Ukraine - Urban Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY CONFIDENTIAL Report No. 15381 UA SIAFF APPRAISAL REPORT UKRMAINE URBAN TRANSPORT PROJECT APRIL 18, 1996 FILE cOP Infrastructure Division Country Department IV Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (as of October, 1995) Currency Unit = Ukrainian Karbovanets (KB) 130,000 KB = US$ 1 US$1 = 130,000 KB WEIGHTS AND MEASURES Metric System ACRONYMS AND ABBREVIATIONS CPAR Country Procurement Assessment Report EBRD European Bank for Reconstruction and Development ECA Europe and Central Asia FSU Former Soviet Union GDP Gross Domestic Product GOU Government of Ukraine GPN General Procurement Notice ICB International Competitive Bidding IERR Internal Economic Rate of Return LIB Limited International Bidding MOF Ministry of Finance MOT Ministry of Transport NCB National Competitive Bidding NGO Nongovernmental Organization PIU Project Implementation Unit SCHME State Committee for Housing and Municipal Economy SOE Statements of Expenditure USAID United States Agency for International Development USEPA United States Environmental Protection Agency VAT Value-Added Tax FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT UKRAINE Urban Transport Project CONTENTS Page No. LOAN AND PROJECT SUMMARY .................................... i PART I. COUNTRY AND SECTOR CONTEXT .......................... A. Economic Overview B. The Urban Transport Sector C. Urban Transport Sector Policy and Strategy D. Urban Transport in the Candidate Cities E. World Bank Experience in Urban Transport and in Ukraine PART II. THE PROJECT ........................................ 13 A. Rationale and Objectives of the Project B. Project Components and Description C. Cost Estimates D. Project Financing E. Project Implementation F. Procurement G. Disbursements H. Accounting and Auditing I. Project Monitoring, Evaluation and Supervision J. Environmental Impact PART III. FINANCIAL EVALUATION OF PROJECT CITIES AND THEIR URBAN TRANSPORT COMPANIES ................. 27 A. Financial Situation of Urban Transit Enterprises B. Projected Financial Performance of Urban Transit Enterprises C. Debt Service Capacity of Project Cities PART IV. ECONOMIC ANALYSIS AND PROJECT RISKS .................. 40 A. Project Benefits B. Project Risks PART V. AGREEMENTS AND RECOMMENDATIONS .................... 43 ANNEXES A. Project City Fleet Improvements B. Details of Vehicle Rehabilitation C. Financial Analysis of Transport Enterprises D. Detailed Cost Estimates E. Project Implementation Schedule F. Monitorable Targets: Performance Indicators and Institutional Development G. Procurement Plans and Schedules H. Estimated Disbursement Schedules I. Supervision Plan J. Details of the Economic Analysis K. Selected Documents Available in the Project Files MAP IBRD No. 27343 TABLES Table 1.1 - Bus Emissions in Ukraine and Western Europe/USA Table 1.2 - Operators' Cost Recovery Levels, Third Quarter 1995 Table 2.1 - Estimated Project Costs (US$ million) Table 2.2 - Financing Plan Table 2.3 - Summary of Procurement Arrangements (US$ million equivalent) Table 2.4 - Disbursement Plan Table 3.1 - Farebox Cost Recovery of Transit Enterprises in the Project Cities, 1993-1995 Table 3.2 - Key Assumptions of the Financial Forecast Table 3.3 - Financial Projections for the Urban Transport Operations of the Project Cities, 1995-2000 Table 3.4 - National and Project City Budgets, 1994 Table 3.5 - Breakdown of Transport Expenditures by Project City, 1994 Table 4.1 - Project Economic Rate of Return and Results of Sensitivity Analysis FIGURES Figure 1.1 - Evolution of the Peak-Hour Fleets Without the Project, 1990-1998 Figure 3.1 - Financial Projections for the Urban Transport Operations of the Project Cities, 1995-2000 Figure 3.2 - Projected Transport Expenditures by Project City, 1995-2000 -i- UKRAINE URBAN TRANSPORT PROJECT Loan and Project Summary Borrower: Ukraine Implementing Agency: Ministry of Transport Beneficiary: Cities of Kiev, Lviv and Kriviy Rig Poverty Category: not applicable Loan Amount: US$75.0 million equivalent Terms: Payable in seventeen years, including five years of grace at the Bank's standard variable interest rate. Commitment Fee: 0.75 percent on undisbursed credit balances, beginning 60 days after signing, less any waiver. Onlending Terms: IBRD interest rate plus a mark-up of 1.0 percent for loan administration Financing Plan: See para. 2.12 Economic Rate of Return: The overall ERR is 45 percent resulting principally from projected reductions of 60-70 percent in passenger waiting times. IBRD Map: IBRD 27343 Project ID Number: UA-PA-9111 UKRAINE URBAN TRANSPORT PROJECT I. COUNTRY AND SECTOR CONTEXT A. Economic Overview 1.1 Ukraine has great economic potential in its highly educated labor force, fertile agricultural land, and diverse natural resources. It has the largest land mass in Europe (with the exception of European Russia) and a population of 52 million, which ranks fifth in Europe. Since declaring independence from the Soviet Union in August 1991, Ukraine has experienced a dramatic economic decline. Per capita GNP is estimated at US$1,572 (1994), placing Ukraine among the lower middle-income countries.' 1.2 Economic conditions in Ukraine, already difficult at the time of independence, worsened dramatically thereafter. Officially recorded output dropped by an estimated 50 percent between 1990 and the end of 1994; inflation, though down from the hyperinflationary levels in 1992- 1993, remains in triple digits; and the stock of external liabilities has mounted significantly, as the trade balance deteriorated sharply. 1.3 Since the Presidential elections of July 1994, Ukraine has embarked on a course of fundamental reforms. Ukraine's first comprehensive economic reform program was announced in October 1994, aimed at macroeconomic stabilization, market liberalization, and enterprise restructuring. This program has been supported by the IMF and the World Bank. A first purchase under the Systemic Transformation Facility (STF) was approved in October 1994, and has been followed by the approval of a Stand-by Arrangement in early April 1995. Price controls have largely been abolished; tight monetary and fiscal policies have significantly slowed down inflation. Major progress has been made towards unifying the exchange rate, establishing current account convertability, and liberalizing the trade regime. As to structural reforms, a major overhaul of the tax system is now underway, the most important steps towards establishing a rational energy pricing structure have been taken, the state order system has been dismantled, and privatization is being accelerated as the government moves to reduce its role in the economy. 1.4 Economic growth is projected to resume in 1996 and could reach 6 percent per annum by the year 2000.2 Following a drastic tightening of credit and fiscal policy in late 1993, monthly inflation declined to single digits for 1995. A rapid recovery of exports is expected to generate an average annual real rate of growth of 5.5 percent to the FSU and 7 percent to the rest of the world. Import volumes are expected to resume more slowly and to grow at a slower pace than exports, so that the overall trade deficit is expected to decline to 1.3 percent of the GDP by 2003. 1.5 The restructuring of Ukraine's transport sector to correspond with the basic changes in the political system and the economy has been very slow. There is not yet a clear transport policy. Until recently, most of the resources to finance transport came from the central government. The central government's resources have been inadequate to meet the needs of the transport system for operating subsidies, and little investment financing has been made available. In terms of urban transport, Ukraine's cities cannot finance urban services from their own resources, since about 70 Atlas methodology. GNP estimated for the economies of the FSU are subject to more than the usual range of uncertainty, and should therefore be regarded as preliminary and subject to revision. 2Source of forecasts: World Bank estimates. 2 Country and Sector Context percent of the net tax proceeds collected in their jurisdictions are transferred to and retained by the central government. Nevertheless, cities are by default being forced to cope with the problem of urban transport. B. The Urban Transport Sector Urban Transport Characteristics 1.6 Currently about 70 percent of the population lives in urban areas and is highly dependent upon public transport services. Although the figures on urban transport use are far from reliable, it can be safely assumed that 80 to 90 percent of motorized trips are completed by public transport. 1.7 The urban transport system is generally integrated in terms of route networks and individual route design. System planning, network design, and route planning functions are the responsibility of the Transport Department of the municipality. The transportation requirements of the city are derived mainly from demographic data and overall urban development, and from this information the required network and capacity requirements are determined. The general structure of the system is rarely changed, although it is augmented at times and routes can be modified. A major review of the public transport system takes place every five years. 1.8 The Network Structure. Except for the Kiev, Dnepropetrovsk, and Kharkiv metros, the structure of public transport in the major cities, including the three candidate cities, follows the same model: trams, trolleybuses, urban buses, suburban buses, suburban rail commuter service, and taxis. These modes provide an operationally integrated structure that, while not economically optimum, covers the entire city. Different parts of each city will tend to have stronger or weaker service by particular modes: (i) trams provide core service within the central city area, but also serve on some arterial routes; (ii) trolleybuses tend to be complementary to tram networks, with particular emphasis on the main arterial routes; (iii) the bus system generally does not serve the city center, but links the outer termini of tram routes to high density urban developments on the city's perimeter, and serves suburbs and outlying towns; and (iv) taxi services are not systematically integrated with the urban public transport services. Of Ukraine's cities, 24 have tram systems and 46 have trolleybus and bus systems. In 1994, 25,000 public buses, 7000 trolleybuses and 5000 trams operated on Ukraine's urban, routes, and Kiev and Kharkiv have subways. Most large cities are also served by suburban rail commuter service. In small cities, public buses account for the bulk of public transport trips. In larger cities, electric transport accounts for 50 percent or more of public transport, with buses accounting for the rest. In Kiev, about as many trips are done by trams and trolleys as by bus, not taking into account the subway system. 1.9 Delivery of Urban Transport Services. Service levels have deteriorated considerably since 1990. Vehicle availability at peak hours is insufficient, resulting in long waits, in spite of substantial overloading of operating vehicles. The on-street capacity during peak hours in Kiev has decreased by about 30 percent between 1989 and 1994 (see Figure 1.1, below). The interruption of imports of spare parts and new vehicles has caused a severe shortage of rolling stock. More than 30 percent of the trams and trolleybuses now in service have exceeded their theoretical useful lives, and are becoming progressively harder to maintain. Country and Sector Context 3 Figure 1.1 Evolution of the Peak-Hour Fleets Without the Project, 1990-1998 1600 13% 100. 1400 1200 71% 1000 60% 01990 50% 1995 El1998 80 46% 600 8* 64% 10D% 778% 200 43% Kiev Kiev Krivij Krvij Lviv Lviv electric buses Rig Rig electric buses electric buses 1.10 The staff-vehicle ratios for maintenance staff in the depots are approximately 1.4:1, compared to an international average of 0.6 to 1.0:1. This apparent overstaffing is largely due to the quantity of major repairs completed in the operating depots and the high incidence of breakdown maintenance resulting from aging vehicles. The shortage of spare parts affects the quality of maintenance work, which is also affected by a lack of diagnostic equipment and test facilities. In addition, there are limited standardized procedures, both for preventive and corrective maintenance, and for quality control. Equipment for routine maintenance tasks and for changing-out components is generally well-organized and appropriate for the tasks carried out at present, but some new equipment is needed and the level of general illumination in most depots should be improved. 1.11 Lack of Current Information on Demand for Urban Transport Services. The impact of the economic decline on the level of urban transport demand and its spatial distribution is not well-known. The evolution of demand is difficult to assess for three reasons: the lack of enforcement of fare collection; the high proportion of travellers exempted from paying fares (as much as 50 percent of the population); and the overcrowding of vehicles at peak hours. Farebox revenues 4 Country and Sector Context are therefore a poor measure of ridership. The number of private vehicles, however, is increasing very rapidly, particularly in large cities. Traffic Conditions and Traffic Management 1.12 Urban public transport operates within an urban road system where traffic congestion is still light by Western standards. The number of cars has, however, increased five-fold in recent years, producing high levels of rush-hour congestion in the central areas of Kiev and Lviv. Without improved measures for traffic management and parking, further increases in car use will result in more congestion, with resulting delays to public transport. In general, the traffic management system in the project cities is very basic, reflecting the absence of serious traffic congestion prior to independence. In the suburban areas traffic generally moves freely. 1.13 The municipalities have the authority to implement public transport priorities in the form of segregated rights of way, painted lanes, streets restricted to public transport, and other traffic management techniques. Because, until recently, urban traffic levels were quite low, municipal transport authorities have tended to make little use of this capability. Technical capabilities in this field largely reside in institutes organized by the central government. The Institutional Framework 1.14 Responsibilities for the delivery of urban transport services have nominally been transferred to the municipalities, which are now responsible for planning, monitoring, and regulating urban passenger transport services. Authority to set urban public transport fares now rests with the localities. The municipalities, however, do not yet have either the financial resources or well- organized transport departments with the skills and resources required to operate effectively. At the central government level, two different cabinet level agencies - the State Committee for Housing and Municipal Economy (SCHME), and the Ministry of Transport (MOT) - share authority for the urban transport services and policy. This division of responsibility leads to inconsistencies that seriously affect the operation of the sector (paras. 1.8 and 1.13). 1.15 Urban Bus Services. Individual bus enterprises are still owned by MOT. A presidential decree dated March 12, 1994, ordered the transfer to the cities of certain state-owned properties, including urban transit assets, but the decree was never implemented. Subsidies for the operations of bus enterprises are provided by the regional (oblast) government, and the municipality. Oblast level associations of road transport enterprises ("Avtotrans"), which report to MOT, provide the bus enterprises with a variety of centralized services, such as purchasing for supplies and parts, and an operations control center for all bus operations in the oblast. Operating subsidies are channelled through these regional Avtotrans; prior to independence, replacement buses were also allocated to bus enterprises via the regional-level Avtotrans. 1.16 Electric Transport Services. In contrast to bus services, the organization of trolleybuses and tramway operations is clearer and decentralized. The city governments own and operate the electric transport fleet. SCHME continues to control selected services, such as facilities for capital repairs and a technical research institute. The trams and trolleybuses are operated in each municipality by an enterprise known as an Electrotrans, which is owned by the municipality. Planning functions for trams and trolleybuses are carried out by the municipality. Operating subsidy Country and Sector Context 5 payments and funds for capital investment are provided directly to the Electrotrans from the municipal budget. 1.17 Trolleybus and tram systems are under the authority of the SCHME. MOT is responsible for buses, metros, and suburban rail commuter services, which -- taken together -- make up a substantially larger fraction of the overall sector's resources and services than those under SCHME. The division of urban transport responsibilities between MOT and SCHME imposes two different sets of planning norms, management structures, and funding mechanisms on city transport departments. It would be more efficient to unify under the MOT the responsibility for urban transport functions and resources currently assigned to SCHME and MOT, including policy responsibility, administrative procedures, and accountability for urban transport at the central government level and for the cities. Financing the Sector 1.18 General. Since 1991, resources for urban transport services have declined sharply. Farebox revenues covered a declining fraction of costs, ranging from 3 to 30 in 1994 percent depending on the city. This was due to several factors. First, fares were not increased in proportion with costs, particularly for fuel. The tenfold increase in the single-trip tariff on November 1, 1994, temporarily improved the cost recovery level of most of the operators, although the positive impact was diluted by the effects of inflation (the consumer price index rose by 271 percent during that quarter). Second, by national law, as much as half of the population is legally exempt from paying fares or entitled to reduced fares. Additional exemptions can be enacted by the Oblasts and the municipalities. Third, as crowding on vehicles increased and penalties dropped relative to fare levels, fare evasion has increased. When exempt riders are added to fare evaders, it is not surprising that the farebox revenues cover so little of the operating costs. Third, general subsidy funding systems, such as those in use in Ukraine, are economically inefficient and they prevent transport operators, city authorities, and transport users from perceiving the true costs of transport services. Finally, the real value of subsidies from the central government has shrunk drastically. Although, according to the Ministry of Finance, operating subsidies rose from 840 billion KBs in 1993 to 4,483 billion KBs in 1994, the real value of these subsidies acually declined by more than 75 percent (due to hyperinflation of more than 4,700 percent in 1993). As a result, the financing of capital investments (historically the responsibility of the central government) has virtually ceased since 1991. 1.19 Impact on Fleet Replacement. Due to the contraction of funding for fleet replacement, the capital stock of the urban transit enterprises has eroded markedly. Normal replacement cycles have been extended far beyond traditional practice. The normal replacement cycle for buses had been 6-8 years, but few new buses have been purchased since 1990 (see Fleet Age Structure for Project Cities in Annex A.2). 1.20 Projected Financial Performance and Affordability. Although major steps have been and will be taken under the project to boost cost recovery, urban transit farebox revenues in Ukraine may not cover costs fully, and subsidies may have to continue, although at substantially lower levels. Repeated fare increases have raised Ukrainian transit fares to about 11 percent of income. Since fares above 12 to 15 percent of income are generally deemed to be unaffordable, there is limited scope for major additional real increases without concomitant economic growth. If fare increases keep pace with inflation, fare exemptions are reformed and fare evasion is reduced, urban transport enterprises will be able to cover their operating costs and a portion of their capital costs. These actions are provided for under the proposed project. 6 Country and Sector Context Urban Passenger Transport Manufacturing Industry 1.21 Under the industrial policies of the former Soviet Union, a significant capacity to manufacture buses for urban public transport was allocated to Ukraine. In that context, Ukraine's bus manufacturing facilities, located in Lviv, accounted for 14.5 percent of overall bus production in the former Soviet Union. The LAZ bus plant in Lviv, Ukraine ("Lviv Avto Zavod"), specialized in medium-sized intercity and local or rural route buses, although the vast majority of large urban transport buses were imported from the Ikarus plant in Hungary. Within the last two years, LAZ has taken steps to expand its product line by participating in an international cooperative effort with Renault of France, under which Renault manufactured the chassis and the power train, and LAZ finished out the bodies and interior fittings of the buses. The quality of the buses manufactured under this arrangement was substantially superior to those manufactured under the previous system. 1.22 Since the break-up of the former Soviet Union, the government of Ukraine has developed plans to increase the manufacturing capacity for buses and to begin the manufacture of other types of mass transit equipment. The government's plans, as of December 1995, included the establishment or improvement of several additional transit equipment manufacturing facilities. Ultimately, Ukraine's transit manufacturing industry must withstand the test of the commercial market, which will require products of competitive quality and a suitable legal and regulatory framework for foreign investment to attract foreign capital. To assist Ukraine's transit equipment manufacturing industry in making the transition to a market economy, consulting services and training will be provided under the project. Urban Transport, Energy Consumption, and the Environment 1.23 Energy consumption and emissions from vehicles are high in Ukraine compared to Western European and American standards. This is partly due to higher fuel consumption and emissions from vehicles produced in the former Soviet Union compared to similar vehicles in Western Europe and the U.S., particularly carbon monoxide (CO)) and hydrocarbons (HC), as can be seen in Table 1.1 below. A more important reason is the widespread use of gasoline rather than diesel in heavy vehicles and buses. More than half of the bus fleet is powered by outmoded gasoline engines. Table 1.1: Bus Emissions in Ukraine and Western Europe/USA (grams/lkn) Carbon Monoxide Hydrocarbons NOx Particles Region Gas Diesel Gas Diesel Gas Diesel Gas Diesel Ukraine 104 7.8 7.7 3.4 10.4 10 0 1.9 Western Europe/ 2.5 1.1 11 0.7 USA I I Country and Sector Context 7 C. Urban Transport Sector Policy and Strategy Status 1.24 Government policies and organization at the central, city and enterprise levels, have contributed to the inefficiency of the Ukrainian urban transport sector. Efforts are being made, however, at all three levels to remedy the situation. 1.25 At the central government level, four factors have hampered efficient urban transport management, though some progress has been made during project preparation. First, authority over urban transport is divided at the central government level between two cabinet-level agencies: the SCHME, which is responsible for electric transport (trolleybuses and trams), and the MOT, which is responsible for buses, metros, and suburban commuter rail services. This bifurcation hinders intermodal coordination and planning. Second, the central government traditionally set transport fares, but fare-setting authority was recently devolved to the municipal level. All of the project cities have taken strong steps to raise their transit fares. Third, the central government created a system of nationwide exemptions from fares including many categories of passengers. Combined with the low fares and fines, these fare exemptions have severely impacted the operators' cost recovery. The central government has recently devised a two-stage plan for eliminating these exemptions, which is intended to be implemented by the end of 1996. Fourth, the central government owns buses and regional governments control bus enterprises, though electric transport enterprises have been transferred to cities. Little progress has been made in transferring ownership of bus enterprises to the cities, and in organizing them as municipally owned corporations. These four factors reduce the municipal governments' and enterprises' autonomy in financing, equipping and operating their transit systems. 1.26 The cities' ability to plan, regulate and finance urban transport is impeded not only by central government control but also by the limited institutional capacity of local urban transport institutions and enterprises. Although each of the project cities has established a transport department, these authorities have only limited capacity to conduct integrated, multimodal urban transport planning or to regulate the sector at arm's length. There has been, however, the beginning of transit services by private transit operators. 1.27 Urban transport enterprises lack the ability and the incentives to operate autonomously. Operators rely on operating subsidies that have been sporadic and are not related to the enterprises' performance. They are not contractually bound to offer a certain level of service, nor are the municipalities required to make timely payment for this service. They are not structurally independent of the municipality and therefore have neither the responsibility nor the authority to manage their own revenues and expenses. Potential Solutions 1.28 To improve the municipalities' ability to manage urban transport in response to passengers' demands and needs, and at lower cost, several actions could be taken. The principal ones are: (a) eliminating the operational and economic regulatory roles of the central and regional governments in urban transport; (b) commensurately building capacity within local governments and enterprises to plan, regulate, and finance urban transport and develop contractual relationships between municipalities and transport operators; (c) maximizing the role of the private sector in urban 8 Country and Sector Context transport operations and support services; and (d) dramatically improving the cost recovery of urban transport enterprises. Sector Reforms 1.29 The Bank has worked with the central government agencies (MOT and SCHME) and the cities and enterprises participating in the project to develop a set of reforms to remedy the problems identified above. The reforms comprise following short-term and medium-term actions to address more fundamental institutional issues during project implementation. By the Central Government: (a) Government Action to Remove the Burden of Federally-Mandated Fare Exemptions from Transit Enterprises. Eliminating the fare exemptions is essential to the financial performance of the urban transport sector. The Government should either eliminate the exemptions from, or reductions in, fares for transit passengers, or provide for alternative reimbursement of the transit companies for the losses resulting from such exemptions and reductions. Government has prepared a two-phased plan to be implemented in 1996 and 1997, for legislative action. (b) Devolution of Ownership and Operational Control of Buses to Municipalities. If the cities are to borrow to improve urban transport, they should own the assets being purchased with the proceeds of their loans. Each of the project cities owns its electric transport enterprises and has indicated its commitment to gaining ownership of the urban bus enterprises. (c) Transfer Authority to Set Transit Fares to the Cities. To ensure the project cities have the authority to manage and control the financial performance of their urban transport sectors, they must have the authority to set fares for urban transport in their cities. The project cities have indicated that they now have this authority. Conditions of Negotiations. The Government and the Bank have agreed to the implementation of the above reforms as conditions of negotiations. Prior to negotiations, therefore, the Government must have presented to the Bank a copy of the law, official decree, plan, or other official document on: (i) the elimination of the financial impact on urban transit enterprises of Government-mandated exemptions from, and reductions in, transit fares [para. 5.1(a)]; (ii) the devolution of ownership and operational control of transport enterprises that would participate in the project to the city from the central and oblast governments [para. 5.1(b)]; and (iii) transferring to the project cities full authority to determine passenger fares for public transport [para. 5.1(c)]; (d) Government Report on the Organization of Urban Transport. In addition to the above reforms, to resolve the institutional difficulties plaguing the urban transport sector, it will be agreed at negotiations that the Government will submit, by an agreed date, a report and implementation plan on the future organization of urban transport [paras. 1.14 and 2.14(b)]; Country and Sector Context 9 Required from Enterprises: (e) Achieve Cost Recovery Level for Transit Enterprise of 30 Percent by March 31, 1996. Under Government Decree No. 733 (issued under the Government Economic Reform Program and supported by the World Bank Rehabilitation Loan), the urban transit sector was to achieve a cost recovery level of 20 percent by December 31, 1994. Although this target was not met, fare increases and improvements in enforcement have combined to improve cost recovery in the project cities in 1995. Lviv and Kriviy Rig had met the 20 percent target required by appraisal, but Kiev had not. As a condition of negotiations it must be confirmed that each transport enterprise participating in the project had achieved a cost recovery of 30 percent by March 31, 1996 [para. 5.1(d)]. Required from City Governments (f) Establishment of Municipal Transport Department within the Municipal Government. It will be agreed at negotiations that each project city must establish, by an agreed date, a municipal transport department, with a charter specifying its authority over the planning, financing, and regulation of all modes of municipal transport [para. 5.2 (a)]. (g) Adoption of a Public Transport Policy. Essential to reforming the urban transport sector is the formulation of an effective urban transport policy that establishes the framework in which transport will be planned, financed, and regulated, and the role that the private sector will play. It will be agreed at negotiations that the project cities will adopt by an agreed date a municipal public transport policy acceptable to the Bank that, among other things, progressively increases the scope of competition and private sector provision of urban passenger transport services [para. 5.2 (b)]. (h) Corporatize Urban Transport Enterprises as Municipally-Owned Enterprises. To ensure that there is the needed separation between the administrative role of the city government and the operating and commercial role of the transit enterprises, all enterprises in the project cities must be established as municipally-owned corporations (electric transport may be organized as a single corporation including both trolleys and trams) (para. 3.16). (i) Conclude Performance Contracts between the Cities and the Transit Companies. The roles and responsibilities of the cities and the transit companies must be clearly set forth if both are to carry out their roles as required. Each project city must establish a performance contract with each of its urban transport enterprises that: (i) requires transit companies to meet agreed service levels on a prescribed network; (ii) requires the city to make timely payments of operating subsidies to the enterprises; (iii) provides financial incentives for companies to improve upon the required service levels or subsidy requirements; (iv) requires transit companies to meet selected levels of cost recovery and operational efficiency as specified in Annex F; and (v) provides for remedies in the event either party fails to meet its conditions under the contract (para. 3.16). 10 Country and Sector Context (j) Develop Five-Year Financial Plans. It will be agreed at negotiations that, by an agreed date, each of the project cities and their transit enterprises will develop a five-year financial plan, including cost recovery targets (para. 3.10); 1.30 To ensure the implementation of the sector reforms, (i) the project includes an institutional support component described in paras. 2.6-2.8; and (ii) a financial performance plan will be agreed at negotiations [para. 3.20(a)(iii)]. D. Urban Transport In the Candidate Cities 1.31 Although urban transport service in the three candidate cities is provided by a mix of buses, trams, trolleybuses, and suburban commuter trains, and also by a metro in Kiev, only the needs for buses, trolleys and trams are being considered under this project. The composition of the . current fleet is summarized in Annex A.2. The age structures of the fleets are varied and characteristic of aging fleets: since the late eighties, very few new vehicles have been purchased, and a growing number of older vehicles have been kept on the books, if not on the streets; this is particularly true in Lviv for electric transport, and in Kriviy Rig for buses. 1.32 The aging of the fleets, combined with the lack of spare parts, have caused a major decline in availability of the fleet (details are shown in Annex A.3); typically only slightly more than 50 percent of the total fleet is on the streets at peak hour, compared to 90 to 95 percent in a normally maintained fleet. Corresponding to the fleet age profiles, the lowest availability is found in Lviv for electric transport (50 percent) and in Kriviy Rig for buses (35 percent). 1.33 If nothing is done in the coming years to change this trend, the situation will obviously deteriorate much more seriously. Annex A.3 demonstrates the expected continued deterioration of the project city fleets if there is no investment in vehicle replacement and rehabilitation in the next three years, and if maintenance remains at the present level. The conclusion is that by 1998 the available transport capacity at peak hour will decrease approximately 25 percent from the present level, which is estimated to already have declined by 25 to 30 percent from the levels in 1990. That means that in 1998 the transport capacity will be about half of what it was in 1990. Figure 1.1 depicts the decline of the project city fleets from 1990 levels projected through 1998, as they would develop without the investment from the project. Transport Enterprise Financial Performance 1.34 According to Ukrainian transport officials, cost recovery levels declined markedly from 1991 due to high inflation without compensatory fare increases until 1994. Since the last quarter of 1994, the situation has improved due to: (i) important increases in the fare level, such as the nationally-mandated tenfold increase in November 1994; and (ii) the creation of new services like minibus services in Lviv or express services Kriviy Rig with fares 50 percent higher than regular services. Nevertheless, as shown in Table 1.2, below, except for Lviv's enterprises and high-speed trams in Kriviy Rig, overall cost recovery remained low through the third quarter of 1995, with substantial variations from one company to the other. Country and Sector Context 11 Table 1.2: Operators' Cost Recovery Levels Third Quarter, 1995 Transport Unit Revenue: Bln. KB Costs: Bin. KB Cost Recovery (%) Kiev trams 141.1 713.4 20 Kiev trolleybuses 133.7 764.5 17 Kiev urban/suburban 180.0 1079.1 17 buses Kriviy Rig trams 18.8 114.4 16 Kriviy Rig high-speed 40.2 99.5 40 trams Kriviy Rig 28.1 193.0 15 trolleybuses Kriviy Rig 80.8 271.3 30 urban/suburban buses Lviv trams 70.9 142.4 50 Lviv trolleybuses 47.1 113.6 41 Lviv urban/suburban 197.1 230.7 85 buses 1.35 During 1995 initiatives were taken that began to improve financial performance: (a) on September 7, Kiev doubled its basic transport fares and its fares for express bus services; (b) Lviv raised its tram and trolleybus fares on June 1, and raised its bus, express bus, and taxibus fares on August 26; and (c) Kriviy Rig has approved a doubling of urban transport fares, effective November 1. E. World Bank Experience in Urban Transport and in Ukraine 1.36 Since 1972, the World Bank has had about thirty urban transport projects and an even larger number of urban development projects with a substantial urban transport component. These projects have been quite diversified in terms of content, countries, and circumstances under which they have been designed and implemented. The major objective of World Bank lending for urban transport has been to improve and extend available facilities and services through the use of low cost options. For this reason, the greatest emphasis has been placed on: (a) rationalization of the use of urban transport facilities, particularly urban roads; (b) provision of better access through upgrading and extension of the road networks; and (c) improvement in the standards and viability of public transport services. A more general objective has been to meet the special needs of the urban poor. Upgrading and extending road networks in low income neighborhoods has therefore also been a 12 Country and Sector Context priority, as well as improving the public transport services benefitting the poor. Other objectives of World Bank urban transport operations have been to improve planning and coordination and to better integrate urban transport with urban development. More recently, Bank objectives have focused on the privatization of urban transport, including contracting out maintenance and other services, but most of the projects incorporating these objectives are ongoing projects. 1.37 With few exceptions, physical components of urban transport projects were generally implemented as planned. While some changes did take place and some components were poorly planned, the physical components proposed at appraisal proved to be feasible and supported by decision makers. Overall estimated project costs were also of the right order, although wide variations in individual components occurred. 1.38 Project schedules were chronically over-optimistic at appraisal, due to: (a) difficulties of implementing traffic schemes; (b) failure to complete final designs in a timely manner; (c) unfamiliarity with World Bank procedures (especially procurement); and (d) lack of counterpart funds. 1.39 Lessons Applied. Although the proposed project is quite different from most of the World Bank's previous urban transport projects, as it does not include any significant civil works, the lessons of World Bank experience have been taken into account in its design. The preparation of the project has been structured with a view to minimizing implementation delays: (a) procurement will be well advanced by the time the project goes to the Board for approval -- standard bidding documents for the procurement of buses, trolleybuses, trams, and spare parts will be agreed at negotiations, and some bids will have been evaluated by the time of loan effectiveness, provided the Government is willing to start the bidding process before loan approval; and (b) a Steering Committee, which was created under an order of the Cabinet of Ministers of Ukraine, is providing policy direction for the project. 1.40 Participation in Preparation. From the inception of the project, the Bank worked with a broad range of government agencies to establish an agreed basis for needed policy reforms in the urban transport sector, ultimately convincing government to form a steering committee that encompasses the Cabinet of Ministers, the Ministries of Finance and Economy, as well as the two implementing agencies -- the Ministry of Transport and the State Committee for Housing and Municipal Economy. Working together, the Bank and the Steering Committee developed a process to evaluate the cities that were proposed to participate in the process. After the selection process was completed, the project cities, also became members of the Steering Committee. To prepare the project, a team integrating foreign and local consultants developed the necessary information and analyses, working in close cooperation with the project city governments, their transport departments, and their municipal transport enterprises. During project preparation, the economic analysis was developed based on waiting time data collected from transit riders. The Steering Committee continues to play an important role in oversight of the project and will continue this role during project implementation. 13 The Project II. THE PROJECT A. Rationale and Objectives of the Project 2.1 Chapter I documents the poor condition of urban transport in the candidate cities. Improving the condition of the urban transport sector is critical for four reasons: (a) for society: most people, making up 80-90 percent of all urban passenger trips, experience long waits to use public transport to access jobs, services, and social and cultural activities; (b) for the economy: an efficient urban transport system is necessary to avoid losses in production and service delivery, and resulting energy savings are critical to improving Ukraine's macroeconomic and fiscal conditions; (c) for fiscal soundness: more efficient urban transport and higher level of cost recovery from users will produce savings in budgetary outlays for both the central and municipal governments; and (d) for environmental quality: replacement or rehabilitation of existing gasoline-fueled urban transport vehicles will bring important improvements in emission levels. 2.2 Progress along two fronts will be required to improve urban transport: institutional and investment. Institutional reforms are essential to ensure the sustainability over the long term of urban transport services, and investments are urgently needed to avoid further deterioration of transit services, which would add to the economic problems of the cities. 2.3 The aim of the project is to support policy reforms and restructuring for urban transport services in Ukraine, and to provide investment in those cities. The specific objectives for the cities of Kiev, Kriviy Rig and Lviv chosen for the project are: (a) to support policy and institutional reforms aimed at more efficient, cost effective, and financially viable urban transport services in order to meet the needs of the population; (b) to increase the public transport capacity to a minimum level of service by increasing the number of available vehicles (through new vehicle purchases, vehicle rehabilitation, and elimination of deferred maintenance); (c) to lay the groundwork for maximum private sector participation in operating and supporting urban transport services; and (d) to demonstrate new institutional, operational, and financial practices, which could be applicable to other Ukrainian cities, that will increase the availability, and lower the cost, of urban transport services. The Project 14 2.4 The proposed project is consistent with the Bank's strategy for Ukraine outlined in the Country Assistance Strategy (March 6, 1996 draft). Specifically, the project supports the four elements of Ukraine's structural reform agenda by: (a) expanding the participation of the private sector in urban transport operations and supporting services; the municipal transport policies to be developed under the project for each of the three project cities will provide for the progressive expansion of the role of the private sector in urban transport operations and support services; (b) restructuring public sector institutions by reducing the level of public expenditures for urban transport and establishing a consistent framework of responsibilities between the central and local governments in the provision of urban transport services; (c) supporting the social sustainability of the transition by providing incentives to target subsidies to the poor; and (d) ensuring environmental sustainability by reducing the noxious emissions of urban vehicular traffic. B. Project Components and Description 2.5 The cities of Kiev, Lviv and Kriviy Rig were selected to take part in the project, according to their commitment to reforms. Kiev, the capital city, has 2.65 million inhabitants, while the other two cities are much smaller, each with around 800,000 inhabitants. The size and evolution of their fleets is shown in Annex A. The project consists of: a) an institutional support program; and (b) a transit fleet and workshop improvement program. Institutional Support Program (US$5.2 million base cost) 2.6 The project's institutional support component is designed to assist in implementing the reforms (paras 1.30-1.31) and in improving the overall operational and financial performance of the sector. Consultant services and staff training will be provided to implement this component. Terms of reference, which are listed in Annex K, are in the Project Files. 2.7 Institutional Support for the Project Cities. This component will assist: (a) municipalities: to formulate and implement reforms in urban transport policy and institutional structure including: (i) develop the legal framework to provide the cities with essential authority to operate and finance urban transport; (ii) install management information systems for such functional responsibilities as accounting and budgeting, and finance; and management information systems, performance reporting, and fare collection and enforcement; (iii) develop transit system plans and investment plans, based on a least-cost analysis of strategic alternative; and 15 The Project (iv) corporatize and develop sound corporate charters for the project enterprises and their contractual relations with the cities, with transparent systems for all aspects of financial operations, and an increased role for the private sector operators. (b) urban transit enterprises: to improve efficiency, cost control, and cost recovery in all phases of their activities and operations, including: (i) technical systems for accounting and finance, performance reporting, and fare I collection and enforcement; (ii) systems for operations planning, maintenance scheduling, and investment planning; and (iii) the methods of vehicle rehabilitation and maintenance. 2.8 Institutional Support for the Central Government. This component will provide: (a) for MOT and SCHME, consultant services and training to assist with procurement, disbursement, and reporting, accounting, and auditing requirements under the project; (b) MOT, SCHME, and the Project Steering Committee consulting services and training to assist with restructuring policies and organizations for urban transport; (c) for the Minister of Transport, assistance in developing a new framework of government policy and law and a corresponding organizational structure for the transport sector appropriate to a market economy. Although this component goes beyond the urban transport sector, it is well justified as this is the first Bank-financed project in the transport sector; and (d) for MOT and SCHME, consulting services and training to assist domestic transit equipment manufacturing firms to take steps necessary to compete in the international marketplace. Transit Fleet and Workshop Improvement Program (US$107.7 million base cost) 2.9 The transit fleet and workshop improvement program would address the central problems behind the high out-of-service ratios for the urban transit fleets of the three cities by replacing, refurbishing, and repairing urban transport vehicles and maintenance facilities: (a) Replacement Urban Transport Vehicles. The project will provide replacement vehicles through the purchase of about 146 new buses, 81 new trolleybuses, and 37 new trams. This represents a replacement of approximately 8 percent of the present available fleet. In terms of historic rates, this level of replacement represents about 1 year of fleet replacement for buses and almost 2 years for electric vehicles. (b) Rehabilitation and Spare Parts for Urban Transport Vehicles. The project will provide for rehabilitation of about 711 buses, 388 trolleybuses, and 252 trams. Spare parts provided under the project should eliminate the backlog of deferred maintenance The Project 16 on urban transport equipment in the three cities, allowing substantial number of buses, trolleybuses, and trams to return to service. This subcomponent allows for the repair or rehabilitation of about half of the fleet. Technical assistance, training, and contracting will be provided to implement the component [para. 2.7(b)(iii)]. Details of the vehicle rehabilitation program are in Annex B. (c) Equipment. Provision of workshop and other equipment for urban transit companies will correct inadequacies that substantially hamper the efficient delivery of urban transport services in the cities. In particular, there could be substantial improvements of maintenance operations if urban transport enterprises were provided with modern tools and equipment for metal-working (to include welding equipment), vehicle overhauls (to include painting equipment), and equipment maintenance (to include hand tools). To improve workshop conditions the project will finance repairs to the buildings and lighting renovation. (d) Traffic Engineering and Related Civil Works. To reduce traffic congestion, and allow priority for urban transport vehicles, the project will provide funding for the purchase and installation of equipment for traffic signaling and control, and for minor street repairs and modifications needed to improve traffic flow. 2.10 The transit fleet and workshop improvement component has been designed to match financial capabilities of the cities to address their most urgent needs. The details of transit fleet and workshop improvement component for each of the project cities are shown in Annex A. 1. Emphasis has been put on spare parts and rehabilitation to have the earliest beneficial impact on the availability of the fleet. As a result of this project, about 10-20 percent more vehicles will be put on the streets. Without the project the available fleet would decrease by about the same percentage. C. Cost Estimates 2.11 The total cost of the project is estimated at US$131.9 million, not including VAT and duties, of which US$82.0 million is the foreign exchange cost, and US$ 49.9 million the local cost. Cost estimates are based on appraisal prices, updated to the date of negotiations. Physical contingencies are estimated at 10 percent of base costs and are applied to all items except technical services. Price contingencies for foreign costs were based on average annual forecasts of inflation for manufactured goods and services of 2.6 percent per annum; for local cost they were based on the Bank's estimates of local inflation and exchange rates (Table 3.2). Project costs are calculated in U:S. dollars only because the instability of the karbovanet makes it impractical to quote prices in domestic currency. Import duties and value added taxes have not been included in the cost estimates. The cost estimates, which are presented in detail in Annex D, are summarized in Table 2.1. Project costs and a detailed implementation schedule will be agreed during negotiations and reflected in the minutes [para 5.3(b)]. 17 The Project Table 2.1: Estimated Project Costs (US$ million) Project Components Local Foreign Total I. Institutional Support 0.5 4.4 4.9 1. Tech. Services & Training II. Transit Fleet and 41.7 66.4 108.0 Workshop Improvement 2. New Vehicles 38.7 38.7 a. Trams 11.1 11.1 b. Trolleybuses 11.5 11.5 c. Buses 16.1 16.1 3. Rehab. of Vehicles 16.0 16.0 31.9 a. Trams 5.6 5.6 11.1 b. Trolleybuses 4.2 4.2 8.4 c. Buses 6.2 6.2 12.4 4. Spare Parts and Major Components 20.9 8.9 29.8 a. Trams 1.8 2.9 4.7 b. Trolleybuses 1.8 2.8 4.6 c. Buses 1.8 3.2 5.0 d. Labor 15.5 15.5 5. Workshop and Office 4.3 2.3 6.6 Equipment 6. Traffic Management 0.5 0.5 1.0 and Street Works PROJECT BASE COST 42.2 70.8 112.9 7. Physical Contingencies 2.6 6.6 9.2 8. Price Contingencies 5.2 4.6 9.8 TOTAL PROJECT COST 49.9 82.0 131.9 a: Number may not add due to to roundiag. The Project 18 D. Project Financing 2.12 The proposed World Bank loan of US$75.0 million would cover 56.9 percent of total project costs, and will be used for new equipment, spare parts, vehicle rehabilitation in Lviv, and an institutional support component of $5.3 million, if none of the costs of consulting services were financed by grants. To the extent that grants are found, the corresponding loan amount will be reallocated or cancelled. A loan from the EBRD would finance US$38.4 million for equipment rehabilitation in Kiev and Kriviy Rig. Government would finance US$16.0 million of local costs. Grants from donors are expected to finance a minimum of $2.5 million in consulting services and training of the institutional support component. Ukraine, the Borrower, would enter into subsidiary loan agreements with three project cities, Kiev, Lviv, and Kriviy Rig. Financing arrangements are shown in Table 2.2. The World Bank loan would have a maturity of 17 years, including five years of grace. The Ministry of Finance has not yet indicated whether it will elect a standard currency pool loan or a single currency loan. The interest rate on the subsidiary loans would be equal to the World Bank's standard variable interest rate plus a margin of 1.0 percent to cover (i) the cost of loan administration, (ii) the operating cost of the PIU, and (iii) provision for debt coverage. The foreign exchange risk will be borne by the beneficiaries. The beneficiaries would also reimburse the Government for the commitment fee. At negotiations, agreement will be reached on their respective portion of the loan, the on-lending arrangements, and the draft on-lending agreements [para. 5.2(c)]. The signing of the subsidiary loan agreements and the effectiveness of the EBRD loan would be conditions of loan effectiveness [para. 5.3(a)-(b)]. Table 2.2: Financing Plan (US$ Million) Local Cost Foreign Cost Total Cost Percentage of Total Cost IBRD 12.8 62.2 75.0 56.9 EBRD 21.1 17.3 38.4 29.1 Local Govts. 16.0 -- 16.0 12.1 Donors -- 2.5 2.5 1.9 TOTAL 49.9 82.0 131.9 100.0 E. Project Implementation 2.13 General. The project is to be implemented over five years. The detailed implementation schedule is in Annex E. To provide direction for the project during preparation, the Government of Ukraine created a Steering Committee, which will exercise oversight for project implementation. The Steering Committee's implementation responsibilities will include oversight of: (i) project audits; and (ii) progress reports on project implementation and performance. Each city will nominate a project manager to carry out its responsibilities for project implementation. 19 The Project 2.14 MOT Responsibilities. (a) . The Project Implementation Unit. A PIU will be established in MOT, reporting to the Minister or his designee. It will be responsible for the management of project implementation activities at the central government level, including: (i) in cooperation with the cities, procurement of new transit equipment, workshop equipment, transit vehicle parts and components, transit vehicle rehabilitation; training and consulting services; and any other goods or services to be procured on behalf of two or more cities; (ii) preparation of disbursement applications; (iii) accounting and auditing; (iv) project monitoring and reporting; and (v) liaison with the project cities, the central government, and the Bank. The PIU would retain needed consulting assistance in the areas of project management, procurement, disbursement, and accounting administration [para. 2.8(a)]. The PIU would also contract for the services needed for development of the technical, operational, and financial systems required in both the central government and the project cities. As a condition of negotiations, Government will make a decision establishing the location of the PIU and appointing the head of the PIU [para. 5.1 (e)]. (b) Policy Reform, Institutional Support, and Consulting Services for the Manufacturing Sector. Both as head of the PIU and as the agency reponsible under law for the transport sector, MOT will take the lead in implementing: (i) the project policy reforms; (ii) the consulting services and training for the transport sector legal framework; and (iii) the assistance to both the urban transport sector and the automobile transit equipment manufacturing industry. It will be agreed at negotiations that, by an agreed date, the government will submit to the Bank a report and proposed implementation plan on the future organization of urban transport in Ukraine [para. 5.2 (d)]. 2.15 SCHME Responsibilities. (a) Project Implementation. As the central government's agency responsible for electric urban transport, the SCHME would assist MOT in the staffing and operations of the PIU. SCHME would appoint one of its personnel to a key position in the PIU, who would carry out assigned responsibilities, which would include coordination of matters related to procurement related to repair, rehabilitation, and acquisition of electric transport vehicles. (b) Policy Reform, Institutional Support, and Consulting Services for the Manufacturing Sector. Both in its role in the PIU and as the agency reponsible urban electric transport, SCHME will assist in implementing: (i) the project policy reforms; and (ii) the assistance to both the urban transport sector and the electric transit equipment manufacturing industry. 2.16 Responsibilities of the Project Cities. The cities would be responsible for: (i) determining the make up of lots for procurement carried out by the PIU; (ii) approving disbursement applications involving goods or services their city is purchasing before the application is released by the PIU; and (iii) coordination of training and consulting services for municipal transport departments and urban transport enterprises. The cities would be provided with procurement assistance and training from the PIU and its procurement adviser. The Project 20 2.17 Implementation Training. During the preparation phase of the project, the Bank has provided workshops and training for implementation. Immediately after Board approval, a Project Launch Workshop will be conducted for all parties involved in the implementation of the project. F. Procurement 2.18 Procurement Arrangements. Major project elements, their estimated costs and proposed procurement methods are given in Table 2.3 below. The detailed plan of major procurement packages, methods and schedule is attached in Annex G. All procurement financed by the World Bank loan will b)e undertaken in accordance with the Bank's Guidelines, Procurement under IBRD Loans and IDA Credits (Procurement Guidelines), dated January 1995. The procurement financed by the EBRD loan will be undertaken in accordance with EBRD's Procurement Policies and Rules, revised May 1995. Procurement arrangements will be agreed during negotiations [para. 5.2(e)]. 21 The Project Table 2.3: Summary of Procurement Arrangements (US$ million equivalent)' Procurement Methods TOTAL COST ICB NCB OTHER N.B.F.b/ 1. Works 1.1 Improvement of 0.3 1.2 1.5 Workshop Buildings (0.3) (0.3) 1.2 Street Works 0.5 0.1 0.6 (0.5) (0.5) 2. Goods 2.1 New Trams 12.9 12.9 (12.9) (12.9) 2.2 New Trolleybuses 13.4 13.4 (13.4) (13.4) 2.3 New Buses 18.7 18.7 (18.7) (18.7) 2.4 Rehabilitation of 8.6 30.7 39.3 Vehicles (8.6) (8.6) 2.5 Spare Parts 6.0 11.4' 15.5 32.9 (6.0) (11.4) (17.4) 2.6 Traffic 0.6 0.6 Management (0.6) (0.6) 2.7 Workshop and 0.3 0.71v 5.7 6.7 Equipment (0.3) (0.7) (1.0) 3. Consultancies 3.1 Consulting 1.6 3.7 5.3 Services and Training (1.6) (1.6) 60.7 0.8 13.5 56.9 131.9 TOTAL (60.7) (0.8) (13.5) (75.0) a/ Figures in parenthesis are the amounts to be financed by the World Bank loan b/ Not Bank-financed (financed by the Government and the Co-financiers) c/ DC(4); IS(3.4), LIB(4) d/ IS($0.2), NS($0.5) e/ Following World Bank Guidelines on Selection of Consultants The Project 22 2.19 Participation of Local Manufacturers. The Government has a keen interest in having major transit vehicle manufacturing and rehabilitation facilities participate in procurement under the project. In the manufacturing field, a good example is the Ukraine's principal manufacturing facility for urban transport equipment, Lviv Avto Zavod (LAZ), located in the city of Lviv (paras. 1.22-1.23); and there are other government-financed manufacturing facilities in the planning or prototype development stage. There are also several major state-owned plants that rehabilitate electric and automobile transit vehicles. All of these facilities that meet the eligibility conditions of para. 1.8 c of the Procurement Guidelines are candidates to participate in the procurement under the project. For ICB procurements, there will be a prequalification phase to ensure that only qualified bidders participate; a pre-bid conference will also be held during this phase. Those local firms that do not qualify to bid as prime contractors have the possibility to serve as subcontractors under the following arrangements: (a) any firm that bids under ICB as a prime contractor may choose a local manufacturer or vehicle rehabilitation firm as a subcontractor; and (b) there is no limit to the number of prime contractors that may choose the same local firm as a subcontractor within the same procurement. 2.20 The Bank would host a "Business Opportunities Seminar" to introduce these and other manufacturers to the system of competitive bidding and its application to the project. 2.2 1Notifications and Specifications. A General Procurement Notice (GPN) will be published in Development Business on June 15, 1996. Specific procurement notices will be advertised in Development Business for all contracts for which the estimated costs is $10 million or more. Draft technical specifications for 12 and 18 meter buses and for trolleybuses have been prepared; technical specifications for trams will be prepared in the first half of 1996, and all specifications will be finalized in accordance with the procurement schedule. 2.22 Works. There will be one contract for works for the improvement of workshop buildings at Lviv (repairs and lighting improvement), for an estimated value of $200,000, which will be awarded by National Competitive Bidding (NCB), using the Regional Sample bidding documents for contracts below US$250,000 (issued in September 1995). 2.23 Goods. Contracts for goods and equipment will be awarded according to the following thresholds: (i) International Competitive Bidding (ICB) for contracts valued above US$300,000 (10 contracts, ranging in value from US$0.6 million to US$14 million); (ii) International Shopping (IS) for contracts valued between US$300,000 and US$30,000, up to an aggregate amount not to exceed US$3.4 million; (iii) National Shopping (NS) for contracts valued below US$30,000, up to an aggregate amount not to exceed US$0.5 million; (iv) Limited International Bidding for items such as transmissions, drive shafts, axles, etc. up to an aggregate amount not to exceed US$4.0 million; and (v) Direct Contracting for proprietary parts such as windows, dashboards, suspensions for SKODA trolleybuses, brakes, etc., up to an aggregate amount of US$4,000,000. The Bank's Standard Bidding Document for goods will be used for all ICB and LIB procurement. Goods manufactured in Ukraine will be given a 15 percent preference in bid evaluation for goods to be awarded on the basis of ICB, as specified in Appendix 2 of the Procurement Guidelines. 23 The Project 2.24 Consulting Services. Consulting services are expected to cover: (i) project implementation and procurement assistance; (ii) technical, operational, and financial systems implementation assistance; and (iii) institutional strengthening to include policy reform and development of a legal framework. It is anticipated that consulting services contracts would be managed and implemented through the PIU, to help avoid fragmentation of resources and ensure consistent standards of implementation for all three cities. 2.25 The number of contracts is expected to be nine, totalling US$5.2 million. Contracts range in size from US$200,000 to US$1,550,000 (See Annex K for Terms of Reference for Consulting Services). To the extent that donor funding becomes available, Bank loan funds allocated to this component would be commensurately reduced or reallocated. All consulting services financed by the Bank loan will be selected in accordance with the Bank's Guidelines for Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency (August 1991), and the Bank's Standard Form of Contract, Consultants' Services (June 1995) will be used. It is not expected that there would be any short-term assignments; all contracts for consulting services and training will be managed by the PIU to ensure efficiency and standardization. 2.26 Review of Procurement Decisions by the Bank. Bank prior review would be required for all packages over US$300,000, to include ICB, LIB, and direct contracting. Bank prior review would also cover all terms of reference (TOR) for consulting services, regardless of value. In addition, prior review would be undertaken of all documentation for consulting services financed by the Bank valued at more than US$100,000 for firms; no contracts to individual consultants are expected to be let. 2.27 Procurement Monitoring and Reporting. The PIU would be responsible for establishing procedures for monitoring procurement implementation, including monitoring contract modifications, variations and extension of completion periods. The PIU would maintain detailed records of procurement activities under the loan and keep the Bank informed about the progress of the procurement actions through submitting regular semi-annual progress reports. G. Disbursements 2.28 Given that this is the first World Bank investment project in the transportation sector for Ukraine, there is no standard disbursement profile for this country or sector. The World Bank's standard disbursement profile for ECA transportation sector has been considered. Although the project has been designed for implementation in four years, the ECA standard disbursement profile indicates that six years is the average time for full disbursement of the loan. Considering the urgency of the proposed measures to restore a more acceptable level of urban transport, and the strong commitment of the cities' officials, we propose a disbursement period of five years. The estimated disbursement schedule is given in Annex H. 2.29 The proceeds of the loan would be disbursed over five calendar years (1996-2000). The loan closing date is December 31, 2000. The disbursement plan is presented in Table 2.4, below. The Project 24 Table 2.4 Disbursement Plan Amount of the loan Allocated Percent of (Expressed in expenditures Category Dollar Equivalent) to be financed (1) Works 560,000 80% (2) Goods 61,525,000 100% of foreign cost 100% of local ex-factory costs of supply of materials and equipment and 80% of local expenditures for other items procured locally; (3) Technical 1,600,000 100% Services (4) Unallocated 11,315,000 TOTAL 75,000,000 2.30 To facilitate project implementation, the Borrower would establish a Special Account in a major foreign commercial bank on terms and conditions satisfactory to the Bank to cover the Bank's share of expenditures for works and some of the parts. The Authorized Allocation would be US$1.0 million, representing about four months of average expenditures made through the Special Account. During the early stage of the project, the initial allocation to the Special Account would be limited to US$250,000. However, when the aggregate disbursements under the loan have reached the level of US$10,000,000 the initial allocation may be increased up to the Authorized Allocation of US$1.0 million by submitting the relevant application for withdrawal. Applications for replenishment of the Special Account would be submitted monthly, or when one-third of the amount has been withdrawn, whichever occurs earlier. Documentation requirements for replenishment would follow the standard Bank procedure as described in the Disbursement Handbook, Chapter 6. Monthly bank statements of the Special Account which have been reconciled by the Borrower would accompany all replenishment requests. 2.31 The special account would be managed by the PIU, reporting to MOT. All disbursements under the project would be made against standard documentation, except that SOEs would be used for goods' contracts valued at less than US$300,000, and consultants' services' contracts valued at less than US$100,000 (for firms) or US$50,000 (for individuals). SOEs will be retained by MOT for review by World Bank supervision missions and verification by external audits. H. Accounting and Auditing 2.32 In order to properly record project expenditures, project accounts would be required to be prepared for the central PIU and for each of the three project cities for their respective parts of the project, including a detailed accounting of the use of the proceeds of the World Bank loan. The 25 The Project the project, including a detailed accounting of the use of the proceeds of the World Bank loan. The project accounts would be audited by an independent auditor acceptable to the Bank, and the audit report would be submitted to the Bank within six months of the end of the fiscal year. The project accounts' audit reports would also contain a separate opinion on the statement of expenditure (SOE) procedure, when utilized, and on the operation of the Special Account. Consulting services will be retained to help set up the project accounts and the accounting system [para. 2.8 (a)]. 2.33 In order to monitor the financial performance of each of the three project cities Kiev, Lviv and Kriviy Rig, their financial statements, in addition to their project accounts and transit company accounts, would also be audited by an auditor acceptable to the Bank, and the audit reports would be submitted to the Bank within six months of the end of the fiscal year. The procedure for the recruitment of auditors will be explained to the borrower and beneficiaries at negotiations. The audit reports would contain a separate opinion on compliance by each project city with all financial covenants under the Bank loan. During negotiations, agreement will be reached that by June 30 each year, MOT will submit to the World Bank the auditors' report and audited financial statements for the project accounts, including the special account, and SOEs for the preceding calendar year, audited by an independent auditor acceptable to the World Bank [para. 5.2(f)]. I. Project Monitoring, Evaluation and Supervision 2.34 Project Monitoring. The PIU will prepare semi-annual and annual reports. The progress reports, following clearance by the Borrower, will be submitted to the Bank. The topics on which progress is to be reported will include: the physical implmentation of the progress, procurement, disbursement, project costs, schedule, plan for reporting period, the work of consultants, project administrative aspects, and project monitoring indicators (project monitoring indicators are set forth in Annex F). The progress reports will be sent to the Bank within four weeks after conclusion of the reporting period. The first progress report will be sent three months after loan effectiveness. The project monitoring indicators and the forwarding of semi-annual progress reports by the project cities for consolidation and forwarding to the Bank by the PIU will be agreed at negotiations [para. 5.2(g)]. 2.35 The Bank will conduct a mid-term review in May 1998 with the following objectives: (a) assessing the progress of project implementation including procurement of new vehicles, rehabilitation of equipment, and installation of spare parts procured under the project; (b) determining the performance of the MOT and SCHME in implementing the conditions of the project; (c) evaluating the progress of the project cities in meeting the agreed conditions and prescribed performance indicators (Annex F); and (d) assessing any need for redesigning or restructuring the project's components. The Bank's report on the review will be reviewed with the Borrower by August 1998, and based on the recommendations of the report and consultations with the Borrower, measures will be taken to insure the efficient completion of the project. Agreement will be reached during negotiations on the scope and timing of mid-term review [paras. 5.2(h)]. 2.36 An implementation completion report (ICR) will be submitted to the Bank promptly after the completion of the project, but not later than six months after the Loan Closing Date. The ICR will discuss execution of the project, its costs and benefits, and the performance of the Borrower, the World Bank, and other agencies involved. The ICR will also document: (i) progress in attaining the project performance indicators; and (ii) lessons learned. 2.37 In addition to the review of the procurement actions, semi-annual reports and other documentation, several supervision missions are planned each of about two to three weeks duration. The Project 26 The composition of each mission is set forth in the Supervision Plan. During the first year of the project, three World Bank supervision missions would be required, followed by two during each of the ensuing years. Missions would review the physical components of the project and implementation of reform programs including all the institutional and policy development measures proposed under the project and agree on remedial measures. The mission reviews would be done in the context of agreed key performance indicators in Annex F. Supervision between missions will be assisted by the infrastructure specialist in the World Bank's Resident Mission. The project is expected to require supervision from the Bank of 36 staff-weeks the first full year of implementation, 26 staff-weeks the second and third years, and about 20 staff-weeks per year thereafter (Annex I). J. Environmental Impact 2.38 The World Bank assigned the proposed project a Category B rating, as defined in the Bank's Operational Directive on Environmental Assessment (OD 4.01), since it is not expected to have any significant negative environmental impact. 2.39 Although the current fleet of gasoline-fueled and inefficient diesel-fueled buses gives off high levels of emissions, other sources of air pollution are so much more substantial that less than 10 percent of the project cities' air pollution is attributable to public transport. For example, Kriviy Rig is included in the Government's list of Ukrainian cities that experience critically high levels of air pollution generated predominantly by stationary sources (heavy industry). Kriviy Rig is the home of the largest steel plant in Ukraine, possibly the largest in the world, and has various associated industries, mostly located within one elongated industrial district where air pollution is extreme. It is also the center of iron ore mining and beneficiation. Replacement of the bus fleet and changes in its composition would not have a major effect on the overall average level of atmospheric pollution in the three project cities. 2.40 The acquisition of new buses and rehabilitation of buses to be financed under the project are expected to reduce harmful emissions: (i) diesel engines will meet Western European standards and will have reduced carbon monoxide emissions, emitting only about 2.5 percent of the CO emitted by the old gasoline engines; (ii) hydrocarbon emissions will be reduced to about 14 percent of the former levels; (iii) new engines will have better fuel efficiency, reducing fuel consumption by 15 to 20 percent for the new or rehabilitated vehicles; and (iv) suppliers will be requested to furnish recommendations for proper maintenance of diesel engines under Ukraine's operating conditions so that engine performance and durability are not reduced. During project implementation, however, the feasibility of measures to lower sulfur content of diesel and polycyclic aromatic hydrocarbon (PAH) content in diesel will be explored, in order to reduce formation of carcinogenic particulate emissions during combustion. 2.41 Noise Reduction and Waste Disposal. Urban transport is known to be the major source of audible noise in all cities, independent of their size. Motor vehicles not only account for 80 percent of all zones of acoustic discomfort in cities, but also cause peak supernormative levels of noise in residential areas. New transit vehicles would also be less noisy (maximum external noise should not exceed 86 dBA as measured 15 meters from the vehicle). In addition, the rehabilitation and spare parts for repairs to be financed under the project will help improve vehicle maintenance, which will lead to reduced levels of noise of operating vehicles (including, in particular, trolleybuses and trams). Another sizeable by-product of urban transport operations is the accumulation of recyclable (ferrous and non-ferrous metals) and non-recyclable wastes (rubber, petroleum products, oil, paint, etc.). To support and/or enhance remedial activities towards this end, assistance would be provided to the project transit companies to develop and implement methods of limiting harmful effects of the disposal of non-recyclable engine fluids and old tires (as a routine garage maintenance component of the vehicle rehabilitation technical assistance program). 27 Financial Evaluation of Project III. FINANCIAL EVALUATION OF PROJECT URBAN TRANSPORT COMPANIES AND CITIES 3.1 The economic decline described in Chapter I has weakened the financial position of the project companies and cities. The project will assist the project companies and cities in relieving their difficult financial situation, by financing about two years of their urban transport investment needs, improving the operators' ability to collect revenues from transit riders, and therefore reducing the burden of transit expenditures on the municipal budget. As a result, the companies are expected to be able to cover their operating costs and part of their capital costs by 2000, and the cities are expected to dramatically reduce their expenditures on urban transport, even after allowing for debt service. A. Financial Situation of Urban Transit Enterprises 3.2 The financial performance of Ukrainian urban transit enterprises deteriorated markedly from Ukraine's independence through 1994, but improved in 1995 as the cities began to implement measures recommended during preparation of this project. Transit operators, which are state-owned enterprises organized by mode of transport, have historically charged below-cost fares and received subsidies to finance operating deficits and fleet renewal. In recent years, operating subsidies have not been sufficient to cover the enterprises' operating deficits, and capital subsidies have been almost nonexistant. Moreover, the real value of fare revenues has plummeted as unit costs have risen. 3.3 The result has been vicious circle of deterioration in the enterprises' financial situation. The decline in revenues from fares and subsidies reduces the funds available for maintenance and fleet renewal, which decapitalizes the enterprises and increases unit operating costs, which in turn depresses service levels. Lower service levels generate lower fare revenues, thus closing the circle. 3.4 This difficult financial situation is illustrated by the cost recovery levels of the ten transit operators considered in this project, presented in Table 3.1. (Annex C provides the historical income statements for these enterprises from which this was derived.) Cost recovery among the project entities dropped from about 50 percent in 1990 (by Ukrainian estimates) to an average of 14 percent in late 1994. Several factors were responsible for this decline: (a) transit fares did not keep pace with inflation; (b) operating and maintenance costs skyrocketed; and (c) fare evasion increased. In 1995, due largely to important real fare increases related to project preparation, the situation has begun to improve and cost recovery has increased relative to the first quarter of 1993 due largely to real fare increases. Financial Evaluation of Project 28 Table 3.1: Farebox Cost Recovery of Transit Enterprises in the Project Cities Selected Quarters, 1993-1995 (Percent of Operating Costs) City Mode Q1 1993 Q4 1994 Q3 1995 Kiev Tram 18 12 20 Trolleybus 16 10 17 Bus 9 5 17 Kriviy Rig Tram 12 3 16 High-speed Tram 28 11 40 Trolleybus 20 5 15 Bus 14 21 35 Lviv Tram 28 26 50 Trolleybus 32 18 41 Bus 30 29 85 3.5 Transit Fares. The real value of fares declined markedly throughout 1993 when Ukraine approached hyperinflation. Nominal fares were increased six- to ten-fold nationwide in February and November 1994; however, even these increases failed to maintain the real value of fares. Nominal fare increases continued in 1995, as Lviv municipality raised electric transport fares to KB 10,000 and bus fares to KB 20,000 in August 1995, and Kiev and Kriviy Rig doubled fares to KB 10,000 in September and November, respectively. Kiev doubled fares again to KB 20,000 in February 1996. These fares, equivalent to US$ 0.07 to US$ 0.13, are broadly along the lines of estimated costs per passenger trip estimated in other low-wage countries.' These fare increases boosted cost recovery in all ten enterprises by the third quarter of 1995, and are expected to be reflected in Kiev's operating results for the first quarter of 1996. 3.6 Operating and Maintenance Costs. Unit operating costs for urban transit vehicles increased from 1991 to 1994 for several reasons. First, as Ukrainian prices adjusted to world levels, and as the Karbavonet depreciated in real terms, the price of imported inputs increased dramatically. This particularly impacted bus operators, for whom fuel comprised over half of historical operating costs. Second, the ageing of the fleet has boosted unit costs due to increasing breakdowns and repair costs, and declining fuel efficiency. Third, since most repairs are made by cannibalizing the older vehicles in the existing fleet, the useful life of these repairs is short, and thus the implicit cost of repairs is high. Finally, unit costs have increased as the operators' fixed costs have been distributed over a declining fleet. 3.7 Fare Privileges and Enforcement. A principal reason for declining cost recovery has been the decline in farebox revenues resulting from increasing fare privileges and fare evasion. 3/ For example, total cost per passenger trip in Moldova, whose cost structure is similar to Ukraine's, was estimated at US 8 cents for buses and US 11 cents for electric transport. 29 Financial Evaluation of Project Government policy has granted the privilege of free rides or reduced fares to about thirty categories of passengers (such as pensioners, students, and veterans) without compensation to the transit operator. These privileges extend to about half of current transit ridership. Fare evasion, which may account for an additional 30 percent of riders, has increased because fare enforcement is more difficult in vehicles that operate at crush capacity. In addition, penalties were until recently too low to discourage fare evasion; in June 1995, however, the national law was amended to establish the penalty for fare evasion at 20 times the urban transport fare. Lviv has taken the additional step of detailing a branch of the municipal police force to enforce fare collection on platforms as well as on vehicles. 3.8 The combination of increased fares and improved enforcement boosted 1995 cost recovery substantially. Though Kiev's transit operators' cost recovery was still low in the first half of 1995, the increased fares and fines are expected to improve cost recovery for the second half of 1995 and for 1996 to levels sufficient to meet the initial project cost recovery target of 30 percent. Kriviy Rig's efforts are likely to be sufficient to meet the project cost recovery targets. Lviv's transit operators, as a result of the actions described above, have already improved cost recovery to levels that meet the project conditions. B. Projected Financial Performance of Urban Transit Enterprises 3.9 The proposed project will provide institutional and financial support to the transit operators in their efforts to break the vicious circle of financial decline. The institutional support will focus on improving fare enforcement, eliminating the burden of fare privileges from the transit operators, and improving corporate management and accountability. The financial support focuses on reducing unit operating costs. If action is taken on all these fronts, operators can expect to cover 100 percent of their operating costs from farebox revenues within five years, and in some cases to fund some capital expenditure as well. Cost Recovery 3.10 At negotiations, agreement will be sought on cost recovery targets consistent with the objectives of improving the financial health of the sector [para 3.20(a)(iii)]. The proposed targets are presented in Annex F. Full operating cost recovery would be expected to be achieved by 2000. The Ukrainian parties will have some discretion as to the mix of tools used to attain the targets: reforming fare privileges, reducing fare evasion, increasing tariffs, improving operators' incentives and reducing unit costs. A financial forecast, based on the implementation of sector reforms and improvements in the enforcement of fare collection, indicate that the achievement of full operating cost recovery is attainable by the year 2000. THe planning factors on which this forecast is based are presented in Table 3.2 below. This forecast anticipates that, under the reform program, the proportion of riders who pay fares could increase from about 20 percent today, to 85 percent in 2000. The operators' financial results (operating costs and operating revenues), given this scenario, are presented in Figure 3.1, summarized for each city. Financial Evaluation of Project 30 TLble 3.2: Key Assumptions of the Financial Forecast (percent unless otherwise noted) 1995 1996 1997 1998 1999 2000 Passengers 50 40 15 10 5 5 Receiving Fare Privileges Passengers 30 20 15 12 10 10 Evading Fares Fare Increases: nominal 55 20 20 20 20 real 0 1 7 8 10 Inflatione 342 55 19 13 12 10 Exchange Rate 137 196 214 229 247 261 (OOOKB/US$)__ World Bank estimates; inflation is average annual rate Elements of the Reform Program 3.11 Reforming Fare Privileges. At negotiations, agreement will be sought with the Government to an action plan to increase cost recovery and enable urban transport enterprises to achieve financial viability including: (i) elimination of fare exemptions or reductions; or (ii) alternatively, by reimbursing the transit companies for the losses resulting from such exemptions and reductions [para. 1.29(a)]. This plan will progressively eliminate categories of riders eligible for free or reduced fares, in a manner consistent with the GOU's plan to target subsidies to needy individuals under its social safety net program. To the extent that these exemptions are not eliminated and/or replaced with income support to targeted groups, arrangements would be made to reimburse the transit companies for any losses resulting from exemptions. For example, lump-sum payments could be made by the relevant ministries to the transit operators to compensate the operators for carrying certain categories of privileged riders. In addition, operators could expand the number of routes that require all passengers to pay. As a result, the proportion of passengers eligible to ride for free would decline from the current level of about 50 percent, to 5 percent in 2000. 31 Financial Evaluation of Project Figure 3.1 Finahcial Projections for the Project Enterprises by City, 1995-2000 18,000 K Z 14,000 tU > 12,000 a 10,000 0 Total cost n Revenues 8,000 6,000 4000 2,000 0 34867 35065 35431 35796 36161 36526 4,500 A 4,000 Kriviy Rig 3,500 0 3,000 b 2,500 M Total cost O Revenues 2,000 .2 1,5004 1,000 500 0 ' 34867 35065 35431 35796 36161 36526 4,500 3,500 3,000 0 2,500 U Total cost 0 Revenues 2,000- 1,500-I .2 1,000 i 500 0 34867 35065 35431 35796 36161 36526 Financial Evaluation of Project 32 Table 3.3: Financial Projections for the Urban Transport Operations of the Project Cities, 1995-2000 Constant 1995 Billion Karbovanets Kiev 1995 1996 1997 1998 1999 2000 Total Cost 8,778 10,510 11,296 12,370 12,263 12,227 Revenues 3,158 7,025 11,842 13,793 15,870 17,133 Loan 30 251 475 507 855 Repayment Operating 8,778 10,480 11,045 11,895 11,756 11,372 Costs Operating 36% 67% 107% 116% 135% 151% Ratio I Kriviy Rig 1995 1996 1997 1998 1999 2000 Total Cost 2,847 3,518 3,714 3,860 3,853 12,227 Revenues 686 1,528 2,575 2,999 3,451 3,726 Loan 0 10 84 159 170 287 Repayment Operating 2,847 3,508 3,630 3,772 3,566 11,372 Costs Operating 24% 44% 71% 80% 94% 104% Ratio _ I_I Lviv 1995 1996 1997 1998 1999 2000 Total Cost 1,925 2,425 2,706 3,048 2,972 3,027 Revenues 763 1,727 2,813 3,283 3,773 4,073 Loan 0 11 87 165 177 298 Repayment Operating 1,925 2,414 2,619 2,795 2,729 11,372 Costs Operating 40% 72% 107% 114% 135% 149% Ratio 33 Financial Evaluation of Project 3.12 Improved Enforcement. The transit operators are expected to improve enforcement of fare collection by 20 percentage points, reducing fare evasion from 30 percent to about 10 percent by 2000. By making the investments proposed under the project, the operators will improve fleet availability and reduce crowding, making it possible for controllers to check passengers' tickets. Increased control, combined with the new penalty of 20 times the fare, can be expected to reduce fare evasion significantly. 3.13 Fare Increases. After increasing only with inflation in 1996 and 1997, fares would increase somewhat in real terms in 1998-2000. Fare elasticity of demand is assumed to be low (0.15) since no substitutes for public transit are available to most riders. Fare increases would therefore result in a small decrease in ridership and an increase in revenues. Figure 3.1 incorporates the incremental revenues from increasing fares, reforming fare privileges and improving enforcement. Costs 3.14 Inflation and Exchange Rates. According to the Bank's Country Assistance Strategy (CAS), Ukraine is expected to continue to experience inflation, but to a decreasing extent as fiscal and monetary reforms continue. The Karbavonet is expected to appreciate somewhat in real terms as confidence in the currency improves, which will impact costs. 3.15 Costs. Unit operating costs are expected to decline in real terms as the available fleet is rejuvenated and expanded. Total operating costs, however, are projected to increase in real terms in 1996-98 as a result of: (a) an increase in the number of vehicles in service; (b) increased expenditures on vehicle maintenance (to compensate for the backlog of maintenance in earlier years); and (c) increased depreciation (due principally to the addition of new vehicles). This increase would be partially offset by a reduction in the unit costs of imported inputs, as a result of the expected real appreciation in the Karbavonet. As a result, total operating costs increase significantly in 1996 and slightly in 1997-98, then level off in 1999-2000 due to stabilization in service levels and elimination of the maintenance backlog. Operating costs are projected to increase more in Kriviy Rig than in the other cities due to higher wage levels than in the other cities. Capital costs are also projected to increase for all cities, and are reflected as depreciation (included in operating costs). Table 3.3 and Figure 3.1 present projected operating costs by city in real terms. Annex C presents a breakdown of these costs by operator. Management of Transit Companies 3.16 Instituting performance contracts, corporatizing the transit operators and restructuring their financial management functions would also generate financial benefits to the enterprises. Performance contracts would designate targets for output and unit costs, and commit the cities to providing specific amounts of funds. This would permit operators to plan their expenditures more rationally and offer incentives to beat the unit-cost targets. Corporatization would isolate the management from political decisions, permitting them to focus on improving efficiency. Improving financial management will permit managers to track expenditures and revenues so that they can identify areas for improvement. Agreement will be reached at negotiations on: (i) the corporatization, as municipally-owned companies of the public bus, tram, and trolleybus services in Kyiv, Kriviy Rig, and Lviv [para. 1.29(h)]; (ii) the instalment of draft performance contracts between municipalities and operators [para. 1.29 (i); and (iii) the development by project cities and their transit enterprises of a five-year financial plan, including cost recovery targets [para. Financial Evaluation of Project 34 1.29(j)] Financial management will be improved with the assistance of consultants during project implementation [paras. 2.7 (a)-(b)]. The beneficial impact of changes in corporate management is not considered in the financial projections. Financial Results 3.17 Operating Deficit or Surplus. The improvements described above are expected to eliminate transit operators' operating deficits by 2000 in all cities. In nominal terms, operating deficits would increase somewhat for 1996, since the increased maintenance and other costs would not be fully compensated by the increases in revenue. By 1997, when the available fleet expands significantly, revenues would begin to increase more rapidly than costs. As a result, by the beginning of 1998 Kiev and Lviv would begin generating operating surpluses which could be put toward capital improvements. In Kriviy Rig, operating deficits would persist until 2000, since operating costs per passenger-km are higher than in the other candidate cities due to higher wages and longer average trips. 3.18 Sensitivity Analysis. As Figure 3.1 demonstrates, the extent to which the transport enterprises will be able to improve cost recovery clearly depends on their ability to increase farebox collections - through reforming fare privileges, improving enforcement and raising fares. For example, if reforms were delayed, farebox collections would improve less than expected, meaning that operating subsidies would persist. To the extent that they do not meet the targets for fare collection, or the interim cost recovery targets laid out as Performance Indicators (Annex F), the cities will raise fares to permit the operators to reach fiancial performance targets. 3.19 The financial results are also sensitive to the assumptions regarding exchange rates. The projections assume some real appreciation in the Ukrainian currency (that is, depreciation of the KB is lower than inflation), consistent with the Bank's economic projections. This real appreciation generates a decline in the unit cost of imported inputs, notably fuel. If instead the KB depreciated significantly, cost recovery would still improve: a sensitivity analysis shows that if the KB tracked inflation rather than appreciating, higher operating costs would result in slower improvement in cost recovery, so that operating deficits would persist in Kiev and Lviv until mid-1999, and decline more slowly in Kriviy Rig. Thus, improvements in operating cost recovery are robust to major real depreciation in the local currency. Conditionality Related to Financial and Management Improvements 3.20 At negotiations, agreement will be sought on the following provisions of the loan agreement: (a) Restructuring of the Transit Companies. Agreement will be sought at negotiations that, by dates to be agreed, action will be taken on: (i) the corporatization, as municipally-owned companies, of the public bus, tram, and trolleybus services in Kyiv, Kriviy Rig, and Lviv [para. 5.2(i)(i)]; (ii) the instalment of draft performance contracts between municipalities and operators[para. 5.2(i)(ii)] ; and (iii) the development by project cities and their transit enterprises of a five-year financial plan, including cost recovery targets [para. 5.2(i)(iii)]. 35 Financial Evaluation of Project (b) Reforming Fare Privileges. At negotiations, agreement will be sought with the Government to an action plan to increase cost recovery and enable urban transport enterprises to achieve financial viability including: (i) elimination of fare exemptions or reductions; or (ii) alternatively, by reimbursing the transit companies for the losses resulting from such exemptions and reductions [para. 5.2 (j). C. Financial Situation of the Project Cities 3.21 Revenues. The budgets of the project cities have all been strained by the economic crisis. City budgets dropped an estimated 30 percent in real terms in 1994; the decline is expected to continue for 1995, consistent with the continued contraction in the tax base. The central government has indicated that its fiscal resources will no longer permit it to provide transit operating subsidies to the cities. Despite evidence of an economic turnaround, tax authorities are having difficulty in capturing tax revenues from the growing informal economy. Municipal budgets are unpredictable, since 70-80 percent of municipal resources are allocated from the Consolidated National Budget, and since these allocations are based on a normative system established by the Ministry of Finance.' 3.22 The cities' ability to generate their own resources is limited by their authority to levy taxes and by the size of the local tax base. Cities levy taxes principally on enterprises and organizations, property, hotels and advertising. Kiev has been more successful than the other project cities in generating its own revenues from such sources, collecting 30 percent of city revenues from these sources. Kriviy Rig and Lviv, with a lower tax base, generate only about 20 percent of city revenues from local sources. 3.23 As a result of the central government's varying norms and the cities' varying ability to levy taxes, municipal budgets per capita vary significantly by city. As Table 3.4 shows, Kiev's budget per capita was more than the national average of KB 7 million (about US$140) in 1994, while Kriviy Rig's was about half, and Lviv's, about one-third. Table 3.4 National and Project City Budgets, 1994 Population Budget Budget per (thousands) (in billion KB) capita (KB 000) National Budget 51,430 363,419 7,066 Kiev 2,600 19,230 7,396 Kriviy Rig 800 2,967 3,708 Lviv 800 1,934 2,417 4/ This system dictates what proportion of each nationally-regulated tax may be retained by each city. For example, Kiev retains 20 percent of VAT and excise duties. These and other nationally-regulated taxes generated about 70 percent of Kiev's 1994 income (down from 84 percent in 1993). Financial Evaluation of Project 36 3.24 Expenditures. The main categories of local expenditures funded from city budgets (in order of size) are health, education, transport and housing. The transport budget for each project city ranges from 14 to 17 percent of city budget, and is split approximately equally between electric modes and buses. In addition, Kiev dedicates 3 percent of its budget to metro, about half of what it spends on electric modes or buses. Table 3.5 presents the breakdown by project city of transport expenditures relative to city budget. 37 Financial Evaluation of Project Table 3.5: Breakdown of Transport Expenditures by Project City, 1994 Kiev Kriviy Rig Lviv KB b percent KB b percent KB b percent Income 19,230 101.3 2,968 101.9 1935 94.8 Expenditure, of which: 18,984 100.0 2,912 100.0 2042 100.0 Transport, of which: 2,812 14.8 503 17.3 284 13.9 Electrotrans 1,015 5.3 282 9.7 146 9.7 Buses 1,205 6.3 213 7.3 137 7.3 Metro 592 3.1 D. Projected Financial Performance of the Project Cities 3.25 The project cities expect to encounter continued difficulties in generating funds. As such, officials of two of the project cities, Kriviy Rig and Lviv, stipulated that they do not want transport expenditure to increase as a proportion of city budgets. The project allows the cities to exceed this goal, as all three cities could eliminate transport operating subsidies by 2000 if the targets presented in Table 3.2 are met. Capital subsidies could also be eliminated in Kiev and Lviv by 2000, but not in Kriviy Rig unless further action is taken to raise fares. 3.26 The financial projections for the project cities therefore focus on city transport expenditures (on tram, trolleybus and bus operations), comprising operating subsidies and debt service costs. Operating subsidies were derived from the data in Table 3.3 (the difference between operating cost and operating revenues) . Debt service costs were calculated based on the proposed loan size for each city (including World Bank and EBRD loans and contingencies; see Section II). Principal repayment would be made with level payments from 2001 to 2013; however for the projections we conservatively assumed that principal repayment would commence in year 4 rather than 5. The resulting transport expenditures are presented in Figure 3.2. 3.27 The figure shows that the financial burden of urban transport is expected to drop dramatically as the reform program is implemented. City transport expenditures (operating subsidies plus debt service) during the principal repayment period would fall substantially relative to 1995 levels: by 85 percent in Kiev, 87 percent in Kriviy Rig and 74 percent in Lviv. These improvements are robust to changes in the assumptions: even if revenues were only half of the anticipated levels, city transport expenditures including debt service will drop substantially by the year 2000 relative to 1995: by 35 percent in Kiev, 8 percent in Kriviy Rig and 15 percent in Lviv. Even under adverse scenarios, therefore, the project would significantly improve the financial sustainability of the cities' urban transport sectors. Financial Evaluation of Project 38 Figure 3.2: Municipal Transport Expenditures by City, 1995-2000 IJ Operafing subsidy El Loan repayment 6,000 5,000KIEV 4,000- 3,000 2000 1,000 rnar 04 34867 35065 35431 35796 36161 36526 2,500 2,000 KRIVIY RG 1,500- 1,000 500 34867 35065 35431 35796 36161 36526 1,000 800 600 400 200 o -- -6 t 34867 35065 35431 35796 36161 36526 39 Financial Evaluation of Project Conclusion 3.28 The ability of the project cities to improve urban transport service while containing subsidies is contingent upon improving cost recovery. The cities' debt-service burden (given the proposed loan size) in no case exceeds 10 percent of operating costs for urban transport, and would be more than compensated by expected improvements in cost recovery. Moreover, these cost- recovery improvements would also liberate funds to permit appropriate levels of maintenance and capital improvements once the project funding stops. Accordingly, to ensure that the cities are not burdened with excessive levels of debt, commitment will be sought at negotiations from each project city that no new metro, tram, or trolleybus systems would be undertaken in the project without adequate financial and economic study, and prior consultations with the Ministry of Finance and the World Bank [para. 5.2(k)]. 40 Economic Analysis and Project Risks IV. ECONOMIC ANALYSIS AND PROJECT RISKS 4.1 The deterioration of urban public transport service has increased waiting times and overcrowding for passengers and increased the unit costs of transit operations. Without the project, the shortage of public transport capacity and its resulting lower level of service will worsen, resulting in longer waiting times, which -- in the winter -- can be spent in freezing temperatures. To shorten these long waits, passengers board transit vehicles already over-crowded, creating excessive loads that increase and accelerate vehicle deterioration. The new and rebuilt buses, trams, and trolleybuses provided by the project, together with those that can be put back into service with the spare parts to be financed under the project, will increase the capacity of the transit fleets and improve service levels. Direct benefits of the project will include substantial passenger time savings, savings in the unit costs of vehicle maintenance, fuel, and vehicle operation, and additional resources from new passengers. The longer-term sustainability of the transit enterprises will be addressed by the project's conditionality and institutional support, which will substantially increase farebox revenues, raising cost recovery (before depreciation) to more than 100 percent by the end of project implementation. 4.2 A thorough economic analysis was performed to quantify the project's costs and benefits. Details are provided in Annex J. The methodology and results of the economic analysis and sensitivity analysis, as well as a summary of project risks and mitigants, are presented below. A. Methodology 4.3 Economic Evaluation. The benefits to consumers and producers of urban transit services that flow from the project have been evaluated on the basis of: (a) on the consumer side, the savings in waiting time due to the project, which were estimated based on observations of passenger waiting time linked by a model to the average load factor. The value of waiting time is based on average wages; and (b) on the producer side: (i) an increase in productivity due to a better condition of the fleet and more efficient methods of maintenance; and (ii) an increase in ridership and associated revenues, which are more than offset by (iii) the extra cost of providing a 60 percent higher level of services: in most cases the net benefit for the companies is slightly negative. 4.4 For purposes of the evaluation, it has been assumed that these benefits were sustainable, which means that after the end of the project (by year 2000) the companies are able to pay at least for maintenance and replacement of the improved fleet. This is consistent with the results of the financial analysis presented in Chapter 3 above. 4.5 Sensitivity Analysis. To test the robustness of the ERR calculations, sensitivity analyses were conducted by varying the following key determinants of project benefits (as noted in Table 4.1): (a) the value of time savings, in terms of (i) the amount of time saved (reflecting the uncertainty of the evaluation of actual waiting time and how it changes with the size Economic Analysis and Project Risks 41 of the fleet); and (ii) the monetary value of waiting time. Time savings were varied by minus 30 percent; monetary value was varied by minus 50 percent; (b) the level of service with the project being set at the same level as without it. This effectively sets the time savings and additional revenues at zero, thus measuring productivity improvements only; (c) investment costs by plus 50 percent; (d) operating costs by plus 30 percent (which could result from imperfect knowledge ot operating cost parameters such as actual current costs, changes in wages or fuel costs, and changes in the foreign exchange rate); and (e) ridership by minus 20 percent relative to 1995 levels (with service levels assumed to remain at the 1995 levels). This is a "worst case" in that it assumes a substantially- increased elasticity of ridership to fares without any reduction in the level of service provided. B. Project Benefits 4.6 Economic Benefits of the Fleet Improvement Program. This Program includes all the investment components (spare parts, vehicle rehabilitation and new vehicles) and represents 96 percent of the project costs. It is expected to have the following benefits by the end of the third year of project implementation (end 1998), compared to the Without Project case: (a) a 17 percent increase in the fleet available at peak hour, compared to a decrease of 26 percent without the Project (see annex A), so that a much more acceptable service can be offered to the inhabitants of the project cities, for a cost only slightly higher; (b) an increase of about 10 percent in ridership; and (c) a decrease in average peak hour waiting times from about 10 minutes down to 2-3 minutes. 4.7 Other Benefits Which Have Not Been Quantified. Benefits would result from important organizational reforms, that will be carried out both at the central and at the municipal levels, including: (a) more authority for cities to manage their urban transport sectors in areas such as setting fares and elimination of fare exemptions, ownership of assets, and introduction of private sector participation into urban transport; (b) establishment of autonomous, corporatized transit operating entities; (c) municipal governments and transit companies entering into a contract to set performance targets and encourage greater efficiency for the provision of transit services; and (d) municipalities establishing transport departments to govern their public transport sectors. These institutional improvements are expected to reduce the cost of public passenger transport in the project cities, and increase the revenues from fares. This will make it possible for the cities to rely much more heavily on farebox revenue collection to finance urban transport rather than on taxes. Considering Ukraine's severe fiscal constraints and the high opportunity cost of public money, this is an important economic benefit which was not quantified. The environment will also improve due to the project. The improved diesel engines in all new buses, and in some of those rehabilitated, will meet much cleaner Western European emission standards. And it is also anticipated that the policy, 42 Economic Analysis and Project Risks financial, managerial, and operational reforms of this pilot project will be replicated in other cities and thus contribute significantly to overall sector reform. 4.8 Economic Rate of Return (ERR). Using the methodology described above, the overall ERR for the project, as indicated in Table 4.1, below, is 44.6 percent. In year 1998 when the project is expected to bring full benefits, the companies will experience a total net cost (extra operating costs minus extra revenues) of US$0.18 million, while for passengers the benefits will be, on average, savings in waiting time of five to six minutes at peak hour and two minutes during off- peak. The waiting time has been valued at US$0.15 per hour, or 30 percent of the average wages. Total benefit for the passengers will be US$26.13 million for the year 1998. 4.9 Sensitivity Analyses. Of the factors evaluated in the sensitivity analyses, the most probable risk relates to investment costs; the next most likely risk is increased operating costs. The results of the sensitivity analyses are indicated in Table 4.1. Table 4.1 Project Economic Rate of Return and Results of Sensitivity Analysis Amount Value of Productivity Investment Operating Reduced of Time Time Improvements Costs Costs Ridership Savings Savings Only Base -30% -50% +50% +30% -20% case I_I ERR 44.6 28.3 18.6 57.0 22.0 32.7 16.0 C. Project Risks and Mitigants Risks Mitigants Slow progress with sector reforms, Improvement in cost recovery to 30 percent is especially as related to cost recovery required as a condition of negotiations. improvements. An Action Plan to be agreed at negotiations would set monitorable targets for improvements in cost recovery, as well as the reductions in fare evasion and concessionary ridership required to achieve the cost recovery target. Delays in project execution. The head of the PIU will be nominated before negotiations. Bidding documents for major components of the project will be finalized at negotiations. Tenders will be issued and bids evaluated by effectiveness. Government interest in improving public transport is expected to minimize bureaucratic delays. Agreements and Recommendations 43 V. AGREEMENTS AND RECOMMENDATIONS 5.1 Conditions of Negotiations are that the Government has presented to the Bank a copy of the law, official decree, plan, or other official document on: (a) the elimination of the financial impact on urban transit enterprises of Government- mandated exemptions from, and reductions in, transit fares [para. 1.29 (a)]; (b) the devolution of ownership and operational control of transport enterprises that would participate in the project to the city from the central and oblast governments [para. 1.29 (b)]; (c) transferring to the project cities full authority to determine passenger fares for public transport [para. 1.29 (c)]; (d) the confirmation that each transport enterprise participating in the project had achieved a cost recovery level of 30 percent by March 31, 1996 [para. 1.29 (e)]; and (e) the decision establishing the location of the PIU and appointing the head of the PIU [para. 2.14 (a)]. 5.2 Agreements to be Reached During Negotiations. During negotiations, agreements are expected to be reached on the following provisions of the loan agreement: (a) establishment of municipal transport departments in the project cities, with charters specifying their authority over the planning, financing, and regulation of all modes of municipal transport by [date] [para. 1.29 (f)]; (b) adopt by [date] a municipal public transport policy acceptable to the Bank that, among other things, progressively increases the scope of competition and private sector provision of urban passenger transport services [para. 1.29 (g)]; (c) the on-lending arrangements for the loan proceeds and the key provisions to be included in on-lending agreements (para. 2.12); (d) submission by the central government of a report and proposed implementation plan on the future organization of urban transport in Ukraine [para. 2.14(b)]; (e) procurement arrangements for the project (para 2.18); (f) project accounting and auditing requirements (para. 2.33); (g) project monitoring indicators and progress reports (para. 2.34); (h) scope and timing of project mid-term review (para. 2.35). 44 Agreements and Recommendations (i) restructuring of the transit companies, to include: (i) the corporatization, as municipally-owned companies, of the public bus, tram, and trolleybus services in Kyiv, Kriviy Rig, and Lviv, by [date] [para. 3.20(a)]; (ii) instalment of draft performance contracts between municipalities and operators by [date] [para. 3.20(a)]; and (iii) the development by project cities and their transit enterprises of a five-year financial plan, including cost recovery targets, by [date] [para. 3.20(a)]; (j) Government action plan to increase cost recovery and enable urban transit enterprises to achieve financial viability including: (i) elimination of fare exemptions or reductions; or (ii) alternatively, by reimbursing the transit companies for the losses resulting from such exemptions and reductions; this plan will be set out in a side letter to be executed by the Government [para 3.20(b)]; and (k) commitment of the cities that no new investment projects for metro, tram or trolleybus systems would be undertaken in the project cities without adequate financial and economic study and prior consultations with the Ministry of Finance and the Bank [para. 3.28]; 5.3 Conditions for Effectiveness. As conditions of effectiveness, the Borrower would: (a) have executed the subsidiary loan agreements between the Government and the project city governments (para. 2.12); and (b) submit satisfactory evidence that the loan from EBRD has been made effective (para. 2.12). 5.4 Recommendation. Subject to the above, the proposed Urban Transport Project is suitable for a Bank Loan of US$75.0 million equivalent at the standard variable interest rate, for a term of 17 years, including a grace period of five years. The Borrower would be Ukraine and the implementing agencies would be the cities of Kiev, Lviv and Kriviy Rig, and the MOT. STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX A CITY FLEET IMPROVEMENTS 1. The investment plan consists basically of three components: (i) spare parts, (ii) refurbishment and rehabilitation of vehicles, and (iii) purchase of new vehicles. The details are shown in Annex A. 1. 2. Spare parts were given the first priority to enable the companies to put immediately back on the streets as many vehicles as possible; the related amounts were taken from the companies' estimates of their needs for the two coming years. 3. Rehabilitation was estimated from the technical appraisal done by two experts during their visits to the different companies; because of the actual condition of the fleets, they estimated that it was worth refurbishing buses 5 to 8 years old, trolleys 6 to 8 years old, and trams 7 to 10 years old. 4. Purchase of new vehicles was discussed with the cities' administration, but was limited by the total amount of the loan for each of the cities. From the reactions of the cities' administration to our first program that included very few new vehicles, the number of new vehicles was slightly increased by decreasing the scope of rehabilitation (by about 20%). 5. To make some forecasts on the condition of the fleets with and without the project, we estimated the minimum number of vehicles that will have to be scrapped over the next three years, namely all the buses older than 13 years, all the trolleys older than 15 or 16 years, and all the trams older than 23 to 25 years. The age limit depends on the condition of the fleet. The age structure of the present fleets are shown in Annex A.2. 6. Based on the scope of rehabilitation and purchase of new vehicles, we also made assumptions on the evolution of the percentage of the total fleet available for commercial services at peak hour. Except in some few particular cases, 75% of the total fleet is supposed to be in service at peak hour in 1998. This peak hour fleet remains equal to, or smaller than, the needs expressed by the cities. This percentage, in the do nothing case, is supposed to decrease by 5 % from the current percentage except for the buses in Krivij Rig where it is only 35% now and where one third of the buses is supposed to be scrapped. 7. The expected evolution of the fleet with and without the project is shown in Annex A.3. The conclusion of this probable evolution of the fleets is that, with the project, the number of vehicles used at peak hour will increase by 16 to 21 %. Without the project this peak hour fleet would decrease by 22 to 27 % compared to the present situation. Annex A.1 Details of Expenditures by Project City KIEV LVIV KRIVIY RIG THREE CITIES Total Nb* Unit price Total Nb* Unit price Total Nb* Unit price Total Nb* Million US$ Th. US$ Million US$ Th. US$ Million US$ Th. US$ Million US$ Electric transport Spare parts and major components for trolley maintenance 3.0 0.4 1.2 4.6 0 for tram maintenance 3.0 0.6 1.1 4.7 0 Rehabilitation of trolleys 0.9 45 20 1.2 60 20 1.3 65 20 3.4 170 Rehabilitation of articulated trolleys 4.8 209 23 0.2 9 23 5.0 217 Rehabilitation of trams 4.9 111 44 3.4 77 44 2.8 64 44 11.1 252 Total old 16.6 365 5.6 137 6.6 138 28.8 640 Purchase of new trolleys 5.5 46 120 5.5 46 Purchase of new articulated trolleys 6.0 35 170 6.0 35 Purchase of new trams 7.5 25 300 3.6 12 300 11.1 37 Total new 13.5 60 5.5 46 3.6 12 22.6 118 TOTAL ELECTRIC 30.1 425 11.1 183 10.2 150 51.4 758 Buses Rehabilitation of buses 8.4 467 18 2.4 160 15 1.6 84 19 12.4 711 Spare parts for maintenance 3.0 0.8 1.2 5.0 Total old 11.4 467 3.2 160 2.8 84 17.4 711 Purchase of new 18 meter buses 9.6 80 120 2.4 20 120 12.0 100 Purchase of new 12 meter buses 4.1 46 90 4.1 46 Total new 9.6 80 4.1 46 2.4 20 16.1 146 TOTAL BUSES 21.0 547 7.3 206 5.2 104 33.5 856 Shops, tools and equipment 2.7 0.7 2.9 6.3 Traffic management 0.5 0.5 Street works 0.5 0.5 TOTAL ALL MODES 54.8 972 19.1 389 18.3 254 92.2 1615 Nb*- Number of Vehicles 1/9/96 totcote 11:43 AM Annex A2 Kiev Number of vehicies Years of purchase of vehicies still in use 3 5 0 -: : :. . . .. . . . . . . . . . . . . . . 300 250 200 -l Buses ~ Electric 150 100 50 100 - n W 1 7 60 - -C- 400 0 W m m> 20 0 - · 140 s 120 100 El Buses 80 * Electric .60..... 40. . .. .. . . . 20- : . . . .. .. . . . ..0 . . . . .. . . . . . . . .. r~ ~ r-. ............CO.O.CO.CO.0.. CO - O 0> - C~ C~> CCC ............> 0 60 ...... .> I> ... .. ..... -> 0 > > - .. ... fl................... Annex A2 Lviv Number of vehicles Years of purchase of vehicies still in use 70 50 40 --. - - -- - - - - .- 40 Buses E Electric 30 - - -.-- - - 20- -- 10 -7- 10 Ln 0 c ) 0 (Dl m -. r- r- 2 m m C fletchI rU.xs 119196 Evolution of the fleet Annex A3 with project Number of Kiev 1995 New Vehicles Vehicles 1998 Evolution (2.65 M inh.) vehicles rehabilitated scrapped Tram 752 25 111 74 703 Trolley 778 35 254 165 648 Total electric fleet 1530 60 365 239 1351 -12% Peak availability 55% 75% Used at peak hour 842 1013 20% Buses 1952 80 467 400 1632 -16% Peak availability 56% 75% Used at peak hour 1093 1224 12% TOTAL fleet 3482 140 832 639 2983 -14% Used at peak hour 1935 2237 16% Number of Kriviy Rig 1995 New Vehicles Vehicles 1998 Evolution (0.74 M inh.) vehicles rehabilitated scrapped Tram 207 12 64 17 202 Trolley .221 0 74 25 196 Total electric fleet 428 12 138 42 398 -7% Peak availability 63% 75% Used at peak hour 270 299 11% Buses 748 20 84 244 524 -30% Peak availability 35% 65% Used at peak hour 262 341 30% TOTAL fleet 1176 32 222 286 922 -22% Used at peak hour 531 639 20% evolpeak.xls 1/9/96 Evolution of the fleet Annex A3 with project Number of Lviv 1995 New Vehicles Vehicles 1998 Evolution (0.81 M inh.) vehicles rehabilitated scrapped Tram 224 0 77 26 198 Trolley 182 46 60 68 160 Total electric fleet 406 46 137 94 358 -12% Peak availability 50% 70% Used at peak hour 203 251 23% Buses 403 46 160 31 418 4% Peak availability 65% 75% Used at peak hour 262 314 20% 809 92 297 125 776 -4% Used at peak hour 465 564 21% Number of Total (3 cities) 1995 New Vehicles Vehicles 1998 Evolution (4.20 M inh.) vehicles rehabilitated scrapped Tram 1183 37 252 117 1103 Trolley 1181 81 388 258 1004 Total electric fleet 2364 118 640 375 2107 -11% Peak availability 56% 74% Used at peak hour 1314 1562 19% Buses 3103 146 711 675 2574 -17% Peak availability 52% 73% Used at peak hour 1617 1878 16% TOTAL fleet 5467 264 1351 1050 4681 -14% Used at peak hour 2931 3440 17% evolpeak.xls 1/9/96 Evolution of the fleet Annex A3 without project Number of Kiev 1995 New Vehicles Vehicles 1998 Evolution (2.65 M inh.) vehicles rehabilitated scrapped Tram 752 0 0 74 678 Trolley 778 0 0 165 613 Total electric fleet 1530 0 0 239 1291 -16% Peak availability 55% 50% Used at peak hour 842 646 -23% Buses 1952 0 0 400 1552 -20% Peak availability 56% 50% Used at peak hour 1093 776 -29% TOTAL fleet 3482 0 0 639 2843 -18% Used at peak hour 1935 1422 -27% Number of Kriviy Rig 1995 New Vehicles Vehicles 1998 Evolution (0.74 M inh.) vehicles rehabilitated scrapped Tram 207 0 0 17 190 Trolley 221 0 0 25 196 Total electric fleet 428 0 0 42 386 -10% Peak availability 63% 55% Used at peak hour 270 212 -21% Buses 748 0 0 244 504 -33% Peak availability 35% 35% Used at peak hour 262 176 -33% TOTAL fleet 1176 0 0 286 890 -24% Used at peak hour 531 389 -27% 1/9/96 Evolution of the fleet Annex A3 without project Number of Lviv 1995 New Vehicles Vehicles 1998 Evolution (0.81 M inh.) vehicles rehabilitated scrapped Tram 224 0 0 26 198 Trolley 182 0 0 68 114 Total electric fleet 406 0 0 94 312 -23% Peak availability 50% 45% Used at peak hour 203 140 -31% Buses 403 0 0 31 372 -8% Peak availability 65% 60% Used at peak hour 262 223 -15% 809 0 0 125 684 -15% Used at peak hour 465 364 -22% Number of Total (3 cities) 1995 New Vehicles Vehicles 1998 Evolution (4.20 M inh.) vehicles rehabilitated scrapped Tram 1183 0 0 117 1066 Trolley 1181 0 0 258 923 Total electric fleet 2364 0 0 375 1989 -16% Peak availability 56% 50% Used at peak hour 1314 998 -24% Buses 3103 0 0 675 2428 -22% Peak availability 52% 48% Used at peak hour 1617 1176 -27% TOTAL fleet 5467 0 0 1050 4417 -19% Used at peak hour 2931 2174 -26% 1/9/96 STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX B DETAILS OF VEHICLE REHABILITATION 1. Vehicle rehabilitation will include: * Removal of all seating, interior and exterior end and side panels, flooring, power train, steering, suspension, interior ceiling panels completely exposing floor and body structural members. * Steam cleaning. * Removal of rust by grinding or with a bead blaster, if available. * Replacing rusted members, welding or reinforcing structural frame, floor frame and body frame as necessary. Welding and reinforcement or replacement of articulated hinges, as applicable. Corrosion protection. * Treating all surfaces to be painted with a zink based primer or a rust neutralizing primer, and apply corrosion protection material to any surface that will not have a finishing coat of paint. * Reassembly of vehicles with new or rebuilt components and materials as indicated in the following table. Component/ Material LAZ/LiAZ (9m LAZ/Ikarus Buses Trolleybuses Trams buses) Engine/motor new or factory factory or in-house in-house or factory in-house or factory rebuild build rewind rewind Transmission in-house rebuild in-house rebuild Controller in-house rebuild in-house rebuild Suspension, new or rebuilt new or rebuilt new or rebuilt new or rebuilt steering, axles, components as components as components as components as etc. required required required required Bogies in-house rebuild Electrical and inspect, test and inspect, test and inspect, test and inspect, test and lighting replace as necessary replace as necessary replace as necessary replace as necessary Heating, replace heater core, replace heater core, inspect, test and inspect, test and Cooling defroster core, defroster core, replace heating replace heating engine, radiator, engine, radiator, test system components system components test and replace and replace motors, as necessary as necessary motors, pumps, pumps, valves, etc. valves, etc. as as necessary necessary ANNEX B Page 2 of 4 Component/ Material LAZ[LiAZ (9m LAZ/Ikarus Buses Trolleybuses Trams buses) Brakes new shoes, linings, new shoes, linings, new shoes, linings, new shoes, linings, drums, cams, etc., drums, cams, as drums, cams, as drums, cams, as as required required required required Air components in-house or factory in-house or factory in-house or factory in-house or factory rebuild rebuild rebuild rebuild Current collector in-house rebuild with in-house rebuild with system new components as new components as required required Floor new 20mm 7-ply new 20mm 7-ply new 20mm 7-ply new 20mm 7-ply exterior grade, resin exterior grade, resin exterior grade, resin exterior grade, resin bonded plywood bonded plywood and bonded plywood and bonded plywood and and new rubber new rubber floor new rubber floor new rubber floor floor covering covering covering covering Steps new new metal/fiberglass new metal/fiberglass new metal/fiberglass metal/fiberglass as as required and new as required and new as required and new required and new rubber treads rubber treads rubber treads rubber treads Doors in-house rebuild or in-house rebuild or in-house rebuild or in-house rebuild or new as required new as required new as required new as required Windows new glass as new glass as required new glass as required new glass as required required Seating repair frames, paint repair frames, paint repair frames, paint repair frames, paint and install new and install new and install new and install new cushions cushions cushions cushions Panels new or repaired new or repaired new or repaired new or repaired panels as required panels as required panels as required panels as required Fueling System new or rebuilt new or rebuilt new or rebuilt new or rebuilt injectors, pump, injectors, pump, injectors, pump, injectors, pump, carburator, etc. as carburator, etc. as carburator, etc. as carburator, etc. as applicable applicable applicable applicable Starting Ignition new or rebuilt new or rebuilt new or rebuilt new or rebuilt starter, generator, starter, generator, starter, generator, starter, generator, etc. as applicable etc. as applicable etc. as applicable etc. as applicable 2. PAINTING FOR ALL TYPES OF VEHICLES New Exterior Panels - Wash all panel surfaces with an abrasive pad (3M Scotchbrite) and a wax and silicone remover (Sico #585-022). ANNEX B Page 3 of 4 - Prime all surfaces of panel with an epoxy primer. (Sico primer #577-624 with Catalyst #576- 076 and solvent #575-010). - Apply corrosion protection undercoating material to interior surface after panel is put into place (Tectyl 185 by Valvoline). New Frame Parts - Same as New Exterior Panels, primer applied to all surfaces and undercoat when in place. Reused Exterior Panels - Surface rust is to be ground or sandblasted and primer applied immediately using the Epoxy primer on surfaces to be finished painted and a rust treatment primer (Rustoleum #769) on the interior surfaces. - Treat interior surfaces with corrosion protection (Tectyl 185). Frame Parts on Bus - Remove Surface Rust or Corrosion By Sandblasting or Grinding. - Treat with rust inhibiting primer (Rustoleum #769). - Spray or brush corrosion protection undercoat on all surfaces (Tectyl 185). Underfloor of Bus - Clean all surfaces and brush or spray corrosion protection undercoat on all surfaces (Tectyl 185). 3. CRITERIA FOR SELECTING VEHICLES FOR REHABILITATION For the purpose of this project, vehicle rehabilitation is defined as a set of repair or rebuilding activities required to extend the dependable service life of a vehicle to or beyond the original intended life. Vehicles to be rehabilitated under the project will meet the following criteria. ANNEX B Page 4 of 4 Age Range at Time of Expected Usable Life Original Intended Rehabilitation after Rehabilitation Vehicle Type Life (years) (years) (years) 9m LiAZ, LAZ, etc. 7-8 5-7 4 12m and 18m Ikarus 9-10 6-8 6 Trolleybus 12 6-8 7 Tatra tram 18 8-11 10 Ust-Katav tram 12 6-8 8 In order to qualify for rehabilitation, a vehicle must meet the following criteria: * the frame must be structurally sound, but may exhibit minor corrosion and fatigue damage * the vehicle must be required to supply basic urban or suburban transit service. STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX C FINANCIAL ANALYSIS OF TRANSPORT ENTERPRISES Ridership and revenues 1. The demand for urban transport would grow at 2% per annum from 1995 as a result of economic growth in the Ukrainian economy. 2. Key assumptions about fares, inflation and exchange rates are detailled in Table 1 below. Table 1 Key Assumptions of Forecast (in percent, except where otherwise noted) 1995 1996 1997 1998 1999 2000 Passengers 50 40 15 10 5 5 Receiving Fare Privileges Passengers 30 20 15 12 10 10 Evading Fares Fare Increases 55 20 20 20 20 Average 342 55 19 13 12 10 Annual Inflation Rate Average 137 196 214 229 247 261 Annual Exchange Rate (OOOKB/US$) 3. Fares Elasticity of Demand is assumed to be 0.15 so that each progressive 20% increase in fares was assumed to lead to a reduction of 3% in demand. 4. It is assumed that if fares were unchanged that 15% of those no longer receiving concessionary fares and of those unable to continue evading fares will choose not to travel. The same fare elasticity of demand of 0.15 is then applied to the change from the current price level. 5. Changes in the supply of services by the transport operators will result in changes in the level of service usage. A usage factor has been calculated for each mode of transport in each city as part of the economic evaluation of the project. This factor has been incorporated into the calculation of the projected revenue figures. ANNEX C Page 2 of 16 6. It has been assumed that approximately 25% of fare-paying bus passengers will avail of premium priced expressway bus services. These services are provided at a tariff which is 50% higher than the standard tariff. 7. The standard tariff for all modes has been assumed to be 10,000KBs in 1995 and the premium express bus tariff for all cities has been set at 15,OOOKBs. Operating costs 1. Drivers' Costs: The base rate drivers costs were calculated using the inflation adjustment data for 1994. The reported wages cost, including social insurance was divided by the average number of drivers employed during 1994. Drivers reported wage costs were uplifted by 50% to reflect the payment of bonuses during the year which were not reported as costs. The actual size of the bonuses paid to staff was not provided to the consultants during the data collection stage but this is believed to be a reasonable estimate. An estimate of the number of drivers employed by Kriviy Rig urban/suburban services had to be used as the only available data was at the level of the Avtotrans. It was assumed that 80% of all drivers worked on urban/suburban services as this corresponds to the number of vehicles utilized in the provision of services. Calculation of Drivers Wage Costs Including Bonus Payments Inflation Average Annual Monthly Bonus Annual Adjusted Drivers Salary Average % Salary Salary Cost 1994 Dollars Salary Including Drivers US$ US$ Bonus US$ million US $ Kiev Bus 1.11 2839 390.98 32.58 0.5 586.47 Kiev Trams 0.39 867 449.83 37.49 0.5 674.74 Kiev Trolleybus 0.58 1204 481.73 40.14 0.5 722.59 K.R. Bus 0.45 866 519.39 43.28 0.5 779.09 K.R. Trams 0.27 302 894.04 74.50 0.5 1341.06 K.R. Trolleybus 0.25 449 556.79 46.40 0.5 835.19 Lviv Bus 0.32 456 701.75 58.48 0.5 1052.63 Lviv Tram 0.16 228 701.75 58.48 0.5 1052.63 Lviv Trolleybus 0.14 263 532.32 44.36 0.5 798.48 ANNEX C Page 3 of 16 There appears to be a significant variation in the rates of pay for drivers. The consultants were not given an explanation for the variation, although the practice of making unreported bonus payment to staff may have some influence. The transport operators appear to be free to determine the size of these bonus payments. The number of drivers required to operate the transport services in each city was calculated at the rate of 2.5 per vehicle in service. The observed ratio of drivers to vehicles varied by mode and by city, but the figure of two per vehicle which is believed to be a reasonable level of staff cover. As more vehicles are returned to service as a result of the project then the number of drivers increases . proportionately.Drivers costs were inflated using the local inflation rate. This results in a significant increase in the total cost of drivers. 2. Maintenance Workers Costs: Vehicle maintenance workers costs have been estimated in the same manner as drivers costs. The inflation adjusted wages costs for 1991 were divided by the average number of staff employed during the year. The costs were uplifted by 50% to adjust for the payment of unreported bonuses to staff. The maintenance workers costs for Lviv Bus were unusually low and this was borne out by discussions that consultants had with the general manager of the bus company. The electrical transport companies were unable to provide a split of their maintenance staff between vehicle maintenance workers and infrastructure workers. Discussion with finance personnel in these companies resulted in a decision to split the staff between these two categories with 40% allocated to vehicle and 60% allocated to infrastructure. The vehicle maintenance staff numbers will vary in proportion to the number of vehicles in the available fleet. It is also assumed that as the fleet ages there will be an increased maintenance labor requirement. A labor weighting factor has been incorporated into the forecast model to allow for the increased labor utilization that results from the aging of the fleet. It has been assumed that the number of infrastructure workers will remain at the 1995 levels. Base rate labor costs for both vehicle maintenance workers and infrastructure workers have been inflated at the projected local inflation rates. ANNEX C Page 4 of 16 Calculation of Maintenance Wage Costs Including Bonus Payments Inflation Average Annual Monthly Bonus Annual Rate Adjusted Staff Salary Average % Salary per Hour Salary Cost 1994 Dollars US$ Including US$ 1994 US$ Bonus US$ Million US$ Kiev Bus 0.62 1371 452.22 37.69 0.5 678.34 0.35 Kiev Trams 0.4 1112 359.71 29.98 0.5 539.57 0.28 Kiev Trolleybus 0.41 988 414.98 34.58 0.5 622.47 0.32 K.R. Bus 0.16 254 629.92 52.49 0.5 944.88 0.49 K.R. Trams 0.28 470 595.74 49.65 0.5 893.62 0.47 K.R. Trolleybus 0.25 567 440.92 36.74 0.5 661.38 0.34 Lviv Bus 0.05 182 274.73 22.89 0.5 412.09 0.21 Lviv Trams 0.17 370 459.46 38.29 0.5 689.19 0.36 Lviv Trolleybus 0.15 340 441.18 36.76 0.5 661.76 0.34 Allocation of Maintenance Staff: Vehicle and Infrastructure Number of Staff Number of Staff Q4 Number of 1994 Infrastructure Main. Staff Kiev Bus 1371 1371 0 Kiev Tram 1112 445 667 Kiev Trolleybus 988 395 593 K.R. Bus 254 418 - K.R. Tram 470 195 282 K.R. Trolleybus 567 229 340 Lviv Bus 182 182 - Lviv Tram 370 148 222 Lviv Trolleybus 338 135 203 ANNEX C Page 5 of 16 Maintenance Labor Weighting Factors Vehicle Age Buses Labor Factor Trams Labor Factor Trolleybus Labor Factor 1 1.00 1.00 1.00 2 0.97 1.07 1.14 3 1.28 1.15 1.31 4 1.76 1.24 1.50 5 2.36 1.33 1.71 6 2.01 1.43 1.96 7 2.25 1.53 2.24 8 3.00 1.65 2.56 9 2.84 1.77 2.93 10 2.69 1.90 3.36 11 3.10 2.04 3.84 12 3.04 2.19 4.39 13 2.81 2.36 5.02 14 3.29 2.53 5.75 15 3.61 2.72 6.58 16 2.92 17 3.13 18 3.37 19 3.61 20 3.88 21 4.17 22 4.48 23 4.81 24 5.17 25 5.55 3. Materials Costs Vehicle materials costs have been calculated based on an assumed cost per thousand vehicle kilometers. The cost per thousand kilometers for a bus was set at $16 and for a tram and trolleybus it wa set at $25. The base cost was then weighted in the forecast model to allow for vehicle age. As the vehicles became older, then the materials usage increases rapidly as shown by the weighting factors contained in the following table. Vehicle materials costs have been assumed to be mainly imported and their unit costs have been assumed to increase at the foreign inflation rate of 2.6% per annum throughout the period of the forecast. The value of spare parts received by the operators as a result of the project have been included in the forecast income statements as a credit spread over the years 1996 and 1997. These spare parts credits will effectively reduce the cost of materials to the companies in the years in which they are received. The forecast model assumes that the operators will finance the cost of spare parts from their own ANNEX C Page 6 of 16 funds in the future and will not receive them free of charge from either the state or the municipal authorities. Maintenance Material Weighting Factors Vehicle Age Buses Material Trams Trolleybus Factor Material Factor Material Factor 1 1.00 1.00 1.00 2 1.52 1.09 1.14 3 1.33 1.18 1.29 4 2.37 1.28 1.47 5 3.06 1.39 1.67 6 3.81 1.50 1.89 7 3.96 1.63 2.15 8 4.65 1.77 2.44 9 4.38 1.92 2.77 10 5.51 2.08 3.15 11 5.50 2.26 3.58 12 4.91 2.45 4.07 13 5.15 2.66 4.62 14 5.54 2.89 5.25 15 5.67 3.13 5.96 16 3.40 17 3.69 18 4.00 19 4.34 20 4.71 21 5.11 22 5.55 23 6.02 24 6.53 25 7.08 The forecast cost of infrastructure materials for trams and trolleybuses is based on 60% of the inflation adjusted total materials costs for 1994. The infrastructure materials have been assumed to be largely local production and the projected unit cost increases have been calculated at the local inflation rate. 4. Fuel and Energy Fuel consumption of buses has been assumed to be at the rate of 450 liters per 1000 kilometers for old buses, and 350 liters per 1000 kilometers for new and rehabilitated buses. The data collected by the consultants in the transport companies confirms that this is a reasonable estimate. Fuel consumption is not assumed to vary with the age of the vehicle. ANNEX C Page 7 of 16 Fuel cost increased during the last quarter of 1994 to $0.13 cents per liter, having been held well below this level during the year. The price of fuel is forecast to increase at the rate of 2.6% per annum during the period of the forecast. Energy consumption by trams was calculated to be 2700KW/hrs per thousand kilometers. It was observed that energy consumption by trolleybuses was approximately 90% of the level of consumption by trams. The assumption was made that trolleybuses consume 2430 KW/hr of electricity per 1000 kilometers. The price per kilowatt hour was set at $0.03 cents in quarter four of 1994 having been held well below that price during the year. The price of energy is forecast to increase at the rate of 2.6% per annum during the period of the forecast. 5. Tires It has been assumed that a tire set will be used for 64,000 km and then retreaded and put back into service for a further 64,000 km. The costs of a tire set and the associated retread have been assumed to be $1130 and this cost is inflated at the rate of 2.6% per annum from 1996 onwards. 6. Depreciation It has been assumed that the transport companies continue to depreciate their existing assets on a historical cost basis. The investment costs have been depreciated at the following rates; New buses and trolleybuses are depreciated over 15 years and rehabilitated vehicles are depreciated over five years. New trams are depreciated over 25 years and rehabilitated vehicles are depreciated over 10 years ANNEX C Forecast Page 8 of 16 Ukraine Urban Transport Project : with project case I__ Kiev Trams Financial Projections 1995 to 2000 - $US Millions _ _ 1994 1995 1996 1997 1998 1999 2000 Actual !Forecast Forecast Forecast IForecast jForecast Forecast Inflation Adjusted Revenue 0.59 6.08 14.66 26.88 33.14 39.64 44.48 Subsidy 8.5 12.99 9.00 0.20 - - - Drivers Costs 0.39 2.04 3.35 4.49 6.11 6.70 7.03 Mechanics - Vehicles 0.16 1.04 1.34 1.50 1.60 1.69 1.73 Mechanics - Infrastructure 0.24 1.36 1.89 2.05 2.17 2.26 2.35 Materials - Vehicles 1.69 2.02 2.09 2.39 2.87 3.02 3.06 Materials - Infrastructure 1.131 4.25 5.92 1_644 _ _6.81 7.08 7.36 Spare Parts Credit 0.00 -- 1.501- 1.50 - -- Energy_| 1.59 1.78 1.891 2.11 1 2.43 2.40 2.32 Overheads 1.19 4.46 6.22 6.771 7.161 7.44 7.74 Depreciation 0.08 0.08 0.37 0.74 0.921 0.91 0.91 Total Operating Costs 6.46 17.02 21.56 24.99 30.071 31.50 32.50 Operating Result 2.66 2.05 2.101 2.09 3.06 8.14 11.98 Operating Ratio 9%1 36% 68%1 108%1 110% 126% 137% Vehicle Kilometres - -_-_--_-_ 25,386.485 26,213,8151 28,495.3741 32,012.470 I 30,818,018 29,056,306 ANNEX C Page 9 of 16 Forecast Ukraine Urban Transport Project: with project case I Kiev Trolleybus Financial Projections 1995 to 2000 - SUS Millions 1994 1995 1996 1 1997 1998 1999 2000 Actual Forecast Forecast Forecast Forecast Forecast [Forecast Inflation [Adjusted I_ _ _ _ _ _ Revenue 0.57 6.02 14.51 26.60 32.79 39.23 44.02 Subsidy 9.4 - - - Drivers Costs 0.58 1.97 3.07 3.75 4.63 4.16 3.80 Mechanics - Vehicles 0.16 0.94 1.31 1.46 1.56 1.39 1.28 Mechanics - Infrastructure 0.23 1.39 1.94 2.11 2.23 2.32 2.41 Materials - Vehicles 2.07 1.48 1.66 1.89 2.25 1.98 1.80 Materials - Infrastructure 1.38 5.20 7.24 7.88 8.34 8.67 9.01 Tyre Costs 0.24 0.27 0.30 0.33 0.30 0.26 Spare Parts Credit 0.00 - 1.50j- 1.501 - - Energy 1.96 1.44 1.61 j 1.791 2.00 1.77 1.59 Overheads 1.05 3.97 5.531 6.01 6.36 6.61 6.87 Depreciation 0.06 0.06 0.80 1.47 1.57 1.571 1.56 Total Operating Costs 7.50 16.70 21.93 25.16 29.28 28.76 28.58 Operating Result 2.45 - 10.68 - 7.42 1.44 3.51 | 10.47 15.44 Operating Ratio 8% 36% 66% 106% 112%1 136% 154 Vehicle Kilometres 22,835,670 24,806,222 26.989,133 29,340,591 25,271,953 22,076,012 ANNEX C Forecast Page 10 of 16 Ukraine Urban Transport Project: with project case Kiev Bus : Financial Projections 1995 to 2000 - $US Millions 1994 1995 1996 1997 1998 1999 2000 Actual IForecast Forecast IForecast IForecast Forecast Forecast Inflation I AdjustedI Revenue 0.71 10.95 26.41 1 48.43 59.69 71.41 80.13 Subsidy 21.4 24.02 17.53 0.54 | - - - Drivers Costs 1.111 4.60 7.14 8.72 9.48 9.85 9.32 Mechanics 0.621 3.42 4.67 5.18 4.96 5.32 1 5.27 Materials 4.49 J 4.08 4.61 5.25 T 5.36[ 5.881 5.83 Spare Parts Credit 0.001 - 1.50 - 1.501 - - - Tyres 0.481 0.74 0.82L 0.901 0.91 0.92 0.85 Fuel 6.811 4.24 4.64 5.11 1 5.20 5.23 4.83 Fuel Savings - 0.14 1- 0.29 - 0.46 - 0.47 - 0.48 Overheads 3.501 13.191 18.371 19.991 21.15 21.98i 22.85 Depreciation 0.081 0.08 0.801 1.54 2.37 2.371 2.37 Total Operating Costs 17.08 30.35 39.421 44.90 51048.98 517 50.85 Operating Result 5.04 4.63 4.52 4.07 10.72 20.34 29.29 Operating Ratio 4%1 36%1 67%1 108% 122% 140% 158% Vehicle Kilometres 1 70,585,576 75,363,670 80,932,263 80,246,865 78,641,927 70,837,412 ANNEX C Page 11 of 16 Forecast Ukraine Urban Transport Project: with project case Kriviy Rig Trams: Financial Projections 1995 to 2000 - $US Millions 1994 1995 1996 i 1997 1998 1999 2000 Actual Forecast Forecast IForecast Forecast Forecast Forecast Inflation Adjusted Revenue 0.16 1.481 3.57 6.55 8.07 9.66 10.84 Subsidy 2.4 7.40 8.21 6.64 6.09 5.35 4.82 Drivers Costs 0.27 1.34 2.15 2.54 2.68 2.79 2.90 Mechanics - Vehicles 0.11 0.68 1.001 1.10 1.051 1.15 | 1.26 Mechanics - Infrastructure 0.17 0.95 1.32 1.44 1.52 1.58 1.64 Materials - Vehicles 0.39 0.46] 0.53 0.58 0.56 0.62 0.67 Materials - Infrastructure 0.59| 2.221 3.10 3.37 3.57 3.71 3.85 Spare Parts Credit 0.00 - - 0.60 - 0.50 - - - Energy 0.58 0.62 0.721 0.78 0.78 0.78 0.79 Overheads 0.51 1.911 2.661 2.89 3.06 3.18 3.30 Depreciation 0.02 0.02 0.13 0.23 0.30 0.29 0.29 Total Operating Costs 1 2.64 8.21 1 11.01 12.44 13.52 14.10 14.71 Operating Result - 0.06 0.67 0.781 0.75 0.64 0.91 0.94 Operating Ratio 6% 18% 32%1 53% 60%] 68%1 74% Vehicle Kilometres 8,872,597 9,999,666 10,519,728 10,282,634 10,076,981 9,875,441 ANNEX C Page 12 of 16 Forecast Ukraine Urban Transport Project: with project case I I I Kryviy Rig Trolleybus : Financial Projections 1995 to 2000 - $US Minions 1994 1995 1996 1997 I 1998 1 1999 2000 Actual |Forecast Forecast Forecast IForecast IForecast Forecast Inflation T Adjusted Revenue 0.09 1.23 2.97 5.44 6.701 8.02 | 9.00 Subsidy 2.5 5.15 4.70 3.11 3.131 1.44 0.56 Drivers Costs 0.25 0.89 1.24 1.45 1.62 1.38 1.33 Mechanics - Vehicles 0.10| 0.68 0.84 0.96 1.051 0.83 0.83 Mechanics - Infrastructure 0.151 0 . 8 5 1 1.18 1.281 1.36 1.41 1.47 Materials - Vehicles 0.280 0331 0.32 0.36 1 0.401 0.31 0.31 Materials - Infrastructure 0.191 0.70 0.98 1.06 I 1.131 1.17 1.22 Tyres Costs 0.09 0.09 0.10 0.101 0.09 0.08 Spare Parts Credit 0.00 - 0.60 - 0.60- - Energy 0.591 0.54 0.54 0.581 0.611 0.51 0.48 Overheads 0.471 1.76 2.46 2.671 2.831 2.94 3.06 DepreCiation 0.01 0.01 0.11 0.22 1 0.31 1 0.31 0.31 Total Operating Costs 2.04 5.86 7.151 8.07 9.40 | 8.961 9.08 Operating Result 0.54 0.52 0.511 0.48 0.44 0.50 0.48 Operating Ratio 5%| 21% 41% 67%1 71%1 90% 99% Vehicle Kilometres 8,561,673 8,330,583 8,671,764 8,905,307 7,342,383 6,720,741 ANNEX C Page 13 of 16 Forecast Ukraine Urban Transport Project: with project case Kryviy Rig Buses: Financial Projections 1995 to 2000 - $US Millions 1994 1995 1996 1997 1998 1999 2000 Actual Forecast Forecast Forecast Forecast Forecast Forecast Inflation Adjusted Revenue 0.721 2.30 5.55 10.17 12.54 15.00 16.83 Subsidy 3.5 6.64 6.36 2.48 0.24 - - Drivers Costs 0.45 1.28 2.46 3.08 3.30 3.43 3.14 Mechanics 0.161 1.58 2.20 2.12 1.84 17 1.83 Materials 0.42 1.11 1.49 1.66 [ 1.64 1.7 1.63 Spare Parts Credit 0.001 - - 0.60 - 0.60 1 - I - Tyres 0.201 0.18 0.23 0.25 0.25 0.25 0.22 Fuel 1.38 0.87 1.13 1.25 1.221 1.22 1.09 Fuel Savings __ - 0.03 - 0.06 - 0.081- 0.08 - 0.09 Overheads 0.67 1.681 2.34 2.55 2.701 2.80 2.91 Depreciation 0.01 0.01 0.36 0.48 0.57 0.57 0.57 Total Operating Costs 3.26 6.71 9.59 10.73 11.431 11.88 11.31 Operating Result 1.00 2.23 2.32 1.92 1.351 3.12 5. 53 Operating Ratio 22% 34% 58% 95% 110% 126% 149% Vehicel Kilometres _ _ 16,686,651 21,262,522 22,804,304| 21,675,040 21,241,539 18,502,085 ANNEX C Page 14 of 16 Forecast Ukraine Urban Transport Project: with project case __I Lviv Trams : Financial Projections 1995 to 2000 - SUS Millions 1994 1995 1996 1997 1998 1999 1 2000 Actual Forecast Forecast Forecast lForecast Forecast lForecast Inflation Adjusted Revenue 0.25T-- 1.62 1 4.14 6.76 8.38 9.99 | 11.21 Subsidy 1.6 3.99 3.21 1.17 0.59 - Drivers Costs 0.16 0.83 1.32 1.59 1.87 1.95 1 1.83 Mechanics - Vehicles 0.07 0.37 0.53 0.49 0.53 0.58 0.54 Mechanics - Infrastructure 0.10 0.58 0.80 0.87 0.92 0.96 1.00 Materials - Vehicles 0.28 0.45 0.52 0.53 | 0.61 0.66 0.60 Materials - Infrastructure 0.18 0.69 0.96 1.051 1.11 1.15 1:20 Spare Parts Credit 0.00 - 0.30 - 0.301 - - - Energy 0.34 0.43 0.481 0.52 1 0.57 0.581 0.54 Overheads 0.41 1.53 2.131 2.32 | 2.45 2.551 2.65 Depreciation 0.01 0.01 | 0.12 0.23 1 0.33 0.32 | 0.32 _ _ _ _ _ _~~ ~~ _ _ _ _ _ _1 _ _ I_ _ Total Operating Costs 1.54 4.90 6.57 7.31 8.40 8.75 8.67 Operating Result 0.29 0.71 0.781 0.62 0.57 1.23 2.53 Operating Ratio 17% 33% 63% 92% 100% 114%| 129% Vehicle Kilometres 6,130,127 6,708,650 7,085.457 7.574,970 7,423,471 6,707,141 ANNEX C Page 15 of 16 Forecast Ukraine Urban Transport Project: with project case Lviv Trolleybus : Financial Projections 1995 to 2000 - SUS Millions 1994 1995 1996 1 1997 1998 1999 2000 Actual Forecast Forecast Forecast Forecast Forecast Forecast Inflation Adjusted Revenue 0.14 1.03 2.47 4.53 5.59 6.69 7.50 Subsidy 1.2 2.33 2.25 1.44 1.091 - - Drivers Costs 0.14 0.35 0.81 0.98 1.15 0.98 1.02 Mechanics - Vehicles 0.06 0.30 0.40 0.49 0.58 0.42 0.49 Mechanics - Infrastructure 0.09 0.51 0.70 0.77 0.81 0.84 0.88 Materials - Vehicles 0.15 0.24 020.26 0.35 0.43 0.31 0.36 Materials - Infrastructure 0.10 0.38 0.53 I 0.58 0.61 0.64 0.66 Tyres 0.04 0.051 0.07 0.08 0.07 0.07 Spare Parts Credit 0.00 - - 0.20 1- 0.20| - - Energy 0.29 0.24 0.31 0.44 1 0.48 0.41 0.41 Overheads 0.25 0.95 1.32 1.43 1.52 1.57 1.64 Depreciation 0.01 0.01 0.31 0.61 0.61 0.61 0.61 Total Operating Costs 1.10 3.00 4.30 5.53 6.27 5.85 6.13 Operating Result 0.22 0.35 0.43 0.45 0.41 0.84 1.38 Operating Ratio 13% 34% 58% 82% 89% 114% 122% Vehicle Kilometres 3,767,484 4,770,103 6,670,882 7,040,347 5,828,615 5,712,042 _ _ _ _ _ _ _ 1 _ _ J_ _ _ _ _ _ ANNEX C Page 16 of 16 Forecast Ukraine Urban Transport Project: with project case Lviv Bus : Financial Projections 1995 to 2000 - $US Millions 1994 1995 1996 1997 1998 1999 2000 Actual Forecast Forecast Forecast Forecast Forecast Forecast Inflation Adjusted Revenue 0.73 2.92 7.05 12.92 15.93 19.05 21.38 Subsidy 2.5 4.18 2.22 - - - - Drivers Costs 0.32 2.14 3.35 4.07 4.78 4.84 4.86 Mechanics 0.05 0.28 0.41 0.44 0.49 0.53 0.55 Materials 0.28 0.92 1.05 1.21 1.36 1.46 1.55 Spare Parts Credit 0.00 - 0.40 - 0.40 - - - Tyres 0.09 0.19 0.21 0.23 0.26 0.25 0.25 Fuel 1.65 0.92 1.03 1.14 1.26 1.24 1.21 Fuel Savings - 0.04 - 0.09 - 0.16 - 0.16 - 0.17 Overheads 0.45 1.68 2.34 2.55 2.70 2.80 2.91 Depreciation 0.01 0.01 0.28 0.55 0.90 0.90 0.90 Total Operating Costs 2.85 6.15 8.23 9.70 11.59 11.87 12.06 Operating Result 0.36 0.95 1.04 3.22 4.34 7.18 9.31 Operating Ratio 26% 48% 86% 133% 137% 161% 177% Vehicel Kilometres 17,704,109 19,228,826 20,770,240 22,464,753 21,507,903 20,444,686 STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX D DETAILED COST ESTIMATES TOTAL World Bank European Bank Local Total Nb Unit price % Total Local Foreign Total Local Foreign Total Million USS Th. USS foreign Million USS Million USS Million US$ Electric transport Spare parts and major components for trolley maintenance 4.6 0 60% 4.6 1.8 2.8 for tram maintenance 4.7 0 60% 4.7 1.9 2.8 Rehabilitation of trolleys 3.4 170 20 50% 1.2 0.6 0.6 2.2 1.1 1.1 Rehabilitation of articulated trolleys 5.0 217 23 50% 5.0 2.5 2.5 Rehabilitation of trams 11.1 252 44 50% 3.4 1.7 1.7 7.7 3.9 3.9 Total old 28.8 640 53% 13.9 6.0 7.9 14.9 7.5 7.5 Purchase of new trolleys 5.5 46 120 5.5 5.5 Purchase of new articulated trolleys 6.0 35 170 6.0 6.0 Purchase of new trams 11.1 37 300 11.1 11.1 Total new 22.6 118 100% 22.6 22.6 TOTAL ELECTRIC 51.4 758 74% 36.5 6.0 30.5 14.9 7.5 7.5 Buses Rehabilitation of buses 12.4 711 19 50% 2.4 1.2 1.2 10.0 5.0 5.0 Spare parts for maintenance 5.0 60% 5.0 2.0 3.0 Total old 17.4 711 53% 7.4 3.2 4.2 10.0 5.0 5.0 Purchase of new 18 meter buses 12.0 100 120 12.0 12.0 Purchase of new 12 meter buses 4.1 46 90 4.1 4.1 Total new 16.1 146 100% 16.1 16.1 TOTAL BUSES 33.5 856 76% 23.5 3.2 20.3 10.0 5.0 5.0 Shops, tools and equipment 6.6 34% 1.0 0.5 0.5 5.6 3.8 1.8 Traffic management 0.5 0.5 0.5 Street works 0.5 0.5 0.5 TOTAL ALL MODES 92.5 1615 72% 62.0 9.7 52.2 30.5 16.3 14.3 Labor for parts 15.5 0% 15.5 Physical contingencies (10%) 9.2 72% 6.2 1.0 5.2 3.1 1.6 1.4 Price contingencies (20%-6.4%) 9.4 45% 5.3 1.9 3.3 4.2 3.3 0.9 TOTAL 126.6 61% 73.4 12.6 60.8 37.7 21.1 16.6 15.5 Manufacturing industry 0.75 87% 0.65 0.65 0.10 MOT/SCHMS policy 0.40 88% 0.35 0.35 0.05 Procurement and project management 0.45 89% 0.40 0.40 0.05 Transport sector legal code 1.30 88% 1.15 1.15 0.15 Vehicle rehabilitation 1.10 95% 0.35 0.35 0.70 0.70 0.05 Consulting services for cities 1.30 92% 1.20 1.20 0.10 Total consulting services 5.30 91% 4.10* 4.10 0.70 0.70 0.50 TOTAL PROJECT 131.9 62% 77.5* 12.6 64.9 38.4 21.1 17.3 16.0 This amount includes expected donor financing of US$ 2.5 millions. KIEV TOTAL World Bank European Bank Locally financed Total Nb* Unit price % foreign Total Local Foreign Total Local Foreign Total Million US$ Th. US$ Million US$ Million US$ Million US$ Electric transport Spare parts and major components for trolley maintenance 3.0 60% 3.0 1.2 1.8 for tram maintenance 3.0 60% 3.0 1.2 1.8 Rehabilitation of trolleys 0.9 45 20 50% 0.9 0.5 0.5 Rehabilitation of articulated trolleys 4.8 209 23 50% 4.8 2.4 2.4 Rehabilitation of trams 4.9 111 44 50% 4.9 2.5 2.5 Total old 16.6 365 54% 6.0 2.4 3.6 10.6 5.3 5.3 Purchase of new trolleys Purchase of new articulated trolleys 6.0 35 170 100% 6.0 6.0 Purchase of new trams 7.5 25 300 100% 7.5 7.5 Total new 13.5 60 100% 13.5 0.0 13.5 0.0 0.0 0.0 TOTAL ELECTRIC 30.1 425 74% 19.5 2.4 17.1 10.6 5.3 5.3 Buses Rehabilitation of buses 8.4 467 18 50% 8.4 4.2 4.2 Spare parts for maintenance 3.0 60% 3.0 1.2 1.8 Total old 11.4 467 53% 3.0 1.2 1.8 8.4 4.2 4.2 Purchase of new 18 meter buses 9.6 80 120 100% 9.6 9.6 Purchase of new 12 meter buses Total new 9.6 80 100% 9.6 0.0 9.6 0.0 0.0 0.0 TOTAL BUSES 21.0 547 74% 12.6 1.2 11.4 8.4 4.2 4.2 Shops, tools and equipment 2.8 36% 0.1 0.1 2.7 1.8 0.9 Traffic management 0.5 100% 0.5 0.5 Street works 0.5 100% 0.5 0.5 TOTAL ALL MODES 54.9 972 73% 33.2 3.6 29.6 21.7 11.3 10.4 Labor for parts 10.0 0% 10.0 Physical contingencies (10%) 5.49 73% 3.3 0.4 3.0 2.2 1.1 1.0 t'i Z Price contingencies (20%-6.4%) 5.5 47% 2.6 0.7 1.9 2.9 2.3 0.7 O tz T RX 1TOTAL PROJECT 75.9 61% 139.1 4.7 34.5 J 26.8 14.7 12.1 10.00 LVIV TOTAL World Bank European Bank Locally financed Total Nb*. Unit price % foreign Total Local Foreign Total Local Foreign Total Million US$ Th. US$ Million US$ Million US$ Million US$ Electric transport Spare parts and major components for trolley maintenance 0.4 60% 0.4 0.2 0.2 for tram maintenance 0.6 60% 0.6 0.2 0.4 Rehabilitation of trolleys 1.2 60 20 50% 1.2 0.6 0.6 Rehabilitation of articulated trolleys Rehabilitation of trams 3.4 77 44 50% 3.4 1.7 1.7 Total old 5.6 137 52% 5.6 2.7 2.9 Purchase of new trolleys 5.5 46 120 5.5 5.5 Purchase of new articulated trolleys Purchase of new trams Total new 5.5 46 100% 5.5 0.0 5.5 TOTAL ELECTRIC 11.1 183 76% 11.1 2.7 8.4 Buses Rehabilitation of buses 2.4 160 15 50% 2.4 1.2 1.2 Spare parts for maintenance 0.8 60% 0.8 0.3 0.5 Total old 3.2 160 53% 3.2 1.5 1.7 Purchase of new 18 meter buses Purchase of new 12 meter buses 4.1 46 90 4.1 4.1 Total new 4.1 46 100% 4.1 0.0 4.1 TOTAL BUSES 7.3 206 79% 7.3 1.5 5.8 Shops, tools and equipment 0.8 35% 0.8 0.5 0.3 Traffic management Street works TOTAL ALL MODES 19.2 389 75% 19.2 4.7 14.5 Labor for parts 2.0 2.0 Physical contingencies (10%) 1.9175 75% 1.9 0.5 1.4 z Price contingencies (20%-6.4%) 1.9 49% 1.9 0.9 0.9 O tJ TOTAL PROJECT 25.0 67% 23.0 6.1 16.8 2.0 l 0 KRIVIY RIG TOTAL World Bank European Bank Locally financed Total Nb* Unit price % foreign Total Local Foreign Total Local Foreign Total Million US$ Th. US$ Million US$ Million US$ Million US$ Electric transport Spare parts and major components for trolley maintenance 1.2 60% 1.2 0.5 0.7 for tram maintenance 1.1 60% 1.1 0.4 0.7 Rehabilitation of trolleys 1.3 65 20 50% 1.3 0.7 0.7 Rehabilitation of articulated trolleys 0.2 9 23 0.2 0.1 0.1 Rehabilitation of trams 2.8 64 44 50% 2.8 1.4 1.4 Total old 6.6 138 53% 2.3 0.9 1.4 4.3 2.2 2.2 Purchase of new trolleys Purchase of new articulated trolleys Purchase of new trams 3.6 12 300 3.6 3.6 Total new 3.6 12 100% 3.6 0.0 3.6 0.0 0.0 0.0 TOTAL ELECTRIC 10.2 150 70% 5.9 0.9 5.0 4.3 2.2 2.2 Buses Rehabilitation of buses 1.6 84 19 50% 1.6 0.8 0.8 Spare parts for maintenance 1.2 60% 1.2 0.5 0.7 Total old 2.8 84 54% 1.2 0.5 0.7 1.6 0.8 0.8 Purchase of new 18 meter buses 2.4 20 120 2.4 2.4 Purchase of new 12 meter buses Total new 2.4 20 100% 2.4 0.0 2.4 0.0 0.0 0.0 TOTAL BUSES 5.2 104 75% 3.6 0.5 3.1 1.6 0.8 0.8 Shops, tools and equipment 3.0 33% 0.1 0.1 2.9 2.0 0.9 Traffic management Street works TOTAL ALL MODES 18.4 254 65% 9.6 1.4 8.2 8.8 5.0 3.9 Labor for parts 3.5 0% 3.5 (D Physical contingencies (10%) 1.8375 65% 1.0 0.1 0.8 0.9 0.5 0.4 Price contingencies (20%-6.4%) 2 38% 0.8 0.3 0.5 1.2 1.0 0.2 O TOTAL PROJECT 25.7 54% 11.3 1.8 9.5 10.9 6.4 4.5 3.5 STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX E PROJECT IMPLEMENTATION SCHEDULE 1996 1997 1998 ID Task Name Duration Start Finish Otr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr I Qtr 2 Qtr 3 Qtr 4 Qtr 1 Otr 2 Qtr 3 Qtr 4 Otr 1 1 Negotiations in Washington 1w 5120196 5124196 kraine+Bank 2 Notify Bank of approval of negotiations id 6/24/96 6/24/96 3 Board approval id 7/2/96 7/2/96 4 Sign loan agreement id 8/14/96 8/14/96 5 Finalize subsidiary loan agreements low 5/27/96 8/2/96 6 Cross effectiveness 12w 8/5/96 10/25/9 7 Make loan effective Od 111/6/96 11/6/96 1116 8 New 12m buses and trolleys 480d 5/1/96 3/3/98 9 Procurement of Spare parts 310d 5/1/96 7/8/97 10 New 18m buses and trolleys 500d 7/3/96 6/2/98 11 New trams 550d 10/2/96 11/10/9 12 Procurement of Traffic Mgt. Equipt 360d 7/3/96 11/18/9 13 Rehabilitation of vehicles (3 packages) 730d 6/3/96 3/19/99 14 Project Managt and Procurt services 670d Slil96 11/2419 15 Phase A 180d 5/1/96 1/7/97 16 Phase B 670d 5/1/96 11/24/9 17 Assistance to MOT and SCHME 540d 6/3/96 6/26/98 18 Assistance to project cities (3# TORs) 640d 6/3/96 11/13/9 19 Assistance for vehicle rehabilitation 728d 5/1/96 2/12/99 20 Assistance in preparation of legal code 655d 7/1/96 1/1/99 project.mpp 4/16/96 STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX F MONITORABLE TARGETS: PERFORMANCE INDICATORS AND INSTITUTIONAL DEVELOPMENTS TABLE 1: FINANCIAL PERFORMANCE INDICATORS Current April June June June June Situation 1996 1997 1998 1999 2000 Cost Recovery Percent of passengers evading fares 30 25 15 12 10 5 Percent of passengers exempt from paying 40-50 40 15 10 5 0 fares Cost Recovery Ratio a/ 25 30 50 70 90 100 TABLE 2: OTHER PERFORMANCE INDICATORS Current April June June Situation 1996 1997 1998 Labor Productivity Mechanical staff per public operating transit vehicle: 1.4 1.3 1.0 0.8 Buses 1.4 1.0 0.8 0.6 Trolleybuses and trams Drivers per public operating transit vehicle: Buses 2.5 2.5 2.5 Trolleybuses and trams 1.8-2.9 2.5 2.5 2.5 Total staff per public operating transit vehicle: Buses 4.0 3.8 3.6 with conductors 6.0 5.8 5.6 Trolleybuses and trams 7.6-11 5.5 5.0 4.6 with conductors 7.5 7.0 6.6 Fleet Utilization Average fleet availability: b/ Buses 40-75 40-75 60-75 65-80 Trolleybuses and trams 50-75 70-75 75-80 80 Breakdowns as a percent of available fleet: Buses 18 15 10 Trolleybuses and trams 16 13 8 Accidents per 100,000 vehicle kilometers: 0.7 0.6 0.5 Service Levels Waiting time (during peak), minutes 5-12 5-12 4-7 2-4 Passengers per 1 sq.m 10-12 10-12 10 9-10 Emissions & Fuel Control (Buses) Annual average fuel efficiency. L/100 km 48-56 44-52 42-50 a! Percent of cost recovered from all operating revenues (total operating revenue not including subsidy divided by total operating costs, excluding depreciation over a six month period). b/ Operational transit vehicles/total number of vehicles. ANNEX F Page 2 of 2 TABLE 3: INSTITUTIONAL DEVELOPMENTS TO BE ACHIEVED: By Negotiations Required from Central Government: (a) Government Action to Remove the Burden of Federally-Mandated Fare Exemptions from Transit Enterprises. (b) Devolution of Ownership and Operational Control of Buses to Municipalities. (c) Transfer Authority to Set Transit Fares to the Cities. (d) Establishment of the Project Implementation Unit (PIU). Required from Enterprises: (e) Achieve Cost Recovery Level for Transit Enterprise of 30 Percent by March 31, 1996. Before Effectiveness: Required from City Governments (f) Establish Urban Transport Department within the Municipal Government. (g) Corporatize Urban Transport Enterprises as Municipally-Owned Enterprises. (h) Conclude Performance Contracts between the Cities and the Transit Companies. After Effectiveness: By December 31, 1996 (i) Completion of Least-Cost Analysis (j) Implementation of Phase I of Action Plan on Exemptions. By March 31, 1997 (k) Completion of Five-Year Plan for Fleet Rehabilitation and Investment. By May 31, 1997 (1) Completion of Five-Year Financial Plan for Transit Fleets. By June 30, 1997 (m) Adoption by Project Cities of Urban Transport Policy. (n) Implementation of Phase II of Action Plan on Exemptions. (o) Submission of Government Report on Organizational Plan for Urban Transport. STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX G PROCUREMENT PLANS AND SCHEDULES Goods Lot or Nature of Package Estim. Cost Procurem. Major Activities Schedule item US$ min Method Documents Bid/Proposal Contract Delivery no. equiv. Issue Submission Signature Completed 1 12m-Buses 4.7 ICB Oct-96 Dec-96 Feb-97 Mar-98 2 12m Trolleybuses 6.4 ICB Oct-96 Dec-96 Feb-97 Mar-98 3 Spare parts 6.0 ICB Sep-96 Nov-96 Jan-97 Jul-97 4 Spare parts 4.0 LIB Sep-96 Nov-96 Jan-97 Jul-97 5 18m-Buses 14.0 ICB Dec-96 Mar-98 May-97 Jun-98 6 Articulated Trolleybuses 7.0 ICB Dec-96 Mar-98 May-97 Jun-98 7 Trams 12.9 ICB Apr-97 Jun-97 Sep-97 Nov-98 8 Traffic Mgt. Equipment 0.6 ICB Jan-97 Apr-97 Jun-97 Nov-97 9 Rehab. of Trams 4.2 . ICB Oct-96 Dec-96 Mar-97 Mar-99 10 Rehab. of trolleys 1.5 ICB Oct-96 Dec-96 Mar-97 Mar-99 11 Rehab. of buses 3.0 ICB Oct-96 Dec-96 Mar-97 Mar-99 64.20 Technical assistance Estim. Lot or Nature of Package Cost Major Activities Schedule item US$ mln TOR BidlProposal Contract Delivery no. . equiv. Issue Submission Signature Completed Assistance for: MOT in training and organisation 0.35 Aug-96 Sep-96 Dec-96 Jun-98 Reporting and fare collection 0.45 Jul-96 Aug-96 Nov-96 Nov-98 Urban Planning 0.30 Jul-96 Aug-96 Nov-96 Nov-98 Contracting out 0.45 Jul-96 Aug-96 Nov-96 Nov-98 Vehicle rehabilitation 0.35 Jun-96 Jul-96 Nov-96 Feb-99 Preparation of legal code 1.15 Sep-96 Oct-96 Jan-97 Jan-99 Project management Phase A 0.10 May-96 Jun-96 Jul-96 Jan-97 Project management Phase B 0.30 Jul-96 Aug-96 Nov-96 Nov-98 Manufacturing industry 0.65 Jul-96 Aug-96 Nov-96 Dec-98 4.10 1996 1997 1998 ID Task Name Duration . Start Finish Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 1 Negotiations in Washington 1w 5120196 5124196 2 Notify Bank of approval of negotiations id 6/24/96 6/24/96 3 Board approval ld 7/2196 7/2/96 4 Sign loan agreement ld 8/14/96 8/14/96 5 Finalize subsidiary loan agreements low 5/27/96 8/2/96 6 Cross effectiveness 12w 8/5/96 10/25/96 7 Make loan effective Od 11/6/96 11/6/96 8 New 12m buses and trolleys 480d 5/1196 3/3/98 9 Finalize specs 9w 5/1/96 7/2/96 10 Finalize ICB package low 7/3/96 9/10/96 11 Give no objection to ICB package 3w 9/11/96 10/1/96 12 Request bids low 10/2/96 12/10/96 13 Open ICB Od 12/10/96 12/10/96 12 0 14 Evaluate bids 8w 12/11/96 2/4/97 15 Give no objection to contracts 3w 2/5/97 2/25/97 16 Sign contracts 1w 2/26/97 3/4/97 17 Arrange letters of credit 2w 3/5/97 3/18/97 18 Delivery of new vehicles 25w 9/10/97 3/3/98 OZ procurt.mpp 1 4/16/96 m 1996 1997 1998 ID Task Name Duration Start Finish Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr I Otr 2 Qtr 3 Qtr 4 Otr 1 Qtr 2 Qtr3 Qtr4 Otr 1 19 Procurement of Spare parts 310d 511/96 7/8/97 20 Finalize list of spare parts 13w 5/1/96 7/30196 21 Finalize ICB package 4w 7/31/96 8/27/96 22 No objection to ICB package 3w 8/28/96 9/17/96 23 Request bids for spare parts low 9/18/96 11/26/96 24 Open ICB Od 11/26/96 11/26/96 11/26 25 Evaluate bids 6w 11/27/96 117/97 26 Give no objection to contract 3w 1/8/97 1/28/97 27 Sign contract for spare parts 1w 1/29/97 2/4/97 28 Arrange letter of credit 2w 2/5/97 2/18/97 29 Delivery of parts 20w 2/19/97 7/8/97 30 New 18m buses and trolleys 500d 713/96 612198 31 Finalize specs 13w 7/3/96 10/1/96 32 Finalize ICB package low 10/2/96 12/10/96 33 Give no objection to ICB package 3w 12/11/96 12/31/96 34 Request bids low 1/1/97 3/11/97 35 Open ICB Od 3/11/97 3/11/97 311 36 Evaluate bids 8w 3/12/97 5/6/97 37 Give no objection to contracts 3w 5/7/97 5/27/97 38 Sign contracts 1w 5/28/97 6/3/97 39 Arrange letters of credit 2w 6/4/97 6/17/97 40 Delivery of new vehicles 25w 12/10/97 6/2/98 0 M procurt.mpp 2 4/16/96 0 1996 1997 1998 ID Task Name Duration Start Finish Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr3 Qtr4 Qtr 1 41 New trams 550d 1012196 11/10/98 M 42 Finalize specs 13w 10/2/96 12/31/96 43 Finalize ICB package low 1/1/97 3/11/97 44 Give no objection to ICB package 3w 3/12/97 4/1/97 45 Request bids low 4/2/97 6/10/97 46 Open ICB Od 6/10/97 6/10/97 611 6/10 47 Evaluate bids 8w 6/11/97 8/5/97 48 Give no objection to contracts 3w 8/6/97 8/26/97 49 Sign contracts 1w 8/27/97 9/2/97 50 Arrange letters of credit 2w 9/3/97 9/16/97 51 Delivery of new vehicles 25w 5/20/98 11/10/98 52 Procurement of Traffic Mgt. Equipt 360d 7/3/96 11/18/97 53 Finalize specs for Traffic Mgt. Equipt 20w 7/3/96 11/19196 54 Finalize ICB package 7w 11/20/96 1/7/97 55 No objection to ICB package 3w 1/8/97 1/28/97 56 Request bids for Traffic Mgt. Equipt low 1/29/97 4/8/97 57 Open ICB for Traffic Mgt. Equipment Od 4/8/97 4/8/97 58 Evaluate bids for Traffic Mgt. Equipt 6w 4/9/97 5/20/97 59 Give no objection to contract 3w 5/21/97 6/10/97 60 Sign contract for Traffic Mgt. Equipt 1w 6/11/97 6/17/97 61 Arrange letter of credit 2w 6/18/97 7/1/97 62 Delivery of Traffic Mgt. Equipment 20w 7/2/97 11/18/97 Old 0 procurt.mpp 3 4/16/96 1996 1997 1998 ID Task Name Duration Start Finish Qtr 4 Qtr I Qtr 2 Qtr 3 Qtr4[ Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 63 Rehabilitation of vehicles (3 packages) 730d 613/96 3/19/99 64 Finalize specs 8w 6/3/96 7/26/96 65 Finalize ICB package 7w 7/29/96 9/13/96 66 Give no objection to ICB package 3w 9/16/96 10/4/96 67 Request bids 10w 10/7/96 12/13/96 68 Open ICB Od 12/13/96 12/13/96 12/13 69 Evaluate bids 8w 12/16/96 2/7/97 70 Give no objection to contracts 3w 2/10/97 2/28/97 71 Sign contracts 1w 3/3/97 3/7/97 72 Arrange letters of credit 2w 3/10/97 3/21/97 73 Rehabilitation of vehicles 100w 4/21/97 3/19/99 74 Project Managt and Procurt services 670d 5/1/96 11/24/98 75 Phase A 180d 5/1/96 1/7/97 76 Finalize terms of reference 10d 5/1/96 5/14/96 77 Selection of staff 30d 5/15/96 6/25/96 78 Team mobilizes 15d 6/26/96 7/16/96 79 Assignment period 25w 7/17/96 1/7/97 uZ Opm1 procurt.mpp 4 4/16/96 1996 1997 1998 ID Task Name Duration Start Finish Qtr 4] Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr i Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr2 Otr3 Qtr 4 Otr I 80 Phase B 670d 511/96 11/24/98 81 Finalize TORs and short list low 5/1/96 7/9/96 82 Bank's "no objection" to pakage 3w 7/10/96 7/30/96 83 Request proposals 4w 7/31/96 8/27/96 84 Evaluation of proposals 3w 8/28/96 9/17/96 85 Bank's no objection 3w 9/18/96 10/8/96 86 Negotiations with consultants 3w 10/9/96 10/29/96 87 Bank prior review and no objection 3w 10/30/96 11/19/96 88 Contract signed 1w 11/20/96 11/26/96 i 89 Consultants mobilize 4w 11/27/96 12/24/96 90 Assignment period 100w 12/25/96 11/24/98 91 Assistance to MOT and SCHME 540d 6/3/96 6/26/98 92 Finalize TORs and short list 10w 6/3/96 8/9/96 93 Bank's "no objection" to pakage 3w 8/12/96 8/30/96 94 Request proposals from consultants 4w 9/2/96 9/27/96 95 Evaluation of proposals 3w 9/30/96 10/18/96 96 Bank's no objection 3w 10/21/96 11/8/96 97 Negotiations with consultants 3w 11/11/96 11/29/96 98 Bank prior review and no objection 3w 12/2/96 12/20/96 99 Contract signed 1w 12/23/96 12/27/96 100 Consultants mobilize 3w 12/30/96 1/17/97 101 Assignment period 75w 1/20/97 6/26/98 (D o~Z O txJ " X procurt.mpp 5 4/16/96 c G) 1996 1997 1998 ID Task Name Duration Start Finish Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Otr 1 Qtr 2 Qtr 3 Qtr 4 Otr I 102 Assistance to project cities (3# TORs) 640d 613/96 11/13198 103 Finalize TORs and short list 5w 6/3/96 7/5/96 104 Bank's "no objection" to pakage 3w 7/8/96 7/26/96 105 Request proposals from consultants 4w 7/29/96 8/23/96 106 Evaluation of proposals 3w 8/26/96 9/13/96 107 Bank's no objection 3w 9/16/96 10/4/96 108 Negotiations with consultants 3w 10/7/96 10/25/96 109 Bank prior review and no objection 3w 10/28/96 11/15/96 110 Contract signed 1w 11/18/96 11/22/96 1 ill Consultants mobilize 3w 11/25/96 12/13/96 112 Assignment period 100w 12/16/96 11/13/98 113 Assistance for vehicle rehabilitation 731 d 5/1/96 2/17/99 114 Finalize TORs and short list 5w 5/1/96 6/4/96 115 Bank's "no objection" to pakage 3w 6/5/96 6/25/96 116 Request proposals from consultants 4w 6/26/96 7/23/96 117 Evaluation of proposals 3w 7/24/96 8/13/96 118 Bank's no objection 3w 8/14/96 9/3/96 119 Negotiations with consultants 3w 9/4/96 9/24/96 120 Bank prior review and no objection 3w 9/25/96 10/15/96 121 Contract signed 1w 11/7/96 11/13/96 122 Consultants mobilize 3w 11/14/96 12/4/96 123 Assignment period 115w 12/5/96 2/17/99 pD procurt.mpp 6 4/16/96 00G 1996 1997 1998 ID Task Name Duration Start Finish Qtr 4 Qtr 1 Qtr 2 Qtr-3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtrt2 Qtr3 tr 4 Otr I 124 Assistance in preparation of legal code 655d 7/1196 111/99 125 Finalize TORs and short list 7w 7/1/96 8/16/96 126 Bank's "no objection" to pakage 3w 8/19/96 916/96 127 Request proposals from consultants 5w 9/9/96 10/11/96 128 Evaluation of proposals 3w 10/14/96 11/1/96 129 Bank's no objection 3w 11/4/96 11/22/96 130 Negotiations with consultants 3w 11/25/96 12/13/96 131 Bank prior review and no objection 3w 12/16/96 1/3/97 132 Contract signed 1w 1/6/97 1/10/97 133 Consultants mobilize 3w 1/13/97 1/31/97 134 Assignment period 100w 2/3/97 1/1/99 (p cZ procurt.mpp 7 4/16/96 STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX H ESTIMATED SCHEDULE OF DISBURSEMENTS (US$ MILLION) Bank FY & Semester Disbursed in Semester Cumulative Amount Cumulative Disbursements as % of Total FY 97 31-Dec-96 0.8 0.8 1% 30-Jun-97 5.4 6.2 8% FY 98 31-Dec-97 13.9 20.1 26% 30-Jun-98 15.5 35.6 46% FY 99 31-Dec-98 15.5 51.1 66% 30-Jun-99 11.6 62.7 81% FY 00 31-Dec-99 7.7 70.4 91% 30-Jun-2000 6.2 76.6 99% FY 01 31-Dec-2000 0.8 77.4 100% STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX I SUPERVISION PLAN Approximate Date of Input (mo/yr) Activity Expected Skils Requirement Staff Weeks Fiscal Year 1996 Subtotal 13 sw May 1996 Project Launch. Task Manager 13 Finalize organisation of PIU Urban Transport Specialist Launch procurement activities. Financial Analyst Mission will visit the 3 cities Economist/institutional analyst Bus manufacturing Specialist Fiscal Year 1997 Subtotal 36 sw September 1996 Mission to and monitor progress Task Manager 10 with implementation of the reform Urban Transport Specialist program and procurement activities. Financial Analyst Liaise with EBRD to monitor Economist/institutional analyst progress with vehicle rehabilitation Specialist program. January 1997 Supervision Mission to monitor Task Manager 13 procurement of new vehicles, and Urban Transport Specialist implementation of the reform Financial Analyst program Economist/institutional analyst Mission will visit the 3 cities Specialist May 1997 Supervision mission Task Manager 13 Urban Transport Specialist Mission will visit the 3 cities Financial Analyst Economist/institutional analyst Specialist ANNEX I Page 2 of 2 Approximate Date of Input (molyr) Activity Expected Skils Requirement Staff Weeks Fiscal Year 1998 Subtotal 26 sw October 1997 Supervision mission Task Manager 13 Urban Transport Specialist Mission will visit the 3 cities Financial Analyst Economist/institutional analyst Specialist May 1998 Mid-term Review Task Manager 13 Urban Transport Specialist Mission will visit the 3 cities Financial Analyst Economistlinstitutional analyst Specialist Fiscal year 1999 Subtotal 26w October 1998 Supervision mission Task Manager 13 Urban Transport Specialist Mission will visit the 3 cities Financial Analyst Economist/institutional analyst Specialist April 1999 Supervision mission Task Manager 13 Urban Transport Specialist Mission will visit the 3 cities Financial Analyst Economist/institutional analyst Specialist Fiscal Year 2000 Subtotal 19 sw September 1999 Supervision mission and collection Task Manager 13 of data for ICR finalization Urban Transport Specialist Financial Analyst Mission will visit the 3 cities Economist/institutional analyst Specialist March 2000 Supervision mission and ICR Task Manager 6 finalization Urban Transport Specialist Economist/Financial Analyst STAFF APPRAISAL REPORT UKRAINE URBAN TRANSPORT PROJECT ANNEX J DETAILS OF THE ECONOMIC ANALYSIS The economic analysis is based on the comparison between the "do nothing" case (without the Project), where the condition of the fleet continues to deteriorate, and the with Project case, where the situation improves slightly by the end of the Project (1998). The main benefits of the Project are: (i) that unit operating costs decrease, (ii) that waiting times instead of deteriorating to very low levels (around 8-10 minutes average waiting time at peak periods, but as long as 15 minutes in Kriviy Rig) will improve to very satisfactory levels (2-3 minutes); (iii) that ridership will be with the Project about 13% higher than without it, and (iv) that the cities will be able to charge normal fares for most of their passengers, thus increasing cost recovery to over 100 percent and making the level of Urban Transport at the end of the Project sustainable. Based on observations of present conditions and on the effects of variations in transport supply, the analysis estimates the changes in the three major characteristics: operating costs, waiting times and traffic. The deteriorating financial position of the public transport operations would, even in the absence of the project, have necessitated some change of policy in respect of fare levels. For the purposes of evaluating the investment component in the project it is assumed that the necessary actions to put the operations on a more financially viable footing are taking at the outset. These actions mainly take the form of reductions in the nuinber of people eligible for free or reduced fare travel and parallel actions to reduce fare evasion. Only minor real fare adjustments are provided for. Key assumptions about fares, inflation and exchange rates are detailled in Table 1 below. ANNEX J Page 2 of 12 Table 1 Key Assumptions of Forecast (in percent, except where otherwise noted) 1995 1996 1997 1998 1999 2000 Passengers Receiving 50 40 15 10 5 5 Fare Privileges Passengers Evading 30 20 15 12 10 10 Fares Fare Increases 55 20 20 20 20 Average Annual 342 55 19 13 12 10 Inflation Rate Average Annual 137 196 214 229 247 261 Exchange Rate (OOOKB/US$) It has been assumed that approximately 25% of fare-paying bus passengers will avail of premium priced expressway bus services. These services are provided at a tariff which is 50% higher than the standard tariff. The standard tariff for all modes has been assumed to be 10,000KBs in 1995 and the premium express bus tariff for all cities has been set at 15,OOOKBs. The increase in fares is assumed to reduce the level of patronage. For all cases where passengers formerly qualifying for free travel or evading payment are charged the full fare it is assumed that there will be a 15% loss of patronage. The adoption of this relatively low loss of patronage reflects i) the absence of a viable alternative for many passengers traveling long distances to work; ii) the fact that the initial conditions are so crowded, uncomfortable and unreliable that there is assumed to be relatively little "non-essential" travel attracted by the absence of a charge. These reduced levels of patronage resulting from the action on the fare concession and fare evasion front are incorporated in both the "without project" and the "with project" scenarios as shown in Table 2. The effect of the improvements in the level of service in generating new traffic are thus applied to the already reduced "without project" traffic volumes and not to the "before" traffic volumes. The estimated fleet available at peak hours with and without the project has been assessed and is shown in Table 3. Without the project, fleet availability falls by 15 to 44 percent, depending upon the company. The lowest reduction in fleet availability is for Lviv buses, ANNEX J Page 3 of 12 the highest reduction is for Lviv trolleys. With the project the available fleet varies from an increase of 6 percent in the case of Kriviy Rig trolleys, to 30 percent for Kriviy Rig buses. The difference between the "with project" and "without project" levels of service are very large (about 60 percent more vehicles on the road with project than without). The reductions in waiting time and increases in in-vehicle comfort are assumed to attract 13 percent more traffic in the with project than without project case. Table 6 shows the estimated number of passengers using each system with and without the project in 1998 at peak hour. This estimate has not been based on any formal modeling of the reduction in total travel time or total generalized cost, but is considered to be reasonable given the reductions from existing traffic levels already assumed as a consequence of the increased level of fare recovery. The waiting time calculations are based on observations about the frequency of vehicles in Lviv and Kiev, the minimum and maximum headway (gap between vehicles), and the average waiting time. Table 4 shows the results observed in Lviv. On the basis of these observations Table 5 shows the assumptions used for the three cities, and Table 6 shows the results on waiting times. The question asked in the cost benefit analysis is whether the stream of future impacts of the project are sufficiently beneficial to justify the capital outlays. This question is addressed by presenting the capital costs, the impacts on operators and the impacts on users, (both those existing in the without project case and those generated by the improved service offered with the project) in net present value form. The discount rate used is 12 percent. For capital costs the major expenditures occur at the outset of the project. The capital cost of other purchases (effective life of the investments is 3 years for spares, 7 years for rehabilitation and 15 years for new vehicles) are converted to present value using the 12 percent discount rate. This is shown in column 1 of Table 7. For the operators three main impacts are taken into consideration i) The costs of providing the "without project" level of service are reduced because the improved fleet is cheaper to maintain and to operate. This is shown in column 3 of Table 7. ii) Extra fleet availability will allow more vehicle miles to be operated, which increases total operating costs (estimated at the with project unit operating cost levels). This is shown in column 4 of Table 7. iii) The extra passengers generated by the improved service availability and quality generate revenues which partially (but not completely) offset the cost of the increase in service which attracts them. This is shown in column 5 of Table 7. ANNEX J Page 4 of 12 Effects on users can be divided into two categories: i) The base load traffic (those who would have used the public transport services even in the without project case) receive benefits in the form of time savings. These are estimated using a model which relates waiting time to the balance between the level of capacity provided and the headways at which the services run and the total level of demand. They are valued at a rate equal to 30 percent of the average wage rate (US$ 77 per month) or US$0.15. ii) Generated traffic (passengers who would not have traveled in the absence of the project) are attributed an average benefit value equal to half the value of time savings of passengers already being carried. Note that the gross value of the marginal trip does include the price paid, but because it is actually charged that is not part of the net benefit of the trip to the consumer. Table 6 sets out the changes in traffic for 1998, the first year when the project is supposed to give its full benefits, and average waiting times with and without the project. The two elements in the value of time savings to passengers are combined in column 7 of Table 7. There are a number of elements of conservatism in these estimations, including i) The waiting times estimated by the model appear to be low in comparison with general perception and casual observation. Because queuing time increases exponentially as the ratio of passenger arrival rates and capacity increases, underestimation of the initial queuing times will cause the actual time savings to be underestimated if the model is applied similarly (as it is) to both "with project" and "without project" mean headways. ii) Waiting times values are not attributed a premium rate (as suggested by most urban transport modeling experience) but at an unenhanced value of waiting time. Given the adverse climatic conditions in which much waiting occurs this is almost certainly a conservative convention iii) No value is attached to reduced in-vehicle crushing and hence improved comfort, or to any reduction in in-vehicle travel times associated with reduced loading and unloading times as vehicle loadings fall. Sensitivity Analysis. To test the robustness of the ERR calculations, sensitivity analyses were conducted by varying the following key determinants of project benefits (as noted in Table 10): a) the value of time savings, in terms of (i) the amount of time saved (reflecting the uncertainty of the evaluation of actual waiting time and how it changes with the size of the fleet); and (ii) the monetary value of waiting time. Time savings were varied by minus 30 percent; monetary value was varied by minus 50 percent; ANNEX J Page 5 of 12 b) the level of service with the project being set at the same level as without it. This effectively sets the time savings and additional revenues at zero, thus measuring productivity improvements only; c) investment costs by plus 50 percent; d) operating costs by plus 30 percent (which could result from imperfect knowledge of operating cost parameters such as actual current costs, changes in wages or fuel costs, and changes in the foreign exchange rate); and e) ridership by minus 20 percent relative to 1995 levels (with service levels assumed to remain at the 1995 levels). This is a "worst case" in that it assumes a substantially-increased elasticity of ridership to fares without any reduction in the level of service provided. ANNEX J Page 6 of 12 TABLE 2 Change in demand pattern in 1998 due to change in proportion of concessionary fares and fare evaders, increase in fares and exogenous traffic growth expressed as percent of total demand in 1995 Column Traffic Effect of change in Effect of change in As previous As previous pattern proportion of proportion of column but column but 1995 concessionary fares concessionary fares adding effect adding and fare evaders and fare evaders of fares effect of before allowing for after allowing for increase exogenous trips not made if not trips not made if not traffic free free growth Fare paid 20 72.2 64.4 58.7 62.3 Concession 50 11 11 11 11.7 Evaders 30 16.8 16.8 16.8 17.8 Total 100 100 92.2 86.5 91.8 ANNEX J Page 7 of 12 TABLE 3 Estimated fleet availability by company with and without the project Company Year Fleet Avail. Ratio Fleet Available percent of 1995 Kiev Tram 95 752 0.55 414 100.0 98 No project 678 0.5 339 81.9 98 With project 703 0.75 527 127.3 Kiev Trolley 95 778 0.55 428 100.0 98 No project 613 0.50 306 71.5 98 With project 648 0.75 486 113.6 Kiev Bus 95 1952 0.56 1093 100.0 98 No project 1552 0.50 776 71.0 98 With project 1632 0.75 1224 112.0 Kiriviy Rig Tram 95 207 0.63 130 100.0 98 No project 190 0.55 104 80.0 98 With project 202 0.75 152 116.9 Kriviy Rig Trolley 95 221 0.63 139 100.0 98 No project 196 0.55 108 77.7 98 With project 196 0.75 147 105.8 Kriviy Rig Bus 95 748 0.35 262 100.0 98 No project 504 0.35 176 67.2 98 With project 524 0.65 341 130.2 Lviv Tram 95 224 0.50 112 100.0 98 No project 198 0.45 89 79.5 98 With project 198 0.70 139 124.1 Lviv Trolley 95 182 0.50 91 100.0 98 No project 114 0.45 51 56.0 98 With project 160 0.7 112 123.1 Lviv Bus 95 403 0.65 262 100.0 ANNEX J Page 8 of 12 98 No project 372 0.6 223 85.1 98 With project 418 0.75 314 119.8 TABLE 4 Observed pattern of variability in headway (in minutes) by route in Lviv during a 160 minute period from 8:20 a.m. on Monday, June 19, 1995 Route Average Minimum Gap Maximum Gap headway 2 Trolley 8.75 1 27 9 Trolley 7.37 3 23 10 Trolley 8.24 1 27 1 Bus 14.00 7 20 9 Bus 8.75 3 26 29 Bus 20.00 2 44 34 Bus 8.75 4 17 38 Bus 12.73 3 30 84 Bus 10.77 5 19 TABLE 5 Headway assumptions Average Peak Headway in 1995 7 minutes (Kiev 5 mn) Average Off-peak Headway in 1995 10.5 minutes (Kiev 7.5 mn) Average Headway in 1996-1998 1995 value divided by proportional change in fleet availability ANNEX J Page 9 of 12 TABLE 6 Estimated changes in traffic and average waiting time with and without the project in 1998 Company Status Peak Traffic Average Average as a percent Waiting Time Waiting of peak traffic Peak (min.) Time Off- in 1995 Peak (min.) Kiev Tram No Project 91.7 6.1 3.8 With Project 103.6 2.0 2.4 Kiev Trolley No Project 91.5 6.3 3.8 With Project 104.2 1.9 2.3 Kiev Bus No Project 89.6 9.0 4.3 With Project 100.5 2.3 2.6 Kriviy Rig No Project 91.2 9.3 5.5 Tram With Project 101.1 3.2 3.6 Kriviy Rig No Project 80.6 10.4 5.7 Trolley With Project 98.1 3.8 4.0 Kriviy Rig No Project 88.6 15.4 6.4 Bus With Project 104.6 2.6 3.2 Lviv Tram No Project 91.2 9.3 5.5 With Project 103.0 2.8 3.4 Lviv Trolley No Project 91.9 8.3 5.3 With Project 118.8 1.5 2.2 Lviv Bus No Project 92.3 7.7 5.2 L_ IWith Project 101.8 3.0 3.5 ANNEX J Page 10 of 12 TABLE 7 Estimated costs and benefits in NPV discounted at 12% Company Capital Savings due Extra Extra Net Effect Passenger Net Benefit Cost to increased Operating Revenue on Time productivity Cost (from new Operating Benefits passengers) company 1 2 3 4 5 6 7 8 Kiev Tram -16.55 39.56 -64.64 34.18 -7.45 21.53 14.08 Kiev -17.81 45.84 -64.78 36.28 -0.47 22.67 22.20 Trolley Kiev Bus -26.60 61.28 -106.58 57.09 -14.81 49.02 34.21 Total Kiev -60.96 146.68 -236.00 127.55 -22.73 93.22 70.49 Kriviy Rig -7.56 19.34 -27.03 7.03 -8.22 7.39 -0.83 Tram Kriviy Rig -4.41 12.10 -15.56 4.41 -3.46 6.25 2.79 Trolley Kriviy Rig -9.60 12.74 -32.19 17.71 -11.34 19.93 8.59 Bus Total -21.57 44.18 -74.78 29.15 -23.02 33.57 10.55 Kriviy Rig . Lviv Tram -4.34 11.57 -18.47 8.66 -2.58 8.97 6.39 Lviv -6.48 12.86 -19.79 13.34 -0.07 7.10 7.03 Trolley Lviv Bus -8.43 7.40 -19.46 13.39 -7.10 10.56 3.46 Total Lviv -19.25 31.83 -57.72 35.39 -9.75 26.63 16.88 Overall -101.78 222.69 -368.50 192.09 -55.50 153.42 97.92 Total ANNEX J Page 11 of 12 TABLE 8 Time stream of costs and benefits (US$ millions) Year Capital Costs Net Extra Extra Revenue Passenger Time Total Net Benefit Operating Costs Benefits 1997 -60.80 -9.80 14.24 14.47 -41.89 1998 -30.40 -25.42 25.26 26.13 -4.43 1999 0 -25.42 31.07 26.13 31.78 2000 -9.53 -25.42 35.03 26.13 26.21 2001 -4.77 -25.42 35.03 26.13 30.98 2002 0 -25.42 35.03 26.13 35.74 2003 -9.53 -25.42 35.03 26.13 26.21 2004 -22.83 -25.42 35.03 26.13 12.91 2005 -9.03 -25.42 35.03 26.13 26.71 2006 -9.53 -25.42 35.03 26.13 26.21 2007 -4.77 -25.42 35.03 26.13 30.98 2008 0 -25.42 35.03 26.13 35.74 2009 -16.93 -25.42 35.03 26.13 18.81 2010 . -8.47 -25.42 35.03 26.13 27.28 2011 0 -25.42 35.03 26.13 35.74 2012 -9.53 -25.42 35.03 26.13 26.21 2013 +11.56 11.56 Total NPV in -101.78 -145.81 192.09 153.42 97.92 1995 at 12% Internal rate 44.6 of return ANNEX J Page 12 of 12 TABLE 9 Calculated economic rate of return for the overall investment component by company Company Economic rate of return (percent) Kiev Tram 40% Kiev Trolley 67% Kiev Bus 54% Kriviy Rig Tram 9% Kriviy Rig Trolley 76% Kriviy Rig Bus 42% Lviv Tram 71% Lviv Trolley 41% Lviv Bus 24% Total 45% TABLE 10 Project Economic Rate of Return and Results of Sensitivity Analysis Amount Value of Productivity Investment Operating Reduced of Time Time Improvements Costs Costs Ridership Savings Savings Only Base -30% -50% - +50% +30% -20% case ERR 44.6 28.3 18.6 57.0 22.0 32.7 16.0 ANNEX K SELECTED DOCUMENTS AVAILABLE IN THE PROJECT FILES 1. Assistance to the Ministry of Transport and the State Committee for Housing and Municipal Economy -- Terms of Reference 2. Assistance to Project City Transport Regulatory Authorities and Urban Transport Companies -- Terms of Reference 3. Assistance to the Project Cities to Improve the Planning of Urban Transport -- Terms of Reference 4. Assistance to the Project Cities for the Regulation, Financing, and Privatization of Urban Transport -- Terms of Reference 5. Assistance for Urban Transport Vehicle Rehabilitation -- Terms of Reference 6.' Assistance in Preparation of a Legal Code and Organizational Scheme for the Governance of the Institutions of the Transport Sector of Ukraine -- Terms of Reference 7. Procurement and Project Management Services -- Terms of Reference 8. Project Implementation Unit -- Terms of Reference 9. Assistance to the Transit Equipment Manufacturing Industry -- Terms of Reference 犷 忽 CATALOGUERS/FILE CONFIDENTIAL Report No: 15381 UA Type: SAR