technical feasibility report volume 1

7/22/2019 Technical Feasibility Report Volume 1

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Ministry of Public WorksGovernment of the Islamic Republic of Afghanistan

Asian Development Bank

ADB TA 7259 - AFG

RAILWAY DEVELOPMENT STUDY

HAIRATAN TO MAZAR-E-SHARIF RAILWAY PROJECT

PHASE I FINAL REPORT

VOLUME 1

TECHNICAL FEASIBILITY REPORT

September, 2009


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TABLE OF CONTENTS

VOLUME 1: TECHNICAL FEASIBILITY REPORT PAGE

I. INTRODUCTION......................................................................................................... 1II. BACKGROUND .......................................................................................................... 3

A. Background to Study....................................................................................... 3B. Analysis of Problems and Opportunities.......................................................... 4

1. Constraints........................................................................................... 4a. Inadequate Infrastructure and Facilities ................................... 4b. Limited Government capacity .................................................. 5c. Insecurity.................................................................................. 5

2. Opportunities ....................................................................................... 5C. Government Policies, Plan and Strategy......................................................... 6D. External Assistance to the Sub-sector............................................................. 7

1. ADB Support to improve Afghanistan Regional Rail Links .................. 82. Other Development Partners Activities to the Subsector.................... 83. ADB Strategy and Sub Sector Experiences ........................................ 9

III. THE PROPOSED PROJECT.................................................................................... 11A. Description of Project .................................................................................... 11B. Objectives...................................................................................................... 11C. Components and Outputs ............................................................................. 11D. Rationale for the Project ................................................................................ 13E. Conduct of the Study..................................................................................... 14

1. Methodology ...................................................................................... 14

2. Study Team ....................................................................................... 15F. Executing Agency and Counterparts ............................................................. 15G. Contents of the Report .................................................................................. 15

IV. SECTOR PERFORMANCE AND SPECIAL FEATURES......................................... 16A. Sector Performance Indicators and Analysis................................................. 16B. Lessons Learned........................................................................................... 17C. Special Features ........................................................................................... 18

1. Regional Context ............................................................................... 182. Source of Materials............................................................................ 183. New Technology ................................................................................ 18

4. Capacity Building ............................................................................... 18a. Investment in Human Resources........................................... 18b. Investment in Spare Material ................................................. 19c. Retention of Intellectual Property........................................... 19

5. Possibility of Private Sector Involvement ........................................... 19

V. DETAILED FEASIBILITY ANALYSIS.......................................................................21A. Technical Feasibility Analysis ........................................................................ 21

1. Traffic Demand Forecast ...................................................................212. Technical Analysis ............................................................................. 21

B. Financial Feasibility Analysis......................................................................... 231. Cost Estimates................................................................................... 23


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2. Project Financial Viability................................................................... 243. Financing Plan................................................................................... 25

C. Economic Feasibility Analysis ....................................................................... 251. Distance Savings Rate at Economic Prices....................................... 252. Project Economic viability .................................................................. 26

D. Institutional Benefits ...................................................................................... 26E. Social Safeguard Analysis............................................................................. 27

1. Social and Poverty Impacts ............................................................... 27a. Impact on Gender ..................................................................27b. Impact on Poverty .................................................................. 28

2. Environmental Impact Analysis.......................................................... 28F. Direct and Indirect Benefits of the Project ..................................................... 29

1. Envisaged Direct Project Benefits .....................................................292. Envisaged Indirect Project Benefits ................................................... 30

VI. IMPLEMENTATION ARRANGEMENTS................................................................... 31A. Project Implementation.................................................................................. 31B. Procurement .................................................................................................. 31C. Consulting Services....................................................................................... 32D. Advance Action ............................................................................................. 32E. Reports, Accounts, and Audit ........................................................................ 32F. Project Performance Management System................................................... 33G. Anticorruption Measures ............................................................................... 33H. The Executing Agency .................................................................................. 33

1. Management and Organization ......................................................... 332. Maintenance ...................................................................................... 343. Financial Performance....................................................................... 34

I. Assurances.................................................................................................... 35

1. Environment....................................................................................... 352. Project monitoring, review, and reporting .......................................... 363. Labor, gender, health, and social protection...................................... 364. Land acquisition and resettlement.....................................................365. Security.............................................................................................. 376. Project Management.......................................................................... 37

VII. STAKEHOLDER PARTICIPATION AND CONSULTATION...................................... 38A. Stakeholders Consulted ................................................................................ 38B. Participatory Approach .................................................................................. 38

VIII. KEY FACTORS IMPACTING PROJECT VIABILITY................................................ 40IX. RECOMMENDATIONS............................................................................................. 41


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LIST OF FIGURES

Figure 1: Map of the Country and location map of the Project 11

Figure 2: Alignment of Hairatan to Mazar-e-Sharif Railway Project .. 24

LIST OF TABLES

Table 1: Summary of Project Cost ........................................................................................ 2

Table 2: Cost Estimate ......................................................................................................... 24

Table 3: Detailed Cost for Railway Development................................................................. 24

Table 4: Financing Plan ....................................................................................................... 25

Table 5: Distance Savings.................................................................................................... 26

Table 6: List of various stakeholders consulted ................................................................... 38

Table 7: List of persons consulted........................................................................................ 39

LIST OF APPENDICES

Appendix 1 Project Design and Monitoring Framework 1

Appendix 2 Cost Estimates and Implementation Schedule 3

Appendix 3 Project Performance Monitoring System .. 8

Appendix 4 Financial Projection .. 9

Appendix 5 Summary of Initial Environmental Examinations .16


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VOLUME 2: SUPPLEMENTARY REPORT

SUPPLEMENTARY REPORT 1GENERAL CONTEXT OF THE TRANSPORT SECTOR .. 1-1

SUPPLEMENTARY REPORT 2

ECONOMIC PROFILE AND ECONOMIC DEVELOPMENT IN AFGHANISTAN .. 2-1


DETAILED TRAFFIC FORECASTS .. 3-1


DESIGN CRITERIA AND SPECIFICATIONS .. 4-1


DETAILED ECONOMIC ANALYSIS .. 5-1


DETAILED FINANCIAL ANALYSIS 6-1


FINANCIAL MANAGEMENT ASSESSMENT .. 7-1


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VOLUME 3: INITIAL ENVIRONMENTAL EXAMINATION

I. INTRODUCTION......................................................................................................... 2

A. ENVIRONMENTAL CLEARANCE REQUIREMENTS .................................................. 2

1. Government Environmental Laws, Regulations and Guidelines ....... 25

B. TYPE OF PROJECT ................................................................................................... 4

C. NEED FOR THE PROJECT........................................................................................ 26

D. LOCATION,SIZE AND COMPONENTS ......................................................................... 4

II. DESCRIPTION OF THE ENVIRONMENT ............................................................... 6

A. Introduction.......... 6

1. Location, Topography and Soils .......................................................... 6

2. Geology and Seismicity ....................................................................... 6

3. Climate and Air Quality ........................................................................ 6

4. Water Quality ....................................................................................... 7

5. Ecological Resources .......................................................................... 7

6. Economic Development ....................................................................... 7

7. Industries ............................................................................................. 8

9. Infrastructure facilities.......................................................................... 8

10. Land use.............................................................................................. 8

11. Agricultural development, mineral development, and tourism facilities8

12. Social and Cultural Resources ............................................................9B. Population and Communities ..........................................................................9

C. Health Facilities ............................................................................................... 9

D. Education Facilities ....................................................................................... 10

III. SCREENING ENVIRONMENTAL IMPACTS AND MITIGATION MEASURES.......11

A. Physical Environment .................................................................................... 11

1. Soils and Materials ............................................................................ 11

2. Noise and Vibration ...........................................................................12

B. Socioeconomic Environment ......................................................................... 13

1. Proper Construction Practices........................................................... 13

2. Health, Safety and Hygiene ............................................................... 13

3. Hazardous Materials & Waste Management .....................................14

4. Institutional Framework for Environmental Management .................. 15

C. Environmental Monitoring Program............................................................... 15

D. Environmental and Social Management Training.......................................... 15

VI. PUBLIC CONSULTATION AND INFORMATION DISCLOSURE.........................18

VII. FINDINGS AND RECOMMENDATIONS...19

VIII. CONCLUSIONS..................................................................................................... 19


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VOLUME 4: SOCIAL AND POVERTY ANALYSIS

1. INTRODUCTION 5

CHAPTER 1 : IMPACTS-AH/AP SENSUS ....................................................................... 6CHAPTER 2 : LEGAL AND POLICY BACKGROUND...................................................... 8

CHAPTER 3 : CONSULTATION..................................................................................... 10

CHAPTER 4 : IMPLEMENTATION ARRANGEMENTS.................................................. 11

CHAPTER 5 : GRIEVANCE REDRESS PROCESS....................................................... 14

CHAPTER 6 : SLARP IMPLEMENTATION .................................................................... 15

CHAPTER 7 : COSTS..................................................................................................... 16

CHAPTER 8 : SUPERVISION AND MONITORING ....................................................... 16

LIST OF TABLE

Table-1: Land Impacts ...................................................................................................... 6

Table-2: Household 1 Composition .................................................................................. 7

Table-3: Household 2 Composition .................................................................................. 7

Table-4: Entitlement Matrix ............................................................................................... 9

Table 5: Grievance Resolution Process ......................................................................... 13

Table -6: Estimates for SLARP implementation ............................................................. 15

LIST OF FIGURE

Figure 1: Organizational Chart for Project Implementation ............................................. 12

Figure-2: SLARP Preparations and Implementation Schedule ....................................... 14

APPENDIX

Appendix 1: Summary Poverty Reduction and Social Strategy ...................................... 17

Appendix 2: Summary Resettlement Plan ...................................................................... 20


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CURRENCY EQUIVALENTS

(As of 14 September 2009)

Currency Unit Afghani (AF)

AF1.00 = $0.02

$1.00 = AF50.00

ABBREVIATIONS

ADB - Asian Development Bank

ARA - Afghanistan Railway Authority

ANDS - Afghanistan National Development Strategy

CAREC - Central Asia Regional Economic Cooperation

EA - Executing Agency

EIRR - Economic Internal Rate of Return

EIA - Environmental Impact Assessment

EMP - Environmental Management Plan

EPC - Engineering, Procurement, and Construction

FIRR - Financial Internal Rate Of Return

GOA - Government of Afghanistan

IEE - Initial Environmental Examination

ISAF - International Security Assistance Force

LARP - Land Acquisition And Resettlement Plan

MOCI - Ministry Of Commerce And IndustryMOF - Ministry Of Finance

MOI - Ministry Of Interior

MPW - Ministry Of Public Works

NPV - Net Present Value

O&M - Operation And Maintenance

PIU - Project Implementation Unit

ROW - Right of Way

UTY - Uzbekistan Temir Yullari

WACC - Weighted Average Cost Of Capital

NOTES

(i) The Afghan fiscal year (FY) coincides with the Afghan solar year (SY). The current

FY, SY1388, runs from 21 March 2009 until 20 March 2010. FY before a calendar

year denotes the year in which the fiscal year starts, e.g., FY2009 starts on 21

March 2009.

(ii) In this report, "$" refers to US dollars unless otherwise stated.


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EXECUTIVE SUMMARY

In order to meet the demand for the fast growing intra-regional trade and improveconnectivity, Afghanistan is in need to develop its transport infrastructure. The present roadsystem of the country in terms of its capacity and network is inadequate and the Railway

infrastructure almost non existent. So the movement of passengers and goods within thecountry and across the borders remains seriously constrained. In addition to that theGovernment of Islamic Republic of Afghanistan (GOA) has agreed with the strategy adoptedby the Central Asia Regional Economic Cooperation (CAREC) program, which is aimed todevelop six corridors across the region and all through Afghanistan. Once these Railcorridors are commissioned, the country can efficiently handle the growing transportationdemand.

As a part of this Rail corridor, the proposed 70 Km long route (best option) of Hairatan toMazar-e-Sharif Railway Project (the Project) is the first step taken by the GOA and ADB(ADB TA # 7259-AFG) towards development of the countrys Railway infrastructure. It isenvisaged that with the completion of the phase - I and phase - II Railway construction

program, the economic growth (which is currently 10%) will pick up at faster rate. Trade withthe CAREC region especially with Uzbekistan will tremendously increase.

In regard to Track Standard of the Project the GOA is looking for a system which canhandle Double Stacked Container Trains and Heavier Axle Loads, compatible with theintra-regional Railway system. But differential Railway track-gauges of the region is again abottleneck for smooth movement of traffic across the borders. The feasibility study phase Ireveals that although the difficult terrain condition and presence of some important oilinstallations have put some physical constraints (limiting factors leading to sharp curvature),the Project is technically feasible.

The feasibility study Phase I also indicates that with the estimated Project cost of about

US$170 million and economic internal rate of return (EIRR) of 15%, the Project is financiallyviable. Sensitivity tests demonstrate the Project to be robust across a broad range of keyparameter variations. During the study period, the GDP grew on average by 11% per year.

A full Environmental Impact assessment (EIA) has not been done, but the InitialEnvironment Examination (IEE) indicate that the negative impact is minimum (soil erosionand noise pollution), which can be mitigated during construction. Given the fact thatminimum public land acquisition will be involved for the Project, the Social ImpactAssessment (SIA) indicates that the adverse impact on human life is also insignificant. Acomprehensive compensation package (as defined in ADB Guidelines on InvoluntaryResettlement) will be offered to the affected families as their entitlement for the losses. It isworthwhile to mention that the outcome of the consultation process is encouraging since the

survey team did not experience any resistance against the Project. The study teamobserved that Railway Projects (compare to Road) all over the world are typicallyenvironmentally friendly and the Project is no exception in that regard.

Although the project seems to have two potential risks i) start-up and implementationdelays, and ii) security hazards, the project is feasible in terms of technical, economical andfinancial viability. The GOA has planned strong measures to mitigate these risks includingthe operational risks. The GOA has entered into a two-fold contract with UTY (design -construction and O&M) and the Project is scheduled to be completed by June 2011. TheExecuting Agency (EA) for the Project is the MPW of the GOA, while ADB will act as ProjectCoordination Agency through the PIU. It is worth mentioning here that subject to theapproval of the GOA, the cost estimate may be revised to accommodate (i) proper gradeseparation arrangement at Naibabad road crossing and (ii) transshipment facilities atNaibabad.


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Figure 1: Map of the Country and Location Map of the Project


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I. INTRODUCTION

1. The geographical uniqueness of Afghanistan is that it is bordering six countries andalso has river ports. Very few countries of the world have this kind of strategic opportunities.From this point of view, Afghanistan has tremendous potentiality to develop its economy.

But economic development cannot be achieved without a sound transport infrastructure, inwhich regard Afghanistan has to go a long way. The country will have to develop new Roadand Rail infrastructures and also strengthen the existing one. The ADB TA # 7259 AFG(the TA) is a step forward towards such initiative of the GOA.

2. On the other hand the bordering countries have business interest not only withAfghanistan but also among themselves. If the bordering countries want to establish groundconnectivity among them, they have no way but to operate through Afghanistan. Sodevelopment of transport infrastructure in Afghanistan is not only important for its owneconomy, but also for the neighboring countries as well. The Central Asia RegionalEconomic Cooperation (CAREC) has been formed by countries including Afghanistan,Azerbaijan, Peoples Republic of China, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan,

and Uzbekistan to develop ground connectivity through 6 corridors for the entire region. TheProject is a part of Transport Strategy and Action Plan agreed under the CAREC program.This transcontinental corridor is expected to transport 20-30 million tons of cargo each year.

3. Afghanistan has potentiality to develop its tourism sector. But the internal situationdoes not favor in this regard. But once the Project along with other Railway Projects will beoperational, firstly internal and eventually external tourism will develop in the country.Tourism will not only boost the economy of the country, but will also help normalization ofother internal situation.

4. Trade is increasing between Afghanistan and its neighboring countries. Annualgrowth rates exceed 10%. Total trade valued at US$ 3.5 billion per year of which US$ 0.50billion is export and US$ 3.0 billion is the import. The volume of trade 2 million tons and it isincreasing steadily.

5. The GOA plans to formulate a comprehensive Railway Development Program notonly to improve connectivity of its own important cities and commercial places but also withthe neighboring countries. Initially the GOA has identified 2000 Km route (i) route 1A in thenorth from Hairatan to Hirat via Mazar-e-Sharif (of which the Project is a part) and (ii) route1B from Mazar-e-Sharif to Kabul and on to Torkham, and (iii) 1C in the south from SpinBoldak/Chaman (Pakistan border) to Kandahar. Construction of the Project will furtherenhance the trade with Uzbekistan and will benefit both the countries, mainly for the reasonthat through this port of Hairatan, 50% of the commercial goods are transported.

6. The Project will be executed through two-fold EPC turn-key contract with UTY, (i)design and construction of the Project, and (ii) Operation and maintenance of the Project.Along with the GOA, ADB will provide required TA to oversee the execution of the Project.Once the EPC turn-key contract is constructed, tested and commissioned, the Rail servicewill be operated and maintained by UTY.

7. As part of the TA, a review of the (i) national economy, (ii) hinterland economy, (iii)assessment of transport sector in Afghanistan, (iv) information on new cold storage projectsand (v) industrial developments was carried out in course of the forecasting exercise. Inregard to growth in goods traffic, growth trends for both population and per capita incomewere calculated. The economic internal rate of return (EIRR) of the Project is 15%.

8. The TA study team conducted reconnaissance survey, identified probablealignments and finalized the preferred option after discussing with the client. Later on,


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detailed topographical survey of the alignment was carried out and preliminary designs anddrawings including longitudinal profiles and plan view of the entire alignment were prepared.A transshipment yard is proposed at Naibabad, near Mazar-e-Sharif. Existing railwayinfrastructures at Hairatan railway yard are of Broad Gauge Standard (UzbekistanStandard). Therefore, the transshipment yard has also been designed according to BroadGauge (Uzbekistan Standard).

9. In regard to Track Standard of the Project, the GOA is looking for a system whichcan handle Double Stacked Container Trains and heavier Axle Loads, compatible with theintra-regional Railway system. But differential Railway track-gauges of the region along withsome other technical problems are considered as bottleneck for smooth movement of trafficacross the borders. The Project will adopt 1520 mm track gauge similar to UzbekistanRailway standard. The feasibility study phase I reveals that although the difficult terraincondition has put some physical constraints (limiting factors leading to sharp curvature), theProject is technically feasible.

10. The Total cost of the Project including provision for physical and price contingencies

is US $ 170.0 million. An amount of US$134.50 million is set for Railway development whichincludes costs relating to civil and railway works, resettlement, environmental protection andconstruction supervision. GOA has requested a grant of $165.0 million from ADBs SpecialFund resources to help finance the construction, consultant services, project managementand security, and contingencies of the Project. GOA will provide $4.5 million to cover thecosts of land acquisition and resettlement and taxes. Following table summarizes the cost ofthe Project:

Table 1: Summary of Project Cost

Item Amounts (in million US$)

A. Base CostI. Railway Development 134.50

II. Institutional Development 0.70III. Taxes and Duties 4.50

B. Project Management 0.50C. Contingencies 29.80

Total (A + B + C) 170.00

11. A detailed financial analysis has been conducted in accordance with ADBsGuidelines, the result of which shows that the Financial Internal Rate of Return (FIRR) is3.18%, greater than the WACC of 1.37%. Therefore, the project is viable if fixed fee and/orrevenue sharing scheme with a prospective rail operator is within the estimated range.

12. Environmental and Social Impact Assessment indicates that the adverse impact ofthe Project on environment and human life is insignificant. But as defined in ADBGuidelines the environmental and social issues has been made conditional with ADB loan,needless to mention that the process of stakeholder consultation was systematically donewithin the Project impact area. The outcome of the consultation process is encouraging forthe fact that the survey team did not experience any resistance against the project. Thestudy team observed that Railway Projects (compare to Road) all over the world are typicallyenvironmentally friendly and the Project is no exception in that regard.

13. The Executing Agency (EA) for the Project is the MPW of the GOA, while ADB willact as Project Coordination Agency through the PIU. HB Consultants Ltd., Bangladesh inassociation with ABCD Consultants and Hi-Tech Consultant Ltd. of Afghanistan has been

assigned with the Consulting Services relating to the Railway Development Study. Thestudy which has two phases (Phase I and Phase II) started in July 2009, the technicalfeasibility study for Phase I completed in September 2009.


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II. BACKGROUND

A. Background to Study

14. Afghanistan is on the cross-roads of Asia and yet is almost without railways.Afghanistan has few kilometers1 of railway lines near its borders alongside withTurkmenistan and Uzbekistan. Also 61.2 Km Railway is under construction near Iranianborder at Herat province. At present the rail gauge in the country is undetermined, andpresents several difficulties which are hindering the progress of transportation in the country.The nations, which will interconnect with Afghanistan not only have different track gauges,but also have different axle loading gauges, different clearing gauges, different couplers,and different traffic control technologies.

15. Location wise Afghanistan is situated in a highly strategic position. It is estimated thatthe transcontinental corridor through Afghanistan has the potential to transport 20 to 30million tons of cargo each year. The Central Asia Regional Economic Cooperation (CAREC)transport corridors 3 and 6, identified in the CAREC Transport and Trade Facilitation

Strategy, pass through the northern part of the country. The strategy highlights the greatpotential of Afghanistan to serve as a transit route for traffic and trade among Central Asia,South Asia, and the Middle East. Although Afghanistan's road network is being improvedwith external assistance, at present it is unable to meet the growing transport demands.

16. Afghanistans current transport network has roads, rails, airports, and inlandwaterways. The official road network is 38,500 kilometers, which include 330 km of regionalroads, 4,700 km of national roads, 9,700 km of provincial roads, 17,000 km of rural roads,and 3,800 km of urban roads. The total length of railways is only 25 km, being a 10 kmcross-border extension from Turkmenistan to a transshipment yard in Torghandi and a 15km extension from Uzbekistan to a transshipment yard in Hairatan. Hairatan is a gateway forcommercial goods entering and transiting Afghanistan. Hairatan accounts for about 50% of

all imports. Hairatan is both a dry and river port. Import and transit items include oil and fuel,wheat and flour, fertilizer, agricultural and other equipment, construction materials andconsumer products. Hairatan is also the main entry point for humanitarian relief goods. Noother rail project is being sponsored by any multilateral agency in Afghanistan.

17. The Government of Afghanistan plans to formulate a comprehensive railwaydevelopment program to link its potentially important cities and commercial centers withinAfghanistan to neighboring countries. Three major routes have been identified with a totallength of about 2,000 km: (i) Route 1A in the north, from Hairatan at the border withUzbekistan to Herat in the west via Mazar-e-Sharif, and from Sherkhan Bandar at the borderwith Tajikistan to Kunduz and Naibabad joining Mazar-e-Sharif; (ii) Route 1B from Mazar-e-Sharif to Kabul and on to Torkham at the border alongside with Pakistan; and (iii) Route 1C

in the south, from Spin Boldak/Chaman (Pakistan border) to Kandahar (to Chaman at theborder alongside with Pakistan).

18. The study of ADB TA # 7259 AFG, which consists of the Route 1A is closely linked toADB's Country Partnership Strategy: Afghanistan, 20092013, identifies the rehabilitationand construction of national roads and railways, including links to neighboring countries, asa priority for ADB assistance.

19. HB Consultants Ltd., Bangladesh in association with ABCD Consultants and Hi-TechConsultant Ltd. of Afghanistan has been assigned for the Implementation Consulting

1

There is less than 25 Km. of railway track inside Afghanistan, all of which is built to 1,524 mm (5 ft) broadgauge.


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Services relating to the Railway Development Study. The services include Phase I Feasibility Study of Hairatan to Mazar-e-Sharif Railway line and Phase II Pre-feasibilitystudy of Sherkhan Bandar to Herat through Mazar-e-Sharif. The TA team has completed itsphase- I feasibility study of the selected routes in August 2009 and ADB has planned toprovide financial assistance for the implementation of phase-I railway link. MPW is the EAfor this study and will be the same for the construction of Hairatan-Mazar-e-Sharif RailwayProject. The GOA is implementing the project with the assistance of the ADB. The mainobjective of the project is to help the economic growth of the country by improving therailway sector through improvement of the infrastructure, procurement of rolling stock,implementation of policy reforms and commercial orientation.

20. The construction of the Hairatan to Mazar-e-Sharif Railway Project is the firstinitiative taken by ADB as part of the railway development in Afghanistan and is expected tobe completed by June 2011. This will increase trade between Afghanistan and Uzbekistan.It will also reduce transport costs, increase vehicle operation savings, and create jobopportunities in the Project area. The Project will be constructed as a modern, efficient andsustainable railway connection between northern Afghanistan and southern Uzbekistan.

21. The Project will be executed through EPC contract. This will have arrangements forfixed price and fixed time delivery date, with appropriate clauses for penalties andpremiums. An independent consultant will oversee the EPC contract, tests and commissionthe quality standards. Once the line is constructed, tested, and accepted, the Governmentwill sign an operation and maintenance (O&M) contract with UTY. This contract will also beon performance based, and be subject to independent supervision and validation. ADB willprovide the required technical assistance to oversee the execution of the Project, andsubsequent to that, its management. Headquarters and ADB Afghanistan Resident Missionstaff will assist with the project implementation.

22. It is proposed that Uzbekistan Temir Yullari (Uzbekistan's Railway Company or UTY)

be awarded two contracts: (i) an EPC contract for design and construction, and (ii) an O&Mcontract. The Project will expand the transport network in Afghanistan and the region andgenerate immediate benefits to freight operators, traders, businesses, and localcommunities. The Project will raise the profile of Afghanistan as a transit route; make iteasier to deliver humanitarian relief and complement other modes of transport, including twoCAREC transport corridors and the airport at Mazar-e-Sharif, which will be expanded soon.The Project is financially sound and its Economic Internal Rate of Return (EIRR) isestimated at 15%. Sensitivity tests demonstrate the Project to be robust across a broadrange of key parameter variations.

B. Analysis of Problems and Opportunities

23. The transport sector performance in Afghanistan is affected by three main problems:inadequate infrastructure and facilities, limited government capacity, and insecurity.

1. Constraints

a. Inadequate Infrastructure and Facilit ies

24. Before 2001, investment in road reconstruction and maintenance was negligible.Since than it has improved, although only 7% of the total road length is paved. About 70% ofinter-provincial and inter-district roads are in a poor state of repair. In the medium term theestimate is about $1.7 billion for 3,000 km of national roads and $1 billion for 17,000 km ofprovincial and rural roads. The railway network is negligible. Capacity at the Hairatan

marshalling yard is adequate but all cargo has to be unloaded and reloaded into trucks.


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25. The road network is incomplete. Various parts of the country are poorly connected ornot connected at all. Four provincial capitals remain unconnected to the regional networkisolating them from domestic and regional markets. The coverage gap affects connectivity,which cuts trade and investment opportunities, increases the cost of doing business andreduces the countrys competitiveness and job creation capability. This increases costs, andgenerates losses.

26. Regional connectivity is underdeveloped primarily due to cross-border bottlenecks.Key constraints to the expansion of cross-border trade among Central and South Asiancountries include inadequate customs facilities and a heavy reliance on cargotransshipment at borders, aggravated by the need for transit permits, and lack of vehiclestandard and axle load controls, as well as visa regulations, unofficial charges, and theprotection given to local trucking. Transit agreements are either nonexistent or poorlyenforced. Link roads and facilities at border crossings are inadequate. The few existingcross-border railway links have not been developed.

b. Limi ted Government capacity

27. The transport sector requires clear investment plans, stable and predictablefinancing flows. These investment plans need to distinguish better between capital andrecurrent expenditures, especially for operation and maintenance (O&M). Seed capital isprovided by donors. However, not all donors include infrastructure in their businessstrategies. The result is that financing will likely remain a binding constraint for theforeseeable future.

c. Insecurity

28. Insecurity is a constant threat for the reconstruction effort and makes it difficult forthe Government to extend basic public services, increases project costs, limits bidding

interest from construction companies, makes recruiting international contractors andconsultants (including expatriate Afghans) difficult, and erodes popular support forgovernment staff and international personnel.

29. The international connections in southern and eastern Afghanistan are currently notsufficiently safe or reliable. Security hinders the transportation of goods and humanitarianaid. There is a need to expand all modes of transport and to open up more reliable andefficient routes for trade in and out from Afghanistan. A new rail line in the north will supporteconomic development and poverty reduction in the country and the region.

2. Opportunities

30. The Project will expand the transport network in Afghanistan and the region andgenerate immediate benefits to freight operators, traders, businesses, and localcommunities.

31. Afghanistan has significant mineral, industrial, and agricultural potential, whichrequire a reliable and cost-effective transport system. From neighboring countries likeUzbekistan, Tajikistan, Turkmenistan, Pakistan, etc. all imports and transit goods arebrought to the borders by rail, and then transshipped onto the trucks for movement withinAfghanistan or across the borders. Compared with roads, railways offer a cheaper andquicker mode of transport for bulk commodities such as fuel and minerals. Moreover, theextraction of natural resources from major mines in Afghanistan requires a sustainable andsafe mode of transport.


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32. The road network, which carries the majority of the country's freight and passengertraffic, is being improved, but the transport system remains inadequate, inefficient, andunsafe. Only half of the roads that connect 24 provinces of the country are serviceablethroughout the year, greatly restricting job creation and economic growth. A railway networkwould complement Afghanistan's roads and form part of an integrated multimodal transportsystem to enable seamless connectivity from origin to destination for goods, and link thislandlocked country to nearby seaports and trade centers.

33. The Project has some gender content. It can create job opportunities but also reducehealth risks associated with current road truck operations (HIV/AIDS vectors).

34. The rail line will replace some road-based cargo. The Project will cut transport costsin the region and Afghanistan, and generate time savings by unlocking current logistics andtransport bottlenecks at the Hairatan marshalling yard. This will increase truck productivityand transport capacity. By removing heavy trucks from the small road network, it wouldpermit the continued development of intercity and commuter bus transportation.

35. The Project will raise the profile of Afghanistan as a transit route; will make it easierto deliver humanitarian relief and complement other modes of transport, including twoCAREC transport corridors and the soon to be expanded airport at Mazar-e-Sharif.

C. Government Policies, Plan and Strategy

36. The Afghanistan National Development Strategy (ANDS)2 adopted by theGovernment in April 2008, is the countrys main strategic platform for development over20082020. The Governments overall vision, as articulated in the ANDS, is to consolidatepeace and stability through just and democratic processes and institutions, and to reducepoverty and achieve prosperity through broad based and equitable economic growth.

37. The ANDS features three mutually supporting pillars: (i) security; (ii) governance, ruleof law, and human rights; and (iii) economic and social development. The ANDS indicatesthat progress across all fronts is needed to reduce poverty and promote prosperity. Theeconomic and social development pillar includes the following sectors: agriculture and ruraldevelopment; education, culture, youth, and media; energy, water, and irrigation; health andnutrition; mining; private sector development; refugees, returnees, and internally displacedpersons; social protection; transport; information and communications technology; andurban development. The ANDS also identifies anticorruption activities, capacitydevelopment, counter-narcotics, environment, gender equity, and regional cooperation asimportant crosscutting concerns. Rural development, and particularly the links between jobs,production, and markets, is also seen as crucial to reducing widespread poverty. It aims topromote growth, generate wealth, and cut poverty and vulnerability. The strategy includes

transport and logistics. In this regard, it sets out quantitative and qualitative targets, bothphysical and nonphysical, and covers various systems, including roads and railways.

38. The main objective under the transport strategy is to develop corridors betweenCentral Asia and South Asia. Two regional road corridors, North-South and East-West havebeen identified and are at various stages of development. The North-South Corridor runsfrom Central Asia through Afghanistan to the Pakistani ports of Karachi/Port Qasim andGwadar. The East-West Corridor runs from Central Asia through Afghanistan to the Iranianports of Bandar-e-Abbas and Chabahar. Key development actions are:

Investments in transport and trade infrastructure;

2Islamic Republic of Afghanistan. 2008.Afghanistan National Development Strategy. Kabul.


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Strengthening trade-related institutions and improving the efficiency at ports andcustoms; Harmonizing transport, trade, and tariff policies, standards, and regulatoryframeworks; and

Fostering private sector involvement.

D. External Assis tance to the Sub-sector

39. ADB has financed the improvement of nearly 1,100 km of regional and nationalroads since 2004, mostly in the northern and northwestern parts of the country. ADBsinvestment amounts to over $600 million. The United States Agency for InternationalDevelopment and the World Bank are other large players in the road sector. The EuropeanUnion is financing an experimental performance-based maintenance contract for a Kabul-Jalalabad road. The Japan Bank for International Cooperation is helping MPW improve themanagement and use of road-maintenance equipment, a major action to improveinstitutional effectiveness and project implementation.

40. ADB has numerous initiatives for the development of Transport sector in Afghanistan

and in this region. The road infrastructure component of the ADB-financed EmergencyInfrastructure Rehabilitation and Reconstruction Project (EIRRP) undertook urgently neededrepair and rehabilitation of the Pol-e KhomriMazar-e-SharifSheberghan section of thenational ring road, including international links to Turkmenistan (SheberghanAndkhoyAquina road) and Uzbekistan (Mazar-e-SharifNaibabadHairatan road) at an estimatedtotal cost of $65 million. The Government of Japan also provided $20 million in JFPRfunding to finance rehabilitation of the NaibabadHairatan (55 km) and Naibabad Balkh (57km) sections of the northern road.

41. Rehabilitation of the Japan Fund for Poverty Reduction financed KandaharSpinBoldak road ($25.0 million) is largely complete as of end-July 2005. ADB also provided TAfor a feasibility and design study for the HeratAndkhoy road ($1 million); leading to the $80

million Andkhoy-Qaisar Road Project (approved in December 2004) will rehabilitate 210 kmof the Herat-Andkhoy road. A proposed $55 million grant-funded project in 2005 (the Qaisar-Bala Murghab Road Project) will rehabilitate a further 90 km of the Herat-Andkhoy road.

42. In 2004, ADB provided TA for the preparation of a road master plan that will developa road development program for the next 5-10 years, with focus on identifying major eastwest and northsouth corridors to cross-link with the national ring road network. The TAalso will assess financing requirements for sustainable road maintenance and will proposedesirable and sustainable financing mechanisms. The TA is expected to result in a $140million NorthSouth Corridor Project planned for 2006, with a further road sector projectplanned for 2008. In 2005, ADB also will provide additional capacity building TA to theMinistry of Public Works.

43. ADB provided $1 million in TA to undertake feasibility and design studies for therehabilitation of Afghanistans regional airports. The TA led to a US$30 million RegionalAirports Rehabilitation Project to help repair seven regional airports: Bamyan, Chaghcharan,Faizabad, Farah, Maimana, Qalai-Naw, and Zaranj. The project will reconstruct runways andtaxiways, build new passenger terminals or renovate existing ones, reconstruct road accessand car parks, connect water supply and sewerage, provide airport maintenance equipment,and install security and boundary fences and gates. The project also will help to strengthensector management and airport operations and maintenance. A $40 million RegionalAirports Rehabilitation Project Phase II is planned for 2006 or 2007. ADB also is planningadditional TA in 2005 and 2006 to support capacity strengthening of Afghanistans civilaviation sector.


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1. ADB Suppor t to Improve Afghanistan Regional Rail Links

44. Afghanistans push to develop reliable, safer, sustainable transport systems thatboost growth, and increase connectivity with neighboring countries are getting support fromAsian Development Bank (ADB) grant. A part of this grant will be used to construct a 71kilometer single line railway between Hairatan - a northern town at the border withUzbekistan that is the gateway for almost half of Afghanistans imports and much of itshumanitarian relief goods - and Mazar-e-Sharif, the second largest city in the country. Theproject will also upgrade Hairatan station yard, build a transshipment terminal and provideinstitutional support to develop a railway sector plan.

45. Afghanistan has the potential to play a key role as a transit route in Central Asia forgoods going to ports in Pakistan and the Caspian, and onwards to South and East Asia, theMiddle East and Europe. However, trade volumes are heavily constrained by weak transportsystems. In the case of Hairatan, freight railed from inside Uzbekistan stops at the borderand then has to be offloaded and reloaded into trucks, causing delays and raising costs.

46. This rail line will boost the freight volumes, lower the costs, raise the profile ofAfghanistan as a transit route, and complement two major transport corridors beingdeveloped under the Central Asia Regional Cooperation Program (CAREC). The project isthe first phase of a larger rail network planned for the country, including links to Herat,Tajikistan and Pakistan and is part of CARECs broad push to improve connectivitythroughout the region, supporting growth and cutting poverty.

47. To overcome past problems linked to transport projects, such as cost overruns anddelays, the Government will be entering into direct contracts with Uzbekistan RailwaysCompany, both for the engineering, procurement and construction of the new facilities, andfor their operation and maintenance. The decision to relax normal procurement proceduresis justified by the fact that the new railway will be a de-facto extension of the companys

current line from Termez in Uzbekistan to Hairatan; it does not require investments in newrolling stock; there are no comparable companies in the region capable of designing,building, operating and maintaining a line based on the Uzbekistan system; and thecompany has proprietary preliminary designs, which accelerates project readiness, savingconsiderable time and costs.

48. ADBs grant covers 97% of the total project cost of $170 million, with theGovernment contributing $5 million. The Ministry of Public Works will be the executingagency, with June 2011 the estimated completion date.

2. Other Development Partners Activities to the Subsector

49. Afghanistans national primary roads are being rehabilitated with financial andtechnical assistance from bilateral and multilateral funding agencies. Priority has been givento rehabilitating strategic road connections, including the ring road and border accessroads to neighboring countries.

50. The World Bank has funded the repair of the 175 kilometer (km) KabulDoshi road($60 million) as well as rehabilitation of the 2.7 km Salang tunnel ($5 million). The WorldBank also funded the rehabilitation of the road from Pol-e Khomri to Sher Khan Bandar(land) port. The road to the north and northeast through Doshi is one of Afghanistans sixinternational links to its neighboring countries. The World Bank has also provided $18.8million plus an IDA credit of $20.4 million for rehabilitation of secondary and tertiary roads(2,000 km) and bridges (2,300 m)


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51. The European Union awarded a 26 million contract to a Chinese engineeringcompany, China Railway Shisiju Group Corporation, for a 75 km stretch (Sarobi-Jalalabad)of the vital 222 km Kabul JalalabadTorkham road. The European Union also will fund afollow-on project for a total of some 65 million. USAID has funded rehabilitation of thefollowing sections of the national ring road: KabulKandahar Road section (km 43-432)totaling $182 million; KandaharHerat highway (km 356-456) for $71.6 million; and fourbridges on KandaharHerat road for $5.4 million.

52. The Government of Japan provided $29.3 million for reconstruction of KabulKandahar road section G and will finance for reconstruction of the KandaharHerat road (km0-116). The Government of Japan also provided $18.6 million for reconstruction of Kabulsroad transport. The Government of Saudi Arabia has provided $30 million for thereconstruction of the ring road segment KandaharHerat (Gereshk- Delaram or km 116-231). The Government of India will fund the rehabilitation of Zaranj Delaram road. TheGovernment of Iran has already funded the following national roads: HeratIslam Qala ($45million); MilakZaranj road (5 km) and a bridge; and HeratKoruk ($20 million-$30 million).The Government of Italy has committed funds for construction of a new Maidan Shar

Bamian road (36 million). The Government of Pakistan is assisting in rehabilitation of thetransit road (approximately 60 km) from Torkham to Jalalabad.

53. The North Atlantic Treaty Organization (NATO), as part of its International SecurityAssistance Force (ISAF) responsibilities, is coordinating assistance to Afghanistans aviationsector. The World Bank is funding the rehabilitation of Kabul International Airport ($24million). The Government of Japan will provide $31 million for the construction of a newterminal building at Kabul International Airport, and will also provide $2.85 million inequipment for the airport. The Governments of the United States and India are providing TAfor organization development, program management, aviation law, and regulatory oversight,etc.

3. ADB Strategy and Sub Sector Experiences

54. The Afghanistan Country Partnership Strategy (CPS) 20092013 is fully aligned withANDS priorities and planned outcomes. ADBs ongoing and future investments will continueto support Afghanistans further economic growth, thus contributing to the countryseconomic and social development and poverty reduction. At the Governments request, andin line with ADBs Strategy 2020, ADBs assistance to Afghanistan will continue to focus ona limited number of priority sectors and subsectors. The CPS results framework reflectshigher level Afghanistan Compact and ANDS benchmarks, with ADB assistance contributingto the following development outcomes:

55. The ADB's Strategy for railway and road transport is to contribute to the

development of regional transport corridors in coordination with regional initiatives by otherinternational aid agencies. Regional transport improvements will meet infrastructure needsthat support wider economic co-operation. An important aspect of the sectoral focus is thestrengthening of institutional capacity and proactive support of sector reforms. Restructuringof existing institutions will be supported so that the Government's role is limited to transportpolicy formulation, programming and planning of projects, monitoring of performance,regulating and licensing, and developing mechanisms to introduce private sectorparticipation in transport operations.

56. The ADB supported Regional Cooperation program The CAREC Transport SectorRoad Map (20052010) aims to develop an integrated and efficient transport system inCAREC countries in support of sustainable economic growth and poverty reduction. The

Road Map sets six strategic priorities: (i) Harmonization and simplification of cross-bordertransport procedures and documentation among CAREC countries to facilitate the


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movement of passengers and freight across borders. (ii) Harmonization of transportregulations among CAREC countries to create a level playing field for transport operatorsand promote efficiency and better services. (iii) Development and improvement of regionaland international transport corridors to link production centers and markets within CARECcountries and to enhance CAREC countries access to neighboring regions and markets. (iv)Restructuring and modernization of railways to provide quality and efficient services throughprivate sector participation and improved corporate governance. (v) Improvement of sectorfunding and management to ensure that the regional transport network is developed,operated, and maintained properly. (vi) Incremental approach to liberalization of civilaviation, focusing on the adoption of bilateral agreements using common legislative clauses,with a view to expanding sub-regional agreements among neighboring countries, andpotentially more widely in the long term. Enhancement of external inputs from allstakeholders, especially business and tourism, in aviation policy making. The Project willstrongly support regional railway corridor development.


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III. THE PROPOSED PROJECT

A. Descript ion o f Project

57. The feasibility study team identified and selected the final alignment between

Hairatan at the border with Uzbekistan and Mazar-e-Sharif city from the three alternatives.The total length of the proposed link is around 70 km and the Project involves theconstruction of this Railway line. The proposed alignment is shown in figure 2. The Projectrepresents a first phase of a larger rail network planned across the north and other parts ofthe country, including links to Herat, Tajikistan, and Pakistan. It will expand the existingtransport network in Afghanistan and is expected to substantially improve internal andinternational connectivity. The Project is a part of the Transport Strategy and Action Planagreed under the CAREC Program. It will add capacity to two transport corridors underCAREC and will open up alternative routes of supply for national and international trade, aswell as for humanitarian relief to Afghanistan.

58. The Project has two components: (i) design and construction of 70 km single-line

railway and associated infrastructure; and (ii) project management, independentsupervision, and institutional support.

B. Objectives

59. The objectives of the Project are to (i) promote economic development and regionalcooperation by improving the strategic railway link to Northern Afghanistan, (ii) continuesupport for institutional and policy reforms, and (iii) enhance operational efficiency ofrailways by developing the capacity of Afghanistan Railway Authority to operatecommercially in a competitive environment.

60. The specific objective of the Hairatan to Mazar-e-Sharif Railway Project is to

establish a shorter and faster rail link between Hairatan port, the border of Uzbekistan andMazar-e-Sharif the second largest city in the country.

61. The Project will lead to greater economic growth and increase trade betweenAfghanistan and Uzbekistan. This railway will be a more efficient, safe, and sustainablerailway transport network, which will increase transport volumes and reduce transport costs.The Project will benefit from recently modernized custom facilities at Hairatan, which havebeen funded by the European Commission.

C. Components and Outputs

62. The Project will facilitate building a railway line linking Hairatan and Mazar-e-Sharif. Itwill have two components: (i) railway construction, and (ii) institutional development.

63. The Project will be a 70 km railway line and associated support infrastructure andfacilities. The outputs will be:

Upgraded marshaling yard and railway station at Hairatan, Construction of a new single-line of 71 km, Railway station and transshipment facilities at Mazar-e-Sharif, Transportation of bulk material and humanitarian relief goods, Improve connectivity in the region, Signaling and telecommunication systems.


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Figure 2: Al ignment of Hairatan to Mazar-e-Sharif Railway Proje


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64. This component will cover project management, construction supervision, andinstitutional support. An advisor will be recruited and tasked with developing (i) a railwaysector institutional plan, (ii) a railway legal and regulatory framework, (iii) an O&Magreement, and (iv) a training program.

65. The outputs of the project will include a new Railway line capable of handling thedouble stake operation of containers. It will also include a rehabilitation of the inoperativemarshaling yard at Hairatan Port. The new transshipment facilities at Mazar-e-Sharif willenable efficient handling of the anticipated traffic.

D. Rationale for the Project

66. The Project has strong rationale. It will develop a reliable, efficient, safe, andsustainable transport link within the country and between the country and its neighbors.Hairatan already doubles up as Afghanistan's most important dry and river port, acting asthe gateway for almost half of Afghanistan's total imports. Key commodities and goodsmoving through this point include oil and fuel, wheat and flour, fertilizer, construction

materials such as cement and bitumen, agricultural and off-highway equipment andconsumer goods. Hairatan is also a largest port for the supply of humanitarian relief toAfghanistan. However, the existing transport infrastructure and facilities at Hairatan cannotcope with an expanding volume of trade and humanitarian relief.

67. An existing rail line between Termez in Uzbekistan and Hairatan does not have a raillink into Afghanistan. Freight destined for Afghanistan and beyond has to be off-loaded andreloaded into trucks at this border. Moreover, other established trade and supply routesservicing Afghanistan are disrupted because of security constraints. The TermezHairatanrailway line helps but Afghanistan and other Central Asian countries would benefit if thiswere to be extended into Mazar-e-Sharif ending near the airport there, which is beingexpanded with German assistance, and connecting to the Ring Road being financed by the

Asian Development Bank (ADB). This expanded rail line will remove major physicalbottlenecks at the border.

68. Another important feature of the Project is its strong strategic and logistical content tocountries in Central Asia. Afghanistan is the natural transit route to reach ports in Pakistanand the Caspian, for the onward sale of goods to South and East Asia, Middle East, andEurope. The railway line at Hairatan will raises the profile of Afghanistan as a transit routeand complements the connectivity arising out of the two CAREC corridors (3 and 6), nowunder construction.

69. The Project fits well with the Government's development strategy and ADB's CountryPartnership Strategy for 20092013. The latter flags transport as a priority area forassistance. The Project also fits well with the CAREC Transport and Trade FacilitationStrategy and the Action Plan. The Project will be implemented in line with ADB's approachto engaging with weakly performing countries.

70. A reliable, efficient, safe, and sustainable transport link between Afghanistan and itsneighboring countries is essential to increase regional cooperation and trade. It is also a keyto expanding job creation, investment, and ultimately poverty reduction in Afghanistan. Arailway network adds to the transport modes, including the existing roads being built in thenorth and center of the country, and soon to the expanded airport at Mazar-e-Sharif, thecountry's second-largest commercial center. The extension of the railway line from Hairatanto Mazar-e-Sharif is a top priority of the Government and fits its development strategy.

71. Due to the ongoing conflicts in Afghanistan and Pakistan, the reliability of transportsupply and trade routes into Afghanistan is impaired. The movement of goods by rail from


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the Uzbekistan border is relatively safe, and can become a cost effective transport mode.Hairatan is already Afghanistan's main dry and river port, accounting for close to 50% of itstotal imports. But the movement of cargo is constrained by its unloading and reloading intotrucks at the border. This is costly, slow, and limits volume flows including humanitarianrelief. Removing this bottleneck is an urgent task.

72. The new railway line between Hairatan and Mazar-e-Sharif connect Central Asia toSouth Asia, Caucasus, and the Middle East. The railway targets mainly the transport of bulkand nonperishable cargo such as cotton, cement, and bitumen for road construction,agricultural and off-highway construction equipment, oil and fuel, processed foods, andconsumer products. The existing rail line from Termez to Hairatan in Uzbekistan terminatesat the Afghanistan border. The extension of the Termez Hairatan link into Mazar-e-Sharif(close to the airport) can remove physical constraints at Hairatan and create an alternativeand competitive transport made for trade between Afghanistan and its neighboringcountries. Mazar-e-Sharif's location close to the Ring Road and the airport results in anintegrated transport facility. So in terms of better connectivity, the project will increaseefficiency of the transportation system of the country as well as of the region.

E. Conduct of the Study

1. Methodology

73. The TA consists of railway engineering, economic and financial analysis, a review ofthe progress of institutional development within the railway subsector, a detailed initialenvironmental examination and a social and poverty analysis. The TA commenced with apre-screening of three alternative railway alignment proposals from Hairatan port to Mazar-e-Sharif city. It was agreed that a pre-screening of the above alternatives would be includedin the Inception Report for the TA. The final list of pre-screening criteria included GOApriority; Importance to Regional Integration and International Trade, Social Impact, Potential

Capacity Improvement, Environmental Impact, Traffic Potential and Project Cost.

74. The economic analysis commenced with an overview assessment of the transportsector in Afghanistan. Traffic flows were then investigated as were the current detailed flowson the Hairatan-Mazar-e-Sharif road. A review of factors likely to influence future flows wascarried out prior to the preparation of traffic forecasts. A review of the national economy andthe hinterland economy was also carried out in the course of the forecasting exercise.Information was obtained on new cold storage projects and industrial development thatwould likely generate traffic on the Hairatan Mazar-e-Sharif. Regional factors likely toinfluence traffic levels such as the growth within the economy of Afghanistan and the growthin neighboring markets were studied. Commodity specific factors were also considered. Asregards growth in goods traffic, growth trends were calculated for both population and per

capita income. Traffic forecasts were prepared for the period 2009-2035.

75. Engineering study consisted of inspections of the Hairatan-Mazar-e-Sharif area withMPW staff, staff of the Balkh Governor Office and engineers of the Afghanistan RailwayAuthority (ARA). Topographic survey was conducted along the finally selected alignment.The alignment design and detailed engineering design were prepared and costed. Theassessment on institutional development for the Railway Authority was conducted anddiscussed with concerned Ministries. The railway construction proposal was subjected to anInitial Environmental Examination - and the fact that the proposed railway works will takeplace entirely within the railway right of way, which entails that a full Environmental ImpactStatement was not required. A social and poverty analysis was carried out with detaileddiscussions being held with stakeholders in the area of influence. Affected families were

identified and the compensation mechanism was developed.


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76. The Project was subjected to technical, economic and financial appraisal. The keyassumption of these analyses was that the implementation of the project will have minimumpublic land acquisition and maximum environmental benefits. Economic benefits includecosts of road transport, fuel consumption and equipment utilization savings. Financialbenefits were calculated as the revenue that otherwise would have been lost because of theloss of traffic to road transport; the savings in track maintenance; and savings in theutilization of equipment. Tariff analyses were carried out focusing on a comparative analysiswith the traffic structure of the newly constructed Hairatan-Mazar-e-Sharif road. Projectionsof MPW's financial condition over the forecast period were carried out.

2. Study Team

77. The study Team includes both international and national experts and is beingheaded by a Railway Operation Engineer/Team Leader. The international expertise includestwo International railway engineers, a financial specialist, an economic specialist, anenvironmental specialist, a social and poverty specialist and an institutional developmentspecialist. The national expertise consists of four railway civil engineers, two railway

engineers, a railway operational and maintenance expert, a transport economist, two socialspecialists, an environmental specialist, a private sector specialist and an institutionalspecialist. Besides, to support the core team, a number of support teams consisting of localsurvey experts, AutoCAD expert were actively involved in the study activities.

F. Executing Agency and Counterparts

78. The Executing Agency for both the Study and the construction Project is the Ministryof Public Works, Afghanistan. The ADB Project Implementation Unit (PIU) is designated asthe Study and Project Coordinating Agency.

G. Contents of the Report

79. The report discussed in detail the feasibility study findings on phase- I. The reportincludes five volumes and the volume 1 contains the Technical Feasibility Report with eightsections. Section I consists the introduction and section II describes the background of theStudy and the Project. The rationale of the Project is discussed in Section III of this report.Section IV describes the Detailed Feasibility Analysis and Section V presents the sectorperformance analysis. Section VI describes the implementation arrangement and section VIIprovides the description of the public consultation. Section VIII is the consultantsrecommendation to this project. Several appendices are attached with this to support theReport.

80. The Volume 2 contains detailed supplementary reports which also support this

Report. Volume 3 contains the detailed report on Initial Environmental Examination and theVolume 4 contains the report on Land Acquisition and Resettlement Plan.

81. The engineering drawings have been presented in Volume 5 of this report. Thedrawings include the key plan view and profile of 70 km rail alignment. It also includes thedetailed drawings of station building, transshipment yard, level crossing, etc.


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IV. SECTOR PERFORMANCE AND SPECIAL FEATURES

A. Sector Performance Indicators and Analysis

82. Intra-regional trade is growing but remains seriously constrained because of limitedtransport infrastructure and facilities. Trade is increasing between Afghanistan and Pakistan,Iran, and Central Asia. Annual growth rates exceeded 10%. Total trade is now valued at$3.5 billion per year, of which $500 million are exports and $3 billion imports. Volumeimports exceed 2 million tons. Afghanistan is the crucial link for Central Asia to access SouthAsian markets. It is also a conduit to access warm-water ports in Pakistan and on theCaspian Sea for trade with Europe and the Middle East. Fostering regional connectivity willhelp countries increase investment, trade, and employment.

83. Most border roads connecting Afghanistan with Uzbekistan, Iran, Pakistan,Tajikistan, and Turkmenistan are in dreadful shape. The Central Asia Regional EconomicCooperation Program (CAREC)3 has a strategy and action plan for six transport corridorsacross the region and the development of railway networks in selected countries. These rail

networks will complement the road corridors and, in many instances, feed into port andairport networks. A priority railway network under CAREC is in Afghanistan. This railwaynetwork will have three main sections: (i) (4)Hairatan to Mazar-e-Sharif, (ii) Mazar-e-Sharifto Herat, and (iii) Mazar-e-Sharif to Tajikistan. Later, other routes will include Chaman,border line between Pakistan and Afghanistan, to Kandahar. A railway line between Sanganin Iran and Herat is under construction with assistance of Iran. The first section of thenorthern network will be a new railway line from Afghanistan border town of Hairatan toMazar-e-Sharif. This is a top priority Government and fits well with the CAREC Transportand Trade Facilitation Strategy and ADB's country partnership strategy for 2009 2013.5The sections from Mazar-e-Sharif to Herat and from Mazar-e-Sharif to Tajikistan are also inthe top priority lists, but these are more medium term propositions as they will cost more andinvolve significant resettlement. These routes will become more economic once the Ring

Road financed by the Asian Development Bank (ADB) is completed.

84. Afghanistans current transport network has roads, rail, airports, and inlandwaterways. The official road network is 38,500 kilometers (km) long, 3,300 km of regionalroads, 4,700 km of national roads, 9,700 km of provincial roads, 17,000 km of rural roads,and 3,800 km of urban roads. The total length of railways is only 25 km, being a 10 kmcross-border extension from Turkmenistan to a transshipment yard in Torghandi and a 15km extension from Uzbekistan to a transshipment yard in Hairatan. Hairatan is a gateway forcommercial goods entering and transiting Afghanistan. Hairatan accounts for about 50% ofall imports. Hairatan is both a dry and river port. Import and transit items include oil and fuel,wheat and flour, fertilizer, agricultural and other equipment, construction materials andconsumer products. Hairatan is also the main entry point for humanitarian relief goods. No

other rail project is being sponsored by a multilateral agency in Afghanistan.

85. Various ministries have regulatory and oversight functions over transit trade andtransport, including the Ministry of Commerce and Industry (MOCI), Customs Departmentunder Ministry of Finance (MOF), Ministry of Transport and Civil Aviation, Ministry of PublicWorks (MPW), and Ministry of Interior (MOI). Coordination among the ministries is not

3ADB. 2007. CAREC Transport and Trade Facilitation Strategy. Manila.

4Technical assistance (TA) was provided to prepare the Project. ADB. 2009. Technical Assistance to the IslamicRepublic of Afghanistan for the Railway Development Study. Manila (TA 7259-AFG, for $1 million approved on27 March).5ADB. 2008. Country Partnership Strategy 20092013, Afghanistan. Manila.


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formalized. MPW plays a principal role in the construction and maintenance of road and railinfrastructure. However, its project management capacity is weak.

86. In 2007, the number of registered vehicles included 300,000 cars, 40,000 buses,100,000 trucks, 100,000 motorcycles, and 5,000 rickshaws. Vehicle numbers haveincreased rapidly in recent years, with annual growth rates over the past 3 years close to23% for cars, 15% for trucks, and 48% for motorcycles, but only 2% for buses andrickshaws. Virtually all vehicles are second-hand imports.

87. Freight is carried primarily by privately owned trucks. The truck population is basedon heavy articulated trucks (20%), with the remaining 80% divided equally into heavy,medium, and light or pickup classes. There are no special transit charges and foreign truckstransporting freight through Afghanistan pay only a 5% commission. Hairatan at present ishandling about 250 wagons a day, while at Torghandi the number is 50 wagons a day.Airport facilities are also limited and in a poor state of repair. Beside Kabul, Mazar-e-Sharif isthe only main airport due for major reconstruction and expansion. A new 3,000 meterrunway is being constructed. About 600 meters of the existing runway are being repaired,

including new taxiways. This will increase capacity for the intermodal flow of commercialgoods.

B. Lessons Learned

88. Three key lessons can be drawn from ADB's experience: (i) project costs have beenunderestimated, (ii) the procurement of works and services has been slow anduncompetitive despite being tendered, and (iii) stakeholder consultation has been weak.Unstable Government co-financing and poor project management has been recurrentproblems.

89. Most transport projects have suffered from underestimated capital and recurrent

costs. This problem has been exacerbated by fast-rising prices for materials and securityconcerns. Under these conditions, MPW has been unable to finance overruns, creating longdelays and, in some cases, actual contractual disputes. This problem has been aggravatedby the approval of large stand-alone projects at a time. Financing has not always been welllinked to the readiness of projects. The use of separate multitranche financing facilities byADB for each priority sector under the Country Partnership Strategy provides an opportunityto allocate the annual funding envelope among projects (or sections of projects) moreefficiently. Turnkey contracts can also speed up contract awards, disbursements, and resultson the ground.

90. Procurement of works for design-build has been done mostly on the basis ofquantities estimated from preliminary designs. This has led to many variations in scope and

scale of works. The consulting firms recruited according to quality- and cost-based selectionhave been unable to replace key specialists, who often leave at short notice due to securityrisks. Another complication has been the lack of contractor interest. Quite often, only onecontractor tends to bid for projects. Given that contractors know in advance the size of thefinancing package, bids have always been close to or even higher than the financeenvelope. There is a need to consider increasing the number of operations structuredaround engineering, procurement, and construction (EPC) contracts supervised byindependent and credible firms. Price verifications can precede these contracts and becarried out by independent advisors.

91. Stakeholder consultation, especially with local communities, has been difficultbecause of security concerns. The result is that some communities have not bought into the

projects, or welcomed foreign contractors. This has become an issue affectingimplementation and the ultimate success of projects. The establishment of community funds


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in road and energy MFFs will cover the cost of basic community infrastructure services andincrease their "buy-in" in these projects.

C. Special Features

1. Regional Context

92. The Project will promote regional cooperation and trade. The facility will attract high-value traffic on to railways, promote inter-model traffic, and encourage private sectorshippers and freight forwarders to trade cargo to Afghanistan, Central Asia, South Asia, theMiddle East, and Europe. The Project will complement CAREC road corridors.

93. Railway all over the world is typically environmentally friendly. The Project willtherefore improve environmental sustainability by using regenerative locomotives, and bettertechnology for noise reduction and soil erosion prevention. It will use double-stackcontainers to increase fuel-efficiency and environmental benefits.

2. Source of Materials

94. The Project will adopt the Uzbekistan broad gauge standard for efficiency andeconomic reasons. The rail tracks are produced by countries adopting this gauge standard.A number of them are not ADB-member countries. ADB procurement eligibility restrictionswould effectively preclude UTY from seeking the best business terms from suppliers in thesecountries, and thus from submitting a competitive proposal. The Government requests ADBto waive the eligibility rule to allow financing of the rail track components procured fromnonmember countries of ADB. Due diligence work conducted by ADB indicates that, in thiscase, procurement of rail track components could be quicker and more competitive.Considering the flexibility allowed in the WPC paper, it is proposed that UTY be allowed toprocure rail track components from countries that are not ADB members.

3. New Technology

95. The rail track will be constructed, and maintained by the Uzbekistan Temir Yullari(UTY). The UTY is a member of the CIS family of railroads, which is the large former Sovietnetwork that reaches over most of Central Asia and into Eastern Europe. The CISs maincharacteristic is the use of a 1520 mm track gage largely built using standards developed byThe All Russia Railway Institute, VNIIZHT. Russias RZhD is the largest member of the CIS.The result is a high degree of standardization and interoperability.

96. The UTY will construct the Project using specifications for material and designs forRights-of-Way, except as noted below. Because the Project will be using, de-facto,

VNIIZHT specifications and designs modified by the Uzbekistan Temir Yullari for localclimatic conditions, the Project is assured of a nearby supply of components and trackmaterials. This material can, therefore, often be purchased at commodity prices in as muchas the CIS network has several suppliers of the same designs. This greatly reduces thelead-time and prices compared to material acquired from just one nation or even just onefactory, possibly overseas.

4. Capacity Build ing

a. Investment in Human Resources

97. The Project intends to utilize Ministry of Public Works engineers, who are already

involved in the Pre-Feasibility Study Investment in Human Capital to Maintain a State-of-Good-Repair for Phase I and Phase II, to effect a transfer of both modern railroad design


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and railroad construction practices. Using UTY as the construction prime contractor andbeginning maintenance manager will greatly facilitate the transfer of institutional knowledgeof the State of Good Repair configuration of the Projects assets. The Uzbekistan TemirYullari, as the interchange railroad, has a strong interest in insuring that the connectinginfrastructure is capable of generating to revenue stream that Uzbekistan Temir Yullaridepends upon. The Specifications for the construction will include field and classroomtraining to be conducted by the UTY. The training will be in conducting inspections,identifying areas for corrective action, scheduling, railroad safety practices and procedures,and material procurement and management. The training shall also include the ability toconduct the minor construction required to connect private and public terminals, industrialparks, and large industries to the Projects alignment without reducing the mainline capacityof the CAREC route network or Afghan national planning goals.

b. Investment in Spare Material

98. The Specifications for construction will include spare material sufficient for (a) routinemaintenance, (b) repairs required as a result of accidents, security incidents, and (c) minor

extensions into private and public terminals, industrial parks, and large industries. Becausethe UTY is a constant participant into the marketplace for materials, and because the size ofthis Project permits economies of scale in purchasing, it is planned to acquire significantamounts of routine and specialty spare material, e.g. track switches. These procurementswill reduce the initial maintenance costs during the start-up of the Project when trafficvolumes may be expected to be low at the beginning.

c. Retention of Intellectual Property

99. The Specifications for construction will include requirements for an orderly transfer ofintellectual property to three locations. The first are to the maintenance and field civilengineering offices for the railroad at or near Mazar-e-Sharif. The second location will be

the central offices of the Ministry in Kabul. The third will be to a technical University to bedetermined later. The intellectual property will include, but not limited to:

As-built drawings and shop construction prints, surveys of land and topography, property ownership research files bills of quantity (BoQ), soil and other test results, calculations required for structures such as bridges, overpasses/underpass, and

culverts, specifications for purchased material and recommended suppliers track circuit drawings for level crossing protection and other localized signaling

final versions of manuals and parts list supplied by manufacturers track diagrams in either Dari translations recommended preventive maintenance schedules and repair procedures, in both

Dari and Pashto translations

In addition, the Specifications will require a Configuration Control program that updates theabove as construction is progressed or variations in contract requirements are processed.

5. Possibil ity of Private Sector Involvement

100. Attracting private sector participation is an effective approach to increase theefficiency and transparency of the administrative agency of the government for railway. By

and large private participation involves allocation of risks and pattering of resources thatprivate sector has access to including capital and technology. In Afghanistan large private


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sector organizations exist who can bear with risks and have access to capital andtechnology.

101. However, as railway being a wider network and new to this country, the privatesector organizations feel that they are not equipped with required technical knowledge tocarry out the responsibility associated with the railway development. Nonetheless, in theinitial stage they can be a party in such development process supplying necessary materialsas they are doing now for different infrastructure development and rehabilitation. Currently inAfghanistan the private sector is investing in and operating the airways indicating that theyare able to operate the railway as well but this may take some time to absorb the newtechnology.

102. Railway network incorporates the broad elements of infrastructure, regulation,operation, and services. Private sector participation in infrastructure, operation and servicesis possible to achieve by including service contract, leases, and concessions program. Buildoperate and transfer (BOT) is another option for infrastructure development. Successes ofthese programs require strong political leadership, established policies, legal framework,

and effective institutions which in reality are absent particularly in railway sector.

103. Furthermore, the discussions with the business communitys Chamber in Mazar-e-Sharif and Kabul revealed that currently the risks that the private sector is facing inAfghanistan ar

technical feasibility report volume 1

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