Turkmenistan - Urban Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 23357 IMPLEMENTATION COMPLETION REPORT (SCL-41700; PPFB-P3070) ON A LOAN IN THE AMOUNT OF US$ 34.2 MILLION TO TURKMENISTAN FOR AN URBAN TRANSPORT PROJECT December 20, 2001 Infrastructure and Energy Services Department Central Asia Country Unit 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 (Exchange Rate Effective June 30, 2001) Currency Unit = Manatlar 5,200 Manats = USS 1 (official rate) USSI = 21,000 Manats (street rate) FISCAL YEAR January I December 31 ABBREVIATIONS AND ACRONYMS APAPO Ashgabat Passenger Autotransport Production Organization MoAT Ministry of AutoTransport 31P Operations Improvement Plan OSG Operations Support Group PMG Project Managenent Group Vice President: Johannes Linn, ECAVP Country Director. Dennis de Tray, ECCO8 Sector Director Hossein Razavi, ECSIE Transport Sector Manager Eva Molnar Task Team Leader/Task Manager: Slobodan Mitric, ECSIE  FOR OFFICIAL USE ONLY TURKMENISTAN URBAN TRANSPORT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry I 4. Achievement of Objective and Outputs 8 5. Major Factors Affecting Implementation and Outcome 13 6. Sustainability 14 7. Bank and Borrower Performance 14 8. Lessons Learned 18 9. Partner Comments 20 10. Additional Information 20 Annex 1. Key Performance Indicators/Log Frame Matrix 21 Annex 2. Project Costs and Financing 23 Annex 3. Economic Costs and Benefits 25 Annex 4. Bank Inputs 26 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 28 Annex 6. Ratings of Bank and Borrower Performance 29 Annex 7. List of Supporting Documents 30 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.   Project ID: P034083 Project Name: URBAN TRANSPORT Team Leader: Slobodan Mitric TL Unit: ECSIE 1CR Type: Core [CR Report Date: December 20, 2001 1. Project Data Name: URBAN TRANSPORT L/C/TFNumber: SCL 41700; PPFB-P3070 Country/Department: TURKMENISTAN Region: Europe and Central Asia Region Sector/subsector: TU - Urban Transport; UU - Urban Development Adjustment; WW - Water Supply & Sanitation Adjustment KEY DATES Original Revised/Actual PCD: 03/27/1995 Effective: 08/29/1997 08/19/1997 Appraival: 10/23/1996 MTR: Approval: 05/27/1997 Closing: 12/31/2001 06/28/2001 Borrower/lmplementing Agency: TURKMENISTAN/MOAT/APAPO Other Partners: STAFF Current At Appraisal Vice President: Johannes Linn Johannes Linn Country Manager: Dennis DeTray Yukon Huang Sector Manager: Eva Molnar Jonathan C. Brown Team Leader at ICR: Slobodan Mitric Yusupha Crookes ICR Primary Author: Slobodan Mitric 2. Principal Performance Raidngs (HS=Highly Satisfactory, S-Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: N Bank Performance: U Borrower Performance: U QAG (if available) ICR Qualty at Entry: S U Project at Risk at Any Time: Yes  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The Project was the first investment operation approved by the Bank in Turkmenistan, the only prior operation being an Institution Building Technical Assistance Loan approved in FY 1995. It was also one of only two investment operations, the other being a Water Supply and Sanitation Project, prepared in the context of the first Country Assistance Strategy (CAS) for Turkmenistn (finalized in May 1997). Both of these investment projects were based on specific requests by the Government, which was anxious to improve faltering services deemed essential for the daily life of urban and rural populations in the country. Both projects also were meant to serve as vehicles for preparing and implementing in their specific domains some of the most crucial govemance and public sector reforms contained in the CAS. From a sectoral and regional perspective, the Project belongs to a cluster of six urban transport operations undertaken by the Bank in the former socialist countries in Europe and Central Asia Region in the early-to-mid 1990s. The others included projects in Kazakhstan and Hungary (completed), Russia and Latvia (approaching completion), and Ukraine (abandoned after an impasse encountered at the negotiations stage). In all cases, these projects responded to urgent requests for help from national governments and city mayors who were facing a crisis in the supply of urban public transport services, in terms of both quantity and quality. Given that public transport carried a large majority of daily trips, up to 90-95% in some cities, this crisis in turn endangered the daily life of citizens and the functioning of urban economies. Underlying the urban transport problems was the continuation of a public policy of low fares and fare exemptions, in tandem with the inability of the local and/or state governments to make up the difference between fare revenues and operating costs of public sector owned transport enterprises, as they had done in the socialist era. In major Turkmen cities, the prolonged under-financing of public transport operators had resulted in aged fleets, with 40-70%/o of vehicles more than 7 years old, and only 55-65% fit to be placed in service. In some other countries which also were changing from central planning to a market based system, e.g. Poland and Hungary, the responsibility for regulating urban public transport (and other local services) was turned over to local govemments, which then made their own decisions about allocating budgets among competing uses. By and large this led to increased user fees in most service sectors, certainly in public transport services. It also led to city governments focusing on their revenue base and resource allocation. In Turkmenistan, neither of these had been done. The inherited institutional arrangement was highly centralized. The national government, acting mainly through the Ministry of Automotive Transport (MoAT), had both regulatory and functional responsibilities for all urban public transport operations, including taxis. The same applied to inter-urban passenger services and for all freight services. Profits from freight services were used to support money-losing services, using the mechanism of an extra-budget Transport Fund. Very little scope was left for the involvement of municipal governments, mainly such things as asking for changes in service routes and schedules. Altogether, local governments had remained outposts of the national government, and had neither institutional or financial capacity to take over municipal services. Similarly, transport enterprise managers had a very narrow scope of authority, concerning themselves mainly with technical matters of operations and maintenance. Finally, the traveling public had no way of influencing the planning and management of transport services. The overall objective of the Project was to "improve, on a sustainable basis, the efficiency and cost effectiveness of urban transport in the cities of Ashgabat, Mary, and Chardjou." (This last city was later renamed Turkmenabat, the name used in this report hereafter). The specific sub-objectives cited in the Staff Appraisal Report were seven: -2-  (i) reforming the management of the agencies in charge of urban transport operations in the three participating cities; the term "management" apparently referred to the entire regulatory and organizational structure of the sector; (ii) establishing a passenger transport authority, Ashgabat Passenger Autotransport Production Organization (APAPO), responsible for the overalI management of bus operations; (iii) improving cost recovery of the operating enterprises; (iv) implementing an Operations Improvement Plan (for the participating operators); (v) augmenting and pteserving the supply of bus services; (vi) enhancing private sector participation in the provision of urban transport services; and (vii) establishing a continuing process of public consultation for this service sector. While the project investments in vehicles. spare parts and vehicle rehabilitation (see the section on project components below) were meant to reach directly the objective of preserving and augmenting the public transport services, the design of the Project as regards the institutions and policies was as follows: * APAPO was set up as an independent legal entity, "with control vested with the Municipality of Ashgabat," (cf. Staff Appraisal Report, para. 7.19(a)), but legal obligations regarding its continued existence were assigned to the Borrower (i.e. the Government, acting through MoAT). Though nominally responsible for passenger transport in Ashgabat, APAPO was also in charge of project-related investments and refonns in the other two participating cities, until the local institutions therein developed a requisite capacity. It consisted of two groups: (I) the Project Management Group (PMG), to implement project investments, maintain accounts, and interact with the Bank; and (2) the Operations Support Group (OSG) to assist in and oversee the reform activities of the participating companies; * the main institutional innovation (referring to the item (i) above) consisted of an interlinked system of three (quasi) contractual agreements, renewable annually. These were as follows: (1) an Administrative Agreement between the national government (represented by MoAT), APAPO and each municipal government, specifying undertakings of each city with respect to the Project, including procurement, accounts, audits, and relations with APAPO; (2) a Service Contract between each municipal government and APAPO, spelling out service requirements and standards, and estimating the cost of service provision; (2) a Performance Contract between each operating company and APAPO, listing services and performance standards to be carried out by the company, methodology for fare setting, criteria for measuring the company's operational and financial performance, obligations with regard to the maintenance of facilities and equipment used by the company, the undertakings with regard to the Operations Improvement Plan (see below), and the reporting requirements; and; * each participating company would prepare and implement an Operations Improvement Plan, including routing and scheduling; stops and terminals; fare concessions, exemptions and collection; vehicle management; vehicle repair and rehabilitation; and spare parts management; * passenger fares were to be increased and other measures (fare collection, cost reduction) were to be used to ensure that business revenue covered at least direct operating costs of each operating company by the end December 1999; * the Government (MoAT) would develop a system of compensating transport companies for fare exemptions or discounts, whereby the compensation would be paid directly by the municipalities or - 3 -  by the ministry/agency asking for exemptions or discounts; * the Govemment (MoAT) would make "adequate yearly budget allocations from the central state budget for the required subsidy to APAPO," implying the abandonment of the subsidy through the Transport Fund, and make "quarterly payments of said subsidy to APAPO" (though not specifying rles for the payments from APAPO to companies); * procedures would be introduced (by January 1999) to ensure that subsidies were adequate for the planned maintenance and repair of vehicles, and capital investments for replacement and expansion (cf. Action Plan); * a privatization program for taxis and minibuses, through leasing or sales to private individuals, would be implemented by November 1997; * a system of competitive tendering for public transport services would be studied by January 1998 and tested in Ashgabat on pilot basis by April 1998; and * the Govenrnent would seek ways for the private sector to receive financing for investments in transport assets. 3.2 Revised Objective: The objectives remained unchanged during the life of the project. The Loan was suspended for more than a year, from March 1998 through May 1999. The project implementation activities were all but frozen during that period. The re-activation mission visited Ashgabat in May/June 1999, concluding that a major restructuring of the reform part of the Project was warranted. It was envisaged that the overall project objective would remain, but the number and scope of the specific sub-objectives would be reduced. Ultimately, as explained in Section 4.1 below, the Project was cancelled without the restructuring being done. 3.3 Original Components: The project included three components: purchase of new vehicles for public transport companies in three cities; vehicle maintenance and rehabilitation; and technical assistance and training to the government institutions and participating companies. The total base cost was estimated at US$32.90 million; when physical and price contingencies are included, the total project cost was US$38.29 million. The individual components were as follows: A. New Vehides Component A. 1. City of Ashgabat (US$14.19 million): 52 standard size, diesel buses for Ashgabat Bus Company, at an estimated cost of US$120,000 per unit; 10 standard-size buses with dual CNG/diesel propulsion for the same company, at an estimated cost of US$135,000 per unit; and 40 standard-size trolley buses for Ashgabat Trolley-bus Company, at an estimated cost of US$ 160,000 per unit. A.2. Cities of Mary and Turkmenabat (US$3.36 million): about 28 standard-size diesel buses for Mary and Turkmenabat bus companies. The exact number of buses to be bought for these two cities was to be determined by further investment studies, whose completion was a condition of disbursement. B. Maintenance and Rehabilitation Component B.1. City of Ashgabat (US$12.41 million): (a) rehabilitation of 81 buses, 34 trolley buses and 33 minibuses, and modification of another 101 minibuses, for a total of US$3.63 million; (b) replenishment of spare parts inventories for a total of US$2.56 million; (c) workshop and other equipment for the Capital Repair Facility in Ashgabat (excluding civil works), for a total of US$2.77 million; and (d) equipment for a -4 -  vehicle location system and ticket sales/cancellation, for a total of US$2.00 rillion, subject to completing a feasibility study and an implementation plan. B.2 Cities of Mary and Turinenabat (US$1.64): vehicle rehabilitation, spare parts and workshop equipment for local bus companies. C. Technical Aistance and Training C. 1 Technical assistance (USS1.00 million). About 60 person-months of external technical assistance, provided in 2 phases. In the first phase, the consultants would continue the work on project preparation (e.g.complete additional feasibility studies), and assist APAPO and the participating companies in managing the project, including agreements between the three cities, APAPO and the companies; implementation of the Operations Improvement Plan; tendering project-financed vehicles and equipment, including monitoring the production of new vehicles and inspecting these vehicles at delivery. In the second phase, the focus would shift to assisting with the reform of national policies in urban passenger transporl, and organizing project-financed training. C.2 Training (US$030 million). Training would be provided to the staffs of APAPO and the participating companies as regards operations of new vehicles and equipment, and opportunities would be provided to senior officials and managers to become familiar with international practices in public transport regulation, planning and management 3.4 Revised Components: There were no formal revisions of project components, but some changes in quantities of goods and their allocation among the participating cities were made after bid evaluation and at the contracting stage (please see Section 4.2 below). 3.5 Quality at Entry: The QAG Assessment. The quality of the project at entry was assessed by the Quality Assurance Group in January 1998, i.e. some months after effectiveness. The project was rated as marginal (overall assessment rating "3"). The individual category ratings were as follows: Concepts, objectives and approach 2 Technical, economic and financial analyses 3 Environment analysis 2 Social and stake-holder analysis 2 lnstitutional capacity analysis 3 Readiness for implementation 2 Risk assessment and sustainability 3 Bank inputs and processes 3 The QA Panel acknowledged that the Project was well-integrated with the Country Assistance Strategy, had explicit objectives arising out of a Bank-wide review of urban transport operations, did a clear with/without evaluation of alternatives, and was innovative in its use of social assessment. On the negative side, the Panel pointed at major project shortcomings in its technicaL economic and financial work, institutional capacity analysis, and risk assessment. The brief textual part of the assessment is not well-aligned with ratings and is contradictory on a major point The Panel writes that project objectives are "clear and doable, ... and borrower commitment is unusually high for such important policy reforms" but -6-  "the project is unlikely to be sustainable on financial, institutional and technical grounds". Major criticisms were aimed at the project for financing standard-size buses, instead of "least-cost buses that are within the population's payment capacity" and for not ensuring beforehand that a sufficient capacity existed locally for the maintenance and repair of new vehicles. The panel recommended that the Project be restructured, citing the need to stop the vehicle tender, underway at that time, to undertake/repeat the technical analyses regarding the least-cost vehicle size and its financial implications, and build vehicle maintenance capacity in the participating companies. The QA Panel did not provide any analysis, or references to actual experience to back-up their strong criticism of the investment part of the ProjecL The brevity was normal for rapid quality assessments, but problematic given its unusual recommendations. These in effect amounted to stopping the Project (and suspending disbursements) on technical (investment) grounds, in the middle of an active international tender. The Assessment of the Quality At-entry done at the Completion. The diagnostic analysis of the sector was well done during project preparation, and the fumdamental problem of financing urban public transport services received appropriate attention. The overall objective of good-quality and sustainable urban public transport was well-chosen. The majority of the seven sub-objectives were well-chosen and clear, though the list is much too long (see below). The objectives were in line with the 1997 Country Assistance Strategy, which had called for: (a) reduction of subsidies in public services and the rationalization of the entire subsidy system; (b) structural reforms in the economy including privatization; (c) strengthening Government capacity to manage sectors considered of critical importance to an efficient economy, and (d) imnproving services for low income population. The Project opted to improve the public sector operation for urban transport services, with an opening for private operators, and introduce a contractual relationships between municipalities and operators as a first step towards eventual competitive tendering of services. An alternative strategic approach might have been to reject the Borrower's request to prop up public-sector urban transport companies, advising them instead to go for immediate privatization and deregulation of the sector, and offering assistance in this process. This strategy was not taken in any of the Bank's urban transport operations in the region, and it appears the least well-suited for Turkmenistan in its stage of development at the time. There is no evidence that the Government was in the least inclined in this direction, at least not in the urban passenger context. The most promising candidates for starting the deregulation and privatization in the transport sector are the freight services and inter-city (bus) passenger services, where the potential for profit making is high. (In Turkmenistan, liberalizing the freight and inter-city passenger services would have led inter alia to stopping the cross subsidy from these sub-sectors to urban transport services, which had a detrimental impact on the financial health and service development of the former). Moreover, the Bank's urban transport policy does not recommend outright privatization and deregulation in urban public transport, not even as a desired end-state. The Bank's preferred approach is that of regulated competition for the market, with operators initially taking on the risks associated with operating costs only. The revenue risk would be passed to operators at a later stage of the reform process. This approach accepts the survival of public-owned operators under improved regulation, if they can improve efficiency to compete with private bidders. The expectation is that the successful public operators would "naturally" pass into the private sector over time. The approach taken in Turkmenistan was to accept the primacy of public sector operators for main-line urban services, but to move these operators and the regulatory make-up of the sector along a path towards competition for the market Complementing this was the introduction of the private operators, first through the privatization of taxis then operated by MoAT, then by the liberalization of entry for small-scale private operators on low-volume urban and suburban routes. -6 -  The weak side of the approach actually taken by the Project was that the scope of the adopted reform program was much too large and excessively ambitious, and the design was cumbersome. It is this aspect of the Project which was missed by the QA Panel. The Project attempted to resolve many entrenched sectoral problems in one operation, and over an extremely short period of time, a few months for some actions and only 1-2 years for major policy reforms. The changes envisaged would pose a difficult challenge in any one country, including the developed countries having the highest institutional capacity. The participating transport companies were to implement the Operations Improvement Plans well before the Project-financed technical assistance and investments would be implemented. The pivotal agreement, to increase cost recovery to 100