufficiency. 1.6 Actual Farm Types 45. State control on one hand, privatization on the other brought different land reforms with 3 types of farms. They have different sizes, different production arrangements and different holding systems. 46. The result of these opposing pressures and contradictory measures is a multilayered farming enterprise with varying degrees of rights to ownership and use. - Shirkats or extended units are: (i) collective enterprises, (ii) joint-stock companies both open and closed or (iii) cooperatives. They vary in size, usually between 700 and 2000 ha, with the average size being about 1500 ha. In accordance with year-end results shirkat employees receive dividends from the profit. - Individual lease plots that are private farms with leasehold of tenure of 10 to 50 years. These farms use family members and other full-time workers on openended work contracts. These contracts have to have the approval of the shirkats and the district hakim (governor) and should contain a business plan. IKS/RRI 7

177 The plots are in minimum of 10 hectares for cotton and wheat and one hectare for horticulture and orchard. When the farm is for animal production, the minimum herd size is 30 animals. - Household plots are the most liberalized system, making their own production and input decisions for the most part. They are family small plots and can only use family members and relatives for labour. And, currently, the maximum holding is 0.35 hectares to one hectare, depending on climatic conditions and the need for irrigation. 47. These small household plots have a life-long tenure and the right to be inherited. 48. And in spite of these privatization measures: Land cannot be privatized, sold, mortgaged, given away as a gift or exchanged. Only leasing land for specified terms is allowed. 49. In the regions of our concern, these three crops are cultivated in the areas near Kurgrad (Karakalpakstan sector) and more specifically in the 4 villages with irrigated agriculture, that are on the first 10 Km of road A 380 from Kungrad to Ashkalak. 50. These 3 crops are their main products and the main income activities of these 4 villages divided into several shirkats. 51. On the field, all these different land and farm forms exist, although from the inhabitant s incomes and livelihoods analysis, these represent little changes from the sovkhozes era. Working conditions are the same in the shirkats as they were in the sovkhozes. The individual 0.35 ha plots represent the safety net needed. It means however extra-work for women and children to ensure family consumption. Table 2: Yield differentials in 2001 Farm types Dekhkan farms Private farms Karakalpakstan 178% 83% Khorezm 119% 77% 1.7 Livestock and Animal Production 52. Livestock production is an important issue in the two sections of the project although documentation and figures are rare. All the information upon which rests our analysis is driven from the field and what was possible to gather from the local population. 53. Reports and studies relative to rural livelihoods or agrarian reforms refer mainly to agriculture and more particularly irrigated agriculture. When general figures are given regarding the rural or the agricultural sector, there is no differentiation between crops and livestock production. 54. Both sectors are in arid and desert areas where livestock and pastoralism was and still is the important income activity. Animal Sovkhozes 55. Livestock had also its sovkhozes during the soviet period. Established within the desert where pastoral-nomads were the main animal breeders, these sovkhozes regulated most of the animal production of the country. 56. Before the soviet era, pastoral-nomads were important in the Qizil Kum desert. There were and big herds belonging to beys (honorific title) that were kept by pastoralists on a shareholding system 57. Today, very little knowledge exists locally on the management of these herds, on the IKS/RRI 8

178 modes of life of those pastoral-nomads and on the ways rangeland and water were exploited among different tribes. The sovkhozes had gradually leveled all these. The pastoral-nomads were linked to the sovkhozes because the animals had become the property of these collective farms. All the migratory movements of the tribes and of the flocks started to evolve around the sovkhozes and gradually these nomadic pastoralists became sedentarised in villages with schools and other services. After Independence 58. The 3 types of farm that were described above also apply for livestock: there are major cooperative livestock enterprises and at the bottom level, some heads of cattle and sheep privately owned that ensure the survival of the household. 59. The different stages of reforms and transformations of collective farms into more private enterprises apply also to animal husbandry. There are shirkats for livestock. And in spite of these transformations, for the local workers and peasants, most of these shirkats continue in the same system as the former sovkhozes and even carry the same denomination (livestock sovkhoze). The only change is the shift from state ownership to cooperative system with extended ownerships 60. During the sovkhozes period, animals were owned by the collective farms and all the production cycle was divided into several specialties and managed from above, by masters who knew how to have good and healthy animals. The feed was already prepared and brought from elsewhere. The pastoralists did not have to worry for the nutritional aspects, for veterinary care, nor for the different stages of production and marketing. The peasants or the herders had their own obligations and were only part of the cycle that was completely managed from above and divided into sections with little communication passing from one section to the other. 61. This has some repercussions on today s situation. The pastoralists, who were the members of the sovkhozes, are now responsible of the whole cycle of the profession, from animal breeding to marketing. And, of course their knowledge of animal breeding is not complete. They count on their innate knowledge inherited from their forefathers. They use whatever is left from the old system especially veterinary care and vaccination - and whatever is available as natural resource. This is directly affecting the quality and quantity of the production and of the produce, of markets that can be developed and be more active. 62. The production of meat and milk has shifted almost entirely to the household sector. This is in part related to an acute shortage of feed crops that has worsened with the conversion of land planted with barley and fodder to wheat (the aggregate feed available in 1997 was about one-third of 1991). 63. In arid areas, it is the livestock sector that has also become the shock-absorber for rural households. 64. As such, the activity is growing and more and more persons go into this sector. Pastoralists keep the herds with a sharing system; they are able to build a herd of their own in a quit short period of time points have to be underlined: - Animal breeding has become a shock-absorber within the whole sector related t agriculture. At the level of individual households it represents an important safety-net within the survival strategies of rural areas. - Desert animal breeding pastoralism- is an activity that is prospering and many persons tend to become new pastoralists. This because the sharing system gives the possibility to build up ones own herd and have an income safety and second, because the natural resources needed, mainly graze land and water, are available and accessible with very little taxation. IKS/RRI 9

179 - Knowledge of the whole cycle of animal breeding is not yet accomplished and needs real attention and in order to overcome these gaps and lacunae, the quantity is replacing quality. IKS/RRI 10

180 2.1 Khorezm and Karakalpakstan SECTION II: PROJECT LOCATIONS 66. The Province (oblast, hakimiyat) of Khorezm and the Autonomous Republic of Karakalpakstan are the two regions concerned by the sections of road A380. The project focuses on 2 sections within these regions: - 1 Section 1 Highway A 380: Km for a total of 122 Km, including 29 Km of Tortqol district (rayon) of Karakalpakstan Autonomous Republic and 93 Km in Khozarasp district (rayon, touman) of Khorezm Province. - 2 Section 2: Highway A 380 : Km for a total of 40 Km, all within Karakalpakstan Autonomous Republic and within Kungrad district. 67. In spite of today s different administrative entities an Autonomous Republic and a Province- the history of Khorezm and Karakalpakstan is common to both and represents a rich past. Some Historical References Many of ancient Khorezm falls within modern Karakalpakstan that has today its own administration based in the city of Nukus. In the past the Amu Darya river has changed its course many times leaving archaeological remains that witness a rich and ancient history. The earliest settlements are from the Paleolithic and the Neolithic periods. From around the 6 th to the 4 th centuries BC the region was known as Khorezm. When Alexander the Great marched his armies into Central Asia he made no effort to conquer the Khorezm, despite the fact that it included the fabled land of the Amazons. Following Alexander s death nomadic tribes began to move from the east into the region of Samarkand and then westward. A new and powerful empire grew out of these tribes, the Kushan, who ruled over lands from Central Asia to India. This was also the time of prosperity when trade flourished between China and Rome and from the Baltic Sea to India. A new era of invasions from the Northern steppes followed the decline of the Kushan empire between the 4 th and the 6 th centuries, that of the Huns and then the Turks. In the 7 th century, they were followed by the Arab Conquest, when the Muslim armies brought in a new and powerful faith to the region. In the 13 th century, Khorezm and the whole region was ravaged and destroyed by the Mongols under Gengis Khan. However, under the Golden Horde, the West Bank of the river recovered soon after and became important nodes of international trade. This prosperity lasted until the 14 th century when Tamer Lane invaded the country. It was not until the beginning of the 20 th century that the canals were rebuilt under Soviet Rule and land became settled again. 2.2 Khorezm and Karakalpakstan: a Common Problem 68. On the West Bank of the Amy Darya is the modern administrative region that still bears the ancient name of Khorezm. The main city is Urgench and few kilometers south lies the medieval capital of Khiva. Khorezm is a province with a population numbering 1,200, Both regions, the Autonomous Republic of Karakalpakstan and Khorezm are affected by the catastrophe of the Aral Sea although at different stages. 70. Karakalpakstan lies at the end of the Amu Darya river and borders the southern edge of the Aral Sea: an area once dominated by the extensive delta of the river that flows west and crosses immense desert areas. IKS/RRI 11

181 71. The population of Karakalpakstan, numbering 1,5 to 2 Million, is composed mainly of Karakalpaks and represent today a mix with Uzbeks and Kazakhs together with smaller number of Russians, Turkmen and Tatars. 72. Today, more than 80% of land in the Autonomous Republic is desert but supports extensive agricultural communities along the canals while cattle and sheep are herded in the Qizil Kum desert. 73. Cotton and rice are the two dominant agricultural products. Fruit, vegetables, potatoes and forage plants are also cultivated in the region. 74. The Autonomous republic has significant mineral resources, natural gas, crude oil, granite. It has the largest oil deposit in the country of which about 20% are discovered in the Ustyurt Plateau. 2 power plants completely satisfy the demands for electricity and supply the neighbouring Khorezm to 70% of the whole population of the republic is estimated to be poor and 20 % to be severely poor facing important food shortage. 40% of the population does not have access to drinking water. 2.3 The Aral Sea Catastrophe and its Implications 76. The Autonomous Republic s main problem, which is the basic cause of general poverty, is the Aral Sea catastrophe with its consequent waterborne diseases. The problems caused are not confined to the republic and spread to the neighbouring Khorezm Province with salinisatioon of soil and water. 77. Before 1950, the sea was the major source of livelihood for those living on its shores and fishing became a very productive industry in a collective farm system with 150 tones fishing capacity. This industry decreased between 1958 and 1980 and by 1983 it completely stopped in Munyak Fisheries. 78. Years of regional irrigated agriculture intensification has shrunk what was once before the fourth largest inland body of water in the world with a surface area of about km. Since the 1960s, the surface area has decreased dramatically. More than 80% of the water body and more than 60% of the water surface have been lost. 79. Agricultural production has declined because of lack of water and contamination of land with salt. By 1994, 94% of land around the Sea was considered salinated. According to FAO, during the severe drought of agriculture production was only 6% less in the whole country while it fell to 54% in Karakalpakstan and a little less in Khorezm, of which rice and potato crops virtually failed, fodder and oilseed crops decreased by half and cotton and vegetable output by 30-40%. 80. Between 1999 and 2001 the flow of the Amu Darya diminished with less than half of the average amount of water. The sea s decline has been accompanied by similar devastation of the downstream area of the Amu Darya river, affecting the lives of 4 Million of people living downstream mainly in Khorezm Province. 81. Salt dust and salt storms threaten people and agriculture in the entire Aral basin. Most parts of the dry sea floor form huge salt flats and are the source of presumably millions of tons of (partly,alkaline) salt and dust which are blown out IKS/RRI 12

182 each year, transported to distant areas and re-deposited on irrigated fields and settlements. 82. The Aral Sea problem is common although in different degrees- to the three neighbor republics of Kazakhstan, Turkmenistan and Uzbekistan. Despite this fact, independence could not bring any solution to some of the major problems. The deterioration continues in terms of livelihoods, health, human development and environmental natural resources and fears of future drought events on food security and human health persist. 83. Fuelled by poor living standards, poor nutrition and hygiene, contaminated natural resources health problems are acute, mortality rates are high and life expectancy is lower than in the rest of the republic. Many health indicators, including rates of maternal mortality, respiratory and diarrhoeal diseases are high and tuberculosis has grown to epidemic proportions with an important percentage of the multi-drug resistant type. For the year 2002, 89 cases of tuberculosis per persons per year recorded in Karakalpakstan. In Khorezm the figures are 23/ and the national average is 18/ Employment opportunities are scarce and salaries are lower in Khorezm and still lower in Karakalpakstan than elsewhere in the country. Unemployment is also high and reaches 70% of the total population and exceeds twice the country average. Some families are becoming more reliant on their own initiative to just feed themselves (as observed by MSF mission). People are attempting to start small enterprises or simply add an animal or two in their family holdings. They face though many barriers some of which are high taxes and control on availability of agriculture and other input. IKS/RRI 13

183 SECTION III: PROJECT LOCATION : SECTION 1 OF A 380 : KM FOR A TOTAL OF 111 KM, INCLUDING 18 KM IN KARAKUL-TORTQOL DISTRICT OF KARAKALPAKSTAN AND 93 KM IN KHOZARASP DISTRICT OF KHOREZM PROVINCE 3.1 Khorezm Province 85. History is common to Karakalpakstan and Khorezm and history in these regions is rich with archaeological sites. They represent an important economic potential based on tourism and infrastructural development. Already, some itineraries, other than the important and known sites and cities like Khiva, Bukhara, are proposed to tourists all through A 380 and mainly in the two regions coverede by the project. Tourism development is greatly dependent of the road and in its turn, the road rehabilitation will enhance and give more potential to the development of this sector. On the long run, this will contribute locally to reduce poverty in general mitigate migration of the skilled youth. 86. Khiva is within the Province of Khorezm and the actual international tourist itineraries include a crossing of A 380 from Bukhara to Khiva, passing from the project focus area. The Khanat of Khiva The Khanat of Khiva was established in 1511 by nomadic Uzbeks and it survived until 1920, when the last Khan abdicated and the Khanat was proclaimed the Khorezm People s Soviet Republic. The old city has been extensively restored by 1967 and had become an open air museum. After independence, the original inhabitants of the city, who had to abandon their houses to the museum, returned and re-established within the old walls of the town. Today, they live mainly of tourism and help it to prosper through all the service and the tourist infrastructure they provide. With their presence, this open-air museum has become alive and contemporary. 87. Khorezm is a frontier-region with Turkmenistan and A 380 is sometimes only at a kilometer from the borderline. This new frontier between Uzbekistan and Turkmenistan, as all the other frontiers of Central Asian republics, is a legacy of the Soviet rule and until independence, people living in the region had never experiences frontiers. From one day to the next villagers in Khorezm found themselves cut off from their land and crops by barbed wire. 88. Villagers within the project area had their kin in other villages some kilometers away that are now on the other side of the border. With the actual difficulties to cross borders even if they have the authorization to do so once a month, solidarity ties are becoming weaker creating additional vulnerabilities. 3.2 Description of Settlements and Location of Section 1 A 380 Km The section starts at Km 581 which is some ten kilometers before the village of Miskin and stretches for 29 Km. in Tortqol district of Karakalpakstan Autonomous Republic until it reaches the police border entering Khorezm Province and the district of Khozarasp. On these 29 Km. there are no settlements or any presence except for the railway line and the gas pipeline at 1 Km. from the road. From the village of Miskin and onward, the section enters the Kizil Qum desert, an arid environment with little human settlement. 90. The traffic flow shows 3000 cars and trucks daily on this section. This number includes 300 buses and 700 to 800 trucks that are the main beneficiaries of the rehabilitation project. IKS/RRI 14

184 91. Apart from them, the main stakeholders are: - The district of Khozarasp. - The village of Saramoy and its total territory that includes 2 other small settlements. - The pastoral-nomads or transhumant population living on the sides of the road. - The different chayxona (tea/restaurants) on the road that are private enterprises. 3.3 General Socioeconomic Characteristics of Khozarasp District in Khorezm Province 92. The district dates back to 1926 and covers a total area of 198,000 sq Km. It counts households, 68 schools with pupils, 23 kinder gardens and 6 colleges with 4800 students. It has 4 hospitals and 17 rural medical centers that cover all the health issues of the district. 93. Khozarasp is a central market place for wholesale trading and distributes goods and products to all other parts of the country. Even in FSU period it was an important market place. The rehabilitation of the road will have a very positive impact on the development of this market place. < 94. More than 100 trucks deliver goods and agricultural products to or from Khozarasp, and nearly 90% of the transportation used is by A 380 road. 8 % uses the railway. 95. This market importance of Khozarasp is helpful for the emergence and growth of the private sector. And again, a major part of the private enterprises deal with transportation and are related to the road. There are already several companies who own trucks. And, the chayxonas on both sides of the road are becoming important business enterprises. Agricultural products: 96. Rice is the main product of Khozarasp. It was almost introduced here in these regions by Koreans after Second World War 2. In the town of Toprak Qala (south of the A 380 at Km 459) half of the 10,000 ha of irrigated land are rice fields. Wheat and cotton are the other important crops. Animal products: 97. Patoralism is growing into private enterprise as has underlined the Hakim, with herds sometimes up to 1000 heads. They stay mainly in the northern part of the road in summer and come to the southern part in February and stay until November. The graze land has been divided by the rayon hakim among the different pastoral enterprises. And, water is taken from the water pipeline of Zarafshan. In FSU period there was a tax on each head of animal that has been abolished with independence in order to encourage the increase of animal breeding. In Khozarasp district, there are two animal markets, one in Pitnak, and the other in Khozarasp town. Apart from the markets, animals are also sold directly on the road and this in important quantities. IKS/RRI 15

185 SECTION IV: THE MAIN BENEFICIARIES OF THE PROJECT (SECTION 1) AND THEIR SOCIOECONOMIC CHARACTERISTICS 4.1 The village of Saramoy 98. The territory of the village starts from the first chayxona of the section at Km 570, until the territory of Toprak Qala a, stretching on 68 Km on the road. 99. Population: 3350 persons, 1658 women and a total of 733 families. The village is inhabited by several ethnic groups. Turkmen represent 73% of the whole population. Then come Uzbeks, Kazakhs and Kirghiz. There are also few families of Backers, Tatars, Maldives, Ukrainians, Russians and Koreans Before 1950, Saramoy was first inhabited by Turkmen and by Uzbeks. The other groups came later when the Gas Pipeline and the Water pumps were built and presented employment opportunities Education: There are 2 schools and one kinder-garden.college is in Toprak Qala a at 20 km and 8 students from Saramoy (5 girls and 3 boys) attend it. 3 or 4 of them will go to university at Urgench later Health facilities: The village has a primary health centre that opens only at working hours and is closed on week-ends. The hospital and the maternal care centre are in Toprak Qala a The main bazaars are also in Toprak Qala and in Khozarasp. Main income activities: - Water Reservoir pumps. Is the main employer for 33 years. This pumping station depends from the Zarafchan Water Reservoir of the Metallurgy and Gold Mine complex. Almost each family of the village has a member or two employed in the company. - Gas reservoir pumps. Established also in the 50ies, some of the inhabitants are employed by the gas reservoir next to Tuyanmoyoun. - Private sector. Since independence the private sector has also flourished in the village that counts around 20 mini markets and food stores and 5 tea/restaurants (chayxona) on the road that have become important halting areas for drivers, passengers and even tourists. - Animal husbandry. Saramoy was a sovkhoz in FSU period for animal production. After independence the animals were sold to the local population with credit facilities. In spite of this, not all of the families could purchase the animals. So, now, some have herds and others are herd keepers (chopan) with a system of sharing that enables the latter to build up a herd for themselves. Animals are sold alive, transported by truck to all big cities of the country and important bazaars. - Fishing from the nearby Amu Darya is another activity that seems to be quite important as fish is sold to the chayxonos or directly on the road. However, only one person is officially recognized as a professional fisherman There are 200 persons, both men and women, registered as un-employed. They are both skilled and unskilled. They work on their own plots and with their own herds. Gender aspects of employment: 105. Among the total number of 1658 women in the village 133 have a regular employment. These are in: IKS/RRI 16

186 - Schools. - Water pumps company. There are settlements in the Water-Pump company that belong to the Metallurgy and Gold Plant of Nuwey and Zarafchan. There is also a rest house and a Laboratory where women from Saramoy work mainly as housekeepers. - The Road Fund has employed 5 women. - 2 women go to the bazaar to sell the surplus product of their plots and animals There are no business women in the village and no other opportunity for employment. With the road, women think they may have some new business opportunities. Work has to be preferably at home. They can produce Turkmen carpets, as they already make them for themselves. They can also work on textiles, garments and other crafts. Ilm var, hunar var (there is the knowledge and there is the know-how). Turkmen population and the problems of new international borders: 107. Nearly 73% of the population of Saramoy is Turkmen. And if village life has no problem with other ethnic groups, the Turkmen of this village and of the whole area are suffering from the new international borders Before independence there were many marriages and kinship ties were tight. Families visited members of the descent groups and communication was permanent. Now that the border has become difficult these relations are decreasing and families have difficulties to meet again. They can cross the border individually only once a month for 3 days after paying the amount of sum. Migration in Saramoy 109. Economic migration is also present in the village that counts 75 young persons in Russia and in Kazakhstan. Although they leave for short periods of time -2 to 3 years- hired as workers mainly in construction projects, this youth once back home has no opportunity to start a new business. It tries to migrate again. There is no female migration. Animal husbandry in Saramoy 110. Before all the area of Saramoy was for animal husbandry. There is no, irrigated agriculture here, no cotton production as there is no water. Saramoy was a sovkhoz for animal production and its name comes from butter in Kazakh, because, even before soviet period, the area was well-known for its animal husbandry Today, dekhkan farming is mainly for animal husbandry. The households grow vegetables and some fruit trees on their individual plots for their own consumption. Within the same compound they keep some sheep and goats - not exceeding heads - and 3 or 4 cows and rarely horses for their own use. Sometimes the surpluses of dairy production or vegetables are sold in the bazaars And, although animal husbandry represents here the safety-net and is the shockabsorber, it is not fully recognized by the village representatives and not really valued. They dream of irrigated agriculture of cotton that still represents the value of development and well-being. IKS/RRI 17

187 4.2 Pastoralistm in Kizil Qum Pastoralism 7 is not a new activity in the area, it is rather the main traditional one. The Turkmen as well as some Kazakhs have always been pastoral-nomads here. The desert is where they lived, kept their herds, used the rangelands and available water from wells. The pastoralists were nomads and roamed in the desert from summer to winter graze-lands and water. Summer areas are more on the Turkmen side of the river and closer to A 380, while in winter, the pastoral nomads went northward, far into the desert of Qizil Kum Before the soviet period there were big herd owners with a system of sharing. The FSU established sovkhozes for animal production in the area and confiscated the animals. The herd keepers and pastoralists continued their work receiving salaries. They kept the herds and produced the planned quantities without bothering for fodder, quality of feed, veterinary care and marketing the products With the establishment of the sovokhozes, these pastoral-nomads gradually stopped roaming and sedentarised in villages around. Saramoy is a village of this type After independence, as noted earlier, some did purchase important numbers of animals through the credit facilities and rebuilt herds. Others could not Now, the important herds count at least from 30 to 40 cows and 200 to 300 sheep and goats. Those who could not afford to buy the animals started to take care to the herds of the others. The new pastoralists today who are in the desert, keep the herds of different owners and have different agreements with each one. These can be salary (around 600 sum per head per month), or in kind, sharing of the number of newborns in half In these last 15 years the number of pastoralists has grown up and is still increasing. The demand for animals is important and markets are prosperous. Animals are bought directly from the herders or their owners and put in the trucks. All these transactions take place on the sides of the road within the project area The share holding system is a way to make up a herd in some years: from a herd of 400 heads one of the chobans we visited could keep 100 heads for himself each year. This is a way to make up for a new herd very quickly and represents an income generating activity. And the people of Saramoy know it and many of them have left their salaried-jobs of low wages and unskilled employment to become pastoralist and go back to the desert They camp near the water pipeline and use water as the old wells are empty. They buy fodder for 2 months in winter and for the rest of the year use natural graze lands in the desert without any payment or any management system, because grass is available and there is no real problem related to overgrazing yet The old sovkhoze has become a centre for veterinary care and vaccination. 4.3 The Tea/restaurants: chayxonos 122. There are several resting areas on the road called chayxonos or tea/restaurants. This private sector is flourishing and the demand is important. In two years time they have doubled their activities. In FSU period there was nothing on the road, not even gas stations. Now, and for the last 5-6 years, 5 chayxonos are opened on this section of A 380 with different capacities, some for trucks others for buses and some others for tourists. They 6 - We are presenting the pastoralists as a separate group of stakeholders even if most of them are related to Saramoy. They are now the new inhabitants of the desert crossed by A 380 and they are directly concerned with the rehabilitation works of the road. IKS/RRI 18

188 serve food and beverages and most of them are specialized in fish 8. All have officially obtained land on lease from the district governor of Khozarasp and pay a monthly rent. 4.4 Truck Drivers 123. For the truck drivers interviewed the bad condition of the road is the main difficulty they have. The section from Km 450 to Km 500 is the worst. It is in a very bad state and requires much more time The second issue truck drivers pointed out, is the absence of services on the road. There are no garages and very few gas pumps (there is only one on the section Km ). They are happy to have the actual chayxonos and would like to have more resting areas. 8 - Each chayxono buys 50 to 100 kg. of fish every day from the fishermen of the Amu Darya. IKS/RRI 19

189 SECTION V : PROJECT LOCATION SECTION 2, HIGHWAY A 380 : KM , WITHIN KARAKALPAKSTAN AUTONOMOUS REPUBLIC, KUNGRAD DISTRICT 5.1 Description of Settlements and Locations of Section Close to the sea, the district is directly affected by the problems caused by the Aral catastrophe. The salinization of water and soil, the spread of the desert over the plain are the main features Within the district, the Section 2 Km crosses two main and very opposing natural environments: the delta-plain of Amu Darya and the arid desert of Ustyurt Plateau. The former has villages with intensive irrigated agriculture, and the latter, which is the desert, has a number of scattered small service-towns inhabited by employees and workers and a number of pastoral-nomads roaming with their herds. Gas compressing station in Kungrad 127. This section of the road starts at the end of Kungrad town, marked by the presence of the huge Gas Compressing Station that is related by pipelines to Gazli (Bukhara Province and parallel to A 380) and continues up to the Ustyurt plateau until the border town of Karakalpakstan on a distance of 300 Km Parallel to A 380 at a few kilometers are: (i) 4 gas pipeline, (ii). the water pipeline and, (iii) the railway. 5.2 The Delta-Plain of Amu Darya:The first 10 Km 129. After Kungrad town, the first ten kilometers are still in the delta-plain of the Amu Darya. Here land is fertile and irrigated agriculture produces the main strategic crops of cotton, rice and wheat Cotton and rice fields are very close to the road. However, rehabilitation work will not include any widening of the road and hence there is no resettlement and land compensation issue in this section. IKS/RRI 20

190 Rice fields close to the road 5.3 Toprak Qalaa 131. The archaeological site is also located at 7 Km from the beginning of the section in Kungrad. It is an archaeological of the 2nd century A.D. of Kushan period. Discovered in 1946 by Tolstov and spread over 120 X 100 m, it was partially excavated in On the plateau there are a series of other archaeological sites dating from the same period, like in Kirqgiz Qalaa, Tesik Qalaa, but they are not close to the road as Toprak Qalaa which is situated at 100 to 200 m distance from it The rehabilitation of the road will not have any negative impact on the site. Indirect positive impacts may enhance: (i) more attention from scholars both national and international for new excavations, (ii) tourist excursions and bring new development opportunities. 5.4 The Daoud Ata Cemetery 134. These villages are almost around a cemetery, which is an important historical and contemporary site, located at 8 Km distance from the beginning of the section in Kungrad. Built around the tomb of Daoud Ata, the holy man s grave is venerated by the local but also by people coming from other countries like Kazakhstan and Turkmenistan and both by Muslims and Christians. The cemetery is old and should contain archaeological remains. It is still used by the 4 villages around as well as by people from Kungrad. Its entrance is located at 8 Km from the road and is surrounded by a wall that is also distant from the road There is no problems with the rehabilitation of the road and even if any widening work is done. On the contrary, the rehabilitation of the road will improve the access to the cemetery and help valorize its architectural importance. IKS/RRI 21

191 Daoud Ata Cemetery 5.5 The Ustyurt Plateau The Plateau and the delta-plain 136. The Ustyurt plateau begins at a distance of 10, Km and starts almost abruptly with an elevation of m from the plain and stretches to the Kazakhestan border. The plateau is arid and its desert aspect is in contrast with the irrigated plain. There are few settlements and within the section of 40 Km there is the important Soda factory (Soda Plant) at a distance of 20 Km from the beginning of the plateau This Soda Plant is the main stakeholder with its different factories, quarries, refineries and a population of workers numbering 1500 persons The next settlements like Ashkalaq, Kirqgiz, Bostan and Abadan, Barsa-Kelmes are of small size and situated far beyond the limit of 40 kilometers. They are all habitation areas for the workers of the different stations: gas and water pumping stations or those of the railway. IKS/RRI 22