Turkmenistan - Urban Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No.P-7067-TM MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT OF US$34.2 MILLION TO TURKMENISTAN FOR AN URBAN TRANSPORT PROJECT April 28, 1997 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 Currency Unit = manat EXCHANGE RATES Manats per US$1 Parallel Official Commercial Market 1993 (end) 2 - 2 1994 (end) 75 - 200 1995 (end) 200 2,484 2,500 1996 (end, estimate) 4,070 5,197 5,200 WEIGHTS AND MEASURES Metric System 1 meter = 3.2808 feet I kilometer = 0.6214 mile I square meter = 1.196 square yards 1 metric ton (ton) = 1.102 short tons ABBREVIATIONS AND ACRONYMS APAPO - Ashghabat Passenger Autotransport Production Organization CAS - Country Assistance Strategy CNG - Compressed Natural Gas COM - Cabinet of Ministers EA - Environmental Assessment FSU - Former Soviet Union IBRD - International Bank for Reconstruction and Development IBTA - Institutional-Building Technical Assistance ICB - International Competitive Bidding IDA - International Development Association km - kilometer m - Meter m2 - Square Meter MOF - Ministry of Economy and Finance MoAT - Ministry of Autotransport OD - Operational Directive OIP - Operations Improvement Plan OSG - Operations Support Group PIU - Project Implementation Unit PMG - Project Management Group Rev - Revenue SA - Social Assessment SCL - Single Currency Loan TURKMENISTAN - FISCAL YEAR January 1 - December 31 Vice President: Johannes Linn, ECAVP Director: Yukon Huang, EC3DR Division Chief: Jonathan C. Brown, EC3IV Task Manager: Ajay Kumar, EC3IV Responsible Staff: Yusupha Crookes, Melody Mason, Brenda Manuel, Richard Podolske (EC31V); Charles Murray, Dambisa Moyo (Consultants); Jan de Weille (Peer Reviewer) FOR OFFICIAL USE ONLY TURKMENISTAN Urban Transport Project Loan and Project Summary Borrower: Turkmenistan Implementing Agency: Ministry of Autotransport (MoAT), the municipal governments of Ashghabat, Mary and Chardjou, and Ashghabat Passenger Autotransport Production Organization (APAPO) Beneficiary: MoAT, the municipal governments and public transit companies of Ashghabat, Mary and Chardjou Poverty: Not applicable Amount: US$34.2 million Terms: Payable in twenty (20) years, including five (5) years of grace for a LIBOR-based single currency loan (SCL), denominated in US dollars. Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver Financing Plan: (US$ millions) Foreign Local Total % of Total World Bank 34.20 34.20 89 Government 1.94 0.32 2.26 6 Operating Companies in Ashghabat 0.83 0.83 1.66 4 Cities of Mary and Chardjou - 0.17 0.17 <1 Total 36.97 1.32 38.29 100 Note: Numbers may not total due to rounding Net Present Value: Economic US$11 million@12% Economic Rate of Return: 30% Staff Appraisal Report: Report No. 16176-TM Map: IBRD Map No. 28387 Project ID Number: TM-PA-34083 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. s MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO TURKMENISTAN FOR AN URBAN TRANSPORT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to Turkmenistan for US$34.2 million to help finance a project to improve, on a sustainable basis, the efficiency and cost-effectiveness of urban transport in Ashghabat, Mary and Chardjou. The loan would be used to preserve and expand urban transport capacity, improve efficiency, strengthen key transport technical and management systems in the three cities and train staff of the operating enterprises. The loan would be a LIBOR-based single currency loan (SCL), denominated in US dollars, for twenty years, including a grace period of five years on principal repayments. 2. Country Background. Turkmenistan, the southernmost republic of the former Soviet Union, is bordered to the west by the Caspian Sea, to the south by Iran and Afghanistan, to the east by Tajikistan and to the north and northeast by Kazakhstan and Uzbekistan. The country gained its independence on October 27, 1991. Turkmenistan lies in the midst of two of the largest deserts in the world, the Karakum and Kyzyl Kum, and 90% of its land is considered arid. 2 With an area of 488,000 km , it is the fourth largest country of the Former Soviet Union republics (FSU). 3. Turkmenistan is one of the least urbanized of the FSU countries with 45% of the total population in urban areas. The country's small population of 4.5 million people is concentrated in a thin strip of land along the foothills of the South and in areas where the land is irrigated. The nation's capital, Ashghabat, is the largest urban center with an estimated population of 500,000. Compared to other countries of the FSU, Turkmenistan's health indicators are poor. Life expectancy is the lowest (63 for males and 70 for females); the infant mortality rate is the highest (46/1,000); maternal mortality is the fifth highest; rates of cardiovascular diseases are extremely high and increasing; and respiratory, digestive, infectious and parasitic diseases are also among the highest of any FSU countries. 4. Turkmenistan's economy is dominated by energy and agriculture. It has 1.3 trillion cubic meters of proven and probable natural gas reserves and is the world's fourth largest natural gas producer. It also has 1.1 billion tons of oil reserves. Despite these energy reserves, the economy is still predominantly agricultural. 5. Sector Background. Turkmenistan's urban population of 1.9 million (1994) constitutes a sizeable share of its total population (44 percent). Ashghabat, the nation's capital, is the largest urban center with a population of 500,000, followed by Chardjou (180,000), Mary (167,000), Dashkovuz (140,000), Nebitag (109,000), and Turkmenbashi (64,000). Ashghabat represents, in many respects, a microcosm of recent developments in urban conditions in the country. The population of Ashghabat has grown at an average annual rate of eight percent over the past few years but public investments to maintain and expand infrastructure and urban services have lagged behind the rapidly growing demand placed on them. In particular, public transport vehicle fleet in Ashghabat and other cities is in a state of near break-down. Substantial policy reforms, organizational restructuring, and rehabilitation efforts are required to stem further -2- deterioration in basic transport services and enhance the capacity of the system to satisfy growing demand and complexity of urban transport. 6. About 55% of the population in Ashghabat relies exclusively on public transport for work and social trips. Given significantly lower private car ownership in cities other than Ashghabat, the degree of dependence on public transport is expected to be substantially greater in the rest of the country. By international standards, the publicly-managed bus fleet is of adequate size in relation to the population in all urban centers in the country. However, the low availability of the vehicles has eroded the capacity of the enterprises to provide an adequate, consistent and reliable quality of service in most areas. The main causes of the present low availability of the fleet are: (a) lack of resources for timely maintenance of vehicles; (b) low vehicle replacement rates in relation to the operating entities vehicle retirement criteria; and (c) the incentive these two factors provide to bus operators to both defer maintenance and cannibalise the older vehicles in the fleet to maintain the progressively dwindling stock of newer operable buses. The low availability rates result from inadequate cash generation of urban public transport enterprises and insufficient budgetary funding to compensate for its losses. 7. Institutional Framework. The Ministry of Autotransport (MoAT) is vested with the responsibility for urban transport planning and regulations. The Ministry is also responsible for management of inter-city and urban passenger and cargo transport operations. These operations are conducted through chartered (commercially autonomous) enterprises. MoAT staff have executive responsibility for the enterprises' performance, overall investment planning and financing, budgeting, route scheduling, operational management and licensing. Fares for passenger transport are set on a national basis by the Ministry of Economy and Finance (MOF), based on submissions by the MoAT. Fares on trolleybus system are also set by central Government at the same level as diesel bus operations and the city government finances all operating subsidies. Investments for system expansion are the responsibility of the central government. At the municipal level, the city governments are responsible for setting bus routes and service levels, constructing and maintaining stops, overseeing service quality and financing losses incurred by the MoAT's municipal public passenger transport operations. The principal weaknesses of the existing structure in Ashghabat and other cities are: (a) fragmentation of responsibilities; (b) commingling of regulatory and functional roles; (c) inadequate incentives for monitoring of performance standards; (d) diffusion of management capability; and (e) erosion of financial performance. 8. Cost Recovery. Up until July, 1995, the fares for buses and trolleybuses were set at 0.05 manats per trip, which recovered only about two percent of total operating costs. The low fares led to: (a) a severe squeeze in the operating margin of operators which was not compensated by operating subsidies from the municipality or the Government; (b) a sharp deterioration in service quality; and (c) increasing diversion of the population to other emerging and more expensive modes, primarily informal taxis. The adverse side-effects of the bus fares policy on the effective cost of public transport was exacerbated by two other factors: (a) the high rates of inflation led to a progressive withdrawal of the low denomination 0.05 manat coins from circulation, forcing many passengers to use higher denomination (2 manat) currency for the 0.05 manat fare; and (b) households demonstrated willingness to pay substantially in excess of regulated fares, coupled -3- with poor supervisory control over bus drivers, provided strong incentives for drivers to impose additional levies on passengers. Often, the drivers charged arbitrary fares (especially during off- peak period) giving riders the difficult choice to either pay higher fares or get off. Finally, monthly passes, which at 5 manats per month offered potentially substantial discounts on the official fares to frequent users, became increasingly unattractive as the predictability of the bus and trolleybus services deteriorated. The cost recovery situation is exacerbated by the fact that Government has instituted many categories of exemptions for particular groups of urban transport users. An estimated 50 percent of passengers are exempt. Another problem is that the buses are so crowded and the number of exempt passengers so gre-, that many other passengers simply board and ride vehicles without paying. Altogether, an estimated 60 percent of passengers are not paying fares. In addition, revenue leakage is high with actual fares paid on buses significantly higher than the officially set rates. A Social Assessment carried out by the Bank has clearly demonstrated that significant number of urban dwellers pay substantially more than the officially set fares both on public sector vehicles and the rapidly growing but unregulated private vehicles. 9. Subsidy System. The subsidy system for public transport services is inefficient and ineffective. Subsidies to cover the difference between operating costs and revenues are paid to the operator as incurred with no in-built system for motivation or ensuring efficient operations. As government fiscal revenues and transfers to the municipalities have become squeezed in the last two years, pressure has built up for the municipality to pay only the operators' shortfall on wage payments. This has led to a large compression of expenditure on maintenance. Depreciation provisions are negligible and subsidies to cover capital costs are effectively not provided. Vehicle replacements in recent years have depended largely on the central government and its ability to barter vehicles for natural gas or petroleum products. This system of vehicle financing has led to inefficient investment in vehicles. 10. Government Strategy in the Sector. The Government recognizes the need for substantial changes to the framework within which public transport services are provid-d in the urban areas. Since the commencement of an active dialogue with the Bank on the transport sector, the Government has adopted a reform program designed to: (a) establish a framework for the efficient and cost-effective performance of public sector transport operations; (b) provide a stable and adequate level of funding to ensure the sustainability of efficient service provision by the public sector; (c) reduce the fiscal burden on the public sector by promoting private sector involvement in the provision of public transport; and (d) consolidate managerial responsibility for all public sector passenger transport operations in each municipality under one autonomous agency. 11. Project Objectives. The objective is to improve, on a sustainable basis, the efficiency and effectiveness of urban transport operations in the Municipalities of Ashghabat, Mary and Chardjou. Specifically, the proposed investments would: (a) reform management of the agencies in charge of urban transport operations in the three participating cities; (b) establish a metropolitan transport organization (APAPO) responsible for the overall management of bus operations; (c) improve cost recovery of the operating enterprises; (d) implement Operations Improvement Plan; (e) augment and preserve supply of bus services; (f) enhance private sector -4- participation in the provision of urban transport services; and (g) establish a continuing process of public consultation. 12. Project Description. The proposed project would help preserve capacity of the urban transport fleet in Ashghabat, Mary and Chardjou by: (a) financing selective fleet replacements and critically needed spare parts and workshop equipment; and (b) foster reforms that would assist Ashghabat and other cities to maintain and develop transit operations on a self-sustaining and commercial basis. The project is based upon an investment program for 1997 through 2001, for buses, trolleybuses and minibuses. The total cost of the project is estimated at about US$38.3 million, excluding taxes. Costs were estimated as of December 1996. The total foreign exchange component is about US$37.0 million (97% of total). The World Bank loan of US$34.2 million would finance 89 percent of total project costs, including 100 percent of the cost of new vehicles, replenishment of the spare parts, and 85 percent of the cost of workshop, computers, tools and other equipment. 13. Project Implementation. The municipal governments of Ashghabat, Mary and Chardjou, the Ministry of Autotransport, and APAPO will have the overall responsibility for implementing the project. (a) Role of COM. Within the COM, the Deputy Chairman for International Financial Relations has the statutory responsibility for monitoring all international loans and obligations, ensuring their effective use. The Deputy Chairman for International Financial Relations would be responsible "jr 'nal approval of purchases made ---d : the proposed Urban Transport Project. An administrative unit for international financial relations, the Project Implementation Unit (PIU), reports to the Deputy Chairman, International Financial Relations. The PIU has the administrative responsibility for monitoring implementation of loan-financed (multilateral and bilateral) projects, including institutional-building technical assistance (IBTA) loans. (b) Role of Municipality of Ashghabat. The ownership of all public transport vehicles in the city is vested with the municipality of Ashghabat. The city has the overall responsibility to: (a) provide general policy guidance on local objectives; (b) approve APAPO service plan; and (c) appoint transport operating enterprises management. In addition, the city would define, in a timely way, the financial parameters under which APAPO is to operate and make payments to APAPO to cover the costs of operation as agreed in the budget and plan. The municipality will be supported by an inter-agency committee, with the Mayor of City as the Chairman, with representatives from the Ministries of Autotransport and Economy and Finance. (c) Role of APAPO. As part of the agreements reached during project preparation, Ashghabat Passenger Autotransport Production Organization (APAPO) is established to develop and manage an efficient and cost effective public transport system. APAPO has the following major functions: (a) planning the public -5- transport service network in the city; (b) procuring the planned services in the most cost efficient manner; (c) monitoring and enforcing the quality of service provided by each of the operating enterprises; and (d) developing the efficiency of service providers. APAPO would be headed by a Director-General who will be supported by: (a) Project Management Group (PMG) headed by a director and two deputy directors (in the functional areas of administration and operations/procurement); and (b) Operations Support Group (OSG) constituted by four deputy directors in the functional areas of: operations/engineering, finance, legal, and sociology/computers. The PMG is the administrative wing of APAPO, with its principal focus on maintenance of project accounts and procurement of goods and services. The OSG is the technical group with the principal responsibility to develop, monitor and enforce effective management approaches to improve delivery of transport in Ashghabat in an economically-financially, socially and environmentally sustainable manner. (d) Bid Evaluation Committee. The PMG will be supported by a bid evaluation committee, a technical group established to evaluate bidding documents for procurement of new vehicles and spare parts under the project. The principal objective of the Committee will be to provide support in preparation of procurement documents and management of the procurement process. The Committee will consist of APAPO Director-General, PMG Director, technical representatives of MoAT, representatives of the three operating enterprises, and an expatriate consultant. The recommendations of the Committee will be sent for approval to the municipality. The service contract between the municipality and APAPO will include a provision defining the bid evaluation clearance process, as well as the responsibilities of all members of the Committee. The execution of the contracts will be concluded by the Deputy Chairman for International Financial Relations, COM. (e) Transport Operating Enterprises. The three transport operating enterprises (bus, trolleybus, and minibus) in Ashghabat, and transport enterprises in Mary and Chardjou are autonomous entities, legally and financially independent, and will enter into a performance contract with APAPO, to achieve a set of pre-specified objectives. The principal objective of the eaterprises would be to: (a) provide the transport services as agreed at agreed level of service; (b) maintain safe vehicl.s and operations; and (c) develop their professional competence and management information systems. Each enterprise would have a manager, responsible for daily operations of their respective fleet. 14. Project Suastainability. The sustainability of the project is dependent on five factors. First, the ability to reform organizational arrangements in the delivery of urban transport services to reduce fragmentation and diffusion of responsibility. The Government has already taken actions to consolidate the managerial responsibility for public sector passenger transport -6- operations in Ashghabat under one autonomous agency. The Government is committed to reducing the involvement of MoAT in direct operation of services. Second, the ability to implement cost recovery reforms. The reforms to institute a cost recovery program are an integral part of this project. The government is undertaking actions on two fronts: (a) increasing tariff for public transport services in Ashghabat; and (b) reviewing set of exemptions. Over the past year, the government has increased bus fares one-thousand times (from 0.05 manats to 50 manats per trip). Initiatives to further increase bus fares and reduce exemptions to recover at least 40 percent by loan effectiveness are well-advanced. Third, the ability to sustain maintenance of vehicles beyond the proposed investments will require a commitment on the part of the government to continue to provide sufficient funds for the purchase of spare parts and replacement of fleet. The restructuring components under this project and the project's financial management components are designed to lay the basis for addressing this issue. Fourth, the ability to improve operations and maintenance of vehicles on a daily basis. The Government has prepared an Operations Improvement Plan (OIP) to help improve capacity and reliability of transport services in Ashghabat. The Government has also agreed to prepare an OIP and an investment planning program for other participating cities. Fifth, the ability to continue with Social Assessment (SA) to ensure future involvement of citizens in making inputs to transport policy and development. The SA nas become a part of the on-going effort by the Government to assess, monitor and evaluate different approaches to address specific concerns of the residents of Ashghabat. 15. Lessons Learned from Previous Bank/IDA Involvement. Since 1972, the World Bank has funded over 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. The Bank is currently financing two Urban Transport Projects in the FSU - one in Russia (Ln 8806- RU) and one in Kazakhstan (Ln 8511-RU). Both projects are progressing satisfactorily, and achieving their development objectives. In Kazakhstan, there has been considerable progress in the design and implementation of policy and institutional reforms in the three participating cities. Cost recovery targets have been exceeded, sufficient funds have been allocated to the transit companies for operations and considerable progress has been made on privatization of bus services. In Russia, transit services have been decentralized, cost recovery targets have been exceeded by many of the 14 participating cities and key institutional measures have been taken. 16. The lessons of World Bank experience have been taken into account in the design of this project. The objectives of the project include improving efficiency, enhancing cost- effectiveness, and promoting privatization in the provision of urban transport services. The preparation of the project has been structured with a view to minimizing implementation delays: (a) procurement is well advanced--standard-bidding documents for the procurement of buses and trolleybuses have been prepared and substantially agreed with the Government; (b) APAPO and transport enterprises are established as independent, legal entities; and (c) an OIP has been agreed and should be implemented before the loan becomes effective. The Government has -7- already increased fares substantially since preparation of the project began and it has agreed to improve cost recovery (excluding depreciation) to 40% by loan effectiveness. The Government has also agreed to gradually improve cost recovery to cover fully the operation and maintenance costs by December 31, 1999, in a time bound Action Plan. 17. Rationale for Bank Involvement. The proposed project is consistent with the Bank's discussions with the Government as part of the Institution Building/Technical Assistance Loan (P-6334-TM) which was discussed by the Board in September 1994. A first Bank Group Country Assistance Strategy (CAS) has been prepared, at the request of the Government, for discussion by the Board on May 27, 1997, together with this operation. The proposed project is consistent with that CAS. The proposed Bank's strategy is designed to assist the Government to remove distortions which could constitute barriers to the transitional phase, and to the efficient development of its designated priority sectors--agriculture, oil and gas, social sectors and infrastructure. 18. The role of the Bank in the sector is essentially twofold. First, drawing upon its international and regional experience, the Bank is in a strong position to support the Government in formulating the strategies necessary to ensure that an adequate, efficient and sustainable level of public transport services is available to the urban population. Second, the Bank can assist the Government in implementing these strategies through both the financing of technical advice, training and investments and direct analytical support to the Government during implementation. The proposed project would also be important for the implementation of key reforms, not only in the urban transport sector, but also in other areas of the public sector, by demonstrating the effectiveness of such reforms. 19. The strategies for reorganization, financing and regulation of the urban transport services that Government has adopted following a close dialogue and collaboration with the Bank, would help contribute to: (a) the reduction of a potential call on the Government's fiscal resources for operating subsidies and capital investments; (b) the promotion of policy reforms in the economy by advancing the efficient restructuring and partial privatization of an important and visible sector; (c) the strengthening of the Government's capacity for the overall management of a sector that is critical to efficient economic performance; and (d) the improvement of access for the relatively poor segment of the urban population to a basic transport service. 20. Agreed Actions. During negotiations, the following agreements were confirmed: (a) Implementation Arrangements: (i) confirmation of the status of the following as independent, legal entities: APAPO, transport enterprises in Ashghabat, Mary and Chardjou and capital repair facility; and (ii) establishment of Bid Evaluation Committee, with description of participating members and their specific functions; (b) Operations Improvement Plan: implementation of Operations improvement plan as agreed in the Action Plan; (c) Submission of Accounts and Audits, satisfactory to the Bank; (d) Payment of Exemptions: the Government will develop a system, by June 30, 1997, under which fares for exempted passengers are paid by the respective line agencies or municipality directly to the operating enterprises which will be implemented under the Action Plan; (e) Budget Allocation: the Government shall make adequate yearly budget allocation from the Central budget for the required subsidy to APAPO and make quarterly -8- payments of the agreed subsidy to APAPO; (f) Performance Monitoring Indicators: the Government shall maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis in accordance with the agreed indicators, the implementation of the project and the achievement of its objectives. The following actions would be conditions of effectiveness: (a) the improvement of cost recovery for buses and trolleybuses to 40 percent for each, excluding depreciation, as an average over a two-month period; (b) the execution of a contract, on terms and conditions satisfactory to the Bank, of external consultants to APAPO to assist in the preparation and implementation of the project; (c) the execution of an Administration Agreement between the Borrower, the municipality of Ashghabat and APAPO containing all the substantive provisions of the Action Plan and the project's implementation arrangements; (d) the execution of a service contract between the municipality of Ashghabat and APAPO and a performance contract between APAPO and each of the transport companies; and (e) submission of a business plan, satisfactory to the Bank, for the capital repair facility. The following actions would be conditions of disbursement: (a) the completion of feasibility studies and an implementation strategy, satisfactory to the Bank, for each component of the OIP-related investments; and (b) the submission of the following for the cities of Mary and Chardjou: (i) policy statement, including OIP, investment program and project implementation arrangements, satisfactory to the Bank; and (ii) executed Administration Agreement, satisfactory to the Bank, between the Borrower, APAPO and each municipality, performance and service contracts, satisfactory to the Bank, between APAPO and transport companies. 21. Poverty Category. The project has no direct impact on poor. Improvements in the delivery of public transport services would benefit all sections of the people. However, improving access in the currently unserved areas, would especially benefit poor people who lack alternatives to the public transport. The project would also improve access to job opportunities for poor people who are most dependent on public transport services for their mobility needs. 22. Environmental Aspects. Since the project would involve rehabilitation of existing facilities and purchase of new equipment/vehicles with improved environmental or safety features, no adverse environmental impact is foreseen. Accordingly, the project is classified as category B. The project would have significant environmental benefits by improving the condition of buses, the working environment in bus and trolleybus garages, and, to some extent, air quality in Ashghabat. In addition, purchase of ten CNG buses, as a pilot project, with lower noxious vehicle emissions than diesel vehicles, would improve the environment. 23. Program Objective Categories. The principal program objective categories are: (a) Private Sector Development. This project would support creation of an enabling environment for participation by the private sector as well as promote directly the privatization of selected transport activities; (b) Policy Reform. The proposed project supports the country's policy reform initiatives by creating a framework for improvements in the efficiency of transport operation and reductions in the sector's subsidy requirements; and (c) Public Sector Management. Institutional arrangements are proposed to improve the efficiency of public sector organizations in the delivery of transport services. -9- 24. Participatory Approach. A social assessment (SA) was conducted in February 1995, as part of the identification process for the proposed urban transport project in Turkmenistan. The study was conducted in the capital city of Ashghabat, and focused on various aspects of demand and supply of public and private transportation, various stakeholder groups (households, transport users, bus drivers, drivers of private vehicles, and bus and trolleybus enterprises). It also incorporated results of discussions with the public transport agency and the municipality. Following the recommendations of SA, a stakeholder workshop was held in October, 1995 to share results with the academic community, representatives of MoAT, the municipality, operators, and the users. The SA results provided inputs to project preparation based on what the majority of the city's population actually saw as priorities. The SA created a foundation for the future involvement of citizens in making immediate inputs to transport policy and development, contributed to policy dialogue, laid the basis for internal reforms that could be instituted without major cost, and contributed to the overall process of reform and democratization by linking decision makers to public opinion on a matter of general concern. As a result of SA findings, the government has already, in the past twelve months, instituted reforms, raised bus fares, and improved provision of public transport services in the city. These initiatives went a long way in restoring public confidence in government's efforts to improve transport services and laid a basis for future reforms. The social assessment has become a part of the on-going effort by the Government to assess, monitor, and evaluate different approaches to addressing specific concerns of the residents in Ashghabat. 25. Project Benefits. The project would improve the bus transport (diesel bus, trolleybus, and minibus) service in Ashghabat in terms of: (a) quality of service, by reducing waiting time and crowding while increasing service reliability; (b) quantity of service, by satisfying the increasing demand reflecting an expected eight percent annual population growth in Ashghabat in the medium term, plus the pent-up demand in currently under- and unserved areas in Ashghabat; and (c) efficiency, by reducing transport unit costs through an integrated and balanced program of maintenance, rehabilitation and acquisition of buses supported by a broad program to eliminate specific shortcomings and weaknesses identified in different operational areas. The benefits of the proposed investments are computed in terms of savings in trip time resulting from higher speed, lower waiting times, improved headway and easier access to public transport because of the availability of a greater number of vehicles operating at higher efficiency as compared to without project case. The rate of return for the project is 30% at a net present value of US$11.0 million. The most significant non-quantifiable benefit of the project is that the Government has undertaken key reforms in urban transport, the benefit of which will extend far longer than the life of the project. 26. Risks. A major risk of the project is that the proposed reforms, especially the institutional cost recovery reforms, will not be implemented as promised. If these reforms are not implemented, the new buses and spare parts financed under the loan would only give temporary relief. Availability rates of vehicles would once again decline because of the lack of spare parts and fleet replacement, and vehicle maintenance costs would increase because of the aging fleet. To mitigate this risk, the project includes conditions regarding key institutional reforms and financial performance. These conditions include: (a) establishment of APAPO as a legally and - 10 - financially independent organization; (b) signing of a contract between the municipality of Ashghabat and APAPO to perform transport services; (c) implementation of the short term measures included in the OIP; (d) agreement to provide budget allocations for the required subsidy one year in advance; (e) introduction of a system in Ashghabat whereby the fares for exempted passengers are paid by the municipality or line agencies; and (f) increasing cost recovery to 40% (excluding depreciation) by effectiveness. Once the companies receive the new buses and trolleybuses, they should be able to increase cost recovery even more with the substantially improved level of service. 27. A second risk is that once the project is completed the urban transport companies will still not have sufficient funds for the purchase of spare parts and replacement of the fleet, even with improved cost recovery achieved under the project. Project companies will have to compete with other priority sectors to secure adequate subsidies from local government which could come under increasing financial pressure over the next few years. Given the uncertainty over future levels of funding, agreements have been reached with the Government to: (a) recover 100% of operations and maintenance cost by December 31, 1999; and (b) make adequate yearly budget allocations from the central budget for the required subsidy to APAPO and quarterly payments of the agreed subsidy to APAPO. 28. A third risk is that there will be delays in project execution. To reduce this risk, bidding documents for purchase of new vehicles have substantially been agreed with the Government. 29. A fourth risk is that the assumed 8 percent growth in total travel demand per annum may not materialize. The travel demand of 8 percent (based on an equivalent city population growth rate) is considered to be on the conservative side as it does not include the 'latent" and "diverted" demand. With an improvement in public transport services, people in the outlying zones, who currently walk to their destination, would potentially become public transport users; a number of people who currently have no choice but to depend on private transport would additionally use public transport, if services are improved. Improvements in affordable public transport services would also improve access to job opportunities, expanding the labor force, and the resulting demand for public transport. In the event that demand was not as high as projected, the project would still be justified as long as passenger travel demand grows at 2.5 percent per annum. 30. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and I recommend that the Executive Directors approve it. James D. Wolfensohn President by Caio Koch-Weser Attachments: Schedules A - E Washington, D.C. April 28, 1997 -11-SCHEDULE A Page 1 of 2 TURKMENISTAN Urban Transport Project ESTIMATED COSTS AND FINANCING PLAN (US$ million) Foreign Local Foreign Cost Component Total Cost Cost (Percent) Part A: Transport Vehicles 1. City ofAshghabat (a) Diesel Buses 6.24 6.24 - 100 (b) Trolley Buses 6.40 6.40 100 (c) CNG/Diesel Buses 1.35 1.35 - 100 (d) Mobile Charging Vehicle & Equip 0.20 0.20 - 100 2. Cities ofMary and Chardou Diesel Buses 3.36 3.36 - 100 Part B: Maintenance and Rehabilitation 1. City ofAshghabat (a) Rehabilitation of Vehicles - Diesel buses 1.91 1.82 0.09 95 - Trolleybuses 1.09 1.02 0.07 94 - Minibuses 0.27 0.27 - 100 - Retrofitting of Minibuses 0.36 0.33 0.03 92 (b) Replenishment of Spare Parts Inventories - Diesel buses 1.55 1.55 - 100 - Trolleybuses 0.60 0.60 - 100 - Minibuses 0.41 0.41 - 100 (c) Workshop, Computers and Other Tools & Equip - Diesel Buses 0.66 0.59 0.07 89 - Trolleybuses 1.34 1.19 0.15 89 - Minibuses 0.77 0.69 0.08 90 (d) Equipment for OIP Implementation 2.00 2.00 - 100 (e) Incremental Operating Costs - Diesel buses 0.70 0.52 0.18 74 - Trolleybuses 0.30 0.22 0.08 73 (f) Establishment of APAPO 0.45 0.43 0.02 96 2. Cities ofMary and Chardjou 1.64 1.54 0.10 94 Rehabilitation, Spare Parts. \a Part C: Technical Assistance and Training (a) Technical Assistance 1.00 1.00 - 100 (b) Training 0.30 0.30 - 100 Total Base Costs 32.90 3203 0.87 97 Physical Contingency \b 3.87 3.74 0.13 97 Price Contingency \c 1.52 1.20 0.32 79 Total Project Costs 38.29 36.97 1.32 97 Note: Numbers may not total due to rounding a\ Rehabilitation of buses, replenishment of spare parts inventory and workshop, tools & equipment. b\ Physical Contingencies for foreign and local costs are 10% and 15%, respectively. c\ Price Contingencies for foreign and local costs are 2.3% and 25%, respectively. -12- SCHEDULE A Page 2 of 2 TURKMENISTAN Urban Transport Project ESTIMATED COSTS AND FINANCING PLAN FINANCING PLAN (US$ millions) Foreign Local Total % of Total World Bank 34.20 - 34.20 89 Government 1.94 0.32 2.26 6 Operating companies 0.83 0.83 1.66 4 Cities of Mary & Chardjou -- 0.17 0.17 <1 Total 36.97 1.32 38.29 100 Note: Numbers may not total due to rounding -13 - SCHEDULE Page lof 2 TURKMENISTAN Urban Transport Project SUMMARY OF PROPOSED PROCUREMENT ARRANGEMENTS (US$ million) Component ICB Other Not Bank Financed Total Goods CNG/Diesel Buses 7.15 7.15 (7.15) Dual-fuel Buses 1.60 0.30 1.90 (1.60) Trolleybuses 7.35 7.35 (7.35) Spare Parts for 1.3 2.3a .49 4.09 Rehabilitation (1.3) (2.3 Spare Parts for Inventory 0.8 1.2 .7 2.7 (0.8) (1.2) Workshop, Computer and 1.8 1.0c .7 3.5 Other Tools and Equipment (1.8) (1.0) Equipment for OIP 2.2 0.1 2.3 Implementation (2.2) Participation of Other Cities 4.6 1.1 0.1 5.7 (4.6) (1.1) Consulting Services and 1.2 1.2 Training (1.2) Incremental Operating 1.25 1.25 Costs Establishment of APAPO 0.45 0.45 Miscellaneous (refinancing 0.6 0.6 PPF) (0.6) Total 26.80 7.4 4.0 38.29 (of which Bank) (26.80) (7.4) a International Shopping US$1.8 million, National Shopping US$0.2 million, and Direct Contracting US$0.3 million. International Shopping US$0.8 million, National Shopping US$0.1 million, and Direct Contracting US$0.3 million. SInternational Shopping US$0.9 million, and National Shopping US$0.1 million. d) International Shopping US$0.9 million, National Shopping US$0.1 million, and Direct Contracting US$0.1 million. e) Consultants will be selected and employed in according with the Bank's Guidelines. Note: Numbers may not total due to rounding. Figures in parenthesis are World Bank financed. -14- SCHEDULED Page 2of 2 TURKMENISTAN Urban Transport Project ESTIMATED IBRD DISBURSEMENTS Category Amount of Percent of Expenditures Loan Allocated to be Financed (US$ million) Equipment, materials and supplies 28.08 1OOT of foreign; 1OOT local ex-factory; 85% of expenditures for other items procured locally. Technical assistance 0.59 100% of expenditures Training 0.30 PPF Refinancing 0.60 amounts due pursuant to section 2.02(c) of Loan Agreement Unallocated 4.63 Total 34.20 DISBURSEMENTS (US$ millions) Bank Fiscal Year EY2 Y98 EY99 FY2000 FY2001 TOTAL Annual 0.60 7.97 15.42 9.36 0.86 34.20 Percentage 2% 23% 45% 27% 3% Note: Numbers may not total due to rounding. -15- SCHEDULEC TURKMENISTAN Urban Transport Project TIMETABLE OF KEY PROJECT PROCESSING EVENTS Time Taken to prepare: Twenty one months Prepared by: Government of Turkmenistan with assistance from IBRD staff and consultants listed below. First IBRD Mission: February 1995 Appraisal Mission Departure: November 4, 1996 Date of Negotiations: February 1997 Planned Date of Effectiveness: July 1997 Responsibility for Project Preparation Task Manager: Ajay Kumar Project Team: Yusupha Crookes, Melody Mason, Brenda Manuel, Richard Podolske(EC3IV); and Charles Murray, Dambisa Moyo (Consultants) Division Chief: Jonathan Brown Department Director: Yukon Huang Region Vice President: Johannes Linn Peer Reviewer: Jan de Weille (external) -16- SCHEDULE D TURKMENISTAN Urban Transport Project STATUS OF BANK GROUP OPERATIONS IN TURKMENISTAN A. STATEMENT OF BANK LOANS (As of March 31, 1997) US$ Million (Less Cancellations) Loan Fiscal N. Year Borrower Ewiet Loans Undisbursed 37910 1995 Turkmenistan Technical Assistance 25.00 20.80 Total 25.00 Of Which: Repaid 0.00 25.00 20.80 Total number of Loans = 1 25.00 Total Now Held by the Bank Total Amount Sold 0.00 Of Which: Repaid 0.00 20.80 Total Undisbursed B. STATEMENT OF IFC INVESTMENTS (As of March 31, 1997) TURKMENISTAN IS NOT YET AN IFC MEMBER. L/ The status of these projects is described in a separate report on all Bank/IDA financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. h/ Total approved, repayments, and outstanding balance represent both active and inactive Loans. TURKMENISTAN SCHEDULE E Urban Transport Project Page I of 2 Turkmenistan at a glance Europe & Lower. POVERTY and SOCIAL Central middle- Turkmenistan Asia Income Development diamond* Population mid-1995 (millions) 4.5 488 1,153 GNP per capita 1995 (USS) 920 2,220 1,670 Average annual growth, 1990-94 Population (%) 2.3 0.5 1.4 Labor force (%. Most recent estimate (latest year available since 1989) Poverty: headcount index (% of population) .. Urban population (% of total population) 45 64 54 Life expectancy at birth (years) 68 69 6' Infant mortality (per 1,000 live births) 46 19 35 Child malnutrition (% of children under 5) Access to safe water (% of population) .. .. 78 Illiteracy (% of population age 15+) Gross primary enrollment (% of school-age population) .. 97 104 Male .. 97 105 -Turkmenistan Female .. 97 101 Lower-middle-income group KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1994 1995 Economic ratios Gross domestic lnvestment/GDP .. .. .. Exports of goods and non-factor serviceslGDP Gross domestic savings/GDP .. Gross national savings/GDP .. Current account balance/GDP .. .. 2.0 1.3 Interest payments/GDP .. Total debt/GDP .. .. .. Total debt servicelexports .. .. 1.8 13.0 Present value of debtlGDP .. Present value of debtlexports .. 1975-84 1985-95 1994 1996 1996-01 (average annual growth) GDP 2.5 0.9 -19.0 -8.2 6.4 -Turkmenistan GNP per capita 0.2 -2.0 .. .. .. - Lower-middle-income group Exports of goods and nfs .. .. -32.8 -5.3 1 0 STRUCTURE of the ECONOMY 1975 1985 1994 1995 (% of GDP) Cotton .. .. 7.6 18.5 Gas .. .. 65.9 48.4 o . Other .. .. 26.5 33.1 9s -10 Private consumption .. .. .. .. -15 General government consumption .. .. Imports of goods and non-factor services .. .. .. .. -DI *GDP 1975-84 1985-95 1994 1995 (average annual growth) Cotton .. .. .. -11.5 o. Gas .. .. .. -8.5 so 91 92 93 94 9 Other .. .. .. -6.7 *10 -15 Private consumption .. 4.0 . General government consumption .. 6.4 -25 Gross domestic investment .. -11.6 -3o imports of goods and non-factor services .. .. -18.4 -15.5 .as Gross national product .. 0.9 -18.8 -8.2 -Exports -d-mports Note: 1995 data are preliminary estimates. Figures in italics are for years other than those specified. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Turkmenistan TURKMENISTAN SCHEDULE E Urban Transport Project Page 2 of 2 PRICES and GOVERNMENT FINANCE Domestic prices 1975 1985 1994 1995 Inflation (%) Domesic Pices2000 (% change) 2c Consumer prices (average) .. .. 1,748.0 1,005.0 1sco Implicit GDP deflator 2.1 -7.6 1.00 1000 Government finance (% of GDP) 500 Current revenue 1/ .. 28.8 10.0 12.0 Current budget balance .. 1.6 -1.0 -1.6 0 , Overall surplus/deficit .. .. .. .. 0 GDP de. P TRADE (millions USS)197 1985 1994 199 Export and Import levels (mill. US$) Total exports (fob) 2,176 2,084 Energy 1,707 1,562 2,so n.a. 2... Manufactures .. Total imports (cif) .. .. 1,690 1,644 1,so0 Food Fuel and energy Capital goods .. Export price index (1987=100) .. .. .. . a Import price Index (1987=100) 0. 93 .. .. Terms of trade (1987=100) .. .. .. .. -- ---orts om BALANCE of PAYMENTS 1 1978 1985 1994 1995 (millions US$) Exports of goods and non-factor services .. .. 2.276 2,231 18 Imports of goods and non-factor services .. .. 2,193 2,220 14 Resource balance .. .. 83 11 12 Net factor income .. .. 91 112 in Net current transfers .. .. 2 11 8 Current account balance, a before official transfers .. .. 84 23 4 Financing items (net) .. .. .. .. 2 Changes in net reserves (increase -) .. .. -135 -238 0 Memo: 09 91 92 94 Reserves Including gold (mill. USS) .. .. 927 1,170 Conversion rate (local/US$) .. EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1994 1995 (millions US$) Total debt outstanding and disbursed .. .. 418 550 IBRD .. IDA Total debt service .. .. 41 281 IBRD .. IDA Composition of not resource flows Official grants .. Official creditors .. Private creditors .. Foreign direct investment .. .. 103 233 Portfolio equity .. World Bank program Commitments .. .. 25 0 Disbursements .. .. D 1 Principal repayments .. .. 0 0 Net flows .. .. 0 0 Interest payments .. .. 0 0 Net transfers .. .. 0 0 International Economics Department 4/24197 Note: Estimates for economies of the former Soviet Union are subject to more than the usual range of uncertainty. 1/ Budget is not consolidated and does not reflect all public sector transactions. IBRD 28387 RUSSIAN FED RUS FEDý • ' KAZAKSTAN AZERRAIJAN UZBEKISTAN TURKMENISTANK KYRGYZ REP TAJI1ITA ISLAMIC REPUBUC -- CHINA OF IRAN AFGHANIST AN PAKISTANý, 0 25 500 75 100 METERS 77o,, s a .d . y, Mp d H he wond V~ TURKMENISTAN URBAN TRANSPORT PROJECT ASHGHABAT TROLLEYBUS NETWORK - DIESEL BUS NETWORK MINIBUS NETWORK - MAIN ROADS RAILROAD RIVER JANUARY 1997 IMAGING Report No.: P 7067 TI Type: MOP