Afghanistan: Railway Development Study Financed by the Asian Development Bank (ADB)

Transcription

1 Technical Assistance Consultant s Final Report Project Number: ADB TA 7259-AFG May 2010 Afghanistan: Railway Development Study Financed by the Asian Development Bank (ADB) For Ministry of Public Works Government of Islamic Republic of Afghanistan Prepared by BTMC Building (4th Level), 7-9 Kawran Bazar C/A, Dhaka-1215, Bangladesh Phone: , , , , , Fax: info@hbconsultants.com Web:

2 HB Consultants Ltd. 25 September 2010 Mr. Hong Wang Director, CWTC Asian Development Bank Manila, Phillipines Subject : Submission of TA Final Report of ADB TA 7259 AFG: Railway Development Study Dear Mr. Wang, We are pleased to submit the TA Final Report of the Feasibility and Pre-feasibility Study of Sherkhan Bandar to Herat Railway Line. The report includes the Phase- I and Phase- II study under the TA. The report has been finalised incorporating the comments received from Railway Workshop held on 23 May The comments received from MPW on Phase- II have been answered seperately as those coments are mainly related to in depth Feasibility Study. Thanking you and with best regards, Yours sincerely, Shireen Lutfunnessa General Manager Enclosed: TA Final Report of ADB TA 7259 AFG: Railway Development Study (3 Copies) 1. Eng. Noor Gul Mangal Techincal Deputy Minister of Public Works, Government of Afghanistan, Kabul Afghanistan Fax: (with copy of TA Final Report) 2. Balabhaskara Reddy Bathula Transport Specialist Central and West Asia Department Asian Development Bank Tel (632) Fax (632) (with copy of TA Final Report) ISO 9001:2000 Certified BTMC Building (4 th Level), 7-9 Kawran Bazar C/A, Dhaka-1215, Bangladesh Phone: , , , , , Fax: info@hbconsultants.com Web:

3 ii ADB Technical Assistance 7259 AFG Railway Development Study ABBREVIATIONS ADB - Asian Development Bank ADT - Average Daily Traffic ARA - Afghanistan Railway Authority ANDS - Afghanistan National Development Strategy CAREC - Central Asia Regional Economic Cooperation CSC - Construction Supervision Consultant EA - Executing Agency EIRR - Economic Internal Rate of Return EMP - Environmental Management Plan ENPV - Economic Net Present Value EPC - Engineering, Procurement, and Construction FGD - Focus Group Discussion FIRR - Financial Internal Rate of Return GDP - Gross Domestic Product GOA - Government of Afghanistan IEE - Initial Environmental Examination ISAF - International Security Assistance Force LARP - Land Acquisition and Resettlement Plan MOCI - Ministry of Commerce and Industry MOF - Ministry of Finance MOI - Ministry of Interior MOM - Ministry of Mine MPW - Ministry of Public Works NEPA - National Environmental Protection Agency NGO - Non-Government Organization NPV - Net Present Value O&M - Operation and Maintenance PIU - Project Implementation Unit SLARP - Short Land Acquisition and Resettlement Plan TZ - Turkmenistan Railways TZD - Tajikistan Railways UTY - Uzbekistan Temir Yullari (Uzbekistan Railways) VOC - Vehicle Operating Cost WACC - Weighted Average Cost of Capital Asian Development Bank Consultants Final Report

4 ADB Technical Assistance 7259 AFG Railway Development Study iii TABLE OF CONTENTS ABBREVIATIONS... ii TABLE OF CONTENTS...iii LIST OF APPENDICES... v I. INTRODUCTION...1 A. Objectives of the Study...2 B. Components and Outputs...3 C. Conduct of the Study Methodology Study Team... 4 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES...4 A. Background of the Study...4 B. Key Problems and Opportunities Constraints Opportunities... 7 C. Government Policies, Plan and Strategy...8 D. External Assistance...8 E. ADB Strategy and Sub Sector Experiences...10 F. Rationale for the Project...11 III. THE PROPOSED PROJECTS...12 A. Description of Proposed Railway Routes...12 B. The Proposed Route Described Connecting Iran at Herat Connecting Turkmenistan at Torghundi and Aqina Connecting Uzbekistan at Naibabad Connecting Tajikistan at Sherkhan Bandar...14 C. Detailed Description of Alternative Route Options for Phase - II...15 D. Recommendation Regarding Alternative Route Options for Phase - II...19 E. Project Implementation Period...21 IV. FEASIBILITY ANALYSIS OF THE STUDY...21 A. Feasibility Analysis of Phase - I Traffic Demand Forecast Technical Analysis Project Financial Viability Project Economic Viability...23 Asian Development Bank Consultants Final Report

5 iv ADB Technical Assistance 7259 AFG Railway Development Study 5. Social Safeguard Analysis Environmental Impact Assessment...25 B. Pre-feasibility Analysis of Phase - II Traffic Demand Forecast Technical Analysis Railway Engineering Proposed Rail Gauge for Phase - II Proposed Transshipment Facilities Land Required for the Project Proposed Bridges for the Project Economic Viability for Phase - II Financial Analysis for Phase - II Environmental Impact Assessment Summary of Possible Social and Resettlement Impacts...33 V. PLANS FOR INSTITUTIONAL STRUCTURE Coordination Setting Railway Sector Policy...35 a. Policy Principles for Railway Management...35 b. Policy Measures for Railway Operations Possible Public/ Private Participation Options...37 VI. STAKEHOLDER PARTICIPATION AND CONSULTATION...37 A. Stakeholders Consulted...37 B. Participatory Approach...39 VII. CONCLUSION AND RECOMMENDATIONS...40 A. Conclusion...40 B. Recommendations...41 LIST OF FIGURES Figure 1: Map of the Country and Location Map of the Study...vii Figure 2: Proposed Alignment of phase-i and II Figure 3: Alignment Layout of Option Figure 4: Maps Showing Mineral Deposits LIST OF TABLES Table 1: Main Features of five Option Alignments Table 2: Phase II Implementation Period Table 3: List of Organization Participate in the Workshop Asian Development Bank Consultants Final Report

6 ADB Technical Assistance 7259 AFG Railway Development Study v LIST OF APPENDICES APPENDIX 1: COST ESTIMATES AND FINANCING PLAN APPENDIX 2: IMPLEMENTATION SCHEDULE APPENDIX 3: RAILWAY INSTITUTIONAL ASSESSMENT AND PROPOSAL APPENDIX 4: SUMMARY OF SOCIAL AND POVERTY ANALYSIS APPENDIX 5: ECONOMIC ANALYSIS APPENDIX 6: FINANCIAL ANALYSIS APPENDIX 7: SUMMARY OF INITIAL ENVIRONMENTAL EXAMINATIONS APPENDIX 8: FORCASTED TRAFFIC VOLUME Asian Development Bank Consultants Final Report

7 vi ADB Technical Assistance 7259 AFG Railway Development Study EXECUTIVE SUMMARY In order to meet the demand for fast growing intra-regional trade and improve connectivity, Afghanistan has urgent need to develop its transport infrastructure. The present road system of the country in terms of its capacity and network is inadequate and the railway infrastructure almost non-existent. Movement of passengers and goods within the country and across the borders remains seriously constrained. In addition the Government of Islamic Republic of Afghanistan (GOA) has agreed with the strategy adopted by the Central Asia Regional Economic Cooperation (CAREC) program, which is aimed to develop six corridors across the region and all through Afghanistan. Once these Rail corridors are commissioned, the country can efficiently handle the growing transportation demand. This rail study is formed in two Phases as under: Phase - I Hairatan Mazar-e-Sharif (Naibabad); Phase - II Herat - Mazar Sherkhan Bandar and Aqina Branch. At the time of compilation of this report, Phase - I has been authorized and construction is already under way. 25 km of the route has been constructed, and completion is envisaged for November The Phase - II Pre-Feasibility Study has been completed. It is envisaged that with the completion of Phases - I and II railway construction programs, the economic growth (which is currently 10%) will pick up at faster rate. Trade with the CAREC region especially with Uzbekistan will considerably increase. The GOA has specified a system capable of handling double-stacked container trains and heavier axle loads, compatible with the intra-regional railway systems. The differential railway track gauges in the region remain a bottleneck for smooth movement of traffic across the borders. The feasibility study of Phase - I reveals that the Project is technically feasible. A full Environmental Impact Assessment (EIA) has not been done, but the Initial Environment Examination (IEE) indicate that the negative impact is minimum (soil erosion and noise pollution), and this can be mitigated during construction. As minimum public land acquisition will be involved for the Project, the Social Impact Assessment (SIA) indicates that the adverse impact on human life is insignificant. The outcome of the consultation process was encouraging since the survey team did not experience any resistance against the Project. The study team observed that Railway Projects (compared with Road) all over the world are typically environmentally friendly and that this project is no exception in that regard. The project appears to have two potential risks i) start-up and implementation delays, and ii) security hazards, the project is feasible in terms of technical, economical and financial viability. The GOA has planned strong measures to mitigate these risks. This feasibility study indicates that with the estimated Project cost of about US$170 million and Economic Internal Rate of Return (EIRR) of 15%, Phase - I of the Project is financially viable. Sensitivity tests demonstrate the Project to be robust across a broad range of key parameter variations. The Phase - II Project is also financially sound, and its economic internal rate of return is estimated at about 13.5%. Sensitivity tests demonstrate the Project to be robust across a broad range of key parameter variations. During the study period, the GDP grew on average by 11% per year. Asian Development Bank Consultants Final Report

8 ADB Technical Assistance 7259 AFG Railway Development Study vii Figure 1: Map of the Country and Location Map of the Study Consultants Final Report Asian Development Bank

9 ADB Technical Assistance 7259 AFG Railway Development Study 1 I. INTRODUCTION 1. The geographical uniqueness of Afghanistan is that it borders on six countries and also has river ports. Very few countries of the world have this kind of strategic opportunity. From this point of view, Afghanistan has tremendous potential to develop its economy. But economic development cannot be achieved without a sound transport infrastructure, in which regard Afghanistan is very deficient. The country will have to develop new Road and Rail infrastructures and also strengthen the existing one. The ADB TA 7259 AFG (the TA) is a step forward towards such initiative of the Government of Afghanistan (GOA). 2. In addition the border countries have business interests not only with Afghanistan but also among themselves. If the border countries want to establish ground connectivity between them, they are obliged to operate through Afghanistan. So development of transport infrastructure in Afghanistan is not only important for its own economy, but also for the neighboring countries as well. The CAREC has been formed of countries including Afghanistan, Azerbaijan, People s Republic of China, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, and Uzbekistan to develop ground connectivity through six corridors for the entire region. The Project is a part of Transport Strategy and Action Plan agreed under the CAREC program. These transcontinental corridors are expected to transport million tons of cargo in total each year. 3. Afghanistan has potential to develop its tourism sector. But the internal situation does not favor in this regard. But once the Project along with other Railway Projects become operational, firstly internal and eventually external tourism will develop in the country. Tourism will not only boost the economy of the country, but will also help normalization of the internal situation. 4. Trade is increasing between Afghanistan and its neighboring countries. Annual growth rates exceed 10%. Total trade valued at US$3.5 billion of which US$0.50 billion is export and US$3.0 billion is import. The volume of trade is two million tons and is increasing steadily. 5. The GOA plans to formulate a comprehensive Railway Development Program not only to improve connectivity of its own important cities and commercial places, but also with the neighboring countries. Initially the GOA has identified 2000 km routes as follows: Route 1A: in the north from Sherkhan Bandar to Herat via Mazar-e-Sharif (this project); Route 1B: from Mazar-e-Sharif to Kabul, Jalalabad and Torkham (Pakistan border); Route 1C: in the south from Kandahar to Chaman (Pakistan border). 6. Construction of the Phase - I Project will further enhance trade with Uzbekistan and will benefit both the countries for the reason that through the port of Hairatan, 50% of the commercial goods are transported. Phase - I of the study is being executed via a two-fold EPC turn-key contract with UTY, (i) design and construction of the Project, and (ii) Operation and maintenance of the Project. Along with the GOA, ADB will provide required TA to oversee the execution of the Project. Once the EPC turn-key contract is constructed, tested and commissioned, the rail service will be operated and maintained by UTY. 7. As part of the TA, reviews of the (i) national economy, (ii) hinterland economy, (iii) assessment of transport sector in Afghanistan, (iv) information on new cold storage projects and (v) industrial developments was carried out in course of the forecasting exercise. In Asian Development Bank Consultants Final Report

10 2 ADB Technical Assistance 7259 AFG Railway Development Study regard to growth in goods traffic, growth trends for both population and per capita income were calculated. The EIRR of the Project is 14.25%. 8. The TA study team conducted reconnaissance surveys, identified probable alignments and finalized the preferred option after discussing with the client. Later on, detailed topographical surveys of the alignments were carried out. Regarding Phase - I, preliminary designs and drawings including longitudinal profiles and plan view of the entire alignment were prepared. A transshipment yard is proposed at Naibabad, near Mazar-e- Sharif. Existing railway infrastructures at Hairatan railway yard are of Russian broad gauge to match the Uzbekistan system, therefore, the transshipment yard has also been designed according. 9. The Total cost of the Phase - I Project including provision for physical and price contingencies is US$170.0 million. An amount of US$ million is set for Railway development which includes costs relating to civil and railway works, resettlement, and construction supervision. An amount of US$0.7 million is set for the institutional development program. GOA has requested a grant of US$165.0 million from ADB s Special Fund resources to help finance the construction, consultantancy services, project management and security, and contingencies of the Project. GOA will provide US$4.5 million to cover the costs of land acquisition and resettlement and taxes. 10. A detailed financial analysis has been conducted in accordance with ADB s Guidelines, the result of which shows that the Financial Internal Rate of Return (FIRR) is 3.18%, greater than the WACC of 1.37%. Therefore, the project is viable provided that a fixed fee and/or revenue sharing scheme with a prospective rail operator is within the estimated range. 11. Environmental and Social Impact Assessment indicates that the adverse impact of both phases of the Project on environment and human life is insignificant. But, as defined in ADB Guidelines, the environmental and social issues have been made conditional with ADB loan. 12. It is also mentioned that the process of stakeholder consultation was systematically done within the project impact area. The outcome of the consultation process is encouraging, due to the fact that the survey team did not experience any resistance against the project. The study team observed that Railway Projects (compared with Road) worldwide are typically environmentally friendly, and this Project is no exception in that regard. A. Objectives of the Study 13. The objectives of the Project are to (i) promote economic development and regional cooperation by improving the strategic railway link to Northern Afghanistan, (ii) continue support for institutional and policy reforms, and (iii) enhance operational efficiency of railways by developing the capacity of Afghanistan Railway Authority to operate commercially in a competitive environment. 14. The specific objectives of the study are to: Creation of improved transport links across Northern Afghanistan from Iran through to, and between Turkmenistan, Uzbekistan and Tajikistan; Improved accessibility to Afghan s mineral deposits; The Afghan Northern Corridor line will act as an extension of the Iranian line to Herat, creating a new rail corridor between Northern Afghanistan/Central Asia and Bandar Abbas on the Persian Gulf; Consultants Final Report Asian Development Bank

11 ADB Technical Assistance 7259 AFG Railway Development Study 3 Creation, in conjunction with the Iranian line to Herat, of a new transport corridor between Central Asia and the Indian Ocean ports via Iran; and Create a new source of revenue for Afghanistan from rail transit traffic. B. Components and Outputs 15. The Project will facilitate building a railway line linking Hairatan and Mazar-e-Sharif. It will have two components: (i) railway construction, and (ii) institutional development. 16. These components will cover project management, construction supervision, and institutional support. An advisor will be recruited and tasked with developing (i) a railway sector institutional plan, (ii) a railway legal and regulatory framework, (iii) an O&M agreement, and (iv) a training program. 17. The outputs of the project will include a new railway line capable of handling double stacked container operation. It will also include a rehabilitation of the inoperative marshaling yard at Hairatan Port. The new transshipment facilities at Mazar-e-Sharif will enable efficient handling of transferred traffic. C. Conduct of the Study 1. Methodology 18. The TA consists of railway engineering, economic and financial analysis, a review of the progress of institutional development within the railway subsector, a detailed initial environmental examination and a social and poverty analysis. The TA commenced with a pre-screening of three alternative railway alignment proposals from Hairatan port to Mazar-e- Sharif city. It was agreed that a pre-screening of the above alternatives would be included in the Inception Report for the TA. The final list of pre-screening criteria included GOA priority; Importance to Regional Integration and International Trade, Social Impact, Potential Capacity Improvement, Environmental Impact, Traffic Potential and Project Cost. 19. The economic analysis commenced with an overview assessment of the transport sector in Afghanistan. Traffic flows were then investigated as were the current detailed flows on the Hairatan-Mazar-e-Sharif road. A review of factors likely to influence future flows was carried out prior to the preparation of traffic forecasts. A review of the national economy and the hinterland economy was also carried out in the course of the forecasting exercise. Information was obtained on new cold storage projects and industrial development that would likely generate traffic. Regional factors likely to influence traffic levels such as the growth within the economy of Afghanistan and the growth in neighboring markets were studied. Commodity specific factors were also considered. As regards growth in goods traffic, growth trends were calculated for both population and per capita income. Traffic forecasts were prepared for the period A Topographic survey was conducted along the finally selected alignment. The alignment design and detailed engineering design were prepared and coasted. The assessment on institutional development for the Railway Authority was conducted and discussed with concerned Ministries. The railway construction proposal was subjected to an Initial Environmental Examination - and the fact that the proposed railway works will take place entirely within the railway right of way, which entails that a full Environmental Impact Statement was not required. A social and poverty analysis was carried out with detailed discussions being held with stakeholders in the area of influence. Affected families were identified and the compensation mechanism was developed. Asian Development Bank Consultants Final Report

12 4 ADB Technical Assistance 7259 AFG Railway Development Study 21. The Project was subjected to technical, economic and financial appraisal. The key assumption of these analyses was that the implementation of the project will have minimum public land acquisition and maximum environmental benefits. Economic benefits included costs of road transport, fuel consumption and equipment utilization savings. Financial benefits were calculated as the revenue that otherwise would have been lost because of the loss of traffic to road transport; the savings in track maintenance; and savings in the utilization of equipment. Tariff analyses were carried out focusing on a comparative analysis with the traffic structure of the roads. Projections of MPW's financial condition over the forecast period were carried out. 2. Study Team 22. The study Team includes both international and national experts and is being headed by a Railway Operation Engineer/Team Leader. The international expertise includes two International railway engineers, a financial specialist, an economic specialist, an environmental specialist, a social and poverty specialist and an institutional development specialist. The national expertise consists of four railway civil engineers, two railway engineers, a railway operational and maintenance expert, a transport economist, two social specialists, an environmental specialist, a private sector specialist and an institutional specialist. Besides, to support the core team, a number of support teams consisting of local survey experts, AutoCAD expert were actively involved in the project activities. II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES A. Background of the Study 23. Afghanistan is located in a highly strategic position. It is estimated that the transcontinental corridors through Afghanistan have the potential to transport 20 to 30 million tons of cargo each year. The CAREC Transport Corridors 3, 5 and 6, identified in the CAREC Transport and Trade Facilitation Strategy, pass through the northern part of the country. The strategy highlights the great potential of Afghanistan to serve as a transit route for traffic and trade among Central Asia, South Asia, and the Middle East. Although Afghanistan's road network is being improved with external assistance, at present it is unable to meet the growing transport demands. 24. Afghanistan s current transport network has roads, rails, airports, and inland waterways. The official road network is 38,500 kilometers, which include 330 km of regional roads, 4,700 km of national roads, 9,700 km of provincial roads, 17,000 km of rural roads, and 3,800 km of urban roads. The total length of railways is only 25 km, being a 10 km cross-border extension from Turkmenistan to a transshipment yard in Torghundi and a 15 km extension from Uzbekistan to a transshipment yard in Hairatan. Hairatan is a gateway for commercial goods entering and transiting Afghanistan. Hairatan accounts for about 50% of all imports. Hairatan is both a dry and river port. Import and transit items include oil and fuel, wheat and flour, fertilizer, agricultural and other equipment, construction materials and consumer products. Hairatan is also the main entry point for humanitarian relief goods. No other rail project is being sponsored by any multilateral agency in Afghanistan. 25. The Government of Afghanistan plans to formulate a comprehensive railway development program to link its potentially important cities and commercial centers within Afghanistan to neighboring countries. The study of ADB TA 7259 AFG, which consists of the Route 1A is closely linked to ADB's Country Partnership Strategy: Afghanistan, , identifies the rehabilitation and construction of national roads and railways, including links to neighboring countries, as a priority for ADB assistance. Consultants Final Report Asian Development Bank

13 ADB Technical Assistance 7259 AFG Railway Development Study HB Consultants Ltd., Bangladesh in association with ABCD Consultants and Hi-Tech Consultant Ltd. of Afghanistan has been assigned for the Implementation Consulting Services relating to the Railway Development Study. The services include Phase - I Feasibility Study of Hairatan to Mazar-e-Sharif Railway line and Phase - II - Pre-feasibility study of Sherkhan Bandar to Herat via Mazar-e-Sharif. The TA team has completed its phase - I feasibility study of the selected routes in August 2009 and ADB is providing financial assistance for the implementation of phase - I railway link. The GOA is implementing the project with the assistance of the ADB. The main objective of the project is to help the economic growth of the country by improving the railway sector through improvement of the infrastructure, procurement of rolling stock, implementation of policy reforms and commercial orientation. 27. The construction of the Hairatan to Mazar-e-Sharif Railway Project is the first initiative taken by ADB as part of the railway development in Afghanistan and is expected to be completed by November This will increase trade between Afghanistan and Uzbekistan. It will also reduce transport costs, increase vehicle operation savings, and create job opportunities in the Project area. The Project will be constructed as a modern, efficient and sustainable railway connection between northern Afghanistan and southern Uzbekistan. 28. The Phase - I has been executed through EPC contract. This will have arrangements for fixed price and fixed time delivery date, with appropriate clauses for penalties and premiums. An independent consultant will oversee the EPC contract, tests and commission the quality standards. Once the line is constructed, tested, and accepted, the Government will sign an operation and maintenance (O&M) contract with UTY. This contract will also be on performance based, and be subject to independent supervision and validation. ADB will provide the required technical assistance to oversee the execution of the Project, and subsequent to that, its management. Headquarters and ADB Afghanistan Resident Mission staff will assist with the project implementation. 29. Uzbekistan Temir Yullari (UTY) has been awarded two contracts: (i) an EPC contract for design and construction, and (ii) an O&M contract for phase - I implementation. The Project will expand the transport network in Afghanistan and the region, and generate immediate benefits to freight operators, traders, businesses, and local communities. The Project will raise the profile of Afghanistan as a transit route; make it easier to deliver humanitarian relief and complement other modes of transport, including two CAREC transport corridors and the airport at Mazar-e-Sharif, which will be expanded soon. The Project is financially sound and its economic internal rate of return is estimated at 15%. Sensitivity tests demonstrate the Project to be robust across a broad range of key parameter variations. 30. Route 1B is currently also under study. This constitutes the main north-south traffic corridor in Afghanistan. Once the Turkmenistan rail system has been extended for the relatively short distance from Kerki to the border opposite Aqina, construction of Route 1B will complete a major new trans-continental rail / sea route in an approximate straight line as follows. Baku Turkmanbashi (Caspian Sea) Ashqabad Mary Aqina Mazar-e-Sharif Kabul Torkham. Changes of rail gauge will however be required between the Turkman and Afghan, and the Afghan and Pakistan rail systems. It is suggested that CAREC Corridor 2 should then have an extension leg added from Mary through to Kabul and Pakistan. The study of ADB TA 7259 AFG, which consists of Route 1A is closely linked to ADB's Country Partnership Strategy (CPS): Afghanistan, , and identifies the rehabilitation and construction of national roads and railways, including links to neighboring countries, as a priority for ADB assistance. 31. The Phase - II line will increase trade with Tajikistan and Turkmenistan, expand the transport network in Afghanistan and the region, and generate immediate benefits to freight Asian Development Bank Consultants Final Report

14 6 ADB Technical Assistance 7259 AFG Railway Development Study operators, traders, businesses, and local communities. It will also create a valuable revenue stream for Afghanistan from transit traffic earnings. An important aspect of this project s proposal is that it will create a new rail traffic corridor for Central Asia free from area of Russian influence, and provide such access to world markets as has never existed before. B. Key Problems and Opportunities 32. The transport sector performance in Afghanistan is affected by three main problems: inadequate infrastructure, limited government capacity, and insecurity. 1. Constraints 33. Inadequate Infrastructure and Facilities: Before 2001, investment in road reconstruction and maintenance was negligible. Since than it has improved, although only 7% of the total road length is paved. About 70% of inter-provincial and inter-district roads are in a poor state of repair. In the medium term the estimate is about US$1.7 billion for 3,000 km of national roads and US$1 billion for 17,000 km of provincial and rural roads. The railway network is negligible. Capacity at the Hairatan marshalling yard is adequate but all cargo has to be unloaded and reloaded into trucks. 34. The road network is incomplete. Various parts of the country are poorly connected or not connected at all. Four provincial capitals remain unconnected to the regional network isolating them from domestic and regional markets. The coverage gap affects connectivity, which cuts trade and investment opportunities, increases the cost of doing business and reduces the country s competitiveness and job creation capability. This increases costs, and generates losses. 35. Regional connectivity is underdeveloped primarily due to cross-border bottlenecks. Key constraints to the expansion of cross-border trade among Central and South Asian countries include inadequate customs facilities and a heavy reliance on cargo transshipment at borders, aggravated by the need for transit permits, and lack of vehicle standard and axle load controls, as well as visa regulations, unofficial charges, and the protection given to local trucking. Transit agreements are either nonexistent or poorly enforced. Link roads and facilities at border crossings are inadequate. The few existing cross-border railway links have not been developed. 36. Limited Government Capacity: The transport sector requires clear investment plans, stable and predictable financing flows. These investment plans need to distinguish better between capital and recurrent expenditures, especially for operation and maintenance (O&M). Seed capital is provided by donors. However, not all donors include infrastructure in their business strategies. The result is that financing will likely remain a binding constraint for the foreseeable future. 37. Security Problem: Insecurity is a constant threat for the reconstruction effort and makes it difficult for the Government to extend basic public services, increases project costs, limits bidding interest from construction companies, makes recruiting international contractors and consultants (including expatriate Afghans) difficult, and erodes popular support for government staff and international personnel. The international connections in southern and eastern Afghanistan are currently not sufficiently safe or reliable. Security hinders the transportation of goods and humanitarian aid. There is a need to expand all modes of transport and to open up more reliable and efficient routes for trade in and out from Afghanistan. A new rail line in the north will support economic development and poverty reduction in the country and the region. Consultants Final Report Asian Development Bank

15 ADB Technical Assistance 7259 AFG Railway Development Study 7 2. Opportunities 38. Significant Increase of Trade: The Project will expand the transport network in Afghanistan and the region and generate immediate benefits to freight operators, traders, businesses, and local communities. The Project will promote regional cooperation and trade. The facility will attract high-value traffic on to railways, promote inter-model traffic, and encourage private sector shippers and freight forwarders to trade cargo to Afghanistan, Central Asia, South Asia, the Middle East, and Europe. The Project will complement CAREC road corridors. 39. Afghanistan has significant mineral, industrial, and agricultural potential, which require a reliable and cost-effective transport system. From neighboring countries like Uzbekistan, Tajikistan, Turkmenistan, Pakistan, etc. all imports and transit goods are brought to the borders by rail, and then transshipped onto the trucks for movement within Afghanistan or across the borders. Compared with roads, railways offer a cheaper and quicker mode of transport for bulk commodities such as fuel and minerals. Moreover, the extraction of natural resources from major mines in Afghanistan requires a sustainable and safe mode of transport. 40. The road network, which carries the majority of the country's freight and passenger traffic, is being improved, but the transport system remains inadequate, inefficient, and unsafe. Only half of the roads that connect 24 provinces of the country are serviceable throughout the year, greatly restricting job creation and economic growth. A railway network would complement Afghanistan's roads and form part of an integrated multimodal transport system to enable seamless connectivity from origin to destination for goods, and link this landlocked country to nearby seaports and trade centers. 41. Health Issue: The Project has some gender content. It can create job opportunities but also reduce health risks associated with current road truck operations (HIV/AIDS vectors). At the same time people will have greater and easy access to the Health Centers if developed. 42. The rail line will replace some road-based cargo. The Project will cut transport costs in the region and Afghanistan, and generate time savings by unlocking current logistics and transport bottlenecks at the Hairatan marshalling yard. This will increase truck productivity and transport capacity. By removing heavy trucks from the small road network, it would permit the continued development of intercity and commuter bus transportation. 43. Develop Humanitarian Access Corridor: The Project will raise the profile of Afghanistan as a transit route; make it easier to deliver humanitarian relief and complement other modes of transport, including two CAREC transport corridors and the soon to be expanded airport at Mazar-e-Sharif. 44. Environment Friendly Transport System: Railways all over the world are typically environmentally friendly. The Project will therefore improve environmental sustainability by using regenerative locomotives, and better technology for noise reduction and soil erosion prevention. It will use double-stack containers to increase fuel-efficiency and environmental benefits. 45. Possibility of Private Sector Involvement: Attracting private sector participation is an effective approach to increase the efficiency and transparency of the administrative agency of the government for railway. By and large private participation involves allocation of risks and pattering of resources that private sector has access to including capital and technology. In Afghanistan large private sector organizations exist who can bear with risks and have access to capital and technology. Asian Development Bank Consultants Final Report

16 8 ADB Technical Assistance 7259 AFG Railway Development Study 46. Railway network incorporates the broad elements of infrastructure, regulation, operation, and services. Private sector participation in infrastructure, operation and services is possible to achieve by including service contract, leases, and concessions program. Build operate and transfer (BOT) is another option for infrastructure development. Successes of these programs require strong political leadership, established policies, legal framework, and effective institutions which in reality are absent particularly in railway sector. C. Government Policies, Plan and Strategy 47. The Afghanistan National Development Strategy (ANDS), 1 adopted by the Government in April 2008, is the country s main strategic platform for development over The Government s overall vision, as articulated in the ANDS, is to consolidate peace and stability through just and democratic processes and institutions, and to reduce poverty and achieve prosperity through broad based and equitable economic growth. 48. The ANDS features three mutually supporting pillars: (i) security; (ii) governance, rule of law, and human rights; and (iii) economic and social development. The ANDS indicates that progress across all fronts is needed to reduce poverty and promote prosperity. The economic and social development pillar includes the following sectors: agriculture and rural development; education, culture, youth, and media; energy, water, and irrigation; health and nutrition; mining; private sector development; refugees, returnees, and internally displaced persons; social protection; transport; information and communications technology; and urban development. The ANDS also identifies anticorruption activities, capacity development, counter-narcotics, environment, gender equity, and regional cooperation as important crosscutting concerns. Rural development, and particularly the links between jobs, production, and markets, is also seen as crucial to reducing widespread poverty. It aims to promote growth, generate wealth, and cut poverty and vulnerability. The strategy includes transport and logistics. In this regard, it sets out quantitative and qualitative targets, both physical and nonphysical, and covers various systems, including roads and railways. 49. The main objective under the transport strategy is to develop corridors between Central Asia and South Asia. Two regional road corridors, North-South and East-West have been identified and are at various stages of development. The North-South Corridor runs from Central Asia through Afghanistan to the Pakistani ports of Karachi/Port Qasim and Gwadar. The East-West Corridor runs from Central Asia through Afghanistan to the Iranian ports of Bandar-e-Abbas and Chabahar. Key development actions are: Investments in transport and trade infrastructure; Strengthening trade-related institutions and improving the efficiency at ports and customs; Harmonizing transport, trade, and tariff policies, standards, and regulatory frameworks; and Fostering private sector involvement. D. External Assistance 50. ADB has financed the improvement of nearly 1,100 km of regional and national roads since 2004, mostly in the northern and northwestern parts of the country. ADB s investment amounts to over US$600 million. The United States Agency for International Development 1 Islamic Republic of Afghanistan Afghanistan National Development Strategy. Kabul. Consultants Final Report Asian Development Bank

17 ADB Technical Assistance 7259 AFG Railway Development Study 9 and the World Bank are other large players in the road sector. The European Union is financing an experimental performance-based maintenance contract for a Kabul-Jalalabad road. The Japan Bank for International Cooperation is helping MPW improve the management and use of road-maintenance equipment, a major action to improve institutional effectiveness and project implementation. 51. ADB has numerous initiatives for the development of Transport sector in Afghanistan and in this region. The road infrastructure component of the ADB-financed Emergency Infrastructure Rehabilitation and Reconstruction Project (EIRRP) undertook urgently needed repair and rehabilitation of the Pol-e-Khomri Mazar-e-Sharif Sheberghan section of the national ring road, including international links to Turkmenistan (Sheberghan Andkhoy Aqina road) and Uzbekistan (Mazar-e-Sharif Naibabad Hairatan road) at an estimated total cost of US$65 million. The Government of Japan also provided US$20 million in JFPR funding to finance rehabilitation of the Naibabad Hairatan (55 km) and Naibabad Balkh (57 km) sections of the northern road. 52. Rehabilitation of the Japan Fund for Poverty Reduction financed Kandahar Spin Boldak road (US$25.0 million) is largely complete as of end-july ADB also provided TA for a feasibility and design study for the Herat Andkhoy road (US$1 million); leading to the US$80 million Andkhoy-Qaisar Road Project (approved in December 2004) will rehabilitate 210 km of the Herat-Andkhoy road. A proposed US$55 million grant-funded project in 2005 (the Qaisar-Bala Murghab Road Project) will rehabilitate a further 90 km of the Herat-Andkhoy road. 53. In 2004, ADB provided TA for the preparation of a road master plan that will develop a road development program for the next 5-10 years, with focus on identifying major east west and north south corridors to cross-link with the national ring road network. The TA also will assess financing requirements for sustainable road maintenance and will propose desirable and sustainable financing mechanisms. The TA is expected to result in a planned US$140 million North South Corridor Project, with a further road sector project planned subsequently. In 2005, ADB also provided additional capacity building TA to the Ministry of Public Works. 54. ADB provided US$1 million in TA to undertake feasibility and design studies for the rehabilitation of Afghanistan s regional airports. The TA led to a US$30 million Regional Airports Rehabilitation Project to help repair seven regional airports: Bamyan, Chaghcharan, Faizabad, Farah, Maimana, Qala-i-Naw, and Zaranj. The project will reconstruct runways and taxiways, build new passenger terminals or renovate existing ones, reconstruct road access and car parks, connect water supply and sewerage, provide airport maintenance equipment, and install security and boundary fences and gates. The project also will help to strengthen sector management and airport operations and maintenance. A US$40 million Regional Airports Rehabilitation Project Phase - II was planned for 2006 or ADB also planned additional TA in 2005 and 2006 to support capacity strengthening of Afghanistan s civil aviation sector. 55. Afghanistan s national primary roads are being rehabilitated with financial and technical assistance from bilateral and multilateral funding agencies. Priority has been given to rehabilitating strategic road connections, including the ring road and border access roads to neighboring countries. 56. The World Bank has funded the repair of the 175 kilometer (km) Kabul Doshi road (US$60 million) as well as rehabilitation of the 2.7 km Salang tunnel (US$5 million). The World Bank also funded the rehabilitation of the road from Pol-e Khomri to Sherkhan Bandar (land) port. The road to the north and northeast through Doshi is one of Afghanistan s six international links to its neighboring countries. The World Bank has also provided US$18.8 Asian Development Bank Consultants Final Report

18 10 ADB Technical Assistance 7259 AFG Railway Development Study million plus an IDA credit of US$20.4 million for rehabilitation of secondary and tertiary roads (2,000 km) and bridges (2,300 m). 57. The European Union awarded a 26 million contract to a Chinese engineering company, China Railway Shisiju Group Corporation, for a 75 km stretch (Sarobi-Jalalabad) of the vital 222 km Kabul Jalalabad Torkham road. The European Union also will fund a follow-on project for a total of some 65 million. USAID has funded rehabilitation of the following sections of the national ring road: Kabul Kandahar Road section (km ) totaling US$182 million; Kandahar Herat highway (km ) for US$71.6 million; and four bridges on Kandahar Herat road for US$5.4 million. 58. The Government of Japan provided US$29.3 million for reconstruction of Kabul Kandahar road section G and will finance for reconstruction of the Kandahar Herat road (km 0-116). The Government of Japan also provided US$18.6 million for reconstruction of Kabul s road transport. The Government of Saudi Arabia has provided US$30 million for the reconstruction of the ring road segment Kandahar Herat (Girishk- Delaram or km ). The Government of India will fund the rehabilitation of Zaranj Delaram road. The Government of Iran has already funded the following national roads: Herat Islam Qala (US$45 million); Milak Zaranj road (5 km) and a bridge; and Herat Koruk (US$20 million- US$30 million). The Government of Italy has committed funds for construction of a new Maidan Shar Bamian road ( 36 million). The Government of Pakistan is assisting in rehabilitation of the transit road (approximately 60 km) from Torkham to Jalalabad. 59. The North Atlantic Treaty Organization (NATO), as part of its International Security Assistance Force (ISAF) responsibilities, is coordinating assistance to Afghanistan s aviation sector. The World Bank is funding the rehabilitation of Kabul International Airport (US$24 million). The Government of Japan will provide US$31 million for the construction of a new terminal building at Kabul International Airport, and will also provide US$2.85 million in equipment for the airport. The Governments of the United States and India are providing TA for organization development, program management, aviation law, and regulatory oversight, etc. E. ADB Strategy and Sub Sector Experiences 60. The Afghanistan Country Partnership Strategy (CPS) is fully aligned with ANDS priorities and planned outcomes. ADB s ongoing and future investments will continue to support Afghanistan s further economic growth, thus contributing to the country s economic and social development and poverty reduction. At the Government s request, and in line with ADB s Strategy 2020, ADB s assistance to Afghanistan will continue to focus on a limited number of priority sectors and subsectors. The CPS results framework reflects higher level Afghanistan Compact and ANDS benchmarks, with ADB assistance contributing to the following development outcomes: 61. The ADB's Strategy for railway and road transport is to contribute to the development of regional transport corridors in coordination with regional initiatives by other international aid agencies. Regional transport improvements will meet infrastructure needs that support wider economic co-operation. An important aspect of the sectoral focus is the strengthening of institutional capacity and proactive support of sector reforms. Restructuring of existing institutions will be supported so that the Government's role is limited to transport policy formulation, programming and planning of projects, monitoring of performance, regulating and licensing, and developing mechanisms to introduce private sector participation in transport operations. 62. The ADB supported Regional Cooperation program The CAREC Transport Sector Road Map ( ) aimed to develop an integrated and efficient transport system in Consultants Final Report Asian Development Bank

19 ADB Technical Assistance 7259 AFG Railway Development Study 11 CAREC countries in support of sustainable economic growth and poverty reduction. The Road Map sets six strategic priorities: (i) Harmonization and simplification of cross-border transport procedures and documentation among CAREC countries to facilitate the movement of passengers and freight across borders. (ii) Harmonization of transport regulations among CAREC countries to create a level playing field for transport operators and promote efficiency and better services. (iii) Development and improvement of regional and international transport corridors to link production centers and markets within CAREC countries and to enhance CAREC countries access to neighboring regions and markets. (iv) Restructuring and modernization of railways to provide quality and efficient services through private sector participation and improved corporate governance. (v) Improvement of sector funding and management to ensure that the regional transport network is developed, operated, and maintained properly. (vi) Incremental approach to liberalization of civil aviation, focusing on the adoption of bilateral agreements using common legislative clauses, with a view to expanding sub-regional agreements among neighboring countries, and potentially more widely in the long term. Enhancement of external inputs from all stakeholders, especially business and tourism, in aviation policy making. The Project will strongly support regional railway corridor development. F. Rationale for the Project 63. The Project has strong rationale. It will develop a reliable, efficient, safe, and sustainable transport link within the country and between the country and its neighbors. Hairatan already doubles up as Afghanistan's most important dry and river port, acting as the gateway for almost half of Afghanistan's total imports. Key commodities and goods moving through this point include oil and fuel, wheat and flour, fertilizer, construction materials such as cement and bitumen, agricultural and off-highway equipment and consumer goods. Hairatan is also a largest port for the supply of humanitarian relief to Afghanistan. However, the existing transport infrastructure and facilities at Hairatan cannot cope with an expanding volume of trade and humanitarian relief. 64. The existing rail line between Termez in Uzbekistan and Hairatan does not extend into Afghanistan. Freight destined for Afghanistan and beyond has to be off-loaded and reloaded into trucks at this border. Moreover, other established trade and supply routes servicing Afghanistan are disrupted because of security constraints. The Termez Hairatan railway line helps but Afghanistan and other Central Asian countries would benefit if this were to be extended to Herat and Sherkhan Bandar. This expanded rail line will remove major physical bottlenecks at the borders. 65. Another important feature of the Project is its strong strategic and logistical content to countries in Central Asia. Afghanistan is the natural transit route to reach ports in Pakistan and the Caspian, for the onward sale of goods to South and East Asia, Middle East, and Europe. The railway line at Hairatan will raises the profile of Afghanistan as a transit route and complements the connectivity arising out of the two CAREC corridors (3 and 6), now under construction. 66. The Project fits well with the Government's development strategy and ADB's Country Partnership Strategy for The latter flags transport as a priority area for assistance. The Project also fits well with the CAREC Transport and Trade Facilitation Strategy and the Action Plan. The Project will be implemented in line with ADB's approach to engaging with weakly performing countries. 67. A reliable, efficient, safe, and sustainable transport link between Afghanistan and its neighboring countries is essential to increase regional cooperation and trade. It is also a key to expanding job creation, investment, and ultimately poverty reduction in Afghanistan. A railway network adds to the transport modes, including the existing roads being built in the north and center of the country, and soon to the expanded airport at Mazar-e-Sharif, the Asian Development Bank Consultants Final Report