PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Public Disclosure Copy Report No.: PIDC791 Project Name Central Asia Road Links - Kyrgyz Republic (P132270) Region EUROPE AND CENTRAL ASIA Country Central Asia Sector(s) Rural and Inter-Urban Roads and Highways (90%), Public administration- Transportation (10%) Theme(s) Trade facilitation and market access (40%), Rural services and infrastructure (40%), Regional integration (20%) Lending Instrument Specific Investment Loan Project ID P132270 Borrower(s) Ministry of Finance Implementing Agency Ministry of Transport and Communications Environmental B-Partial Assessment Category Date PID Prepared/ 14-Mar-2013 Updated Date PID Approved/ 28-Mar-2013 Disclosed Estimated Date of 16-Aug-2013 Appraisal Completion Public Disclosure Copy Estimated Date of 26-Nov-2013 Board Approval Concept Review Track II - The review did authorize the preparation to continue Decision I. Introduction and Context Country Context The Central Asia region, including the Republics of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan is undergoing a rapid transformation. Since the early 2000s, economic growth in Central Asia has been fueled by strong exports in response to robust global commodity demand and prices and remittances reflecting strong growth in Russia. The most recent IMF economic outlook forecasts continued growth over the medium term, especially in resource rich countries while uncertainty regarding the future performance of the global economy and its impact on the region remains an issue. The Kyrgyz Republic and Tajikistan are considered the most remote and poorest countries in the region where about 32 percent and 47 percent of the population lives below the poverty line, with a gross domestic product (GDP) per capita of US$880 and US $780 (2010), respectively. Both countries lack natural resources such as oil and gas, but have reportedly substantial potential in hydropower development and mineral resources. Page 1 of 8 Notwithstanding each county's uniqueness, the Governments in the region face similar development challenges in order to reduce poverty (in particular in rural, peripheral areas) and achieve shared Public Disclosure Copy growth. In part, this can be attributed to the impacts of the ‘disruptive’ recent breakup of the Former Soviet Union and the subsequent need for addressing access to shifting global markets (e.g., the People's Republic of China), increasing trade integration with neighboring countries and growing urban and rural disparities. In the Kyrgyz Republic, for example, the level of labor migration from rural areas has been growing in the past years due to lack of employment opportunities, leaving rural areas partially abandoned and under a slow development path. At the same time, remittances from labor migrants amounted to about 30 percent of GDP in Kyrgyzstan in 2009. Batken oblast, one of the poorest regions in the country , continues to see industrial and agricultural output as well as retail trade (a proxy for household spending and incomes) fall. At the core of these challenges is the need to rebuild a framework across national borders, including a regionally and locally integrated trans-border road transport network which serves the needs of the population and economic activities. To date, the Kyrgyz Republic for example plays a notable role as “regional center for the re-export of Chinese products� to neighboring Central Asian countries due to its geographic location. According to estimates by the World Bank (2012), about 75 percent of Chinese imports to the Kyrgyz Republic are re-exported, at a total wholesale value of about US $2.7 billion (2008). These goods move either through the market in Bishkek (Dordoi) or the one in Osh city (Kara-Suu) and create a source of income for a large share of the relatively small population of 5.5 million (wages make up about 30 percent of total fixed costs ). At the same time, the Government recognizes the need to move towards diversification of the country's economic base by supporting the development of the textile industry and agro-processing. Additionally, the country intends to join the recently established Customs Union between Russia, Kazakhstan and Belarus, which is designed as a step towards establishment of a Eurasian Common Economic Space. Providing the right transport infrastructure to connect people and businesses to local and global Public Disclosure Copy services and markets across borders is a priority of current policies and investments of the governments in Central Asia. This agenda is also at the core of the support intended by the World Bank and other international financial institutions (IFIs). In the Kyrgyz Republic, the Government's Sustainable Development Strategy 2013-2017 (SDS) aims to further integrate with growing markets in Russia, China, and neighboring Central Asian countries while supporting local development through modernization of peripheral regions. Support towards these objectives has been underway for several years through, for example investments in transport infrastructure and upgrades of energy systems and networks. The on-going Transport and Trade Facilitation Strategy and Action Plan for 2008-2017, endorsed by Central Asia Regional Economic Cooperation (CAREC) spells out plans to rehabilitate six strategic transport corridors. An initiative put forward to the World Bank by several governments in the region seeks to complement the on-going efforts. This initiative aims to develop road links (complementing the six strategic corridors developed under CAREC) that are inherently trans-border in character and that can only be tackled effectively through a cooperative approach with neighboring countries. At thesame time, the initiative aims to target peripheral regions where the poor condition of the road network is holding back economic and social development (and creating socio-economic tensions) and where regional integration and improvement of connectivity is paramount to reducing the costs of moving goods within and across countries . Page 2 of 8 Due to close geographic proximity and dependence on efficient road trans-border transport connections, the Republics of Central Asia have expressed their interest to join the initiative through a program with sequential entry of countries (starting with the Kyrgyz Republic). This program, Public Disclosure Copy estimated to cost about US$310-390 million is proposed to be prepared as an Adaptable Program Lending (APL) using national and regional IDA funds as well as IBRD, depending on the eligibility of countries. Parallel and co-financing arrangements with development partners is also envisaged. Sectoral and Institutional Context Providing the right transport infrastructure to connect people and businesses to local and global services and markets is a priority of current policies and investments of the Government of the Kyrgyz Republic. Severely constrained by the predominantly alpine topography, travel within the country is mostly done by road where 95 percent of passengers and 60 percent of freight are transported. At the same time, integrating with global markets requires transit transport through neighboring countries resulting in high logistics costs. Cognizant of this, the Government focuses on the rehabilitation of priority sections of the 18,000 km long republican road network (core road network of about 6,000 km) which falls under the responsibility of the Ministry of Transport and Communications (MoTC) of the Kyrgyz Republic. Priority sections are generally of regional as well as national strategic importance as they carry the majority of the traffic. The existing railway network in the Kyrgyz Republic, formerly part of the railway network in the Former Soviet Union (FSU), is relatively small with 425 kilometer and carries limited traffic, mainly imports and exports of bulky nature. The northern and the southern rail network are not directly connected with each other, but link separately to Uzbekistan and Kazakhstan servicing the country's imports and exports. To this end, the development of a new rail link is also under consideration to establish rail connections between the north and the south and east and west, creating an integrated rail network with links to China, Uzbekistan and Kazakhstan. The growth of traffic on the road network (passenger and cargo transportation increased by 8-9 Public Disclosure Copy percent per annum in 2008-2009) and investments associated with the rehabilitation and upgrade of priority road sections are triggering an important debate regarding the serious consequences of failure to invest adequately in these new assets and effectively maintain them. Lack of action is understood to negatively impact safety, reliability and quality of service, and eventually requiring greater level of investments in the future. As the financial needs of the sector are well beyond funds available (less than 50 percent of required funds for repair and maintenance), a road asset management system is being introduced by the on-going World Bank-financed National Road Rehabilitation Project. This will help to program and plan the allocation of resources for the repair of roads more efficiently. At present, the Road Development Strategy (2007-2010) supports an important long-term change allowing greater reliance on market elements in the execution of periodic and routine maintenance works. This would change the current model which relies primarily on force account through 57 local maintenance units (DEPs). Until today, private companies were involved only in larger-scale maintenance works since DEPs did not have specialized machinery; the country lacks private construction companies able to implement maintenance works, especially in remote areas. Out of the 142 bids announced by MoTC for pavement rehabilitation (2012), only 32 percent were successfully bid out to the private sector. To this end, MoTC is now focusing its efforts on the reorganization of its subordinate maintenance Page 3 of 8 units at the regional (PLUAD) and local (DEP) level which will remain under the Ministry's jurisdiction in the medium-term. At the same time, due to the lack of road construction and maintenance equipment in the country, the Government's recent SDS plans to allocate KGS 250 Public Disclosure Copy million annually for their purchase. In the medium-term, elements of performance-based contracts are also envisioned to be introduced at the DEPs level. Another measure for making road investments more sustainable is strengthening transport control, including axle load and control systems in the country through further development of legislation, procurement of weight control scales, and most importantly, through improvement in rule enforcement. These measures are expected to be harmonized across the region. Relationship to CAS The proposed Central Asia Road Links (CAR) Program complements the efforts of the countries in the region contained in the on-going Transport and Trade Facilitation Strategy and Action Plan for 2008-2017 which is endorsed by the Central Asia Regional Economic Cooperation (CAREC). This strategy foresees the rehabilitation of 6 strategic transport corridors in the Central Asia region based on their impact on economic growth and poverty reduction as highlighted by the recently developed framework for the CAREC program 2011-2020 (CAREC 2020). The program has the aim to expand trade and improve competitiveness by developing so-called ‘economic corridors’ as well as improve trade facilitation. Within the trade facilitation component, cross-border transport agreements (CBTA) between the Kyrgyz Republic, the Republic of Tajikistan and Afghanistan are being developed and implemented to ensure smooth flow of goods and people. The proposed APL I focusing on Osh and Batken Oblast supports the core pillars of the Bank’s Interim Strategy Note for the Kyrgyz Republic (FY12-13) which aims to partner the transition from recovery (after 2010 conflict), via stabilization, to long-term sectoral development. The Strategy is based on countervailing the conflict stressors through its focus on governance and accountability, support for social services and infrastructure and support the possibilities for a transition to continued economic and social stability, especially in the southern oblasts (Osh and Batken Oblast) Public Disclosure Copy affected by the conflict. Rehabilitating the greatly damaged roads within the vicinity of the Osh- Batken-Isfana road will improve access of local population to markets and social services, thus contributing to more economic activation and improvement of social security, leading to stabilization in the southern region. The World Bank is now at the stage of drafting a new Country Partnership Strategy for 2013-2017, which will be based on the national development strategies and identify priorities for the next 5 years, including public governance and transport sector. II. Proposed Development Objective(s) Proposed Development Objective(s) (From PCN) The proposed Central Asia Road Links (CAR) program is the result of a collaborative effort initiated by the respective governments in the Central Asia region. The development objective of the CAR programs is to enhance transport connectivity and integration whiledeveloping sustainable and efficient transport solutions. The program will achieve these objectives by (i) financing the upgrade of priority road sections complementing the on-going CAREC program in transport; (ii) implementing at pilot sites a set of measures to ensure sustainability and efficiency of the road infrastructure investments (e.g., maintenance and safety); (iii) strengthening mechanisms of interaction between road users (trading community and local population) and public agencies Page 4 of 8 providing services; and (iv) developing a strategy and action plan with specific measures which could further increase the efficient movement of goods and people across borders. The proposed CAR program is expected to have substantial positive impacts on poverty reduction and economic Public Disclosure Copy growth. In line with the overall Project Development Objective (PDO) of the program, the development objective of the first phase of the proposed Adjustable Program Lending (APL I) is to rehabilitate priority road sections in Osh and Batken Oblasts (along the Osh-Batken-Isfana road) and improve road operations and maintenance practices along the core road network. The road links once rehabilitated will improve access along the only land transport connection between the main Kyrgyz cities in the Ferghana valley to the rest of the country. It will also contribute significantly to lowering the cost of transport of imports and exports in a corridor from and to China. Recent estimates show that more than 550,000 tons of goods travel through the road corridor while traffic intensity is greatest south of Osh city at about 6,000 vehicles per day and over 800 vehicles per day in and around Isfana city. Most importantly, the recently updated feasibility study for the road sections in Osh and Batken Oblast shows that the share of commercial vehicles (trucks) has doubled within the last two years from about 10 percent to 20 percent of total traffic. Passenger traffic in cars and buses represents the remainder. The possibility of preparing simultaneously projects for each participating country in a matrix of interdependent actions and investment does appear challenging. Still, the achievement of the overall program objectives will be greatly aided by simultaneous standardization and harmonization of trans-border road-related infrastructure, institutions and operations among countries. Taking this into consideration, a regional or ‘horizontal’ APL structure provides important advantages and is the preferred option as it will allow to implement the program with sequential entry of countries (as each becomes ready to enter). A horizontal APL is found to be more useful because it formally embeds the objective of the program in a long-term framework and it enables to focus on the right issues, prioritization and phasing of investments and policy dialogue. Given the geopolitics of the Public Disclosure Copy region, a long-term commitment is politically important and could provide an efficient framework of incentives of good performance. Key Results (From PCN) The proposed APL I project design has been kept simple in order to achieve the PDO within the implementation period. Progress towards the attainment of the PDO will be assessed through the following indicators: (i) Project outcome indicators: a. Transport costs for road users, by car, truck and buses along the project road sections and in the project area reduced; b. Travel time for road users, by car, truck and buses along the project road sections and in the project area reduced; c. Number of rural people in the project area who live within 2 kilometers of an all-season road increased proportionally; and d. Outcome of road user satisfaction survey reflected in current road sector policies and investments. (ii) Intermediate outcome indicators: a. Number of kilometers of road sections rehabilitated under the Project; b. Percentage of total classified road network in the project area in good and fair condition; Page 5 of 8 c. Performance standards introduced in maintenance contracts with DEPs; d. Road user satisfaction surveys for strategic corridors [to be determined] undertaken; and e. Strategic Plan for cross-border trade facilitation measures developed. Public Disclosure Copy III. Preliminary Description Concept Description The Bank-financed proposed APL I will consist of the following components (estimated costs are presented as net of all taxes and duties which are covered by the Government's co-financing and represent about 20 percent of total project costs): Component 1: Rehabilitation of Priority Road Sections in Osh and Batken Oblasts The component will finance the provision of works and consultants’ services for the rehabilitation of about 150 kilometers of priority road sections along and within close vicinity of the road linking Osh, Batken, and Isfana cities with neighboring countries. The priority road sections will be located in Osh and Batken Oblasts and are expected to include: Nookat Pass to Kyzyl Kiya, bypass around Batken, Isfana city to border with Tajikistan as well as additional links to borders with neighboring countries. The proposed road sections are expected to be built based on design standards of road category III according to SNIP KR 32-01:2004 (carriageway width up to 15 meters, shoulder width is up to 3,75 m). This includes services for construction supervision and physical and price contingencies (estimated at about 20 percent). Estimated total cost: US$ 140 million. Component 2: Improvement of Road Operations and Maintenance Practices This component will finance the provision of goods, and consultants’ services for the improvement of road operations and maintenance practices prolonging life cycle of newly rehabilitated road sections and road structures. Multi-year road maintenance contracts (featuring performance standards) with selected DEPs will be implemented along sections that were recently completed with support from IFIs (e.g., Pulgon-Batken, Bishkek-Osh, Irkestam-SaryTash). This will require the revision of existing legislation (such as procurement laws), support in drafting of bid Public Disclosure Copy documentation, conducting the tender as well as supervising the implementation of the works. On- going work financed by technical assistance grants from the Japan International Cooperation Agency (JICA) and the World Bank on road maintenance planning will complement the proposed component. In order to support implementation of the recently adopted law on axle-load control according to which it is prohibited for trucks with axle loads exceeding 100 tons to enter the country, this component will review the existing framework and potentially finance scales that could be used along the road corridor. Estimated total cost: US$5 million. Component 3: Project Management, Implementation, and Strategic Plan Development This component will finance the provision of goods, consultants’ services, training, operating costs, including a financial audit to support project coordination, implementation and management. Consulting services will also be procured to develop a strategic plan for cross-border trade facilitation measures to be implemented in the medium to long-term along the Osh-Batken-Isfana road, complementing existing initiatives by the ADB and others, such as the RIBS project which will improve border-crossing points, logistics and customs procedures in the region. Estimated total cost: US$5 million. IV. Safeguard Policies that might apply Page 6 of 8 Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment OP/BP 4.01 ✖ Public Disclosure Copy Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ V. Financing (in USD Million) Total Project Cost: 150.00 Total Bank Financing: 40.00 Total Cofinancing: Financing Gap: 105.00 Financing Source Amount BORROWER/RECIPIENT 5.00 International Development Association (IDA) 40.00 Total 45.00 VI. Contact point World Bank Public Disclosure Copy Contact: Cordula Rastogi Title: Senior Transport Economist Tel: 473-2721 Email: crastogi@worldbank.org Borrower/Client/Recipient Name: Ministry of Finance Contact: Mr. Mirlan Baigonchokov Title: Deputy Minister of Finance Tel: 996312664036 Email: m.baigonchokov@minfin.kg Implementing Agencies Name: Ministry of Transport and Communications Contact: Mr. K. Mamaev Title: Director, IPIG Tel: +996 312 610472 Page 7 of 8 Email: bishkekoshroad@infotel.kg VII. For more information contact: Public Disclosure Copy The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Public Disclosure Copy Page 8 of 8