DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING

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1 Public Disclosure Authorized The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) DOCUMENT OF THE WORLD BANK REPORT NO.: RES27637 Public Disclosure Authorized RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF EAST WEST ROADS PROJECT (ALMATY KORGOS SECTION): WESTERN EUROPE WESTERN CHINA INTERNATIONAL TRANSIT CORRIDOR (CAREC 1B) Public Disclosure Authorized TRANSPORT & ICT EUROPE AND CENTRAL ASIA APPROVED ON MAY 1, 2012 TO REPUBLIC OF KAZAKHSTAN Public Disclosure Authorized Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager/Manager: Task Team Leader: Cyril E Muller Lilia Burunciuc Jose Luis Irigoyen Binyam Reja Jacques Bure, Aliya Karakulova

2 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank IBRD International Bank for Reconstruction and Development CAREC Central Asia Regional Economic Cooperation IFIs International Financial Institutions comprising the World Bank Group, ADB, EBRD, IsDB CR Committee for Roads KAZ Kazavtozhol National Roads Operator JSC CS Center South Road Corridor KZT Kazakhstan Tenge EBRD European Bank for Reconstruction M&E Monitoring and Evaluation and Development EIRR Economic Internal Rate of Return MoID Ministry of Investments and Development ESMF Environment and Social Management O&M Operations and Maintenance Framework ESIA/ EIA Environmental and Social Impact PDO Project Development Objective Assessment/ Environmental Impact Assessment EWRP East West Roads Project PFA Partnership Framework Arrangement GDP Gross Domestic Product RPF Resettlement Policy Framework GHG Green House Gas SMEs Small and Medium Enterprises SWRP South West Roads Project GoK Government of Kazakhstan WBG World Bank Group GR Grievance Redress WE WCh Western Europe Western China Corridor

3 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) BASIC DATA Product Information Project ID P Original EA Category Full Assessment (A) Approval Date 01 May 2012 Financing Instrument Specific Investment Loan Current EA Category Full Assessment (A) Current Closing Date 30 Jun 2017 Organizations Borrower Republic of Kazakhstan Responsible Agency Ministry of Investments and Development Processing (this section will be automatically removed by the system before the paper is disclosed) Form Type Based on the proposed changes this Restructuring type is Full Restructuring Paper Level 1 Decision Authority RVP Decision Explanation of Exception to Decision Authority The loan closing date is extended by more than 2 years. Project Development Objective (PDO) Original PDO The project development objectives (PDOs) are to increase transport efficiency along the section of the Western Europe Western China Road Corridor within Almaty Oblast and to modernize highway management on sections of the Western Europe Western China Road Corridor.

4 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) Summary Status of Financing Ln/Cr/Tf Approval Signing Effectiveness Closing Net Commitment Disbursed Undisbursed IBRD May Oct Jun Jun Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The East West Roads Project (EWRP, the Project) is providing US$1,068 million in lending to the Republic of Kazakhstan through an IBRD loan 8156 KZ approved on May 1, The Project finances the upgrade to four lanes of an existing single carriageway between Almaty, the economic capital of Kazakhstan, and Khorgos at the border with China. The Project's progress towards the achievement of the PDO is satisfactory. Both PDO and IP ratings have been satisfactory since early stage of implementation in December Disbursements stand at 50% (US$ 537 million) as of early May 2017, and additional US$37 million are expected to be disbursed by the end of June 2017, the current project closing date. The Project is recording savings of US$487 million (the Bank s share of financing). The original cost estimates at the time of project preparation were based on the market analysis in Kazakhstan. The savings accrued from two main sources: (i) the depreciation of the Kazakhstan tenge (KZT), which lost about 100% of its value against the US dollar between 2012 and 2016 whereas the majority of the construction inputs were locally sourced; and (ii) cost effective procurement and diligent contract management that ensured value for money and cost of construction below the estimates set at the appraisal. Full details for cost savings are provided in Annex Civil works under the original project are 95% (291 km of the total of 305 km) completed. The road agencies Committee for Roads (CR) and Kazautozhol (KAZ) in charge of the implementation of the Project plan to open the entire new four lane road in summer The overall rate of progress and quality of works are satisfactory. Safeguards compliance is rated moderately satisfactory because reclamation of some borrow pits is lagging behind schedule. Project is in full compliance with financial conditions of the Legal Agreement including timely submission of interim unaudited financial reports and annual audited financial statements. 3. The Project's institutional component was designed to support the modernization of highway management and tolling strategies along the 2,800km long Western Europe Western China corridor crossing the entire country. A comprehensive tolling strategy for the Almaty Khorgos section has been developed, which expanded to other sections of the same corridor, including the Kyzylorda Shymkent section of the South West Roads Project (SWRP) also financed by the Bank.

5 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) 4. Value added from the Bank. Since early days of partnership with the roads authorities in Kazakhstan, the Bank team aimed at combination of actions towards strengthening the capacity of staff, introducing new technology, and improving processes. Annex 4 summarizes how the capacity of staff has improved over the years, and how innovations like RAMS, PAT, Mappilary, and RoadLabPro are supporting the decision making today. Significant institutional changes have been implemented under SWRP and EWRP in coordination with other IFI partners (ADB, EBRD, IsDB). These include separation of operational functions from policy and planning, improvements in road safety, network management, and sustainability via revenue collection. The proposed restructurings of both SWRP and EWRP would leverage and build on these reforms and focus on promoting sustainable and diversified revenue sources for road maintenance, safe road operations, job creation and private sector participation. 5. Lessons learned from the Bank Engagement in Kazakhstan s Road Sector: The Bank has had a productive engagement in the road sector for the last decade. The key lessons that emerge from this engagement include the following: It is possible to build a good quality trunk road at a very reasonable price in Central Asia today. This is important given the desire of Central Asian countries to turn the region from a land locked to a land bridge region. It is possible to introduce innovation in the transport sector in Central Asia, but it takes time for those innovations to be fully mastered by local industry, workforce, and the administrations. First, by definition, the approach is about novelty and it requires more than the adoption of a software, the purchase of equipment, or the signing on a budget. The staff has to be trained, mentalities need to evolve, and investments need to be made by the private sector, with a view on the long term sustainability and with access to credit. Large infrastructure can be built in Central Asia in full compliance with best practice in terms of environment and social safeguards. Local populations are interested and supportive of transport infrastructure; and the administration is able to address concerns, mitigate negative impacts, and even adjust alignment and agree on additional investments (e.g., cattle underpasses). Administration such as the one in Kazakhstan is ready to embrace institutional reform based on a dialogue with the Bank on best practice in place elsewhere. The schedule of reforms needs to be carefully adjusted to the constraints and workload of counterparts to be successful. It takes also time to build confidence and to go further than the initial ideas and commitments. Projects such as the EWRP and SWRP, because of their transformational impact, their large cost, and high visibility are good vehicles for reforms. II. DESCRIPTION OF PROPOSED CHANGES 6. The request to restructure the Project comes as a result of the analysis of the economic situation by the Government of Kazakhstan (GoK). The current fiscal situation has affected the Partnership Framework Arrangement (PFA) signed in September GoK estimates that implementing the PFA as originally designed would lead to GoK reaching the 15% threshold of public debt to GDP by GoK has therefore decided to defer about US$4 billion of new borrowing

6 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) under the PFA to remain below the debt threshold. In parallel, GoK has requested the Bank to restructure its current portfolio including the EWRP to reallocate accrued savings in order to support priority investments and road sector reforms. The proposed restructuring was officially requested on February 10, GoK asked to use savings under the Project to finance additional sections along the existing corridor Center South, north of Almaty toward the capital city Astana, a priority in all national strategic transport planning documents. The accrued savings will finance civil works on Balkhash Burylbaital road section (300km), which is in poor condition with high accident rates; and (ii) supporting road sector reform and sustainability, including tolling, trade facilitation and roadside services development, improved planning and management of maintenance, and road safety. 7. Civil Works. Civil works will include the upgrade of an existing Balkhash Burylbaital road on a section from km 1855 to km 2152 of the Center South corridor (see map in Annex 5). The road section will be upgraded to a 4 lane dual carriageway, class 1 asphalt road with 13 tons single axle load bearing capacity and 120km per hour design speed. Average annual daily traffic reached around 5,600 vehicles per day in The existing roads are two lane roads in a flat and hilly terrain and are affected by weather related road closures and delays in the winter increasing delivery time of freight and opportunity costs. 8. Economic Analysis. Project benefits for the additional sections of roads to be financed have been calculated for the project over a life of 20 years from the assumed opening date. The economic evaluation of the Balkhash Burylbaital section indicates the estimated overall economic internal rate of return (EIRR) of 18.4% for a net present value of US$566 million, at 6% discount rate. The evaluation considered road agency costs, normal traffic and generated traffic road user costs, road safety benefits and CO2 emissions costs. The inclusion of the CO2 emission cost in the economic evaluation affects slightly the economic evaluation results. Without CO2 emission cost, the overall EIRR of the project increases to 17.7% from the base 16.9% including CO2 emissions costs in the evaluation. A sensitivity analysis was conducted on results of the economic modeling to assess potential impacts of the variation in capital costs and traffic. Analysis shows that the NPV reduces to US$ 198 million at 12% discount rate. If capital works are increased by 20% and road user benefits are reduced by 20%, the overall EIRR of the project reduces to 13.5%, confirming the satisfactory economic justification of the project. Full details are in Annex 2 (Economic and GHG Accounting Analysis) and Annex 3 (Climate Change Commitments). 9. Institutional Development. The proposed institutional development activities would assist KAZ to review and upgrade national strategic documents related to tolling under the ongoing EWRP, and would support KAZ in expanding tolling to about 7,000 km of republican roads, thereby ensuring long term sustainable revenues for maintenance and operation. KAZ will gradually take over the maintenance and operational management of the completed assets, and will collect and manage the toll income on behalf of the state. A service level agreement will be put in place from the start between KAZ and road maintenance service providers, based on the Quality Charter principles developed under the ongoing EWRP. The agreement will establish required service levels for maintenance of the network. The Road Asset Management System (RAMS) established under ongoing SWRP will also provide KAZ with tools for network management over the long term. The new assets (Balkhash Burylbaital) will be integrated into the RAMS, so that multi year maintenance plans can be prepared and costed. 10. Specific activities include: 1. Tolling (commercialization, sustainability, business plan and financial modelling) (US$ 42m including infrastructure) 2. Trade facilitation, roadside services development, and logistics ($3m consulting services)

7 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) 3. Quality Charter better planning and management of maintenance, separation of client supplier roles, private sector participation (US$1.5 m consulting services) 4. Reform Advisor (US$ 0.5m consulting services) 5. Road Safety (US$1m consulting services) Full details are provided in Annex The restructuring, as addressed in the amendment letter, entails: (i) an extension of the loan closing date, (ii) modification of the Project Development Objective (PDO) to reflect the location of the additional works, (iii) modification of project description, (iv) modification of the definitions for Environmental and Social safeguard documents (ESIAs/ESMPs) to address the expanded Project area and the documents additional public disclosures in accordance with the approved ISDS, (v) revision of the disbursement estimates and of the project performance monitoring indicators; and (vi) renaming of the Project s implementing agency from MoTC to MoID. The added scope of work along with a 4.5 years extension of the closing date support the project objectives, which remain highly achievable. 12. List of Annexes: Annex 1. Origin of Project Savings Annex 2. Economic and GHG Accounting Analysis Annex 3. Climate Change Commitments Annex 4. Road Sector Development Outcomes Annex 5. Map Click here to enter text. III. SUMMARY OF CHANGES Changed Not Changed Change in Project's Development Objectives Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Disbursement Estimates Change in Safeguard Policies Triggered Change in Procurement Change in Implementation Schedule Change in Economic and Financial Analysis

8 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) Change in Technical Analysis Change in Social Analysis Change in Environmental Analysis Change in Implementing Agency Change in DDO Status Cancellations Proposed Reallocation between Disbursement Categories Change in Disbursements Arrangements Change in Systematic Operations Risk Rating Tool (SORT) Change of EA category Change in Legal Covenants Change in Institutional Arrangements Change in Financial Management Other Change(s) IV. DETAILED CHANGE(S) PROJECT DEVELOPMENT OBJECTIVE Current PDO The project development objectives (PDOs) are to increase transport efficiency along the section of the Western Europe Western China Road Corridor within Almaty Oblast and to modernize highway management on sections of the Western Europe Western China Road Corridor. Proposed New PDO The project development objective (PDO) is to increase transport efficiency and modernize highway management along the Selected Road Sections of the Western Europe Western China Road Corridor and the Center South Corridor.

9 PDO_IND_TABLE The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) RESULTS FRAMEWORK Project Development Objective Indicators Transport Efficiency:Reduce by the end of the Project, Road User Costs from US$0.26/veh km to US$0.23/veh km on Project road sections Unit of Measure: Amount(USD) Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 01 Mar May Dec 2021 Transport Efficiency: Reduce Travel time on the Almaty Khorgos section of the WE WCh corridor Unit of Measure: Hours Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 01 Mar May Dec 2018 Travel Efficiency: Reduce travel time on the selected section of the Center South Corridor Unit of Measure: Hours Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value New Date 12 May May Dec 2021 Modernization of highway management: Introduction of sound operation and maintenance practices along the WE WC Corridor and Center South Corridor. Unit of Measure: Kilometers Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 01 Mar May Dec 2021

10 IO_IND_TABLE The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) Modernization of highway management: Financing gap for operations and maintenance activities along the WE WC and Center South Corridor Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 01 Mar May Dec 2021 Roads in good and fair condition as a share of total classified roads Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 01 Mar May Dec 2021 Size of the total classified network Unit of Measure: Kilometers Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value Marked for Deletion Intermediate Indicators Roads constructed, non rural Unit of Measure: Kilometers Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 12 Jan May Dec 2021

11 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) Kazakhavtodor gradually operates and maintains portions of the SWRP section of the WE WC Road Corridor Unit of Measure: Kilometers Indicator Type: Custom Baseline Actual (Current) End Target Action Value Marked for Deletion Date 25 Jan Jun Jun 2020 CR and KAZ Staff familiar with new operation and maintenance methods Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 01 Mar May Dec 2021 User survey the number of users interviewed Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 01 Mar Jun Dec 2021 Length of the road network for which new user pay principles (e.g., tolling) are agreed upon. Unit of Measure: Kilometers Indicator Type: Custom Baseline Actual (Current) End Target Action Value Revised Date 01 Mar May Dec 2021 Changes to Project activities as a result of citizen feedback Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action

12 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) Value No Yes Yes New Date 31 Jan May Dec 2021 Feedback on Project activities received Number of questions from citizens answered at the Project website Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value New Date 18 Jun May Dec 2021 Complete road safety audit of the design for Balkhash Burylbaital Road; improvements integrated. Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes New Date 17 May May Jan 2018 Develop and operationalize the road accident database Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes New Date 17 May May Dec 2020 COMPONENTS Current Component Name Component 1: Upgrade and construction of the road section of the Western Europe Western China Road Corridor within Almaty Oblast Current Cost (US$M) Action Revised Proposed Component Name Component 1: Upgrade and construction of the Selected Road Sections Proposed Cost (US$M)

13 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) Component 2: Modernize highway management of sections along the Western Europe Western China Road Corridor 4.00 Revised Component 2: Modernize highway management along the Western Europe Western China Road Corridor and Center South Corridor TOTAL 1, , LOAN CLOSING DATE(S) Ln/Cr/Tf Status Original Closing Revised Closing(s) Proposed Closing Proposed Deadline for Withdrawal Applications IBRD Effective 30 Jun Dec Apr 2022 DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed

14 The World Bank East-West Roads Project (Almaty-Korgos Section): Western Europe - Western China International Transit Corridor (CAREC - 1b) (P128050) COMPLIANCE Safeguard Policies Safeguard Policies Triggered Current Proposed Environmental Assessment (OP) (BP 4.01) Yes Yes Natural Habitats (OP) (BP 4.04) No Yes Forests (OP) (BP 4.36) No No Pest Management (OP 4.09) No No Physical Cultural Resources (OP) (BP 4.11) Yes Yes Indigenous Peoples (OP) (BP 4.10) No No Involuntary Resettlement (OP) (BP 4.12) Yes Yes Safety of Dams (OP) (BP 4.37) No No Projects on International Waterways (OP) (BP 7.50) No No Projects in Disputed Areas (OP) (BP 7.60) No No

15 Annex 1. Analyzing the Origins of SWRP and EWRP Savings 1. Three parameters need to be considered to analyze the origins of the SWRP and EWRP savings: 2. The first parameter is the approach used by the designers and the road administration to assess the cost of construction. The approach was different for the SWRP and the EWRP. For the SWRP, the feasibility study, prepared by designers, reviewed by the Committee for Roads (CR) and endorsed by the GOST Expertise was solely normative. It was based on a traditional blue book approach i.e., a set of unit cost for production (e.g., steel, cement) and construction activities. The estimate did not foresee the impact of foreign contractors attempts to place their company on an emerging market under arrangements that were considered secure compared to more traditional financing in the region. The World Bank financed 85% of the cost of civil works. In addition, the estimates did not take into consideration the magnitude of the project and the bidding process that allowed firms to offer significant cross discounts if they were to be awarded several lots. On the contrary, the costs of the civil works under the EWRP were based on the combination of the market rates and provisional amounts. 3. The second parameter relates to the packaging, procurement, and supervision of the works. Here the situation was identical for both projects. First, the packaging was prepared so that each lot was on average US$100 million, far above the volume of the average contract that construction firms were used to deal with in Kazakhstan. This made the bidding attractive to large foreign firms, and it enhanced competition the number of firms participating has always been above 20 on each bidding. Then the International Competitive Bidding with demanding pre-qualification stage reassured the construction industry that the competition was transparent and fair. In addition, the Bank team managed to design with the client a bidding process where a large combination of cross discount was allowed. Last, CR, through consulting firms in charge of supervision, and the Bank teams, who developed a Performance Assessment Tool to enhance its due diligence on the monitoring of the contractors and the supervision firms, managed to keep the civil works contracts under control during implementation. 4. The last parameter is linked to the significant depreciation of the local currency starting in 2014 and with a sharp increase in Because the implementation of the SWRP started in 2010, the impact of this parameter on the SWRP was minimum below 5 percent. However, for the EWRP, which contracts were signed in 2013 with price adjustment close embedded, the impact was immense. Table 2 provides an analysis of interim payment certificates approved until 2017 for all EWRP contracts. It compares the actual payments (in USD equivalent) with estimated payments if the exchange rate had not fluctuated, and shows the extent of depreciation effect on the cost of contracts (in USD equivalent). In USD terms it resulted in average savings of 37%. 5. Based on the above and a review of the various stages of implementation of each project, the team computed the following breakdown of the savings for each project. 1

16 Table 1. Breakdown of SWRP and EWRP savings SWRP (US$ million) EWRP (US$ million) Loan amount 2,125 1,065 Total Savings From design estimates to 19% 30% awarded contracts From variations to BoQs -1% -4.5% From depreciation of local currency compared to the initial exchange rate less than 5 % 37% 2

17 Table 2 EWRP: effect of depreciation of the local currency on the cost of implementing contracts in USD equivalent N Contractor Design cost 1 Dogus EWRP ICB(W)-001/ Dogus EWRP ICB(W)-001/ Todini EWRP ICB(W)- 001/ Todini EWRP ICB(W)- 001/ Todini EWRP ICB(W)- 001/ Todini EWRP ICB(W)- 001/201 7 Evrascon & МО-1 M USD eqvl Ex rate Initial Contract Amount (BoQ) M KZT 25,234 23,217 14,684 12,423 15,973 15,670 Initial Contract Amount (BoQ) % KZT % USD (151.1) % EURO (194.4) M USD eqvl Ex rate Updated Contract Amount (BoQ) M KZT by , , ,800 % change in BoQ 24, % 24, % 15, % 8.8% 2.3% 7.2% Actual Certified payments until December 2016 with anticipated retention money 1 Certified payments IF ex rate =151.1 with anticipated retention money with anticipated (5%) difference in price escalation 2 M USD M USD eqvl eqvl , % 25.6% 7,233 8 OHL ZS , % 37.5% 6,917 Total: 1, , , % % % change 51.5% 39.8% 32.7% 36.1% 30.7% 27.8% 1 Retention money will be paid at current exchange rate at the date of payment. For demonstration purposes, current exchange rate of 1 USD=312 KZT is taken. 2 If exchange rate had not fluctuated from the date of contract signing, price adjustment amounts to each interim payment certificate would have been different. Conservatively, here 5% difference with the actuals is anticipated. 3

18 Annex 2: Economic Analysis for Otar-Uzynagash and Kurty-Togyz road sections 1. Civil works will include an upgrade of an existing Kurty-Togyz (85km) road and Otar-Uzyngash road section (98 km). On a section between Kurty and Togyz (from km 2295 to km 2380), part of the Astana-Almaty road corridor, the road section will be upgraded to a dual carriageway, class-1 road with asphalt surface. Otar-Uzyngash road, on a section from km 56 to km 162 of the «Almaty- Kordai - Blagoveschenka-Merke-Tashkent-Termez» road, will be also upgraded to a dual carriageway, class-1 road with asphalt surface. Table 1 presents the basic current characteristics of the roads sections to be financed by the project 3. Kurty-Togyz section is in poor condition, with frequest deep cracks and pits, patches, insufficient slope, and uneveness of pavement. Otar-Uzyngash section is in better condition as the road was reconstructed in , however the traffic growth on the road requires an upgrade to a higher category. Table 3: Road Sections Current Characteristics Pavement Average Road Length Width Pavement Speed Road Section Oblast Class (km) (m) Condition (km/hr) Otar-Uzynagash Almaty Oblast II Good 75.0 Kurty-Togyz Almaty Oblast II Poor 60.0 Total: Table 2 presents the current traffic on the project roads and the estimated traffic in 2020 once the project improvement works are completed. 4 Table 4: Road Sections Traffic Traffic Traffic Cars Percent Normal Generated Total Road Section (AADT) (%) (AADT) (AADT) (AADT) Otar-Uzynagash 7,065 67% 8,633 1,079 9,713 Kurty-Togyz 3,816 70% 4, , The traffic composition varies per road section. The average traffic composition on the project roads is: 69 percent cars, 5 percent large bus, 8 percent 2 axle trucks and 18 percent 3-axle or more trucks. Bus passenger s time costs were based on average values of US$ 4.03/hour and US$ 1.21/hour for work and non-work time respectively. Table 3 presents the typical average unit road user costs, in US$ per vehicle-km, for the "without project" and "with project" scenarios. 3 IRI measurements not available. Road conditions and average speeds provided by Oblast units of KazAvtoZhol. 4 Traffic forecast was conducted based on available traffic data provided by the feasibility study and detailed designs. Annual traffic growth rate was envisaged 5% for Kurty-Togyz section and 4% for Otar-Uzanagash (as provided by estimates in the designs). Forecasts of generated traffic as a result of the road improvements and reduction in road user costs was estimated based on elasticity to travel time. 4

19 Table 5: Unit Road User Costs (US$ per veh-km) Large 2 Axle 3+ Axle Car Bus Truck Truck Without VOC Project Time RUC With VOC Project Time RUC Savings VOC 7% -7% -1% 2% (percent) Time -20% -14% -18% -19% RUC -2% -12% -2% 1% 4. Table 4 presents the estimated financial costs of the construction for each project road section. Economic costs, net of taxes and subsidies, were estimated to be 80 percent of the financial costs. The estimation of the construction cost was based on the detailed design estimates for each road section. 5 Routine and periodic maintenance costs of the upgraded road sections are based on normative unit rates allocated in the republican budget. Table 6: Road Works and Costs Length After Financial Financial Road Work Cost Cost Road Section Road Work (km) (M US$) (MUS$/km) Otar-Uzynagash Widening to 4 Lanes Kurty-Togyz Widening to 4 Lanes Economic Evaluation Results 5. The economic analysis accounts for costs and benefits associated with the project. They include the cost of construction/upgrading each of the road sections, as well as maintenance and periodic repair costs; vehicle operating costs for existing and generated traffic, costs associated with travel time, road safety benefits and CO2 emission costs with and without the project. Vehicle operating costs were estimated using HDM-4 and country-related input data. 6. The current fatality rate on the existing roads is 3.8 fatalities per 100 million vehicle-km and the injuries rate is 7.9 injuries per 100 million vehicle-km. The economic evaluation considered a 50 percent reduction of the fatality rate and a 25 percent reduction of the injuries rate with the proposed road works. The economic evaluation considered a value of life of US$ 0.86 million per fatality based on the GDP per capita of Kazakhstan 6 and a value of an injury to be 10 percent of the value of life. The estimation of economic implications from the change in CO2 emissions with the project were included on the economic evaluation based on a unit cost of CO2 emissions of US$ 30 per ton of CO2 increasing by 3 percent per year. 7. Table 5 presents the economic evaluation results for each road section. The Economic Internal Rate of Return (EIRR) of is 16% and 18.9% consequently for Otar-Uzynagash and Kurty-Togyz sections, and the Net Present Value (NPV) is US$ 158 and 135 million, at 6 percent discount rate. A sensitivity analysis shows that the NPV reduces to US$ 41.8 and 49.3 million consequently, at 12 percent discount rate. 5 With exchange rate taken as the latest three month average, or 320 KZT=1 USD 6 Value of life is GDP per capita times 70 according to the IRAP proposed methodology. 5

20 Table 7: Economic Evaluation Results NPV NPV EIRR at 6% at 12% Road Section (%) (US$ M) (US$ M) Otar-Uzynagash 16.0% Kurty-Togyz 18.9% Sensitivity analysis also tested robustness of results of economic evaluation against changes in capital costs and traffic. Capital costs were increased by 20 percent. Road user benefits on the project roads after the improvement works were decreased by 20 percent. If capital works are increased by 20 percent and road user benefits are reduced by 20 percent, the EIRR reduces to 11.4 and 13.3% consequently for Otar-Uzynagash and Kurty-Togyz sections, confirming the satisfactory economic justification of the project. Switching values analysis shows that if capital costs increase by 132 percent the overall EIRR of road upgrades becomes 6 percent and the NPV becomes zero. Table 8: Sensitivity Analysis Results Base A: Costs B: Benefits C: A & B EIRR 20% -20% Road Section (%) (%) (%) (%) Otar-Uzynagash 16.0% 13.5% 13.7% 11.4% Kurty-Togyz 18.9% 15.9% 16.2% 13.3% 9. Table 7 presents a summary of the estimated CO2 emissions with and without the project interventions in year 2020, and over the entire evaluation period (2017 to 2036). Over the valuation period, the total CO2 emissions will increase from 6,620 thousand tons without the project to 9,680 thousand tons with the project (46 percent increase). 7 Table 9: CO2 Emissions (tons) Year Scenario Кoad Section 2020 Evaluation Period Without Otar-Uzynagash 146,321 4,458,002 Project Kurty-Togyz 70,708 2,162,572 Total 217,029 6,620,573 With Otar-Uzynagash 213,780 6,389,452 Project Kurty-Togyz 110,286 3,290,641 Total 324,066 9,680,093 Change Otar-Uzynagash 46% 43% (percent) Kurty-Togyz 56% 52% Total 49% 46% 7 The increase in CO2 emissions with the project is due to: (i) the increase in vehicle speeds of the normal traffic brought by the project that increase fuel consumption of the normal traffic and increase corresponding CO2 emissions; and (ii) the added generated traffic with the project. The CO2 emissions of the normal traffic will increase during the evaluation period due to the increase in vehicle speeds and fuel consumption. There will be also increase due to generated traffic. 6

21 10. Table 8 presents the distribution of the project net benefits (NPV). Table 10: Net Benefits Distribution Agency Normal Generated Accident Emissions Cost Traffic Traffic Benefits Costs NPV Road Section (US$ M) (US$ M) (US$ M) (US$ M) (US$ M) (US$ M) Otar-Uzynagash Kurty-Togyz

22 Annex 3. Climate Change Commitments 1. Specific Project Activities Addressing Climate Resilience: The project considers climate resiliency along road sections prone to extreme weather conditions and natural disasters. Adaptation to the adverse impacts of climate change is a priority for the GoK, as stated in the Intended Nationally Determined Contributions submitted in 2015 to the UNFCCC. In order to address the vulnerability to climate change, the road designers have adopted some climate resilient road design standards, with specific measures for road pavement construction to better withstand extreme seasonal temperature differentials. In addition, snow and wind barriers and an elevated road formation approaches are being used to ensure the road performs better during snow and floods. These features will help the road survive during extreme weather conditions such as intensive snow, flood, and wind, as well as large winter/summer temperature gradient. Moreover, modern road-side service facilities will provide emergency services and evacuation points for road-users caught in extreme events. 2. Project Adaptation Co-benefits Quantification: Three main features of road construction that are adopted to address climate issues include (a) extra height of embankment (to address extensive rain, flood and snow), (b) Stone Mastic Asphalt (to address extreme temperatures), and (c) snow/wind barrier. The project adaptation co-benefits are calculated based on the ongoing Projects implemented in Kazakhstan. In general 8.7% of the total road construction cost is used to make the road climate resilient. Hence, USD23.75 million of the total estimate of USD273 million for the added civil work component can be attributed to the climate resilient designs in SWRP restructuring, and consequently USD43.06 million of the total estimate of USD495 million for the added civil work component in EWRP restrucuting. 3. Climate Change and Disaster Risk Screening. The additional scope of activities to be covered under the EWRP and SWRP restructurings, were screened for climate change and disaster risks. As shown from the maps below, the risks are located at the junction between bridges (fat red squares) and rivers (in blue), and are mostly beyond the projects area. 8

23 9

24 Annex 4. Kazakhstan: Development Outcomes in the Road Sector of Kazakhstan supported by the World Bank 1. The objective of this Annex is to summarize the development outcomes of the Kazakhstan s road sector achieved over the last 6 years as well as the contribution of the World Bank (the Bank) to them. The Annex is divided into three sections. The first section provides an overview of how the road sector has evolved during the period, looking at the institutional setup, the characteristics of the road network, and the dialogue between the Bank and its counterparts. The second section focuses on the implementation of the projects financed by the Bank, including project management, procurement, environmental, social, interaction with users, as well as innovations brought by the Bank-funded activities. The last section details some lessons learnt and the directions for further support to be provided by the Bank in the transport sector. Section I: Overview and Sectoral Dialogue Institutional Setup 2. In 2010, as part of the implementation support to the SWRP, the Bank assessed the performance of the road sector, providing recommendations on how to improve it. A number of challenges and inefficiencies were identified that hindered the sustainability of the sector. This analysis provided the early foundation of what became a fruitful dialogue with government officials, which continues to date. The Committee for Roads (CR) of the Ministry of Transport (Ministry) was overburdened by its administrative functions in addition to a large increase in the program of civil works with demanding deadlines set by the GoK. Consequently, and despite genuine goodwill and dedication, the staff at CR was not able to devote enough time to manage and reform the sector. Moreover, there was a shortage of staff and high turnover caused by poor motivation mechanism, suboptimal work burden, and low salaries paid at the civil service agencies in general. High-qualified professionals were leaving CR for the private sector in response to the demand created by the booming construction sector. In the absence of advanced technologies and automated processes, the management of the sector relied largely on manual inputs. The information system for roads and bridges performance and state of repair was still to be developed. Road database was not readily accessible. Design standards based on Soviet 1970s norms needed to be updated to meet new requirements (e.g., safety, mobility, and new vehicle characteristics). Funding for maintenance, inspection and supervision services, as well as for research and development was very limited. Following the assessment, the Bank offered five options for reform: Option 1 - CR to contract-out more management functions Option 2 CR to design incentive mechanism at several levels to provide market rate salaries and motivate staff Option 3 CR to decentralize road management to oblasts department Option 4 Creating a Semi-Autonomous Road Agency Option 5 Creating a Joint Stock Company 3. Despite selecting Option 1 at the initial step, the Ministry has eventually selected the most transformational Option 5 and thus introduced important changes in the organization of the sector, the most significant being the creation of a Joint Stock Company KazAutoZhol (KAZ) in 2013 in charge of operating the network. The reform created three separate functions in the sector: (i) 10

25 policy formulation, (ii) administration of resources and management of the sector; and (iii) implementation: operation and maintenance; all three in line with international best practices. The reform allowed the following: Improved institutional structure with decision making level and sector policy at the level of the Ministry, road sub-sector policy management at the CR, and operational implementation of the road policy at KAZ; Separation of the client and supplier functions/organizations; Better management of road assets by a new commercialized organization KAZ; Better efficiency of the system and ability to attract skilled personnel (managers, engineers, supervisors) in the sector for the implementation of the road policy (road construction, upgrading, rehabilitation, maintenance and operation, toll collection) while introducing PPP schemes and Pension Funds in the financing schemes. Decision making (Ministry): the political level, which reports to the Government Policy management (Committee for Roads/CR): the administration, which reports to the political level and keeps contact with the general public Operational implementation of the road policy (the new JSC KazAvtoZhol): the implementation arm, reports to the administration and keeps contact with the local users 4. As a result, the CR is now administering policy, including budget for republican network. CR is also responsible for overall regulation and monitoring of the roads sector. The reform cut CR s staff number to only 62 employees based in Astana headquarters and transferred staff of CR s 14 regional departments to the KAZ. Since September 2013, CR signs annual service agreements with KAZ to implement specific tasks on republican road network, ranging from supervision of civil works and development of design documents to operation of toll road- a best practice. KAZ employes 642 staff, including 107 staff in Astana headquarters, 303 staff in its local departments, and 261 staff in the toll units. 5. Today the division of roles is operational; however, some further improvement could be made towards better maintenance and project management. The majority of contracts with the KazakhAutoDor State Owned Enterprise (KAD) responsible for routine maintenance are still issued by CR, while KAZ is directly implementing the routine maintenance on the tolled sections. These arrangements are likely to evolve for the better, as recently KAD was nominated for privatization. Recognizing the benefits of moving the maintenance activities into a competitive environment, Ministry plans to complete privatization of all 14 branches of KAD by Outsourcing to the private sector is a good initiative, but it should go in parallel with the adequate financing arrangements, whereby CR is able to provide guarantees to the private sector for a multiyear contracting mechanism to ensure high quality of works and services. Road Network 6. Roads are mainly organized along extremely long corridors that cross a vast territory of Kazakhstan to and from dynamic growth poles such as Turkey, Russia, India, and China 11

26 (accounting for more than half of world economic and trade growth). Improving that network of corridors to access other adjacent economies is critical for Kazakhstan s economic growth. Owing to the country s size and low population density, maintaining an integrated national transport infrastructure is costly. Travel distances within the country are substantial, e.g., the Center to West (Astana to Aktau) corridor is about 2,730 km, while the Center to South (Astana to Almaty) corridor is about 1,215 km. Kazakhstan still misses important east to west links. Such distances and legacy result in significant travel times and high costs for accessing markets within the region and beyond. Transport costs are estimated to account for 8-11 percent of the final cost of goods, which is about double the cost in most industrialized countries 8. In addition, Kazakhstan s harsh continental climate accounts for high susceptibility of transport infrastructures (e.g. related to heavy snows, floods), which requires design characteristics that increase construction and maintenance costs. 7. Kazakhstan has about 100,000 km of roads, a quarter of them constitute the republican road network managed centrally by CR, and the two-thirds comprise the local road network managed locally by akimats. Much of the road network was constructed during the Soviet era and has deteriorated due to lack of adequate and sustainable funding. In 2009, almost a third of the republican road network and a half of the local road network was in unsatisfactory condition. 8. Despite a real potential to connect growing markets of Southeast Asia and China to Russia and Europe, Kazakhstan ranked only 133 rd among the 160 economies included in the trade logistics survey of the Logistics Performance Index (LPI)-2007 with the quality of infrastructure rated as the worst out of the six components assessed by the respondents. 9. Poor condition of roads is also a contributory factor in road crashes. The cost of road crashes in Kazakhstan is estimated between US$2-4 billion per annum 9. The social impacts are devastating -about 3,000 persons were killed between 2003 and 2012 and over 140,000 persons were injured in road crashes - many of which suffered permanent disability. The fatality rate for Kazakhstan is about 25.0 per 100,000 population, which is five times higher than the average fatality rate in Western Europe. 10. Understanding this challenge, in 2008 the Government embarked on the ambitious reform to improve the country s key infrastructure. In the roads sector, the focus was on the republican network, which comprises six international corridors with a total length of about 8,250 km that serve as international transit routes between China, Kyrgyzstan, Uzbekistan, Turkmenistan, and Russia, onwards to Europe. They are also part of international agreements, such as Central Asia Regional Economic Cooperation (CAREC), Transport Corridor Europe Caucasus-Asia 8 JERP Logistics Performance in Kazakhstan Report, International experience from around the world suggests that the economic losses arising from road accidents (once lost productivity, medical costs, police time, property damage, etc. is taken into account) are typically 1-2% of annual GDP in transition economies such as Kazakhstan. 12

27 (TRACECA). The development of the Western Europe -Western China Corridor has mobilized substantial amounts of IFIs and Government own financing, with over US$7 billion budgeted and about 80% out of 2,840km completed to date since The development partners the Bank, the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the Islamic Development Bank (IsDB), and Japan International Cooperation Agency (JICA) coordinated well and provided parallel financing to cover 85% of the total cost of corridor (re)construction and introduction of efficiencies in the planning and management of the road assets. 11. As a result, the share of republican roads in unsatisfactory condition has reduced from 23% in 2010 to 19% in 2015 and a significant portion of some corridors has reached 4 lane international standards. Still two-thirds of the republican network remain currently Class III with two lanes. In LPI-2016 Kazakhstan has improved and was ranked 77 th out of 160 participating countries with the quality of infrastructure jumped from the worst to the fourth-important item out of the six components hindering trade. Respondents rated customs, unofficial payments, poor logistics competencies and deficiencies in harmonization of basic transit documents and regulations as the top barriers to trade. Section 2: SWRP and EWRP -Towards More Sustainable Road Sector 12. The Bank s support through SWRP and EWRP was designed to help CR addressing the following challenges: High cost of unsatisfactory road network for population (both economic and social) Low institutional capacity Funding limitation Inefficient management of road assets Insufficient communication with users Lack of coordinated actions on road safety and road services Weak R&D, need for better training & education 13. To respond to these challenges it was clear that a combination of actions towards strengthening the capacity of staff, introducing technology, and improving processes was needed. People 14. As part of SWRP and EWRP, a number of trainings were conducted to strengthen capacity of the Ministry, CR, its R&D unit and laboratories, KAZ, and KAD on a number of topics ranging from project management (procurement, contract management, fiduciary, social and environmental safeguards, communication) to sector specific aspects of road asset management, e-tolling, road safety, and development of roadside services. Project Management Consultants mobilized under SWRP supported CR to manage a massive program of road rehabilitation and construction and shared best international practices in specific project-related aspects. Under the 13

28 EWRP, KAZ took over the management of the project although not fully, as designed initially, with extensive engagement and oversight from CR. 15. The Bank-supported reform brought sector sustainability -as a JSC with competitive salary scales and social benefits, KAZ is able to attract and retain high-qualified professionals. Bank s due diligence confirmed the capacity of KAZ s staff to implement the massive road management program going forward. However, more needs to be done for KAZ to mature into a fully commercialized and user-oriented entity. Processes 16. Supervision of civil works has improved. To implement a gigantic US$7 billion program of road rehabilitation and construction, CR needed a simple yet efficient tool for managing the civil works contractors and supervising consultants. The Bank team designed a Performance Assessment Tool (PAT), with the initial purpose to internally within the Bank manage a huge program of a US$ 3.2 billion, 34 lots/civil work contracts going-on in parallel for over a 1,450km of road construction. PAT aims at evaluating civil works projects performance against core set of FIDIC standards as well as Bank requirements and values. PAT is formally used twice a year to monitor progress of works, identifying the issues related to aspects ranging from the financial sustainability of the contractor, quality of works to health and safety of workers during the construction. This methodology is now being rolled out gradually to the entire transport portfolio of the Bank worldwide. 17. Since 2016, as more roads were completed and commissioned, the Bank team introduced new ways of measuring the roughness and condition of the road and roadside services using smartphones. Mapillary and RoadLabPro were the first free smartphone applications that were piloted on Kazakhstan roads. Mapillary is a free service for crowdsourcing street level photos using smartphones and computer vision. Bank team started using Mapillary to quickly and cheaply generate imagery for SWRP and EWRP to make supervision even more efficient and effective. Leveraging the smartphone s accelerometers, the Bank team used the RoadLabPro to evaluate road conditions, map road networks, detect major road bumps, and report road safety hazards. These 14

29 free-of-charge and simple-to-use solutions are now being widely used for project identification and supervision purposes in the Bank operations. 18. Communication with users has improved. When Bank started support to the roads sector, there was hardly any mechanism to interact with road users. During the first year of SWRP implementation, a project website was created to inform public on various aspects of the Western Europe Western China corridor development preparation and implementation, covering procurement, safeguards, grievance redress, progress of works and other topics. It provides information on how the money is being spent and has a quite interactive Question and Answers section with almost 500 topics registered to date. Although financed as part of the SWRP, it covers all sections of the corridor financed by not only the Bank, but all participating IFIs. 15

30 19. Locally the dialog improved as the civil works were implemented. Consultations with communities led to many requests on cattle underpasses, adjustment to bypasses alignments, job creation, and other aspects being taken into consideration and implemented by the CR. 20. Moreover, the Ministry signed a Memorandum of understanding with NGOs for provision of independent monitoring of project implementation against the requirements of the Bank as well as local standards related to environment, social, and safety aspects. Technology 21. Road Assessment Management System. Today the decision on maintenance and rehabilitation needs of the road network in Kazakhstan is largely made based on the subjective visual assessment done during a drive by a commission of Traffic Police, KAZ, and KAD representatives, whereby each kilometer is marked as being good, satisfactory, or unsatisfactory. Currently, diagnostics covers only 6% of the republican network per year. Diagnostics on the local network of more than 70 thousand km has never been held. 22. Under the SWRP, the consultants were hired to help Ministry develop the Road Asset Management System (RAMS) a tool to ensure quality, accuracy, and reliability of data on road assets as well as a planning tool to assess future periodic maintenance and rehabilitation needs and assign priorities when the budgets are constrained, using internationally accepted methods. RAMS is currently being currently finalized and decision is being made on its institutional setup that would influence its operationalization. 23. Data collection is done by the CR s laboratories located in fourteen oblasts using seven semi-automated mobile lab equipment (TRASSA) and by CR s R&D arm KazDorNII, which has one multifunctional mobile equipment (DYNATEST), a fully automated tool with laser scanning. Based on assessment, six more mobile laboratories are needed for a network of 23,680km to collect data on road pavement condition (measuring roughness, friction, rutting, structural strength, etc.) on an annual basis and implement the inventory of roads and bridges (once and when there are changes). In addition, ITS solutions are needed to implement the automatic 24/7 all year round traffic counting and traffic accidents analysis. 16

31 24. RAMS would help the Ministry establish the results chain as per the international practice and implement it as prioritized in the Kazakhstan Transport Strategy up to For example, although the Strategy refers to the targets and outcomes on roughness, until today CR has never collected such data. RAMS would make setting targets and monitoring their achievement a reality. 25. When fully deployed, RAMS will allow CR and KAZ monitoring the value and the condition of their assets and using different analyzing tools to have all necessary to manage their road network rationally, economically, and efficiently. Once established, RAMS would allow the Ministry to define indicators, set targets, link them to result-based budgets and, eventually, transform budgets into outputs and outcomes. 26. New technologies have been mastered: The program financed by the Bank jointly with other IFIs has allowed the transfer of technologies that was not available to Kazakhstan before. The most significant of those transfers is the ability to construct state of the art concrete pavement 8.5 meters wide and larger. The Bank and CR initially analyzed the pros and cons of concrete pavement versus asphalt pavement and took advantage of low costs of cement production in 2010 to test and later institutionalize the use of concrete pavers by foreign contractors and then transferring the knowledge, together with specialized equipment, to the local road construction industry. Technological risks were significant, but CR and the construction industry managed to address them. As a result, the Bank financed about 800km of 4 lane with concrete pavement of very good quality. The technology is now available to a large number of local contractors. The second new technology introduced by the Bank was related to large bridges. Bidding documents allowed the use of value engineering and some foreign contractors used that possibility to implement designs that were more modern compared to the solutions recommended by the construction norms in place in the country. That approach led to some innovation, where local contractors participated. However, overall, the effort was not transformational, as the industry did not find resources and the market to change their equipment on a large scale. Last, the Bank also financed the first tunnel ever built in Kazakhstan. This cannot yet be recorded as a success, since the tunnel, although modest in nature (about one kilometer long, two tubes) is still under construction. 27. Road safety: As part of the SWRP, the government has implemented the following road safety activities: (a) Road Safety Management Capacity Review; (b) Road Safety Audit (RSA) and preopening RSA of the 1,062km; (c) RSA training; (d) RSA Manual; (e) review of laws and legislative acts to identify the road safety-related gaps; (f) Reports on traffic safety at road works for all 24 contractors; and (g) Handbook/Guidance on Traffic Management during Road Works. The dialogue on the road safety continues. In 2016, the Bank team secured the trust fund from the Global Road Safety Facility to conduct design stage road safety audit on priority road safety 17

32 sections using the Star Rating irap methodology. The design audit will result in recommendations how to improve the designs and bring roads to a higher safety standard. 28. The purpose of the design stage audit on Balkhash-Burylbaital sections of the Center-South Corridor is to identify the risks using design plans and generate Safer Roads Investment Plans and recommendations for countermeasure actions, based on matching the assessment of the risks with the respective countermeasures. Proposed improvements will be identified and agreed on with respective designers and are intended to be incorporated into the designs. 29. E-tolling. Advancement in the understanding of the tolling set-up and technology has advanced with the support from the Bank and EBRD. Under the EWRP, CR has developed the design of the Almaty-Khorgos e-tolling system, and procurement for its installation is currently ongoing. The government sees revenues from tolled roads as additional support to cover the operation and maintenance cost, therefore it decided to toll up to 25% of the republican network by Electronic tolling can help improve traffic management and planning through collecting and providing valuable and timely information to road users, improve trade facilitation through interoperable systems between neighboring countries, and improve road safety. The Bank is supporting CR and KAZ in the planning and implementation of the e-tolling system on a wide range of emerging and critical topics, including willingness-to-pay, financial modelling, and communication strategy. Section III: Lessons learned and the way forward. 30. Lessons learnt can be summarized as follows: It is possible to build a good quality trunk road at a very reasonable price in Central Asia today. This statement is may be the most important given the appetite of Central Asian countries to turn the region from a land-locked to a land-bridge region. It is possible to introduce innovation in the transport sector in Central Asia, but it takes time for those innovations to be fully mastered by local industry, workforce, and the administrations. First, by definition, the approach is about novelty and it requires more than the adoption of a software, the purchase of equipment, or the signing on a budget. The staff has to be trained, mentalities need to evolve, and investments need to be made by the private sector, with a view on the long-term sustainability and with access to credit. Large infrastructure can be built in Central Asia in full compliance with best practice in 18

33 terms of environment and social safeguards. Local populations are interested and supportive of transport infrastructure; and the administration is able to address concerns, mitigate negative impacts, and even adjust alignment and agree on additional investments (e.g., cattle underpasses). Administration such as the one in Kazakhstan is ready to embrace institutional reform based on a dialogue with the Bank on best practice in place elsewhere. The schedule of reforms needs to be carefully adjusted to the constraints and workload of counterparts to be successful. It takes also time to build confidence and to go further than the initial ideas and commitments. Projects such as the EWRP and SWRP, because of their transformational impact, their large cost, and high visibility are good vehicles for reforms. 31. Looking forward: First, the assistance to Kazakhstan transport sector should probably continue improving connectivity with distant markets (Europe, Eastern China, Russia) and focus not only on infrastructure but also on logistics, value chains and multimodal transport. Secondly, it is key to support the development of Central Asia cities. Cities of Central Asia are important locomotives of economic growth, and often, as in the case with Kazakhstan, they are at the center of important development strategies by the governments. Recent efforts made by the governments indicate that far more strategic approach towards the development of sustainable urban transport systems is necessary. Municipalities are willing to develop urban transport systems in a more sustainable manner to respond to burgeoning traffic congestion, and consequently, deterioration of the air quality, increase in road traffic crashes and casualties. 32. Specifically in the roads sector of Kazakhstan the Bank would continue its support through the proposed restructurings to the road infrastructure improvement as well as soft activities (e-tolling, quality charter, road safety, road asset management, and institutional development) that can realistically be carried out and would have an impact during the project implementation period. Thus, the Bank would assist KAZ to review and upgrade national strategic documents related to the tolling and prepare a business plan and a financial model to enable KAZ to expand tolling to about 7,000 km of republican roads, thereby ensuring long-term sustainable revenues. KAZ will gradually take over the maintenance and operational management of the completed assets, and will collect and manage the toll income on behalf of the state. A service-level agreement will be prepared between KAZ and road maintenance service providers, based on the Quality Charter principles that will establish required service levels for maintenance of the network. The Road Asset Management System (RAMS) under implementation will provide KAZ with tools for network management over the long term. The new assets (Kurty-Togyz, Otar-Uzynagash, Balkhash-Burylbaital) will be integrated into the RAMS, so that multi-year maintenance plans can be prepared and costed. The road safety database to be developed with the support from the Bank would help CR and KAZ in better identification, recording of traffic accidents and ultimately better response and changes at various stages - the design, planning, implementation and monitoring. All these activities supported by the SWRP and EWRP would contribute to make CR and KAZ stronger institutions in charge of managing important country assets. 19

34 Annex 5. SWRP and EWRP restructurings: Map KAZAKHSTAN ROAD INVESTMENTS IN KAZAKHSTAN Chistoe NORTH Petropavlovsk KAZAKHSTAN l Toby Kaerak Vo lga R US S IAN FFEE DE RATI O N RUS S IAN F EDERATIO N Karakuga Pnirtyshskoe Kokshetau al Ur Zhaksy l) hai Torg 273 km lga Vo Makat Karagandy m Zhe Gulshat Balkash Tasaral Aral Sa rys u Aral Beyneu Baikonur Aral Sea KYZYLORDA MANGYSTAU Kyzyl-Orda Shu Ulken Burylbaytal (Ch u) Sy Ca Ta rd ari ya spi an U ZBEKI STAN Shymkent Sea SOUTH KAZAKHSTAN las 480 km Ka Aksuyek Togyz Shu Uzynagash 203 km Zhibek Zoly Kaplanbek Konysbayev Taldykorgan Kordai Kapchagai Almaty 301km CHINA KYRGYZ R E P. MAIN ROADS TAJIKISTAN MAJOR ROAD CORRIDORS MAIN CITIES AND TOWNS OBLAST CAPITALS FINANCED BY THE WORLD BANK GALASY (CITIES WITH REGIONAL STATUS) FINANCED BY THE ASIAN DEVELOPMENT BANK FINANCED BY THE ISLAMIC DEVELOPMENT BANK Khorgos BORDER CROSSINGS T URKMEN I STAN FINANCED BY THE ASIAN DEVELOPMENT BANK (Makat to intersection with Aktobe road) AND THE ISLAMIC DEVELOPMENT BANK (100 km south of Aktobe) Dostyk l Kanshengel Kurty Merke rat a ALMATY 205 km Taraz Byvshiy East West Roads ProjectLepsi Lake Balkash Ile South West Roads Project 1025 km Turkistan AZERBAIJAN Balkhash ZHAMBYL Zhanaozen Bekdash Ayakos Zhezkazgan AKTOBE Beyneu Lake Zaisan Akshatau Shalkar Kotyaevka Öskemen (Ust-Kamenogorsk) EAST K A Z A K H S TA N Aksu-Ayuly Yrgyz Atyrau Aktau Semipalatinsk Zarechny Akbastau KARAGHANDY 215 km h) Egindykol Arkalyk Turgay Embi Er ti s Amangeldi Karabutak Ekibastuz ASTANA Zhanteke Aktobe ATYRAU Shiderty Esil (Ishim) KOSTANAI (Ura WEST KAZAKHSTAN Zhaiyk Chapaevo 102 km Krasny Aul y Irt s( Ural'sk Pavlodar PAV L O D A R AKMOLA Kamenka Ruzaevka Ob Kostanay Pogodaeva IBRD APRIL 2017 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries Kilometers AFGH AN I STAN OBLAST BOUNDARIES 0 20 NATIONAL CAPITAL Miles INTERNATIONAL BOUNDARIES