Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 499 15 - KG

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 8.8 MILLION (US$13.75 MILLION EQUIVALENT)

AND A

PROPOSED GRANT

IN THE AMOUNT OF SDR 7.2 MILLION (US$l 1.25 MILLION EQUIVALENT)

TO THE

KYRGYZ REPUBLIC

FOR A

NATIONAL ROAD REHABILITATION (OSH-BATKEN-ISFANA) PROJECT

October 7,2009

Sustainable Development Department Central Asia Country Unit Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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ADB APL BoQ CDS CFAU CPAR CPI CQ DEP DO EBRD

EC EIRR EIA EMP FBS FS GAC GDP GoK GPN HDM IC ICB IDA IFAC IFC IFR IFRS IMF IPSAS IRI ISA IsDB ISDS JICA JCSS JBIC LCS MoTC

CURRENCY EQUIVALENTS (Exchange Rate Effective August 3 1,2009)

43KGS = US$1 1.56US$ = 1 SDR

FISCAL YEAR

Currency Unit = Kyrgyz Som (KGS)

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Asian Development Bank Adaptable Program Loan Bill of Quantities Country Development Strategy Country Fiduciary Assessment Review Country Procurement Assessment Review Consumer Perception Index Consultants Qualification Regional Maintenance Unit Development Objective European Bank for Reconstruction and Development European Commission Economic Internal Rate of Return Environmental Impact Assessment Environmental Management Plan Fixed Budget Selection Feasibility Study Governance and Anti-Corruption Gross Domestic Product Government of the Kyrgyz Republic General Procurement Notice Highway Development and Management Individual Consultants International Competitive Bidding International Development Association International Federation o f Accountants International Finance Corporation Interim Financial Report International Financial Reporting Standards International Monetary Fund International Public Sector Accounting Standards International Roughness Index International Standards of Audit Islamic Development Bank Integrated Safeguards Datasheet Japanese International Cooperation Agency Joint Country Support Strategy Japanese Bank for International Cooperation Least Cost Selection Ministry of Transport and Communications

NPV NCB NGO OM PAD PAP PAS PBM PCN PCR PDO PEFA PFS PID PIU PLUAD POM PP PPA PPF PPL PQ PRC QBS QCBS RAP REO1 RFP RPF RPM RVP SBD SDR S I L SOE sow SPN UAD UNDB voc

Net Present Value National Competitive Bidding Non Governmental Organization Operational Manual Project Appraisal Document Project Affected People Procurement Accredited Staff Performance Based Maintenance Project Concept Note Physical cultural resources Project Development Objective Public Expenditure and Financial Accountability Public Finance System Project Information Document Project Implementing Unit Regional Road Agency Project Operational Manual Procurement Plan Project Preparation Advance Project Preparation Facility Public Procurement Law Pre-Qualification People’s Republic of China Quality Based Selection Quality and Cost Based Selection Resettlement Action Plan Request for Expression o f Interest Request for Proposals Resettlement Policy Framework Regional Procurement Manager Regional Vice President Standard Bidding Document Special Drawing Rights Specific Investment Project Statement o f Expenses Scope o f Work Specific Procurement Notice Bishkek-Osh Road Department United Nations Development Business Vehicle Operating Costs

Vice President: Country Director/Country Manager:

Sector Director/Sector Manager: Task Team Leader:

Philippe H. L e Houerou, ECAVP Motoo KonishiRoger Robinson, ECCUS Peter Thomson /Henry Kerali, ECSSD Cordula Rastogi, ECSSD

FOR OFFICIAL USE ONLY

KYRGYZ REPUBLIC National Road Rehabilitation (Osh-Batken-Isfana) Project

CONTENTS

Page

STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 Country and sector issues .................................................................................................... 1

Rationale for Bank involvement ......................................................................................... 4

Higher level objectives to which the Project contributes .................................................... 5

I1 . PROJECT DESCRIPTION ................................................................................................. 6

I . A . B . C .

A . B . C . D . E .

I11 . A . B . C . D . E . F .

I V . A . B . C . D . E . F . G .

Lending instrument ............................................................................................................. 6 Project development objective and key indicators .............................................................. 6

Project components .............................................................................................................. 7 Lessons learned and reflected in the project design ............................................................ 7 Alternatives considered and reasons for rejection .............................................................. 8

IMPLEMENTATION ...................................................................................................... 8 Partnership arrangements .................................................................................................... 8 Institutional and implementation arrangements .................................................................. 9

Monitoring and evaluation o f outcomes/results .................................................................. 9 . . . Sustainability ..................................................................................................................... 10

Critical r isks and possible controversial aspects., ............................................................. 10 Gradcredi t conditions and covenants .............................................................................. 13

APPRAISAL SUMMARY ............................................................................................. 15 Economic and financial analyses ...................................................................................... 15 Technical ........................................................................................................................... 15

Fiduciary ........................................................................................................................... 16

Social ................................................................................................................................. 17

Environment ...................................................................................................................... 18 Safeguard policies ............................................................................................................. 19

Policy Exceptions and Readiness ...................................................................................... 20

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties . I t s contents may not be otherwise disclosed without Wor ld Bank authorization .

Annex 1: Country and Sector o r Program Background ......................................................... 21

Annex 3: Results Framework and Monitoring ........................................................................ 28

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 27

Annex 4: Detailed Project Description ...................................................................................... 31

Annex 5: Project Costs ............................................................................................................... 33

Annex 6: Implementation Arrangements ................................................................................. 34

Annex 7: Financial Management and Disbursement Arrangements ...................................... 36

Annex 8: Procurement Arrangements ...................................................................................... 43

Annex 9: Economic and Financial Analysis ............................................................................. 51

Annex 10: Safeguard Policy Issues ............................................................................................ 57

Annex 11: Governance and Anti-Corruption Action Plan ..................................................... 63

Annex 12: Project Preparation and Supervision ..................................................................... 66

Annex 13: Documents in the Project File ................................................................................. 67

Annex 14: Statement of Loans and Credits .............................................................................. 68

Annex 15: Country at a Glance ................................................................................................. 70

Annex 16: Map IBRD No.36940 ................................................................................................ 72

KYRGYZ REPUBLIC

Source Local Foreign Recipient/Borrower 5.76 0.00 International Development Association (IDA) 23 .OO 2.00 Total: 28.76 2.00

NATIONAL ROAD REHABILITATION (OSH-BATKEN-ISFANA)

Total 5.76

25.00 30.76

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSSD

Date: October 7,2009 Country Director: Motoo Konishi Sector Manager: Henry G. R. Kerali

Team Leader: Cordula Rastogi Sectors: Roads and highways (90%); General public administration sector (1 0%) Themes: Trade facilitation and market access (40%); Other rural development (40%); Regional integration (20%)

Project ID: P107608 Environmental category: Partial Assessment Lending Instrument: Specific Investment Loan Joint IFC:

Joint Level: Project Financing Data

[ ] Loan [XI Credit [XI Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing: IDA Credit SDR 8.8 million (US$13.75 mill ion equivalent) and IDA Grant SDR 7.2 million (US$11.25 mill ion equivalent) Proposed terms: For the IDA Credit 40 years to maturity including 10 years grace period.

Recipient : Kyrgyz Republic ~

Responsible Agency: Ministry o f Transport and Communication Project Implementation Unit, Room 6 12 6/F 42 Isanova Street, Kyrgyz Republic, 7200 1 7 Tel: (996-3 12) 900-970, 900-893 bishkekoshroad@infotel .kg

Fax: (996-3 12) 3 14-378

FY 4nnual Cumulative

Y

[XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Ref: PAD IV. G.

2010 2011 2012 2013 5.00 10.00 8.00 2.00 5.00 15.00 23.00 25.00

., Project development objective Re$ PAD II.C., Technical Annex 3 The objectives o f the Project are: (i) to contribute to the reduction o f transport costs and travel time along the Osh-Batken-Isfana Road corridor, and (ii) to improve road safety planning.

Project description [one-sentence summary of each component] Re$ PAD II.D., Technical Annex 4 The proposed Bank-financed Project will consist o f the fol lowing components:

Component 1 : Rehabilitation o f a Section o f the Osh-Batken-Isfana Road Corridor: The component will finance the provision o f works and consultants’ services for the rehabilitation o f about 30 kilometers o f the Osh-Batken-Isfana Road corridor. This includes consultancy services for construction supervision (estimated at US$l.5 million) and physical and price contingencies (estimated at about 8 percent). Estimated total cost: US$27.29 mi l l ion equivalent.

Component 2: Road Safety Planning Improvement: This component will finance the provision o f goods, and consultants’ services for: (i) the development and launch o f a national road safety program; (ii) preparation o f demonstration projects for road safety; and (iii) improvement o f road safety planning. Estimated total cost: US$1.50 mi l l ion equivalent.

Component 3 : Project Management and Implementation. This component will finance the provision o f goods, consultants’ services, training, and operating costs, including an audit, to support Project coordination, implementation and management. Consulting services will be used to assist the Project Implementing Unit (PIU) with the preparation, management and implementation o f al l activities associated with the Project, including the update o f the feasibility study and technical designs, and the supervision o f a l l safeguards and fiduciary aspects o f the Project. Estimated total cost: US$1.93 million.

- c Vhich safeguard policies are triggered, if any? Re$ PAD I K F., Technical Annex 10 An Environmental Assessment Category B has been agreed. OP 4.12 i s triggered due to the potential for land acquisition along the corridor. This i s likely to be minor as the corridor mostly runs through uninhabited land and follows an existing alignment or gravel tracks. Possible impacts will include the acquisition o f agricultural land, gardens, trees, and walls, and in exceptional cases residential and commercial structures. The precise extent o f these losses will not be known until the designs have been finalized. Therefore, a resettlement policy framework has been prepared in accordance with OP4.12 requirements.

Significant, non-standard conditions, if any, for: Ref: PAD III. F. Condition o f Gradcredit effectiveness:

The Recipient has adopted the Project Operational Manual, satisfactory to the Association.

Condition o f Withdrawal: N o withdrawal shall be made under category 1 unless the Environmental Management Plan and Resettlement Action Plan have been prepared in accordance with the requirements in the Financing Agreement.

The Recipient, through the MoTC, shall carry out the Project in accordance with the requirements, criteria, organizational arrangements and operational procedures set forth in the Project Operational Manual, the Governance and Anti-Corruption Action Plan, the Resettlement Policy Framework and the EIA, and shall not assign, amend, abrogate, or waive any provisions o f the Project Operational Manual, the Governance and Anti- Corruption Action Plan, the Resettlement Policy Framework, or the EIA without prior approval o f the Association. At all times during the implementation o f the Project, the Recipient shall ensure that the PIU i s maintained with a composition, resources and terms o f reference satisfactory to the Association. The Recipient, through the MoTC: (a) Shall prepare, prior to the commencement o f any works under the Project, a

Resettlement Action Plan, satisfactory to the Association, in accordance with the Resettlement Policy Framework

0

Implementation Covenant:

0

0

(b) Shall carry out the Project in accordance with the Resettlement Action Plan; and (c) Shall not amend, suspend or abrogate any o f the provisions o f the Resettlement

Action Plan without the prior agreement o f the Association.

(a) Shall prepare, prior to the commencement o f any works under the Project, an Environmental Management Plan, satisfactory to the Association, in accordance with the EIA.

(b) shall carry out the Project in accordance with the Environmental Management Plan, (c) shall not amend, suspend or abrogate any o f the provisions o f the Environmental

Management Plan without prior agreement o f the Association.

The Recipient, through MoTC:

Project Reporting The Recipient shall monitor and evaluate the progress o f the Project and prepare Project Reports on the basis o f the indicators agreed with the Association. Each Project Report shall cover the period o f one calendar semester, and shall be furnished to the Association not later than forty five (45) days after the end o f the period covered by such report.

Dated Covenants: The Recipient, through the MoTC, shall, no later than December 15 o f each year, during the implementation o f the Project, starting December 15, 2009, submit to the Association an Annual Work Program for the following calendar year, satisfactory to the Association, and shall agree with the Association on activities to be undertaken under the Project in the following calendar year and the related road maintenance budget. The Recipient, through the MOTC, shall, not later than June 1 o f each calendar year, during the implementation o f Part A o f the Project, starting June 1 , 201 1: (i) take al l necessary measures, including ensuring access to al l relevant information related to the Project, to facilitate an independent technical audit; and (ii) act promptly upon the findings and recommendations o f such audit under terms o f reference acceptable to the Association. N o t later than June 30, 201 1, the Recipient shall carry out joint ly with the Association a midterm review o f the progress made in carrying out the Project (hereinafter referred to as the Midterm Review). The Midterm Review shall cover, amongst other things: (i) progress made in meeting the Project’s objectives; and (ii) overall Project performance against Project performance indicators. The Recipient shall prepare at least four (4) weeks prior to the Midterm Review, and furnish to the Association, a separate report describing the status o f implementation o f each component o f the Project and a summary report o f Project implementation generally. The Recipient shall prepare and furnish to the Association not later than forty five (45) days after the end o f each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Association.

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Until 2008, a favorable external environment and sound economic policies resulted in a steady increase in the pace of economic growth in the Kyrgyz Republic, while inflation remained low. Following periods o f political turmoil, economic growth accelerated to 8% percent in 2007 with poverty rates falling to 35 percent (from 54 percent in 2002) while extreme poverty dropped from 23 percent to 7 percent. Over the last year and a half, adverse external developments however have led to deterioration in economic conditions. The country’s openness, measured as share o f foreign trade to Gross Domestic Product (GDP), has been rapidly increasing in recent years (with Russia and Kazakhstan being the two major trading partners) making the country more susceptible to external shocks.

2. The rise in global food and fuel prices combined with the global and regional economic slowdown has recently hampered the performance of the Kyrgyz economy. The outlook has worsened considerably as trade and remittances have declined (exports declined by 7 percent and remittances by 13 percent in the f i rst five months o f 2009). Off icial reserves are just over 3 months o f imports. Inflation has declined to 13.6 percent, and is expected to decline further in 2009 to about 10 percent (from 20 percent in December 2008). GDP growth i s projected to slow down f rom 7% percent in 2008 to below 2 percent in 2009 (non-gold GDP i s projected at 1 percent in 2009). With worsened terms o f trade and the strong growth in imports, the current account deficit sharply deteriorated in 2008 and i s expected to remain high at 8 percent o f GDP in 2009.

3. External assistance has helped the Government to maintain its macroeconomic stability while mitigating the impact of the crisis in 2009; but the economic outlook for 2010 is uncertain. A large package o f financial assistance from Russia has helped the Government to mitigate the effects o f the crisis on the budget in 2009. In addition, to support the Government’s economic reform program responding to the crisis, the International Monetary Fund (IMF) has also extended US$lOO mi l l ion under an 18-month arrangement under i t s External Shocks Facility’. The IMF successfully completed i t s first review o f the facility in M a y 2009 concluding that al l targets have been met. The latest debt sustainability analysis2 placed the Kyrgyz Republic at a moderate risk o f debt distress. The Government’s debt management strategy has significantly improved in recent years by refraining from borrowing at non-concessional terms and/or issuing any Government guarantees against commercial loans.

4. Ensuring strong growth in the longer term requires channeling resources in the real sectors of the economy as well as improving the environment for private sector development. Considerable progress in the ease o f doing business has been made earning the Kyrgyz Republic a high ranking as one o f the top reformers in the World Bank’s 2008 Doing Business Survey3. The new economic policy, announced by President Bakiev on 10 January 2008, calls upon the nation to refocus on economic growth and development after years o f political uncertainty and languishing economic growth, through increased investments in public infrastructures and

IMF, Kyrgyz Republic: 2009 Article I V Consultation and First Review under the 18-Month Arrangement under the External

IDA and IMF, Kyrgyz Republic: Joint World BanWIMF Debt Sustainability Analysis, May 11,2009. The Doing Business country assessment indicates that the Kyrgyz Republic has moved from 99‘h to 6Sth place in 2008 with the

Shocks Facility, July 2009.

CPIA score for Business and Regulatory Environment improving from 3.5 to 4.0.

1

structural reforms. The Government i s determined to implement reforms that will continue to improve the business environment. In i t s revised Country Development Strategy for 2009-201 1 (CDS)4, the Government has reiterated that it will focus on further improving the business environment and supporting private sector development, in addition to improving the state o f the investment climate to increase foreign investment and promote economic growth.

5 . The Government’s CDS for 2009-2011 focuses on inclusive economic growth while promoting regional integration and equitable development. The CDS aims to respond to the country’s particular development challenges, which include (i) a population amounting to just over five mill ion implying a small domestic market, (ii) significant regional differences in poverty levels despite substantial overall reduction o f poverty in the country, (iii) the existence o f Uzbek and Tajik enclaves’ within i t s territory (in Batken oblast where the Project investments are located), and (iv) a geographic location that i s one o f the least accessible in the world with only about seven percent arable land and poor endowments o f natural resources.

6. The transport system, in particular the road network, is a priority for the Government of the Kyrgyz Republic given its importance in providing access to markets and basic public services. To date, 92 percent o f passenger travel and 59 percent o f freight traffic i s carried by road in the Kyrgyz Republic. The road network covers all seven oblasts (provinces), and provides connections to remote communities and l i n k s to neighboring countries. Travel in most o f the country i s severely constrained by the predominantly mountainous topography where roads have to cross passes o f above 3,000 meters altitude and are subject to frequent mud slides, debris flow, rock falls, and snow avalanches. Travel in the Southwestern part o f the country, namely between Osh city and Batken town has some specific problems since the road crosses Tajik and Uzbek enclaves which require a double-entry Kyrgyz visa and a transit visa.

7. The existing basic transport infrastructure is adequate for the level of economic activity likely to occur in the medium term. About 18,800 kilometers o f roads (the republican road network) are under the jurisdiction o f the Ministry o f Transport and Communications (MoTC). About 40 percent o f the roads are sealed, including some with gravel mixed with bitumen binder. Over 50 percent are gravel and about 10 percent are earth roads. Consequently, the primary concern i s not expansion or major upgrading o f the transport system, but proper maintenance and rehabilitation to preserve the existing network and to provide access to all parts o f the country with all weather roads. Roads at all levels are deteriorating; over 60 percent require periodic maintenance or rehabilitation.

8. Cognizant of this, the Government’s focus is on rehabilitating key links in the road transport network that have regional and national strategic importance. Substantial investments (of about US$350 million) have already been made in the last decade to rehabilitate the country’s major road corridors and will continue through the end o f 2013 (‘stabilization phase’). The rehabilitation o f six strategic road corridors which carry the majority o f the traffic on the republican road network i s the focus o f the current country and sector strategies. The six strategic corridors include: (i) Osh-Sarytash-Irkeshtham, (ii) Suusamyr-Talas-Taraz, (iii) Bishkek-Naryn-Torugart, (iv) Sarytash-Karamyk, (v)) Osh-Batken-Isfana, and (vi) Tyup-Kegen. The Osh-Batken-Isfana Road corridor i s planned to be implemented in two phases. Phase I will focus on the elimination o f major bottlenecks in order to restore access. Phase I1 will consist o f a standard rehabilitation o f the remaining section o f the corridor. At the same time, financing road

Kyrgyz Republic: Country Development Strategy 2009-201 1, approved on February 25,2009. An enclave i s a territory whose geographically boundaries l i e entirely within the boundaries o f another territory.

2

maintenance at the required level remains a challenge, especially for local road. However, the Government i s currently focusing on the financing o f the necessary maintenance for the core republican road network totaling about 3,000 kilometers (roads o f category I, I1 and 111). The current level o f funding for maintenance o f this core network appears to be sufficient although s t i l l o f l o w level. The Government has committed to implement 1,000 kilometers o f road surface treatment per year as the only available and adequate solution to stabilize road conditions on the core republican network.

9. I n order to maximize the investments, the Kyrgyz Republic is also focusing on progressing towards the reform of transport sector operations. It adopted the Road Sector Development Strategy 2007-201 0 and the Presidential Program of Roads Development for 2008- 2010 which focus on the following medium-term tasks: (i) improvement o f the road financing system, (ii) involvement o f the private sector in road construction and maintenance, (iii) involvement o f local communities in maintenance o f local roads, (iv) institutional reforms o f the road management system, (v) improvement o f road safety, and (vi) use o f modern technologies in road management and monitoring. Advisory services to prepare a transport sector master plan for 20 10-2025 are currently being provided through consultancy services financed under the ongoing Bishkek-Naryn-Torugart Road Project supported by the Asian Development Bank (ADB). Within this reform program, ADB i s focusing on road maintenance and management while the World Bank i s planning to address improvements in road safety planning. EBRD i s assisting the Government on the reform o f the financing o f the roads sector.

10. The institutional arrangements of the transport sector have been evolving since the Kyrgyz Republic gained its independence. M o T C i s now responsible for sector policies and development o f transport and communications, including the road, railway and c iv i l aviation sectors. The road sector is managed by the Department o f Roads established as an integral part o f the M o T C while actual road construction, improvement, rehabilitation and maintenance works on the republican road network are carried out by the MoTC’s seven regional road agencies (PLUADs) and the Bishkek-Osh Road Department (UAD) comprised o f 58 local road maintenance un i t s (DEPs). The M o T C envisages further changes to i t s structure through gradual devolvement o f i t s operational functions to a multi-level executing body and privatization o f the existing local road maintenance units in the near future. In addition, the Government has been actively exploring ways o f developing the local construction industry through jo int ventures and subcontracting and has been promoting a pi lot program o f performance-based maintenance (PBM) contracts.

1 1. Improvement of road safety needs to be a focus of sector activities to reverse alarming trends. Road safety is now a significant issue in Kyrgyzstan, with reports that road fatalities are now rapidly increasing (47 percent, 50 percent and 80 percent increase from 1999 to 2005 for road accidents, injuries and fatalities respectively). With about 41 deaths per 10,000 vehicles, car accident death rate in Kyrgyzstan i s 30 times higher than in Western Europe and 3 times higher than in Eastern Europe and Asia. Bad road conditions, increased speeds on improved roads, lack o f effective road safety education for all road users, traffic ru le violations, and increasing population are thought to be the main causes o f high accident rates. The recent launch o f the program o f regular road safety audits, the establishment o f the Road Safety Unit with specific functions under the Road Department o f M o T C in the near future and upcoming approval o f a National Road Safety Program would further contribute to the improvement o f very poor road safety records. However, there is much to be done to address the issue at the national level in a comprehensive manner.

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12. The Government has asked the World Bank to finance the rehabilitation of a section of the Osh-Batken-Isfana road, one of the six strategic corridors. The original alignment o f this road corridor crosses through Uzbek territory at Kok-Talaa and Sokh and through Tajikistan at Vorukh. Traveling this road was no problem in the past when there was one transport network connecting cities from within the Former Soviet Union. Since 1991, the situation has changed due to the creation o f enclaves resulting in transit through foreign territory. To travel the original alignment nowadays causes frequent delays at border crossing points arising from lengthy and sometimes cumbersome control procedures, which severely hamper connectivity along the road. Existing secondary roads which deviate around 110 kilometers from the original alignment (so- called ‘detours’) exist, but are in poor to very poor condition. The Government’s plan i s to rehabilitate the detours primarily (Phase I) and link them with the original alignment. Phase I1 wi l l focus on the rehabilitation o f the original alignment. This will form the Osh-Batken-Isfana road corridor which wi l l by-pass foreign territory (Uzbekistan and Tajikistan) and their enclaves within the Kyrgyz Republic.

13. The proposed Project responds to the demand for reliable, affordable and safe access along an important transport route which provides the only connection for about one million inhabitants or 18 percent o f the country’ population with the rest o f the country (see Map in Annex 16). Currently, the average daily traffic varies along different sections while significant disruption i s reported at border crossings. On the eastern section o f the road (between Osh and Kyzyl-Kiya) in the absence o f any constraints, the average daily traffic i s about 3,050 vehicles (up to km 84). However, on the border between Osh and Batken oblasts and further westwards along the second detour o f the Osh-Batken-Isfana road, average daily traffic drops drastically to about 1,000 vehicles per day (from km 176) due to poor condition and because road users are reluctant to travel through border crossings at Kok-Talaa. Traffic along the existing road at the entrance o f the Sokh enclave o f Uzbekistan (km 195) i s reported to be about 7,400 vehicles per day o f which 90 percent are passenger cars. The crossing o f international borders at Uzbek and Tajik enclaves significantly increases travel time and costs and road users therefore limit the number o f their trips.

B. Rationale for Bank involvement

14. Over the past years, the Government has received assistance in the roads sector through investments in infrastructure and support towards reforming sector operations. The ADB i s currently financing the sixth road project in the Kyrgyz Republic. ADB assistance to the road subsector which totals US$2 10 million was provided for rehabilitating roads from Bishkek to Osh and on to Irkeshtam, and from Bishkek to Almaty in Kazakhstan. In addition, the Islamic Development Bank (IsDB), Japan Bank for International Cooperation (JBIC), and the People’s Republic o f China (PRC) have also extended assistance.

15. I n recognition of the need for close coordination, key donors to the Kyrgyz Republic have jointly prepared a strategy, which identijies road subsector development and regional cooperation as priorities for assistance. The external assistance provided to the road subsector and other related projects are summarized in Annex 2. The World Bank has supported the government through (i) the Urban Transport Project (2000-2005), (ii) technical assistance on road maintenance and public expenditures (2005/2006), and (iii) technical assistance on regional transport corridor performance measurements (on-going since 2003).

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16. There are three main reasons for the involvement of the World Bank in this Project: (i) the World Bank was asked by the Government to act as the lead donor for the preparation o f the rehabilitation o f the entire road corridor f rom Osh to Isfana (the updated Feasibility Study and detailed technical designs for the corridor were financed out o f a Project Preparation Advance, PPA), (ii) The Bank together with the World Health Organization have taken the leading role internationally to improve road safety, and (iii) The Bank i s well placed to define and implement support for institutional development. There are significant needs for support and capacity building in the areas o f road safety and road management.

C. H i g h e r level objectives to which the Project contributes

17. The proposed Project is one of the priority infrastructure investments identified in the Government’s Country Development Strategy for 2009-2011 with the aim to overcome current isolation. The investment, once implemented wil l open up the only land transport connection between the main Kyrgyz cities in Fergana Valley and the rest o f the country. It will address the specific development challenges o f Batken Oblast which are a combination o f relative isolation, higher than average poverty rates, and potential conflict with neighboring countries. Having to cross through enclaves disrupts the daily routine o f local inhabitants and i s a permanent source o f conflict, in particular with border posts that are used to block the transit roads. Attempts have been made since 1991 to improve regional relations with respect to enclaves and exclaves, but without any success and tensions at border crossing o f enclaves remain in Batken oblast.

18. The proposed assistance by the Bank is fully consistent with the Joint Country Support Strategy (JCSS) for the Kyrgyz Republic (2007-2010). The JCSS puts much emphasis o n investing in roads and transport to promote inclusive growth and regional cooperation. The focus will continue to be on rehabilitating key l i n k s o f the road and transport networks that have regional and national strategic importance. The Bank will support investments in priority sectors determined by the Government, and thereby assist the country to achieve its development objectives and sustainable growth.

19. The proposed Project is compatible with the JCSS for 2007-2010 as it will contribute to strong and sustained pro-poor growth. The proposed Project will ultimately support local and regional socio-economic development and ensure sustainability o f road operations and management, both o f which are key objectives o f the Government and the Bank’s strategy. Improved transportation infrastructure and services along the Osh-Batken-Isfana Road Corridor will undoubtedly contribute to reduced costs o f transport, increased access to markets, improved productivity and competitiveness as road users will increase their number o f trips markedly and the traffic will grow. The road upgrade i s a necessary condition for economic growth o f the region and o f the Kyrgyz Republic at large. I t will also improve traffic safety on the road.

20. The proposed Project will contribute to the generation of construction oriented employment, supporting industry employment and induced employment in other sectors. This i s o f particular importance in times o f crisis. Preliminary analysis indicates that a larger proportion o f the estimated employment potentially generated by the Project will be incremental and largely comprising local labor due to the nature o f the works.

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11. PROJECT DESCRIPTION

A. Lending instrument

21. A specific investment loan (SIL) in the amount of US$25 million equivalent is the instrument to support this Project. Government co-financing i s in the amount o f about US$5.76 million. Other development partners also contribute through parallel financing mechanisms. The European Bank for Reconstruction and Development (EBRD) has agreed to finance the rehabilitation o f other sections o f the Osh-Batken-Isfana Road Corridor under phase I; while the European Commission (EC) i s in the process o f approving a similar contribution. The Project’s implementation period i s three years. The proposed Credit and proposed grant will be made available in Special Drawing Rights (SDR). The terms for the proposed Credit are 40 years to maturity. The Recipient is the Kyrgyz Republic represented by the Ministry o f Finance. The M o T C will be the Project’s implementing agency. The Project Implementing Unit (PIU) within the M o T C will undertake day-to-day implementation o f the Project.

B. Project development objective and key indicators

22. The objectives of the Project are: (i) to contribute to the reduction of transport costs and travel time along the Osh-Batken-Isfana Road corridor, and (ii) to improve road safety planning. As transport costs and travel time decrease, route options increase, allowing more direct travel between destinations, thereby creating a more accessible and reliable transport system. It will also allow cost saving for road users; travelling will become safer than it i s today. This will benefit people and goods going to and from Batken Oblast or on transit to Tajikistan. The completion o f the proposed Project will make a significant contribution to the level o f connectivity offered as the road corridor provides the only connection between the main Kyrgyz cities in Fergana valley (such as Osh and Batken city) and the rest o f the country.

23. Project design has been kept simple in order to achieve the PDO within the three year implementation period. Progress towards the attainment o f the PDO will be assessed through the following indicators:

Project Outcome Indicators: Reduction in transport costs for road users, by car and large bus, along the project road section and in the project area Reduction in travel time for road users, by car and large bus, along the project road section and in the project area Proportional increase in traffic one year after project road section has been improved or rehabilitated Proportional increase in the number o f rural people in the project area who live within 2 kilometers o f an all-season road Increased effectiveness o f road safety planning (road safety planning i s conducted in an integrated and comprehensive manner)

Intermediate Outcome Indicators:

Technical audit i s conducted

Number o f kilometers o f al l roads rehabilitated under the project Percentage o f the total classified road network in the project area in good and fair condition National road safety program developed and launched Pilot demonstration projects on road safety along the project road section developed

6

C. Project components

24. The Bank-financed Project will consist o f the following components (estimated costs are presented net o f al l taxes and duties which are covered by the Government’s co-financing and represent about 20 percent o f total Project costs:

25. Component 1: Rehabilitation of a Section of the Osh-Batken-Isfana Road Corridor: The component will finance the provision o f works and consultants’ services for the rehabilitation o f about 3 0 kilometers o f the Osh-Batken-Isfana Road corridor. This includes consultancy services for construction supervision (estimated at US$1.5 million) and physical and price contingencies (estimated at about 8 percent). Estimated total cost: US$27.29 mi l l ion equivalent.

26. Component 2: Road Safety Planning Improvement: This component will finance the provision o f goods, and consultants’ services for: (i) the development and launch o f a national road safety program; (ii) preparation o f demonstration projects for road safety; and (iii) improvement o f road safety planning. This component will build o n the Government’s Road Sector Development Strategy and the work currently carried out by the Permanent Secretariat for Road Safety on the revision o f road safety guidelines and the preparation o f a National Road Safety Program. Other activities to improve road safety planning may include the establishment o f road accident database and purchase o f road safety equipment. Estimated total cost: US$1 S O mil l ion equivalent.

27. Component 3: Project Management and Implementation. This component will finance the provision o f goods, consultants’ services, training, and operating costs, including an audit, to support Project coordination, implementation and management. Consulting services will be used to assist the P I U with the preparation, management and implementation o f al l activities associated with the Project, including the updated o f the feasibility study and technical designs and the supervision o f a l l safeguards and fiduciary aspects o f the Project. Other donors are providing the P I U with parallel financing for their operating costs (see further details in Annex 6). Estimated total cost: US$1.93 million.

D. Lessons learned and reflected in the project design

28. and country specific lessons learned

The Bank’s assistance in the transport sector will incorporate the following general

(a) Improving the overall management of the national road network remains a priority. Other development partners, in particular ADB and JICA are currently assisting the Government in the introduction o f modern road management systems and design standards. Support i s particularly focusing on reforming road maintenance practices, and introducing performance based contracting on a pi lot basis (see Annex 1 for further details). The expectation i s that the support received will positively impact the sustainability o f the proposed Project.

Greater efforts are required to reduce road trafic accidents. Addressing this problem will require increased resources, greater co-ordination between stakeholders to improve road conditions, and increased awareness o f safety at each stage o f the project cycle. The launch o f the Road Safety Program will be an

(b)

7

essential f i rs t step to address the road safety problem in the Kyrgyz Republic. Pilot demonstration projects will help showcase benefits o f road safety interventions.

E. Alternatives considered and reasons for rejection

29. Lending instrument: The Government plans to develop the Osh-Batken-Isfana Road corridor through a combination o f budget financing, and donor funding. A Specific Investment Lending (SIL) i s considered to be the appropriate lending instrument for the rehabilitation o f the corridor, and the technical assistance support. An Adaptable Program Loan (APL) was rejected given that the proposed triggers for the APL phases could not be substantive because the Project does not encompass any significant policy changes. In addition, a proposed Credit and proposed Grant was available only in the amount o f US$25 mi l l ion equivalent to finance one phase.

30. Design alternatives: The road category for the proposed Project i s category I11 according to the Russian (SNIP) norms6 which means a minimum paved surface width o f 8 meters on a formation width o f 12.0 meters. The pavement i s designed for a l i fe span o f 15 years which i s standard for such a road with traffic that i s expected to grow. Alternatives such as reducing the design standard (eg. from category I11 to IV) and reducing the pavement thickness have been considered but rejected due to the following reasons: (i) the expected future traffic, (ii) the road i s the only ‘life l ine’ for the region, (iii) it i s better to invest in category I11 upfront rather than to upgrade in 5 years when traffic has increased, (iv) the road i s part o f the Government’s program o f 6 strategic road corridors which are al l category I11 and above. Two different types o f works will be implemented as needed by the existing condition: (i) overlay, and (ii) reconstruction and new construction.

111. IMPLEMENTATION

A. Partnership arrangements

31. Along with the World Bank, the Government has invited the EC and the EBRD to parallel finance separate sections of phase 1 of the Osh-Batken-Isfana Road corridor. In this regard, the proposed Credit and proposed Grant i s being used to leverage other funding such as an EBRD sovereign loan. In addition, the update o f the original feasibility study for the entire Osh-Batken-Isfana Road corridor7 (ensuring equal design standards and comparable safeguards applications) has been financed through a Project Preparation Advance (PPA) out o f the proposed Grant to assess the economic viability o f the entire investment, including environmental and social assessment and propose technical design solutions. W h i l s t detailed designs o f the road are s t i l l to be finalized the main design principle i s to generally fo l low the existing road alignment.

32. Phase I will focus on the elimination of major bottlenecks first in order to restore accessibiZity. While some work has already been done, the remainder o f the works under phase 1 with an estimated total cost o f about US$89 mi l l ion are proposed to be funded as follows (see Map in Annex 16 for location o f detours and road sections): Kok Talaa-Pulgon (km 108-123): First detour, proposed E C Grant financing, US$ 1 0 mi l l ion equivalent; Pulgon-Burgandy (km 123-1 55) : Second detour, proposed IDA Credit and proposed Grant, US$25 mi l l ion equivalent;

SNIP KR 32-01; 2006, Kyrgyz Republic. EC Tacis financed Feasibility studies (2000/2001) for the rehabilitatiodupgrading o f two roads in the south o f the country

including “Osh-Sary Tash-Erkesh Tam” and “Osh-Kyzyl Kya-Batken-Isfana”.

8

Burgandy-Batken (km 155-220): Second detour, EBRD loan’, up to US$35 mi l l ion equivalent; Batken-Tortgul (km 220-248): funding not yet identified, US$lO mi l l ion equivalent), and Tortgul -Ak Tatyr (km 248-271): Third detour, E C Grant financingg - under construction (to be completed at the end o f 2009), US$9 mi l l ion equivalent.

33. The Project highly depends on the timely completion of the works for the section from Kok-Talaa to Pulgon (km 108-123) as it focuses on the preceding detour around the territory o f Uzbekistan. Financing for this section has been secured (currently in approval stage by EC Parliament). The wider impact o f the proposed Project will however depend on the Government’s ability to ensure that sufficient funding for this section i s secured. The updated feasibility study (FS) indicates that additional financing may be required; the Government however has assured the World Bank that any financing gap for the Kok-Talaa to Pulgon section will be covered by the Government’s own resources1o.

34. Coordination, joint monitoring of project implementation and collective policy dialogue mechanisms are proposed for the implementation of the proposed Project. During project preparation efforts were made f rom the side o f the World Bank to harmonize existing rules o f the development partners in order to save costs and streamline project implementation. The Government however requested to use each financier’s disbursement and procurement rules at project preparation. Therefore, coordination and cooperation on project implementation and pol icy dialogue has been agreed upon by the development partners and the Government.

B. Institutional and implementation arrangements

35. The MoTC is responsible for the implementation of all transport and communications related projects, including the proposed Project. MoTC, and the P I U within the M o T C have implemented a number o f projects financed by donors, such as ADB, IsDB, JICA, etc. with a good track record. Donor-assisted projects under M o T C are implemented by the PIU that is responsible for the financial management function o f the Project, including f l ow o f funds, budgeting, internal control, accounting, reporting, and auditing.

C. Monitoring and evaluation of outcomeshesults

36. The core indicators for monitoring and evaluation of Project outcomes and results will comprise: (i) reduction in transport costs for road users, by car and large bus, along project road section and in the project area, (ii) reduction in travel time for road users, by car and large bus, along project road section and in the project area, (iii) proportional increase in traffic on year after project road section improved or rehabilitated, (iv) proportional increase in the number o f , rural people in the project area who l ive within 2 kilometers o f an all-season road, and (v) increased effectiveness o f road safety planning (road safety planning i s conducted in an integrated and comprehensive manner). This includes the core sector indicators that are required for IDA-supported investment operations and are relevant in the context o f the proposed Project.

37. The PIU will be responsible for the collection of Project’s performance indicator data and analysis of results. The indicators will be used by managers with the M o T C and policy-

* This excludes Akturpak-Chonkara (km 193-200) which has been completed by MoTC from i ts own budgetaq sources.

l o Ministry of Finance of the Kyrgyz Republic, Letter Ref. No. 16-1-217634, dated September 7, 2009 and Ministry o f Transport and Communications of the Kyrgyz Republic, Letter Ref. No. 15-4/5343, dated September 8, 2009.

The project i s called “Addressing Social Consequences o f Transition in the Ferghana Valley - Kyrgyzstan and Tajikistan”.

9

makers to assess the Project’s effectiveness during implementation and after the Project i s completed. Monitoring and evaluation data and analysis will be included in regular Project progress reports. N o later than June 30, 201 1, a midterm review o f the progress made in carrying out the Project. The Midterm Review shall cover, amongst other things: (a) progress made in meeting the Project’s objectives; and (ii) overall Project performance against Project performance indicators.

D. Sustainability

38. The Government’s commitment to the rehabilitation of the Osh-Batken-Isfana Road corridor is a key determinant for the sustainability of the Project. This commitment i s demonstrated by the highlighting o f the Project’s importance in the Government’s country and sector strategies. The Government has already embarked on road upgrading works (mainly earthwork, including some drainage, bridge and pavement) along the corridor and has completed construction o f the Sokh River bridge (km 195 to km 200) from i t s own budget. This has totaled about 67 kilometers o f works, including embankments which have been constructed although offering a poor riding quality at present as the Government is expecting the World Bank and the EBRD to finance the remaining part o f the works. Sti l l , even in the current condition o f the road, the recent investments made by the Government are viewed as a marked improvement by road users. The proposed Project i s designed to ensure sustainability o f the investment through improved road structures, with timely maintenance and targeted traffic safety measures.

E. Critical risks and possible controversial aspects

39. The overall risk rating of the Project is assessed as substantial before mitigation in light of the macroeconomic vulnerabilities and other Project related risks. The primary macroeconomic risks in the Kyrgyz Republic include vulnerability towards external shocks such as rising food prices, high o i l prices; extent and duration o f the crisis in Russia and Kazakhstan (which could further hamper trade and remittances); deterioration o f the banking sector in Kazakhstan could spill over to Kyrgyz subsidiary banks, and deterioration o f debt sustainability if the Government i s to assume responsibility for any large commercial loans. The Government, however, has put in place sound macroeconomic and financial measures to deal with these vulnerabilities and the financial assistance from Russia provides an extra cushion against these risks.

,

40. There is generally weak environmental and social safeguards capacity within Government departments, local institutes and among consultants, leading to a l o w degree o f safeguards integration into Project structures and budgeting. Enforcement practice and empowerment o f regionalAoca1 environmental authorities i s also limited, leading to potential difficulties in issuing construction permits and supervising construction.

41. The Country Fiduciary Assessment Review (CFAU) Update of November 2007 reported that governance and corruption remains a challenge in the country. The perception o f corruption in the Kyrgyz Republic i s high; for example, the Transparency International Corruption Perception Index lists the Kyrgyz Republic at 166 out o f 180 states in 2008. According to the assessment, fraud and corruption i s regarded as impediment to the activities o f the private sector in Kyrgyzstan in particular with respect to the use o f national procurement procedures such as National Competitive Bidding (NCB).

10

42. The design of the Project includes measures that will help to achieve the PDO by overcoming the identified governance risks and vulnerabilities. These measures have been agreed upon with the Government and are spelled out in the Governance and Anti-Corruption Action Plan o f the Project (Annex 11). The Project will be implemented in accordance with the Bank’s Anti-Corruption Guidelines (“Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15,2006).

Risks and risk ratings before mitigation

43. Project:

The following have been identified as the main risks in the implementation of the

Before Risk mitigation measures After mitigation and risk ratings after mitigation mitigation

global crisis, though there are no immediate risks in the financial sector. Investments and inflow o f remittances have slowed down as a result o f crisis in Russia and Kazakhstan. There are future risks from potentially lower revenues due to introduction o f new Tax Code and lower imports.

After some calm period in the country underpinned by consolidation o f the power under the President, some signs o f possible aggravation o f situation appear, associated with the ongoing economic and energy crisis along with some signs o f opposition consolidation. Given weak public institutions, poorly defined devolution o f responsibilities to local governments, and lack o f entrenched fiscal management, scope for mismanagement o f public resources i s high. Internal and external audit functions are weak. Reporting i s inadequate, and as a result accountability i s deficient. The predictability, transparency, and impartiality o f laws are s t i l l not well established. Judiciary not perceived as impartial. Property rights and rules-based governance s t i l l in a nascent stage o f development. Absence o f reform in these areas wi l l ultimately undermined investment, and perhaps stability within civil society.

M

S

The Bank, together with the IMF and other donors, wi l l monitor developments in the economy and in the domestic banking system closely and engage in an active dialogue with the Central Bank and other parts o f Government. Large package o f support from Russia wi l l substantially ease fiscal pressures in 2009. Current Bank portfolio i s strong. If civil disturbance does recur, then the country team wi l l work intensively with implementing entities to flexibly adjust implementation plans.

The Bank and other donors have a strong coordinated engagement in helping improve public financial management. Within the context o f Project activity and broader dialogue the Bank wi l l continue i t s efforts to further public administration reform (eg. Treasury Modernization). The Bank i s undertaking a comprehensive diagnostic o f the judicial system as well as continued annual assessment o f the business environment.

M

11

State capture and conflicts o f interest between public servants, elected officials and private interests i s widespread. Absence o f checks and balances in the new political system may be conducive to greater stability, but carry a risk o f increased state capture. Weak controls and accountability allows appropriation o f public fimds by officials.

The Government’ road sector development program risks to be delayed in i t s implementation due to financial constraints and implementation capacity, thereby undermining public confidence in public sector effectiveness.

To Project component results The capacity o f local contractors i s limited. As for the design, there i s only limited knowledge o f modem road design standards (eg AASHTO) and knowledge o f road safety practices. As road quality i s improved there i s a general tendency for speeds to increase with a consequential increase in the risk o f crashes.

Weak capacity in contract supervision and management. In addition, road maintenance set up needs improvement.

Financial management capacity, including staffing, internal control, accounting, and reporting systems s t i l l weak and not capable o f providing sufficient fiduciary assurance.

The P IU staff have weak capacity to undertake the proposed procurement work under the Project, particularly regarding international procurement under World Bank guidelines. This may delay project implementation.

S

S

S

The Bank i s working to improve the quality o f procurement (CPAR and Update). BanWdonors are helping to reform the Budget classification system to improve i t s transparency. Bank i s supporting a program to strengthen the supreme audit institution, and internal audit capabilities. Bank fiduciary safeguards are extensive and rigidly enforced. The Bank w i l l support sector program o f the MoTC through project financing and capacity building, w i l l support improving MoTC’s communication to foster broad government and civi l society acceptance, and w i l l build on existing good governance initiatives within MoTC (eg TazaJhol, MoTC internal newsletter about on-going projects).

There w i l l be only one contract for c iv i l works for the rehabilitation o f the road section. The Project w i l l support transfer o f knowledge on modem road design standards and develop road safety plan that w i l l ensure ‘safe’ engineering. The draft detailed design for the works (financed out o f a PPA) i s sound. There i s no technical challenge associated with the rehabilitation o f the road section. Road safety audits w i l l be applied to ensure that the road rehabilitation designs are safe. A prioritized action plan to improve road safety and low cost road safety improvement measures are activities to be financed under component 2 o f the Project. An internationally reputable supervision consultant w i l l be hired under the Project. TA on road maintenance practices i s being provided by other donors (eg ADB). A legal covenant on road maintenance requirements i s envisaged. P I U has procured and installed accounting software and under the revised organizational structure, hired the Financial Manager who w i l l be fully responsible for adequate financial management arrangements o f the Project ensuring that Project funds are used efficiently, effectively, and only for purposes intended.

A reputable international consulting firm financed through a PPA i s assisting in the preparation o f PQ, RPFs, bidding documents, bid evaluation reports and contract agreements. Training in procurement under World Bank guidelines w i l l be provided by staff during missions and participation at Regional Training events on procurement w i l l be suggested.

M

M

M

M

M

M

12

Whi le the environmental impacts w i l l be moderate in scale and complexity their management by contractors, environmental authorities and the Recipient’s environmental staff w i l l be a challenge due to low capacities and limited experience, especially in the remote Southern Kyrgyz region. Substantial risks are associated with oversight o f EMP implementation and enforcement o f World Bank and Kyrgyz environmental and social guidelines, as the capacities o f local environmental authorities are very low. Although the detailed technical designs for the works have not yet been finalized (the updated feasibility study, FS i s available), the extent o f possible land acquisition and resettlement (and thereafter compensation) i s reported to be minimal.

Overall Risk Rating.: S Risk Ratings: H=High Risk, S=Substantial Risk,

S

[=Modest R

F. Gradcredit conditions and covenants

44.

45.

46.

An Environmental Impact Assessment (EIA) has been prepared based on the updated FS which covers the entire corridor (360kms) ensuring equal design standards and comparable safeguards application across the corridor. T h i s w i l l be further detailed into EMPs upon finalization o f designs. EMPs w i l l be part o f construction contracts and implementation ensured as part o f construction supervision. Supervising engineer will, with advice and assistance from Bank team, support capacity building measures for environmental authorities. The updated FS includes a draft RPF which has been disclosed in-country and the Infoshop (August 3 and 4, 2009) and which has been publicly consulted upon on August 13 and 14, 2009 in Bishkek and along the Project section.

M

Overall Risk Rating after mitigation: M k, N=Negligible or Low Risk.

Condition o f Gradcredit effectiveness:

0 The Recipient has adopted the Project Operational Manual, satisfactory to the Association.

Condition o f Withdrawal:

0 N o withdrawal shall be made under category 1 unless the Environmental Management Plan and Resettlement Action Plan have been prepared in accordance with the requirements in the Financing Agreement.

Implementation Covenant:

0 The Recipient, through the MoTC, shall carry out the Project in accordance with the requirements, criteria, organizational arrangements and operational procedures set forth in the Project Operational Manual, the Governance and Anti-Corruption Action Plan, the Resettlement Policy Framework and the EIA, and shall not assign, amend, abrogate, or waive any provisions o f the Project Operational Manual, the Governance and Anti-Corruption Action Plan, the Resettlement Policy Framework, or the EIA without prior approval of the Association.

At all times during the implementation o f the Project, the Recipient shall ensure that the PIU i s maintained with a composition, resources and terms o f reference satisfactory to the Association. The Recipient, through the MoTC:

0

13

(a) Shall prepare, prior to the commencement o f any works under the Project, a Resettlement Action Plan, satisfactory to the Association, in accordance with the Resettlement Policy Framework,

(b) Shall carry out the Project in accordance with the Resettlement Action Plan; and

(c) Shall not amend, suspend or abrogate any o f the provisions o f the Resettlement Action Plan without the prior agreement o f the Association.

0 The Recipient, through MoTC:

(a) prior to the commencement o f any works under the Project, an Environmental Management Plan, satisfactory to the Association, in accordance with the EIA,

(b) shall carry out the Project in accordance with the Environmental Management Plan; and

(c) shall not amend, suspend or abrogate any o f the provisions o f the Environmental Management Plan without prior agreement o f the Association.

47. Project Reporting:

0 The Recipient shall monitor and evaluate the progress o f the Project and prepare Project Reports on the basis o f the indicators agreed with the Association. Each Project Report shall cover the period o f one calendar semester, and shall be furnished to the Association not later than forty five (45) days after the end o f the period covered by such report.

48. Dated Covenants:

0 The Recipient, through the MoTC, shall, no later than December 15 o f each year, during the implementation o f the Project, starting December 15,2009, submit to the Association an Annual Work Program for the following calendar year, satisfactory to the Association, and shall agree with the Association on activities to be undertaken under the Project in the following calendar year and the related road maintenance budget. The Recipient, through the MOTC, shall, not later than June 1 o f each calendar year, during the implementation o f Part A o f the Project, starting June 1 , 20 1 1 : (i) take all necessary measures, including ensuring access to all relevant information related to the Project, to facilitate an independent technical audit; and (ii) act promptly upon the findings and recommendations o f such audit under terms o f reference acceptable to the Association. Not later than June 30, 2011, the Recipient shall carry out jointly with the Association a midterm review o f the progress made in carrying out the Project (hereinafter referred to as the Midterm Review). The Midterm Review shall cover, amongst other things: (i) progress made in meeting the Project’s objectives; and (ii) overall Project performance against Project performance indicators. The Recipient shall prepare at least four (4) weeks prior to the Mid-term Review, and furnish to the Association, a separate report describing the status o f implementation o f each component o f the Project and a summary report o f Project implementation generally.

0

0

14

0 The Recipient shall prepare and furnish to the Association not later than forty five (45) days after the end o f each calendar quarter, interim unaudited financial reports for the Project covering the quarter, in form and substance satisfactory to the Association.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

49. The Economic Analysis carried out using a cost-benefit approach shows that the proposed Project is economically sound. The economic analysis was conducted using the Highway Development and Management Tool (HDM-4), which simulates life-cycle predictions o f road deterioration, road works effects and their costs and provides economic decision criteria for road construction, rehabilitation and maintenance. The current composition o f traffic (AADT, 3,047 in 2008) i s as follows: about 50 percent cars, 45 percent buses (small and large), and 5 percent trucks (small, medium and heavy trucks).

50. The overall economic return on the investment for the rehabilitation of the Project financed road section between Pulgon to Burgundy is very robust with an Economic Internal Rate o f Return (EIRR) o f 74.5 percent and N e t Present Value (NPV) o f US$123.8 mill ion at a discount rate o f 12 percent. The high EIRR i s due to the fact that the Project i s mainly upgrading the road from unpaved to a paved surface (90 percent o f the Project road) which causes a marked decrease o f road user costs. The overall return on the total investment (rehabilitation o f Osh- Batken-Isfana road corridor) confirms the economic soundness o f the project corridor with an EIRR o f 36.6 percent and NPV o f US$420.59 mill ion at a discount rate o f 12 percent.

5 1. The sensitivity analysis indicates the robustness of the results with regard to possible variations in project parameters. A sensitivity analysis was carried out to assess the robustness o f the results to possible variations in key project parameters, which in this case were identified as construction costs and the forecast traffic growth rate. A severe worst case scenario with construction costs increased by 25 percent and traffic growth rates decreased by 25 percent s t i l l shows a reasonable return for the section financed by the Project with an EIRR o f 55.2 percent and NPV o f US$103.69 million as well as for the o f Osh-Batken-Isfana road corridor with an EIRR o f 29.1 percent and NPV o f US$327.13 million. A detailed discussion o f the economic analysis i s included in Annex 9.

B. Technical

52. The Project is to support the rehabilitation and upgrading of about 30 kilometers of single carriageway road between Pulgon and Burgandy, including a 2 km urban section of the road in the city of Pulgon. Whi ls t designs o f the road are to be finalized the main design principle i s to generally follow the existing road alignment, with the new road surface raised approximately 0.5 meters above the existing surface on average (except for any isolated areas where fwther raising i s required for drainage reasons or to improve geometry). The section o f the road within the city o f Pulgon i s designed to provide services to the road users and also to the communities living nearby (e.g. parking, bus stops, pedestrian crossings, lighting).

53. The rehabilitated road will have both entirely new pavement and overlays. New pavement will be financed where there i s no existing pavement or where the existing pavement i s

15

too badly Talaa and pavement

damaged or weak to Batken for phase I). i s in good condition

be adequate for the 15 years design l i f e (mainly between Kok- Overlays are proposed on the other sections where the existing and closely matches the new horizontal and vertical alignment

without the need for extensive correction. The road design speed outside towns will vary between 60 km/hour and 100 km/hour depending on the terrain. In towns a lower speed limit (40-60 km/hour) wi l l apply for safety reasons.

54. Although deflections in many sections of the road imply that all the strengthening required can be supplied by an overlay treatment, the evidence of the visual inspections contradicts this. In many areas, especially those further from Osh, the upper layers o f the existing pavement are in such poor condition that overlay i s not an option. Only about 10 percent o f the existing road between Osh and Kok-Tala (phase I1 o f the investment) will be suitable for overlay, reconstruction being required for all stretches o f existing road between Kok-Talaa (km 108) and Isfana (km 358). Some stretches o f the existing pavement will also require widening prior to overlay.

C. Fiduciary

55. Procurement under the Project will be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits”, published May 2004, and revised in October, 2006 (Procurement Guidelines); and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers”, published May 2004, and revised in October, 2006 (Consultant Guidelines) and the provisions stipulated in the Financing Agreement.

56. Procurement Arrangements of the PIU: W h i l e the PIU has substantial experience in implementing donor supported projects (see Annex 2), procurement has been carried out mainly with assistance o f international consultants. Based on the CPAR Update o f November 2007, the major risk concern the lack o f international experienced procurement staff, lack o f Bid Evaluation Committee Members knowledge and apparent interference o f politician in the procurement procedures that may obstruct o f delay the procurement process. To this end, the PIU has hired a local Procurement Specialist (individual consultant) in November 2008 to comply with requirements set by the World Bank during the preparation o f the Project utilizing the PPA. This consultant closely works with Finnroad who i s preparing the updated FS. The assessment concluded that the environment of conducting procurement under the project is of substantial risk.

57. Procurement: A comprehensive plan to mitigate the procurement risks and strengthen implementation capacity has been agreed with MoTC. The Procurement Specialist hired by the PIU in November 2008 will assist the Evaluation Committee Members. International supervision consultant wi l l be hired to supervise the road works at various sites. Also, frequent supervision wi l l be carried out by the World Bank Project team that includes technical staff, financial management specialist (FMS) and Procurement Accredited Staff (PAS). Apart from continuous supervision from Bank team and supervision consultant, civil society organization will be encouraged to monitor physical progress and the quality o f civil works. An independent auditor wi l l be hired to carry out technical audit following accepted international level. These and broader aspects to enhancing institutional integrity are described in detail in Annexes 8.

58. Financial Management Arrangement of the PIU Assessment o f the financial management arrangements o f the proposed Project was undertaken in July 2009. The PIU under

16

the M o T C will be responsible for the financial management function o f the Project, including f low o f funds, budgeting, internal control, accounting, reporting, and auditing. The PIU, currently implementing ADB-financed projects, operates a computerized accounting system, using the 1-C software. For the purposes o f the Project, the P I U has procured the 1-C accounting software that i s used by many World Bank-funded projects in the country and i s suitable for project accounting and report. The P O M to be developed before Project effectiveness will include budgeting and planning, accounting (including Chart o f Accounts), internal control system, reporting, disbursement management and audit. The Project has selected and appointed the Financial Manager for the PIU. The position o f the Disbursement Specialist i s currently vacant and the hiring process i s in progress.

59. The PIU has taken appropriate steps to address internal control, accounting, and financial reporting weaknesses in order to bring financial management arrangement of the Project in full compliance with the Bank requirements. Fiduciary risk at Project level before mitigation was substantial. However, appropriate risk mitigation measures have been put in place to ensure the overall fiduciary risk remains moderate.

60. Fiduciary Risk at the Country level: The C F A U and the PEFA assessment for the Kyrgyz Republic, and prior experience o f the World Bank in the country have shown that there i s weak public sector financial management, including public sector accounting, reporting and auditing. Corruption i s perceived as a major issue in the country. The Project will thus be implemented in an, environment o f high perceived corruption, and appropriate mitigation measures will be put in place, including dedicated PIU, strengthened accounting, reporting and audit arrangements and joint fiduciary reviews at appropriate internals. Fiduciary risk at country level i s considered substantial before corrective measures are taken and moderate after mitigation measures. Based on the assessment o f the current financial management system no elements o f the country system are planned to be used under the Project, except for budgeting and treasury system for counterpart funds.

61. The Governance and Anti-Corruption Action Plan (GAC Action Plan) is designed to strengthen the procurement and financial management systems and procedures to be used by the PIU within M o T C with specific actions to protect the Project. The plan i s intended to mitigate risks that may arise due to possible rent-seeking behavior or those that comprise the delivery o f the Project. This i s intended to be achieved through the application o f transparent and well documented procedures, based on the analysis o f risks and the governance environment. The following elements have been identified to formulate the G A C Plan for this Project: (i) full use o f Bank procurement and financial management procedures and institutional support, (ii) independent technical audit, (iii) information disclosure and c iv i l society oversight, and (iii) supervision arrangements (see Annex 11 for a detailed description).

D. Social

62. Overall, the social benefits resulting from the proposed Project will be significant. The rehabilitatiodupgrading o f the road will increase accessibility o f the rural population to social services, reduce household poverty by increasing market access, and enhance social cohesion and reduce social-political tension by improving territorial integration in South- West Kyrgyzstan. Key stakeholders have been consulted with during project preparation through a social assessment as wel l as informal interviews and participatory discussions. Overall, the local population surveyed as part o f the social assessment responded overwhelmingly positive about

17

the benefits o f the proposed Project, with 89 percent claiming that it would bring tangible benefits to their household.

63. According to the social assessment, improved access to social services such as health and education facilities was cited by survey respondents as the most important benefit resulting from the Project. The Project i s l ikely to be particularly important for access to education by serving to increase rural access to secondary and tertiary facilities which are clustered in urban and semi urban areas. The survey conducted as part o f the assessment revealed that the more isolated rural inhabitants had to travel further to access primary, secondary, and tertiary education. These travel times will be reduced significantly as a result o f the Project.

64. The Project will have a significant positive impact on the economic integration of Batken Oblast and on reducing rural poverty. Bakten Oblast i s characterized by higher rates o f total poverty (59.1 percent versus 43.2 percent nationwide) and extreme poverty (1 1.1 percent versus 18.8 percent nationwide). This i s despite the fact that the region i s r ich in water resources and has significant agricultural potential with fruit, vegetable, and rice crops. The social assessment conducted showed that only 10 percent o f households produced fruit for sale and only 3 percent produced vegetables for sale along the road. A major constraint on this potential i s the poor condition o f the road infrastructure and the difficulties in transporting goods through the Uzbek and Tajik enclaves. The completion o f this Project will play an important role in unleashing this potential, allowing greater market access to national and regional trading centers.

65. Road traffic safety measures are proposed to be incorporated in the Project and construction contracts under the Project will include relevant clauses on dissemination of information regarding HIV/AIDS. The Bank i s currently financing the Central Asia AIDS Control Project that will enable Governments and non-governmental organizations in the region to carry out HIV/AIDS prevention and control activities covering populations such as migrants and remote settlements that have not been addressed in the past. This includes settlements along road corridors and cross-border epidemiological hotspots.

E. Environment

66. The Environmental Impact Assessment (EU) carried out by the Recipient through Finnroad Oy in July 2009 pertains to the entire corridor from Osh to Isfana. For the corridor in its entirety the EIA concludes that according to OP/BP 4.01 the project should be classified as environmental Category B. The results from the EIA indicate that adverse environmental impacts would not be significant since the road will by and large fol low existing alignments. The EIA is supplemented with an environmental management plan (EMP) which addresses mitigation measures for the identified (minor) impacts. The draft EIA has been received by the Bank on June 6, 2009, disclosed on August 4, 2009 in-country and disclosed on August 5, 2009 in the Info- Shop.

67. The following key recommendations result from the feasibility-level EM: (i) For the most part the rehabilitation works will not deviate from the existing established alignment and will stay within existing secondary tracks or gravel tracks; (ii) Designs should make full consideration o f the range o f mitigation measures, which should be incorporated into detailed designs; and (iii) the tender and contract documents shall include appropriate clauses to cover al l o f the environmental protection requirements listed in the EIA report and EMPs; activities to be performed for compliance with the EMP shall appear in the specifications, Scope o f Works

18

(SOW) and Bill o f Quantities (BoQ) as clearly defined items, which will be adequately budgeted and priced by the Contractor.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP 4.0 1) 1x1 [ I Natural Habitats (OP/BP 4.04) [ I [XI Pest Management (OP 4.09) [ I [XI Physical Cultural Resources (OP/BP 4.1 1) [ I [XI Involuntary Resettlement (OP/BP 4.12) [XI [ I Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OP/BP 4.36) [ I [XI Safety o f Dams (OP/BP 4.37) [ I [XI Projects in Disputed Areas (OP/BP 7.60)* ' [ I [XI Projects on International Waterways (OP/BP 7.50) [ I [XI

68. The Bank team had, after a first screening of the road corridor in the pre-feasibility stage, originally proposed a Category A safeguards classification for the project (ISDS dated October 28, 2007). This was a precautionary classification based on the very limited information available during the identification mission and also the exact location o f the Bank financed section had not been determined. After availability o f a detailed EIA for the entire road corridor and verification o f i t s key findings during the pre-appraisal mission, an Environmental Assessment Category B has been confirmed.

69. The sections and structures already under construction or completed with Government funds were included in the environmental and social analysis undertaken by the Government's Consultant. For both the ongoing work on upgraded road sections, as well as for a recently constructed bridge over Sokh River (km 195 - km 200) the assessment concluded that, while the Kyrgyz Government's implementation process did not h l l y comply with World Bank procedures, environmental safeguards measures were duly implemented in accordance with domestic regulations and no significant negative impacts occurred. Especially for the new bridge over Sokh River, the Consultant concludes that no significant harm was done to the environment as a result o f bridge construction and that design and construction have been conducted in a manner that was in l ine with international good practice. The Consultant detected several minor issues relating to environmental impacts and good housekeeping at the site (e.g. post construction landscaping, removal o f construction waste), which could be improved and/or rectified ex-post; these measures, and the required costs may be included in the safeguards measures developed during detailed project design.

70. Regarding land acquisition at the Sokh bridge, a due diligence exercise conducted by the Consultants confirmed that there were five affected people, and that compensation for the land acquired had not yet been completed. In one case, temporary acquisition o f 0.4 ha rice paddies occurred, and a local government valuation commission provided compensation based on the market value o f the harvest foregone. For the other cases, land was permanently acquired, and the valuation commission decided to offer alternative land which was not deemed o f

' By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas.

19

comparable value by the affected persons. Therefore, the PIU has agreed to establish a valuation commission to assess the replacement value o f the land lost. A chance finds procedure for the case o f encountering physical cultural resources (PCR) during road construction i s available as an Annex attached to the EIA produced by the Government.

7 1. Establishing and maintaining environmental compliance will be supported by the regional environmental authorities who will play an important role during project implementation, especially in the process o f issuing the construction permit and appurtenant environmental licenses, and in monitoring and enforcing environmental compliance on construction site. Enforcement in Kyrgyz Republic routinely relies on a system o f fees for the use o f environmental common goods and fines for damage and pollution o f valued environmental components. A chance finds procedure for the case o f encountering physical cultural resources (PCR) during road construction has been developed by the Consultant and i s available as an attachment to the EIA produced by the Government.

72. OPBP 4.12 is triggered due to the potential for land acquisition along the corridor. This i s l ikely to be minor as the corridor mostly runs through uninhabited land and follows an existing alignment or gravel traces. Possible impacts will include the acquisition o f agricultural land, gardens, trees, and walls, and in exceptional cases residential and commercial structures. However, the precise extent o f these losses will not be known until the designs have been finalized. The works planned may result in minor acquisitions, in the form o f agricultural land, commercial land, gardens, walls and some houses. The road corridor runs largely through uninhabited land except at the beginning and the end o f the corridor. A draft Resettlement Policy Framework (RPF) has been prepared and revised in accordance with comments provided by the Project Team’s social development specialist and has been disclosed in-country on August 4, 2009 and disclosed at the Infoshop on August 5,2009.

G. Policy Exceptions and Readiness

73. The project does not require any exceptions from Bank policies and meets the Regional criteria for readiness for implementation. The draft updated Feasibility Study for the entire road corridor (360 kilometers) has been completed and draft detailed technical designs are currently being reviewed by MoTC. Relevant safeguards documentation (draft E M P and WF) has been published, disclosed and have been consulted upon. The PIU i s currently drafting the Project Operational Manual (POM), has started init ial steps for procurement (publication o f General Procurement Notice, GPN), and has submitted the draft Request for Expression o f Interest (REOI) for construction supervision services.

20

Annex 1: Country and Sector o r Program Background

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Country Background

74. Until 2008, a favorable external environment and sound economic policies resulted in a steady increase in the pace of economic growth in the Kyrgyz Republic, while inflation remained low. Following periods o f political turmoil in the early 2000, economic growth accelerated to 8% percent in 2007 and non-gold growth reached 9 percent that year. Poverty rates fe l l to 35 percent, from 54 percent in 2002, while extreme poverty dropped from 23 percent to 7 percent. Inflation remained close to 5 percent, until it started to surge in late 2007.

75. Over the last year and a half, adverse external developments have led to deterioration in economic conditions. Initially, the Kyrgyz economy was hit by the r ise in international commodity prices that caused a sharp increase in Kyrgyz inflation, to over 30 percent by mid- 2008, and a worsening o f the external position. When the international economic tide turned in the second half o f 2008 and the global economic and financial crisis spread to the region, the Kyrgyz economy was badly hit as well. In addition, long-standing energy sector problems combined with water shortages caused a major shortfall in hydropower capacity and widespread power outages.

76. Overall growth remained strong in 2008, reaching 7.6 percent on account of a strong recovery in gold production, but the global and regional slowdown started to affect economic activity outside the gold sector, with non-gold growth falling to 5.4 percent. The global crisis i s hurting the Kyrgyz economy mainly through trade and remittance channels. Russia and Kazakhstan remain key trading partners and the main source o f remittances. With these countries in recession, Kyrgyz growth i s expected to almost come to a halt in 2009, before recovering modestly in 2010 (see Graph 1 and Graph 2).

Graph 1: GDP growth (2005-2010) Graph 2: Share of foreign trade to GDP (2005-2010)

‘ -1

pro]. proj. ; /-I ’ 2005 2006 2007 2008 2009 2010

Source. IMF Selected Economic Indicators 2005-201 0.

Imports)/GDP, in percent 21c

~ 18C

15C

12c

90

60

30

0 1 2005 2006 2007 2008 2009 2010

pro] proj. - -.-

Source: IMF Selected Economic Indicators 2005-201 0

77. The Kyrgyz authorities’ economic policies for 2009, together with large donor support, will help mitigate the impact of the crisis on the Kyrgyz economy. Sizable assistance received from Russia allows fiscal policy to accommodate the large shortfall in government revenues

21

expected this year, while creating room for an increase in capital and social spending. The resulting fiscal easing will provide a strong boost to the economy and help to avoid a recession. The assistance will more than cover the balance o f payments and fiscal needs that were emerging for 2009. Accordingly, the authorities are planning to use this money in a medium-term fiscal framework.

78. The poverty rate declined from 43 percent in 2005 to 35percent in 2007, with an even stronger reduction in extreme poverty. However, poverty levels, and especially extreme poverty, are expected to increase in 2008/09 as inflation in food and energy prices has more impact on low-income households as a considerable part o f their income is spent on basic needs. Compounding increasing costs for those in poverty, remittances from abroad have fallen since late 2008. If falling remittances are followed by returning migrants, pressure on social systems for the poor will increase. Almost 76 percent o f poor people l ive in rural and remote mountainous regions, and despite steady growth in agricultural production over the last years, access to local markets, non-farm employment opportunities and basic social services have not improved sustainably due to high transport costs and the lack o f adequate and reliable transport infrastructure as a result poverty reduction progress in those rural areas was slow.

79. The Government's CDS for 2009-2011 focuses on inclusive economic growth while promoting regional integration and equitable development. The CDS aims to respond to the country's particular development challenges, which include (i) a population amounting to just over five mi l l ion implying a small domestic market, (ii) significant regional differences in poverty levels despite substantial reduction o f poverty in the country overall, (iii) the existence o f Uzbek and Tajik enclaves" within i t s territory (inside Batken oblast), and (iv) a location that i s one o f the least geographically accessible in the world with only about seven percent arable land and poor endowments o f natural resources.

R o a d Sector Performance

80. The transport system, in particular the road network is a priority of the Government of the Kyrgyz Republic given its importance to providing access to markets and basic public services. To date, 92 percent o f passenger and 59 percent freight traffic i s carried by road in the Kyrgyz Republic. The road network covers al l seven oblasts (provinces), and provides connections to remote communities and l i n k s to neighboring countries. Travel in most o f the country i s severely constrained by the predominantly alpine topography where roads have to cross passes o f 3,000 meters altitude and are subject to frequent mud slides and snow avalanches. Travel in the Southwestern part o f the country, namely between Osh and Batken town has some additional problems since the road crosses Taj ik and Uzbek enclaves which require a double- entry Kyrgyz visa and a transit visa.

8 1. The existing basic transport infrastructure is adequate for the level of economic activity likely to occur in the medium term. About 18,800 kilometers o f roads are under the jurisdiction o f the MoTC. About 40 percent o f the roads are sealed, including some with gravel mixed with bitumen binder. Over 50 percent are gravel and less than 10% are earth roads. Consequently, the primary concern i s not expansion or major upgrading o f the transport system, but proper maintenance and rehabilitation to preserve the existing network. Roads at a l l levels are deteriorating; over 60 percent require heavy maintenance or rehabilitation. Cognizant o f this, the

l1 An enclave i s a territory whose geographically boundaries l i e entirely within the boundaries o f another territory.

22

Government’s focus i s on rehabilitating key l i n k s in the road transport network that have regional and national strategic importance and which carry the majority o f the traffic on the republican road network (see Table 1 listing the six major corridors that constitute the backbone o f the national road network).

Corridor

Os h-Sa rytas h-l rkeshtha m

Suusamyr-Talas-Taraz

Bis h ke k- Naryn-Toruga rt

Table 1: Six strategic Road Corridors

Length (Kms)

258

199

539

Sa rytash-Ka ra myk

Osh-Batken-lsfana

136

360

I 76 I I Tyup-Kegen

I Total I 1,568 I

Table 4: Budgetary Allocation to the Roads Sector (2000-2007)

8 Total Admlnislralion

8 Road Maintenance m Capital inverlmcnlr

0 500 1000 1500

Source: Road Sector Development Strategy 2007-2010. Source: Road Sector Development Strategy 2007-2010.

82. Due to the backlog in road maintenance and insufficient funding in past two decades, the road network is estimated to have lost about US$l billion in road assets. While funds for improvement o f regional corridors will be sourced mainly f rom donors, including international financial institutions, financing road maintenance at the required level remains a challenge. However, the Government has made progress towards achieving the required level o f financing. The total allocation for roads has increased eleven-fold since 2000, and has tripled since 2005. In 2009 despite deteriorated economic conditions the Government demonstrated i t s commitment to maintain achieved level o f road financing by allocating funds in amount o f 1,700 mi l l ion Kyrgyz Soms (1 13 percent o f the 2008 funding) from the republican budget to the road sector. O n the Osh-Batken-Isfana corridor, the Government’s commitment i s pronounced and has included the recent completion o f the Sokh bridge and the preparatory works (up to the subgrade) o f some 53 km between Burgandy and the Sokh river.

83. The Road Sector Development Strategy for 2007-201 0 details the Government’s Action Plan to cope with the current shortage of funding for road maintenance. The Plan i s two-fold: (i) financing for a period o f 6 years (2008-2013) - Corridor Stabilization and Rehabilitation Program (of which the Project i s part of), and (ii) focusing maintenance activities on the republican road network (category I, 11, and 111) for which the current level o f financing i s acceptable.

84. Traffic safety is another significant issue in the Kyrgyz Republic with reports that road fatalities are now increasing. There has been a 47 percent, 50 percent and 80 percent increase from 1999 to 2005 for road accidents, injuries and fatalities respectively, despite a rather stable number o f vehicles during the same period. With about 41 deaths per 10,000 vehicles per year, car accident death rate in Kyrgyzstan i s 30 times higher than in Western Europe and 3 times higher than in Eastern Europe and Asia. Bad condition o f roads and vehicles, increased speeds on improved roads, lack o f effective road safety education for a l l road users, ineffective enforcement combined with increasing number o f traffic rule violations, deficient system o f the

23

annual certification o f the vehicles and fast growing population are thought to be the main causes o f high accident rates.

Institutional Arrangements o f the Roads Sector

85. The main responsibility for policy making and regulating, planning and developing transport and communications, including the road, railway and civil aviation sectors lies with the MoTC. The Department o f Roads, under the M o T C i s responsible for managing the road sector, including administration o f the republican budget funds for domestically-funded new road works and maintenance. PIUs are set up for externally-funded (IFI/other) investment projects.

86. Until 1994, transport companies were controlled by a join stockholding company, Kyrgyz Auto Transport, when Decree No.61 abolished the company and transferred its functions to the MoTC. O f the total 251 road construction companies in the Kyrgyz Republic, 126 have been privatized primarily through conversion to joint-stock companies. O f the 86 companies currently providing road transport services, 74 have been privatized. The uncertainty relating to the road construction program o f the Department o f Roads in the past has hindered the development o f the private road construction industry. Foreign (mainly Turkish and Chinese) contractors are now making significant inroads in the road construction industry in the Kyrgyz Republic on internationally bid projects.

87. MoTC’s seven regional road agencies, one in each province, plus the Bishkek-Osh Road Division are responsible for maintaining the roads under the MOTC’s jurisdiction. The Regional road agencies (called PLUADs) and Bishkek-Osh Road Department (UAD) comprise 58 local maintenance units - the Depots (DEP) - that carry out actual road construction, improvement, rehabilitation and maintenance works. The M o T C plans to gradually devolve i t s operational functions to a multi-level executing body. The functions o f the existing regional road agencies will be downsized to contractual and financial oversight for the MoTC, while the existing local road maintenance units are planned to be privatized as required under the Road Sector Development Strategy 2007-20 10.

Analysis o f Key Strengths and Weaknesses of the Roads Sector

88. Strategies and regulations in need for improvements. Various donors have been involved in policy dialogue with the Government in the past decade, and played an instrumental role in introducing market-based reforms in the roads sector and developing road sector strategies. W h i l e the Roads Sector Development Strategy 2007-20 10 was a f i rs t step in defining the priorities to achieve road sector development, it largely remains a short-term output-oriented document with weak l i n k s to available financing sources. A comprehensive and coherent long- te rm strategic master plan for 2010-2025 (for the entire transport sector) will be developed with the assistance o f the ADB.

89. Road Asset Planning and Management Systems remain inefficient. In recognition o f the need o f a new approach to sector planning and management, the M o T C was reorganized in 2007 with support from the ADB. Technical Assistance (which i s s t i l l on-going) aims to introduce (i) effective road asset planning and management systems, (iii) reliable emergency response system, and (iv) best practices in effective operation and management o f corridor

24

assets’*. Under this TA, four separate agencies, including the Bishkek-Torugart Road Corridor Management Department were set up to operate and maintain international road corridors.

90. The industry practices have to be revised in line with the latest emerging trends adapted locally to improve quality of the civil works in the sector. The road design, maintenance and quality control standards s t i l l remain outdated resulting in less cost efficient road designs, poor quality o f the road works and inefficient supervision o f the ongoing works on the country’s road network. The ongoing project supported by the Japanese International Cooperation Agency (JICA) aims to address some o f the issues by building institutional and technical capacity o f the MoTC to efficiently plan, manage and supervise ongoing road works. This involves development o f the national road design and maintenance manuals updated in line with the best practices and adapted to local conditions with their applications on pi lot basis as wel l as establishment o f the quality control test laboratory equipped according to the AASHTO guidelines which will be replicated by the M o T C in other regions.

91. The Government has been actively exploring the ways of developing the local construction industry which has limited capacity. Based o n current size and resources as wel l as performance, local contractors are considered to have limited financial and technical capacity, mainly for small contracts (possibly up to US$1 mi l l ion each), or to work as very junior joint venture partners and subcontractors. The ADB have been actively promoting a pi lot program o f performance-based maintenance (PBM) on the part o f the road network totaling 500 km to be performed by local contractors. In addition, the JICA will finance the survey o f the construction industry in Kyrgyz Republic to elaborate a set o f recommendations for the development o f the private sector, especially those that will enable local contractors to offer cost effective solutions and services in the road sector whether or not the road maintenance i s fully privatized.

92. The transfer of responsibility to improve, maintain and operate roads will address internal inefficiencies and accountability. The M o T C have indicated in their Road Sector Development Strategy (2007-20 10) that they will begin the privatizing o f their regional branch offices (DEPs) and/or outsource routine maintenance works to the private sector. While there are benefits in doing this, DEPs should s t i l l improve road maintenance as the privatization process andor outsourcing i s likely to be a slow process as the private sector i s probably not strong enough and not currently interested in road maintenance works especially in remote areas without introduction o f strong incentives. W h i l e there has been a move to the outsourcing o f maintenance works, road authorities in many countries, continue to be responsible for routine and winter maintenance.

93. The M o T C has developed a maintenance structure that has given the PLUADs and UAD a degree of autonomy andflexibility, however, the industry practices with regard to the civil works have yet to be improved. The road maintenance units are n o w able to adequately meet their business needs by varying workforce and required road construction machinery to match funding levels; however, industry practices s t i l l remain outdated resulting in less cost efficient road designs, poor quality o f the road works and inefficient supervision o f the ongoing works on the country’s road network. The M o T C would need to further separate client and service provider responsibilities in the road sector by increasing independence o f the road maintenance units through adoption o f an “improved road management” approach. This has to be accompanied by strengthening o f institutional and technical capacity o f the M o T C to efficiently

ADB. 2007. TA for Improving Road Maintenance and Strengthening the Transport Corridor Management Department. ADB. 2008. Proposed ADB Grant Bishkek-Torugart Road Project.

25

manage i ts road assets and development o f the modern industry practices to improve quality o f road works. Further to the above, the MoTC has made an investment in new periodic maintenance technology to do works which are often outsourced indicating that the MoTC sees themselves as having an ongoing direct role in periodic maintenance and even in larger capital repairs, for some years13. ADB i s currently providing support in this regard.

94. The maintenance of the Osh-Isfana Project road falls under PLUAD-2 (Osh Oblast, DEP-37 (Nookat, 434 km total responsibility)), and PLUAD-7 (Batken Oblast, DEP-46 (Pulgon, 426 km total), DEP-2 (Batken, 370 km total), and DEP13 (Isfana, 405 km total), giving a total network length of 1,635 km. The four units could benefit from merging or at least from sharing resources. I t i s proposed that one unit (but operating from the four present DEPs depots) will maintain the Osh-Isfana road, both the newly rehabilitated sections and the existing sections, until the rehabilitation i s complete (which may take 5-6 years for both phases). This matches the recent establishment by the MOTC o f the Osh-Isfana Corridor Management Unit. The remaining roads outside the Osh-Isfana Corridor would continue to be maintained either by the same Osh- Isfana Corridor unit (if this replaces the DEP’s and takes over all their work), or by the original DEP’s, if these remain in part.

95. The ADB is proposing to assist in the outsourcing of maintenance for a 4-year period using Performance Based Maintenance (PBM) contracts on a 500 km trial, pilot length o f existing roads in good condition, probably in southern Kyrgyzstan. The ADB would provide technical assistance for road selection, setting-up and supervision o f the P B M contracts, training for both MOTC and local contractors, and related necessary institutional and legal strengthening. The contracts themselves wi l l be funded by the MOTC from the republican budget. From the review o f the current modus operandi it seems that while a full “performance based contract” approach has some desirable features, namely the transfer o f many risks to the contractor, it could be both difficult and expensive to implement, given the experience levels o f the contractor and the MOTC. It would also be unreasonable to propose that extensive heavy maintenance be carried out by the P B M contractor. This should be done before the PBM contract i s let. For this reason, only roads in good condition will be included in PBM contracts for the time being.

96. Improvement of road safety needs to be a focus of sector activities. Road safety i s beginning to gain the attention o f the MoTC with the improvement o f the road sector financing. The MoTC in collaboration with the Ministry o f Internal Affairs has launched a program o f regular road safety audits on the part o f the road network since 2008 focusing mostly on the safe engineering aspects at the traffic accident black spots. The MoTC would like to further strengthen the capacity o f i ts Department o f Roads to manage and implement a National Road Safety Program (expected to be approved in 2009) by establishing Road Safety Unit with specific functions in order to reverse alarming trend o f number o f road accidents and fatalities in Kyrgyz Republic. However, there i s much to be done. In this regard, the Bank’s international experience in improving road safety will add value to the planned activities through the proposed Project, in particular by assisting the MoTC in building the capacity o f the Road Safety Unit o f the Department o f Roads by providing support to the development and launch o f the National Road Safety Program, and preparation o f pilot demonstration projects to improve road safety along the Osh-Batken-Isfana road corridor.

l3 Equipment recently supplied by ADB and JICA reinforces this as does the intention by JICA, ADB and EBRD to supply more maintenance equipment in 3 to 4 years, 1 year and 1 year respectively.

26

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

97. infrastructure related sector in the Kyrgyz Republic through:

In recent years, the World Bank has contributed to the development o f the transport and

0 Kyrgyz Urban Transport Project (US$22 mi l l ion equivalent). The project was completed in 200- and the outcome was rated moderately satisfactory. The project helped to provide sustainable, reliable and ,affordable access to mobility for the populations o f the cities o f Bishkek, Osh and Jalalabad.

Small Towns Infrastructure and Capacity Building (US$15 mi l l ion equivalent) has the objective to improve the availability, quality and efficiency o f local infrastructure services for the population o f participating small towns and Small Town Infrastructure and Capacity Building Additional Financing (US$4 mi l l ion equivalent) which will help to finance a cost overrun in the completion o f the urban infrastructure investment program o f the ongoing project.

Bishkek and Osh Urban Infrastructure (US$12 mi l l ion equivalent) has the objective to improve the living conditions in selected semi-informal settlements (novostriki) in Bishkek and Osh, the two largest cities o f the Kyrgyz Republic, by increasing the availability o f basic infrastructure to the residents o f these areas.

0

0

98. Since 2005, other assistance for the sector can be summarized as follows:

0 Rehabilitation o f Road Transport Corridors: The Third Road Rehabilitation (US$ 40 mi l l ion equivalent), financed by ADB comprised the third phase o f a rehabilitation program for the Bishkek-Osh road (closed o n December 3, 2007). Development Objectives and Implementation Progress were rated satisfactory. The following are on-going projects: Southern Transport Corridor Road Rehabilitation Project (US$32.8 mi l l ion equivalent), financed by ADB has the objective to rehabilitate a section o f the Osh-Sary Tash-Irkeshtam road to extend the rehabilitated Bishkek to Osh corridor (ratings satisfactory, estimated completion September 201 0). Rehabilitation of Bishkek-Torugart Road (US$20 mi l l ion equivalent) i s to rehabilitate a 39 kilometers section o f the CAREC corridor 1 (estimated completion March 20 12). Rehabilitation of Osh-Irkeshtam Road, financed by Islamic Development Bank (US$19.8 mi l l ion equivalent) and the Export-Import Bank o f China (US$200 mi l l ion equivalent) has the objective to rehabilitate the road corridor.

Technical Assistance to the Roads Sector: TA to the sector is mainly focusing on issues related to the development o f Transport Sector Strategies and Master Plan as wel l as strengthening and improving the institutional structure o f the Ministry and management and financing o f the sector, mainly related to maintenance. Specific TA included: TA Development o f Coordinated National Transport Policies (US$ 1.25 equivalent), financed by EC; Improving Road Maintenance and Strengthening the Transport Corridor Management Department, May 2008 (US$O.8 mi l l ion equivalent); Maintenance of Regional Road Transport Corridors, January 2008 (US$0.5 mi l l ion equivalent).

27

Annex 3: Results Framework and Monitoring

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Results Framework

PDO

To contribute to the reduction of transport costs and travel time along the Osh-Batken-Isfana Road corridor, and to improve road safety planning.

Intermediate Outcomes

Component 1:

Rehabilitation o f a section o f the Osh-Batken-Isfana Road corridor.

Component 2:

Road safety planning improvement.

Component 3:

Project Management and Im~lementation.

Project Outcome Indicators

Reduction in transport costs for road users, by car and large bus, along the project road section and in the project area.

Reduction in travel t ime for road users, by car and large bus, along the project road section and in the project area.

Proportional increase in traffic one year after project road section improved or rehabilitated.

Proportional increase in the number o f rural people in the project area who live within 2 kilometers o f an all-season road.

Increased effectiveness o f road safety planning.

Intermediate Outcome Indicators

Component 1:

Number o f kilometers o f all roads rehabilitated under the Project.

Percentage o f the total classified road network in the project area in good and fair condition.

Component 2:

National road safety program developed and launched.

Pilot demonstration projects on road safety along the project road section developed.

Component 3:

Technical audit i s conducted.

Use of Project Outcome Information

Information w i l l be used to assess the extent to which the project development objective has been attained (the impact that the project has had).

Use o f Intermediate Outcome Monitoring

Component 1:

Information w i l l be used by MOTC to monitor implementation progress and by the Bank to supervise the Project.

Component 2:

Information w i l l be used by MOTC to monitor implementation progress and by the Bank to supervise the Project.

Component 3:

Annual Reviews o f the Project by all donors wi th the Government.

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Arrangements for results monitoring

99. Project monitoring during implementation will be carried out by staff o f MOTC, with assistance o f the PIU. Monitoring entails close supervision o f works and technical assistance, auditing o f physical works, procurement processes and financial statements, and monitoring o f Project performance indicators during the duration o f the Project. Oversight o f monitoring indicators will be particularly important to respond rapidly to delays and ensure timely Project completion. Quarterly Project Progress Reports, which focus on results rather than process- related information, will be prepared by the Committee and submitted to the Bank for review.

100. The following definitions for the measurement o f indicators are used:

“Under the project” means financed by the Project.

“Along project road section” refers to the road section financed by the Project.

“Total classified road network” means all public roads under the responsibility o f the Ministry o f Transport and Communications.

“In good and fair condition” means the roughness as measured by the International Roughness Index (IRI).

“In project area” refers to the entire length o f the Osh-Batken-Isfana Road corridor

“Within 2 kilometers” i s equivalent to a 20-minute walk.

“Rural people” means the rural population following the definition officially used in the Kyrgyz Republic.

29

1

E 5 2 E v)

a 2

e * e, '7

a

8

e

L

e, '7

a

-;a 3

4 i

4 a

4

i? 3

8 0 P

0 rn r 4

I 3

Annex 4: Detailed Project Description

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Project Details

101, Component 1: Rehabilitation of a Section of the Osh-Batken-Isfana Road corridor.: The component will finance c iv i l works associated with the rehabilitation o f the road section from Pulgon to Burgandy as’ well as consultancy services for construction supervision including physical and price contingencies. The works comprise the reconstruction o f 2 kilometers o f existing deteriorated asphalt road through the town o f Pulgon. There are two river crossings along the 2 km stretch through the town o f Pulgon (Km 123 to 125) and the completion o f 30 kilometers o f existing gravel trace and deteriorated asphalt road through plains and rol l ing terrain (Pulgon to Burgandy, Km 125 to 155). This 32 kilometer section i s part o f the second detour (see Map, Annex 16) along the Osh-Batken-Isfana Road corridor.

102. Within town o f Pulgon, the replacement o f the first crossing over the Shahimardan river is necessary as a result o f poor structural condition and alignment. The 30 kilometer section which commences at km 125.3 shortly after Pulgon, initially follows the seasonal watercourse o f the Ankhov river. The alignment leaves the river after some 1.5 km and crosses a small range o f foothills where side drains with frequent cross culverts will be required on the ascent and descent. The f i rs t 8 k m s from Km 125-133 run through l o w hills composed o f poor quality slatehhale. From km 133, the subgrade i s generally silty outwash fan gravel. Visual examination indicates that the soils along the alignment are probably non-plastic, but these materials are f ine grained and allowance for the possibility o f l o w subgrade strengths would therefore be expedient. M o T C have already constructed some sections up to subgrade, subbase, base (partially crushed), and first layer o f asphalt (about 1 km). A new pavement has been assumed throughout,. but the extent to which this work can be incorporated in the new pavement will be assessed during the detailed design.

103. The new profile will be approximately 0.5m above the existing on average (except where further raising i s required, for example to reduce road gradient or otherwise improve road geometry, or due to weak sub-grade soils or high groundwater conditions). The road will have both new pavement (where there i s no existing pavement or the existing pavement i s too badly damaged or weak to be adequate for the 15 years design life), and repair including overlay (where the existing pavement i s in good condition and closely matches the new horizontal and vertical alignment without the need for extensive correction). The road will be generally designed for a speed o f 60-100 km/hour outside towns, but in towns a lower speed limit (40-60 M o u r ) will usually apply for safety reasons. Hence, the requirement for higher speed road geometry will not be essential here.

104. Component 2: Road safety planning improvement: This component will finance the provision o f goods, and consultants’ services for: (i) the development and launch o f a national road safety program; (ii) preparation o f demonstration projects for road safety; and (iii) improvement o f road safety planning. This component will build on the Government’s Road Sector Development Strategy and the work currently carried out by the Permanent Secretariat for Road Safety on the revision o f road safety guidelines and the preparation o f a National Road

31

Safety Program. Other activities to improve road safety planning may include the establishment o f road accident database and purchased o f road safety equipment). The objective o f this component i s to increase effectiveness o f road safety planning while building on the Government’s Road Sector Development Strategy and the work currently ongoing by the Permanent Secretariat for Road Safety on the revision o f road safety guidelines and the preparation o f a National Road Safety Program (expected to be approved in 2009).

105. Support to develop and launch the National Road Safety Program. Effective road safety planning i s approached through a process o f developing and implementing a road safety strategy using a program o f initiatives and projects, taking into account strategy objectives and resources available. The goal o f this subcomponent would be to assist in the development and launch o f a national road safety program. This i s proposed to include a National Road Safety Workshop to be held in-country. The program would also aim to identify the scope for future activity to improve the safety o f land use planning, road and roadside design and operation, vehicle standards, and user standards for managing exposure to risk, crash prevention, crash protection, and post impact case.

106. Preparation of pilot demonstration projects on road safety and other activities to improve road safety planning. These activities will build on the recent launch o f the program o f regular road safety audits, the establishment o f the Road Safety Unit with specific functions under the Road Department o f MoTC in the near future and the finalization o f a National Road Safety Program. It w i l l work in close collaboration with the Road Safety Commission o f the Kyrgyz Republic which was established in 2004 as weEl as the Ministry o f Internal Affairs. I t wi l l particularly provide support for planning for pilot projects on road safety with a focus on the city/town o f Pulgon (along the project road). Other activities to improve road safety planning may include the establishment o f road accident database and purchase o f road safety equipment.

107. Component 3: Project Management and Implementation. This component includes the provision o f goods, consultants’ services, training and operating costs including an audit, to support Project coordination, implementation and management. An update o f the feasibility study and designs (about US$ 1 million) are being financed out o f a Project Preparation Advance (PPA). In addition, support for incremental operating costs o f the Project Implementing Unit (US$0.5 million) i s envisaged to be financed. Consulting services will be used to assist the PIU with the preparation, management and implementation o f all activities associated with the project, including the supervision o f all safeguards and fiduciary aspects. Other donors are providing the PIU with parallel financing for their operating costs.

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Annex 5: Project Costs KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

IDA GoK Total

eauivalent eauivalent eauivalent Project Cost By Component and/or Activity' US$ mi l l ion US$ mi l l ion US$ mi l l ion

Component 1 Rehabilitation o f a section o f the Osh- 22.00 5.29 27.29 Batken-Isfana Road corridor2

Component 2 Road safety planning improvement 1.35 0.15 1 S O

Component 3 Project Management and ~mplementat ion~

1.61 0.3 1 1.93

Total Financing Required 25.00 5.76 30.72

** 1

2

3

Project Costs are rounded. *Prices include identifiable taxes and duties.

1

Costs include physical contingencies and price contingencies (about 8 percent). Component 1 includes c iv i l works (financed 80 percent by IDA) and supervision consultants' services (financed 90 percent by IDA). Component 3 includes Project Preparation Advance (financed 100 percent by IDA) amounting to US$1,095,000 and Operating costs (financed up to 90 percent by IDA).

33

Annex 6: Implementation Arrangements

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

General arrangements

108. The prime responsibility for overall implementation of the Project will be with MoTC. M o T C has been six ADB financed roads project, and has considerable experience o f handling internationally financed project. For externally financed projects in the roads sector, the M o T C works through a P4U. The P I U has qualified staff and fol low procedures that meet the financial control requirements o f international financial institutions such as the ADB. Based on successful management o f ADB-financed projects, such organizational structure i s considered to be appropriate for the project’s needs.

Project management

109. The director of the PIU will be responsible for the day-to-day supervision of implementation activities. Additional staff - including professional staff with experience in procurement, financial. management, construction supervision, and safeguards will support the implementation o f the Project. PIU follows different accounting procedures to the remainder o f MoTC. While this separation ensures that requirements o f international financial institutions are met, i t does little to improve accounting in the MoTC.

110. The PIU is staffed with the following specialists who will be involved in the implementation of the proposed Project (see graph below): PIU, Deputy Director, Financial Managers, Disbursement Specialist, Procurement Specialist, Chief Accountant, Contract Administration Specialist, Road Engineers, Social Specialist, and Office Manager/Translator. The Disbursement Specialist and Procurement Specialist have recently been hired as a condition set forth by the World Bank for the PPA. Both specialists are financed through the PPA. The other specialists are financed from the proceeds o f mainly ADB-financed projects.

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PIU Organigram

I Disbursement

I Procurement

Bank supervision

1 1 1. The Bank will devote about 25 staffweeksper year and a total of about 100 staff weeks from FYlO to FY13 to support the Government in implementing the Project and supervising progress. Implementation support and supervision - with a minimum o f two missions per annum, as well as direct involvement o f Bishkek Bank Country Office specialized staff, will in particular focus on performance o f MOTC and the PIU in managing contracts, safeguards, procurement and financial matters, as well as completing the agreed implementation plans.

1 12. Project monitoring during the course of project implementation and after project completion will be carried out by PIU staff. This would entail monitoring project performance indicators during the course o f the project. Project Reports would be prepared by the PIU and approved by MOTC on a quarterly basis and submitted to the Bank for review.

1 13. MOTC and PIU will carry out jointly with the Bank, a midterm review of the progress made in carrying out the project no later than 18 months after the Loan Effectiveness Date. The midterm review will cover, amongst others (i) progress made in meeting the Project’s objectives, and (ii) overall project performance against performance indicators as set out in the Project’s Results Framework.

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Annex 7: Financial Management and Disbursement Arrangements

Inherent Risks FM Risk Risk Mitigation Measures

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Residual Risk

Country Issues

I Country Level

Weak PFM institutions (additional information i s included in country issues in the previous section).

Project Level

funds disbursed through the local branches o f the Treasury with risk o f slow operations on the Treasury resulting in slow disbursement.

Project i s medium sized, with local Government

114. Capacity among accounting professionals in the country is still low; professionally qualified accountants are scarce, and among public and private sector accountants’ knowledge o f internationally recognized accounting and auditing standards, such as International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS), and International Standards on Audit (ISA) i s very limited. Most PIUs use cash-basis accounting, which i s not in accordance with IFRS, but i s allowed under IPSAS; and in many cases, sufficient for accurate project accounting. Internal audit functions exist in a small but growing number o f institutions, including l ine ministries; and external audit i s practiced by individuals and a few audit f i rms. Typically, most audits required by international donors have been performed by the top four international audit f i r m s that recently set up practices in Bishkek.

S Project will not use country systems, but will M be implemented by the PIU within MoTC which has adequate structures and systems to mange project resources. Changes to the institutional structure can only be made with concurrence by the World Bank.

S Implementation arrangements that allow M close monitoring of activities under the project (including flow of funds) by the Bank will be maintained.

11 5 . The World Bank regularly assesses local audit f irm capacity to audit Bank-financed projects and threefirms in the Kyrgyz Republic are now eligible. The World Bank i s providing support to strengthen the capacity o f the supreme audit institution, the Chamber o f Accounts; and it i s anticipated that the Bank will eventually rely more on audits conducted by the institution once i t s capacity has been adequately developed.

1 16. Corruption is still acknowledged as a major issue in the public sector. In addition to the risk mitigation measures summarized in the Table below, the Project will emphasize full disclosure, transparency, and strengthened complaint handling mechanisms for procurement activities. The country risk i s assessed as high before mitigation measures and to be substantial after mitigation measures.

Risk Assessment and Mitigation

1 17. The overall financial management risk for the Project before mitigation measures is substantial and after mitigation measures, the risk is moderate. Adequate mitigation measures are in place to ensure that the residual risk i s acceptable. The table below summarizes the financial management assessment and risk ratings o f this Project:

36

Overall Inherent Risk CONTROL RISKS Budgeting - Budgets will be based on the Government budget cycle, and liked to Cost Table in the PAD as well as the Procurement Plan.

Accounting - Accounting for the PPA currently based on excel spreadsheet with no in-built controls and without capacity to automatically generate IFRs.

Internal Controls - Current Internal Control system i s not adequate: there i s no proper segregation of duties; weak authorization and approval process. Internal control procedures not documented, and no internal audit function.

Fundsflow - Flow of funds under the PPA i s adequate. Financial Reporting - IFRs under the current Project Preparation Facility have not yet been submitted. A l l IFRs of active projects have been always submitted on time and found to be acceptable to the Bank.

Auditing - The audit will be carried out by independent auditors and under Terms o f References acceptable to the Bank.

OVERALL CONTROL RISK

OVERALL FMRISK

H = High, S= Substantial, M=Moderate, L=Low.

Strengths and Weaknesses

S

M

S

S

M

M

M

M

S

Capacity for budgeting has been enhanced with the appointment of the Financial Manager, who will be fully responsible for planning and budgeting process o f the Project. PIU has procured the accounting software that i s capable to produce financial reports that are required by the Bank and GoK. Training in the use of the system will be provided by the vendor. PIU has prepared the first draft of the section in the POM which reflects the internal control, accounting, budgeting and reporting policies and procedures. Under the revised organizational structure of the PIU there i s adequate segregation of duties thus enhancing the internal control environment.

N o additional mitigation measure required.

IFR format has been agreed with PIU. A l l IFRs shall be prepared with use of the accounting software and submitted to the Bank on due dates as i t will be stipulated by the Financing Agreement. No additional mitigation measure required.

M

M

M

M

M

L

M

M

M

11 8. The significant strengths that provide a basis for reliance on the project financial management system include: (i) the PIU’s extensive prior experience in on-lending procedures under ADB and World Bank financed projects, and (ii) experience o f P I U Disbursement Specialist, who has recently been selected and appointed for the position o f the Financial Manager in implementing Bank-financed projects for past several years (including work experience).

119. The majority of internal control, accounting, and reporting weaknesses of the PIU have been addressed in order to bring financial management arrangements in full compliance with the Bank’s requirements. The PIU has installed l - C accounting software that i s capable to generate interim financial reports required by the World Bank. In addition, the PIU has recruited a full time Financial Manager and drafted the P O M which includes financial management procedures and Chart o f Accounts. The final version o f the P O M incorporating al l comments from the Bank will be adopted by Project effectiveness.

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Project Implementation Arrangements

120. The PIU is staffed with the following specialists: P I U Director, Deputy Director, Financial Manager, Disbursement Specialist, Procurement Specialist, AccountantKashier, Road Engineer, Social Specialist, and Office Manager/Translator. The PIU administers its operations as an autonomous entity with full authority to manage and administer i t s program under operating guidelines and procedures set out in the Operational Manual. The PIU i s responsible for the implementation o f projects supported by the ADB, Islamic Development Bank, and the European Commission.

12 1. The residual risk associated with PIU is moderate.

Budgeting and Planning

122. The PIU has adequate capacity in preparing relevant budgets. The annual budget is based on procurement plan, which is prepared by the procurement specialist. The final draft o f the procurement plan is discussed and agreed with the director, and approved by the World Bank. All changes to the procurement plan are reviewed by the director and approved by the World Bank. The director, the disbursement specialist and the procurement specialist are involved in the preparation o f the annual budget. The Financial Manager o f the Project has been hired and will take responsibility for the planning and budgeting process. The final plans and budget are submitted to the M O F for approval. Approved budgets will be entered into the accounting system and used to monitor expenditures as part o f the interim financial reporting

123. mitigation measures and low after mitigation measures.

The risk associated with planning and budgeting is assessed as moderate before

Accounting Staffing

124. The structure of the PIU financial management unit consists of a disbursement specialist and a financial manager. The Project’s Disbursement Specialist was selected and appointed to the position o f the Financial Manager and i s familiar with Bank’s procedures and requirements. H e has significant experience in implementing World Bank financed projects given that he has worked as a disbursement specialist in number o f WB financed Projects since 1999. This included the Kyrgyz Urban Transport Project implemented by the MoTC; he also worked as a Financial Manager at D H M P in 2007 (another PIU under the Ministry for Emergency Situations currently implementing World Bank financed project). The Disbursement Specialist i s currently responsible for maintaining accounting for the PPA as well as at two other projects implemented by the PIU. The PIU i s now in the process o f recruiting a Disbursement Specialist as this position has become vacant.

125. I n order to ensure that adequate financial management arrangements are in place it has been agreed that the ultimate responsibility for financial management system o f the Project shall be delegated to the Financial Manager that has been recruited. The Financial Manager will be primarily responsible for budgeting, accounting, reporting, internal control and will supervise the disbursement function, while the responsibilities o f the disbursement specialist will be

38

preparation o f payroll and the documentation for Withdrawal Applications and payments, recording bank transactions and processing o f accounting o f the Project.

126. and as low after mitigation measures.

The risk associated with staffing is assessed as moderate before mitigation measures

Information Systems

127. The PIU has purchased an automated accounting software (IC software) that has safeguards against the input of inaccurate data or unauthorized access to the system. In addition, regular back up o f the accounting data shall be made by the accounting staff. The procured accounting system has the capacity to generate interim financial reports and other reports required by the Government.

128. substantial and as moderate after mitigation measures.

The risk associated with information systems before mitigation measures is assessed as

Accounting Policies and Procedures

129. The accounting system of PIU is maintained according to accrual basis of Accounting Standards of the Republic of Kyrgyzstan. IFRs are to be prepared and submitted on cash basis IPSAS. The current chart o f accounts i s adequate to Accounting Standards o f the Republic o f Kyrgyzstan and will be used for the Project, taking into account the PIU’s accounting system features and requirements o f the Project. The Project has no written accounting policies and procedures. The Financial Management Manual which will form part o f the POM that will be elaborated for the Project and will reflect accounting policies and procedures applicable to the Project.

130. substantial and moderate after mitigation measures.

The risk associated with accounting policies and procedures before mitigation is

Internal Controls and Internal Audit

131. The PIU has made certain steps to improve the internal control system of the PIU including the drafting of the POM, the segregation offinancial management duties between a Financial Manager and a Disbursement Specialist. The P I U will finalize the P O M including the financial management procedures and Chart o f Accounts to reflect the specific activities o f the Project, including budgeting financial reporting and internal control procedures (including clear expenditure authorization, payment approval and bank reconciliation procedures) as wel l as the accounting policies and procedures applicable to the project. This section o f the P O M will also reflect the policies and procedures that will clearly define conflict o f interest and related party transactions (real and apparent) and provide safeguards to protect the organization f rom them.

132. For the purposes of the current project sound internal control system shall be maintained all expenditures and payments shall be properly verified by the Financial Manager, authorized and approved by the Director o f the PIU. The bank account reconciliation will be

39

prepared by the disbursement specialist and reviewed and approved by the Financial Manager. Considering the small size o f the PIU, no internal audit function i s anticipated.

Audit Report Continuing Entity financial statements Project financial statements (PFS) The PFS include Project Balance Sheet, Sources and Uses o f Funds, Uses o f Funds by Components & Categories, SOE Withdrawal Schedule, Designated Account Statement, Notes to the financial statements, and Reconciliation Statement.

133. moderate after mitigation measures.

The risk associated with internal controls and internal audit is substantial before and

Due Date None

Within six months o f the end o f each fiscal year and also at the closing o f the project.

Financial Reporting

1 34. Project management-oriented Interim Un-audited Financial Reports (IFRs) will be prepared under the Project. The P I U will produce a full set o f IFRs every three months throughout the l i fe o f the project. The format o f IFRs has been agreed during the assessment which includes: (a) Project Sources and Uses o f Funds, (b) Uses o f Funds by Expenditure Type, (c) Designated Account Statements, and (d) SOE Withdrawal Schedule. IFRs will be produced by the accounting software. These financial reports will be submitted to Bank within 45 days o f the end o f each quarter. The f i rs t quarterly IFRs will be submitted after the end o f the f i rst full quarter following the initial disbursement. These requirements and IFR formats will be incorporated in the FMM.

135. mitigation measures and as low after mitigation measures.

The risk associated with reporting and monitoring is assessed as moderate before

External Audit

136. The audit of the Project will be conducted (i) by independent private auditors acceptable to the World Bank, on terms o f reference (TOR) acceptable to the World Bank, and procured by the PIU; and (ii) according to International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board o f the International Federation o f Accountants (IFAC).

137. The ahnual audited project financial statements will be provided to the World Bank within six months of the end of each fiscal year and also at the closing of the project. The contract for the audit awarded during the f i rs t year o f project implementation may be extended from year-to-year with the same auditor, subject to satisfactory perfonnance. The cost o f the audit will be financed by IDA.

138. the project implementation agency together with the due date for submission.

The following table identifies the audit reports that will be required to be submitted by

139. The Kyrgyz Chamber of Account, the country’s supreme audit institution, also performs ad hoc external auditshnspections of creditsnoans financed by the Bank. The risk associated with external audit i s considered moderate.

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140. Flow of funds and disbursement arrangements. Proceeds o f the IDA Credit wi l l be disbursed over four years, or for such longer period as will be agreed with IDA. Credit funds will flow to the project via disbursements to the Designated Accounts (DA), opened and maintained by the PIU. The project will follow transaction-based, i.e. traditional Bank disbursement procedures (Advance to the DA, documentation o f the Advance based on full documentation and Statements o f Expenditure (SOEs), direct payments, reimbursements, and special commitments). Withdrawals from the Credit Accounts will be requested in accordance with the guidance in the Disbursement Letter. Withdrawal applications wi l l be signed by two persons: (i) an authorized representative o f the Recipient (Ministry o f Finance) and (ii) the P IU Director or designate authorized by wr i t ten delegated authority from the Ministry o f Finance.

141. Designated Account: To facilitate timely disbursements for eligible expenditures on works, goods and services, the Recipient will open and operate, under terms and conditions acceptable to IDA, two DAs in U S dollars in a commercial bank acceptable to IDA. The PIU will be responsible for accounting for the funds deposited into this account, for reporting on the use o f these funds, and for ensuring that they are included in the audits o f the financial statements. The PIU will also report on the status o f this account through withdrawal applications submitted to IDA. The authorized ceiling o f the DA i s US$1,300,000 for the IDA Credit and US$l,lOO,OOO for the IDA grant. The total Ceilings will not be advanced into the Designated Account until the condition against Category 1 has been met. The PIU will be responsible for submitting withdrawal applications on a quarterly basis, and these applications wi l l be supported by appropriate documentation, including detailed bank statements. Additional details are provided in the Disbursement Letter.

142. Documentation of Expenditures: Full documentation will be submitted against contracts above, the following limits and Statement o f Expenditures will be used against contracts below these limits, and against training, study tows, and operating costs:

0

0

0

works under contracts costing more than US$l,OOO,OOO equivalent each; goods under contracts costing more than US$lOO,OOO equivalent each; consulting contracts with f i rms, costing more than US$ 100,000 equivalent each; consulting contracts with individuals, costing more than US$50,000 equivalent each.

143. Documentation in support o f SOEs wi l l be retained by the PIU for at least one year after IDA has received the audit report for the fiscal year in which the last withdrawal from the CrediUGrant Account was made. All withdrawal applications for expenditures above SOE thresholds specified above will be supported by full documentation, i.e., contracts, etc. The PIU will enswe that all documentation supporting Project expenses, especially those reported through SOEs, are made available to IDA supervision missions and the auditors.

144. Direct payments. The Minimum Application Size for direct payments and for issuance o f Special Commitments for the IDA Credit i s provided in the Disbursement Letter. All withdrawal applications for direct payment, or for issuance o f special commitments, will be supported by full documentation.

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145. the project account opened in the local Treasury branch and managed by the PIU.

Project account: Any counterpart funds provided by the recipient will be deposited into

Supervision Plan

146. As part of its project supervision missions, the Bank will conduct risk-based financial management supervisions, at appropriate intervals (f irst supervision will be conducted within a year since the project effectiveness). During project implementation, the Bank will supervise the project’s financial management arrangements in the following ways: (a) review the project’s quarterly IFRs as wel l as the project’s annual audited financial statements and auditor’s management letter and remedial actions recommended in the auditor’s Management Letters; and (b) during the Bank’s on-site supervision missions, review the fol lowing key areas (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement management and financial flows, and (iv) any incidences o f corrupt practices involving project resources.

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Annex 8: Procurement Arrangements

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

A. General

147. Procurement for the Project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" published in M a y 2004 and revised in October 2006 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers'' published in M a y 2004 and revised in October 2006 (Consultant Guidelines) and the provisions stipulated in the Financial Agreement. The various procurement actions under different expenditure categories are described in general below. For each contract to be financed under the Financing Agreement, the various procurement or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame have been agreed between the Recipient and the Bank in the Procurement Plan (PP). The PP will be updated at least annualIy or as required to reflect the actual project implementation needs and improvements in institutional capacity. A General Procurement Notice (GPN) has been published on July 22, 2009 in UNDB on-line and in i t s printed version as wel l as in dgMarket online. Specific Procurement Notices (SPN) will be published for al l I C B procurement and Consulting contracts as per Guidelines as the corresponding bidding documents and Request for Proposals (RFPs) become ready and available.

B. Assessment o f the agency's capacity to implement procurement

148. The Country Procurement Assessment Reviews (CPAR) dated update of November 2007, reported that fraud and corruption are regarded as real impediments to the activities of the private sector in Kyrgyzstan. As a result, the Public Procurement L a w (PPL) sets out a number o f provisions to address fraud and corruption, notably fraudulent practices, misrepresentation, conflicts o f interest and bid-rigging. With the PPL in place and with a competent regulatory agency to oversee i t s implementation, the main weakness in the procurement system appears to be lack o f capacity and resources. Procurement based on market economy principles i s a relatively new concept in Kyrgyzstan and there are only a few trained procurement officers available, although in almost each ministry there is a purchasing and supply department.

149. An assessment of the capacity of the PIU to implement procurement actions for the Project has been carried out in July 2009; a copy o f the assessment report i s in the Project file. The assessment reviewed the procurement process being carried out by the PIU and the interaction between the staff responsible for procurement, financial management and project management. It was noted that PIU have successfully procured road contracts under ADB funding. However, the procurement experts do not have World Bank procurement e~per ience '~. Majori ty o f procurement carried out by the procurement specialist are under the guidance o f consulting firms selected under the funding o f respective projects.

l4 The MOTC has awarded only one ICB contract during the last two years to a Turkish firm, indicating very limited experience.

43

C. Procurement Risk Assessment

150. The overall procurement risk i s rated Substantial. The risks associated with the procurement the mitigation measures were identified in the assessment o f the PIU and MoTC’s procurement capacity and are summarized in the table below:

Table 8.1 - Summary Risk Assessment

Risk

The PIU staff has weak capacity to undertake the proposed procurement work under the Project, particularly regarding international procurement under World Bank guidelines. This may delay project implementation. Bid evaluation committee members are not familiar with international procurement procedures, and may obstruct or delay the procurement process, especially the evaluation of bids and proposals.

Lack o f awareness of procurement opportunities available in the Project for civil works, goods and services.

Poor quality o f bidding documents, including ambiguous technical specifications; unclear and unrealistic requirements, such as delivery, completion time which bidders would be unable to meet, and frequently no qualifications and experience.

Excessive variation orders. Poor quality construction may require remedial works.

Use of national procurement procedures such as NCB, especially small contract sizes, for most or all of the contracts as a means to award contracts to domestic contractors/ suppliers.

H = High, S= Substantial, M=Moderate, L

Rating

S

M

M

M

M

S

,OW.

Mitigation

International consultant i s providing assistance in the preparation of bidding documents, requests for proposal, bid evaluation reports and contract agreements. Training in procurement under World Bank guidelines will also be provided by Bank staff.

The POM incorporating a detailed Procurement Manual will be prepared prior to loan effectiveness. The POM will include: (a) sample TOR and qualification requirements for procurement staff and for evaluation committee members; (b) conflict of interest disclosure forms which should be signed by all evaluation committee members.

Carry out aggressive public awareness programs using various media, such as newspapers, brochures, radio, TV, project website, etc.

Prepare and make widely available clear, easy to understand standard bidding documents containing all bidding requirements. Train PIU staff in preparing unambiguous technical specifications and set up mechanisms for obtaining technical experts in relevant areas for the preparation o f specifications. Create and maintain a database of sample specifications and prepare standard technical specifications for items procured frequently.

The supervising engineers will review technical specifications while preparing the bidding documents. In addition, an independent technical auditor will be hired by MoTC to conduct technical inspections to verify construction quality.

Ensure proper packaging of contracts so that most of the contracts fall under ICB to allow for international competition and more participation by more internationally reputed firms. Monitor growth o f domestic private sector in the road construction industry.

Rating

M

L

L

L

L

M

D. Procurement Implementation and arrangements

151. Procurement activities will be carried out by PIU within the MoTC. The draft NCB sample bidding documents for Goods and works will be reviewed and commented. The revised acceptable NCB bidding document will be kept in the Project Operational Manual (POM) and project fi le. Domestic preference in accordance with clause 2.55 and Appendix 2 o f the guidelines will not apply.

44

152. Procurement of Works: Works contracts will include rehabilitation o f about 30 k m s along the Osh-Batken-Isfana Road corridor. Contracts above US$1 mill ion equivalent will follow ICB procedures. Large c iv i l works contracts will require pre-qualification o f contractors. Contracts below US$1 million equivalent wi l l be procured under National Competitive Bidding (NCB) procedures detailed in the Project Operational Manual (POM). The POM will also include sample bidding documents for NCB. All bidding documents and contracts will include measures to minimize or mitigate environmental impact and will follow recommendations o f the Environmental Management Plan (EMP).

153. Procurement of Goods: Goods procured under this Project may include small office equipment and road safety monitoring equipment. Contracts above US$ 1 00,000 equivalent will be procured under ICB procedures using World Bank’s Standard Bidding Documents (SBDs) for Goods. The networks and other IT hardware and software for P IU and MoTC costing less than US$lOO,OOO equivalent will be procured using Shopping procedures on the basis o f at least three written price quotations obtained from qualified suppliers.

154. Selection o f Consultants: Consultant services required under this Project will include inter alia: Component 2 advisory services and technical assistance in the area o f road safety and similar activities. Technical assistance for updating the feasibility study has already been awarded to a firm on single source l5 basis through PPA. Other consulting services will be procured by using various methods for selection o f consultants including Quality and Cost Based Selections (QCBS), Quality Based Selection (QBS), Fixed Budget Selection (FBS), Least Cost Selection (LCS), Selection based on Consultants Qualifications (CQ) (up to US$200,000) and Individual Consultants (IC). Contracts estimated to cost above US$200,000 equivalent wi l l be advertised in on-line Development Business, dgMarket (Gateway), and in local media (one newspaper o f national circulation or the official gazette, and the website o f the MoTC).

155. Shortlist of consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in accordance with provisions o f paragraph 2.7 o f the Consultant Guidelines.

156. Training: If possible, Bank will organize regional procurement training workshop. Also, PIU and MOTC procurement officer wi l l attend WB procurement training provided by institute like ILO etc.

157. Operating Cost: The grantlcredit w i l l finance incremental operating costs. An operating cost will cover vehicle rent for supervision, utility and communication costs, translation cost, bank charges, office supplies, advertisement cost, photocopying, mail, etc. which would be financed by the project as per annual budget approved by the Bank would be procured using the PIU’s administrative procedures which were reviewed and found acceptable to the Bank. Operating cost will not include salaries o f civil servants.

158. Filing and records keeping: PIU will carry out all fil ing and records relevant to the project procurement in the office premises for procurement and finance audit as well as for the post review. Agreed reporting format are included in the project operation manual.

l5 SSS o f a firm was approved on the basis o f natural continuation o f previous work carried out.

45

Procurement Plan

159. The PIU at pre-appraisal, developed an initial Procurement Plan (PP) for the entire project scope consistent with the implementation plan, which provides information on procurement packages, methods and Bank review method. Since this would cover the entire project completion period it will be tentative. However, a firm procurement plan for f i rs t 18 months has been prepared and was agreed upon between the Recipient and the Bank project team at negotiations, and will be available at the implementing agency’s project database and o n the Bank’s external website. The PP will be updated in agreement with the Bank project team annually or as required to reflect the actual project implementation needs and improvements in the implementing agency institutional capacity.

Frequency of Procurement Supervision

160. I n addition to the prior review supervision to be carried out by the Bank team, the capacity assessment of the Implementing recommends post reviews to be carried on at least 20 percent of the contracts subject to post review. I t i s expected that a supervision mission in the field will be conducted every six months during which post reviews will be conducted. As a minimum one post review report which will include physical inspection o f sample contracts including those subject to prior review will be prepared each year. N o t less than 10 percent o f the contracts will be physically inspected.

Additional Provisions for National Competitive Bidding

16 1. I n order to ensure economy, efficiency, transparency and broad consistency with the provisions of Section I of the Guidelines, the fol lowing criteria shall be followed in procurement under National Competitive Bidding procedures:

The eligibility o f bidders shall be as defined under Section I o f the Guidelines Procurement under IBRD Loans and IDA Credits; accordingly, no bidder or potential bidder shall be declared ineligible for contracts financed by the Association for reasons other than those provided in Section I o f the Guidelines Procurement under IBRD Loans and IDA Credits. Exclusion from participation as a result o f debarment should result f rom violation o f clearly identified grounds o f misconduct and in accordance with a fair and transparent process. Procuring entities shall use the appropriate standard bidding documents acceptable to the Bank. An extension o f bid validity, if justified by exceptional circumstances, shall be requested in writing from al l bidders before the expiration date and for a minimum period required to complete the evaluation or award contract. N o national preferences may be applied on the basis o f the origin o f products or labor. Entities in which the State owns a majority shareholding shall not be invited to participate in tenders for the Government unless they are and can be shown to be legally and financially autonomous and they operate under commercial law. Pre-qualification shall be conducted for large works contracts and shall be applied upon the Bank’s agreement.

46

The pre- and post- qualification criteria shall only pertain to past contract performance, financial, managerial and technical capabilities o f bidders. Joint venture partners shall be joint ly and severally liable for their obligations. State unit costs shall not be used for contract budgeting and evaluation for c iv i l works contracts. Bids shall be opened in public, immediately after the deadline for their submission. N o bids can be rejected at bid opening and under the circumstances referred to Article 6 o f the Public Procurement Law. N o bids shall be rejected solely because they exceed the estimated price. Bids can be cancelled and new bids invited, only if the conditions o f clause 2.62 o f the Guidelines Procurement under IBRD Loans and IDA Credits, are met. All bid evaluation criteria shall be quantifiable in monetary term. Qualification criteria for bid evaluation shall be applied o n a pass or fa i l basis. Contracts shall be awarded to qualified bidder having submitted the lowest evaluated substantially responsive bid and no negotiation shall take place. There should be an effective and independent protest mechanist allowing bidders and interested parties to protest and to have their protest handled in a timely manner. Advance Bank no objection i s required for any modifications in the contract scope/conditions during contract implementation.

162. Anti Corruption Measures: The Bank team intends to maintain customary oversight and will carry out prior review o f a l l major contracts according to the thresholds that will be regularly reviewed and adjusted as needed in the Procurement Plan. Init ial set up thresholds are provided in this Annex. The following measures will be carried out to mitigate corruption risk:

Training of Jiduciary staff starting from the project launch and periodically thereafter customized to procedure and methods that would be required in the next 12 months period. Fol lowing the project launch will include on-the-job and, if possible, regional training provided by the Regional Procurement Manager (RPM) office.

Prior review: intensive and close supervision by Bank procurement accredited staff. In addition, al l contract amendments will be subject to prior approval by the Bank.

Publication of Advertisements and Contracts: all publications o f advertisements and contract awards, including the results o f the awards will be done in accordance with the Guidelines and published on external websites, Le., UNDB and dgMarket websites.

Debarred Firms: Appropriate attention will be given to the need to ensure that debarred f i r m s or individuals are not given opportunities to compete for Bank- financed contracts.

Complaints: al l complaints by bidders will be diligently addressed and monitored in consultation with the Bank.

Evaluation Committee: If required, the Bank will review qualifications and experience o f proposed members o f the Evaluation committee(s) with a v iew to

47

avoiding nomination o f unqualified or biased candidates. All members will be required to sign a disclosure form (sample will be included in the POM).

Civil Works supervision: Contractors carrying out construction o f road works contracts will be supervised by technically qualified engineering f i rms, selected by the Committee to ensure that quality specified in the contract i s delivered in a timely manner.

Monitoring of contract awards: All contracts are required to be signed within the validity o f the bids/proposals and, in case o f prior review contracts, promptly after the no objection i s issued. Procurement Plan format shall include information on actual dates (of no objections and award) and will be monitored for cases o f delay, which will be looked at on a case-by-case basis to identify the reasons. The PIU will maintain up-to-date procurement records available to al l concerned Bank staff, auditors and INT members o f the Bank.

Monitoring of payments: All contracts shall include bank account information. The bank account shall be in the name o f the same contractor/supplier/consultant that submitted the bid and awarded the contract. Payments to local contractors/suppliers/consultants shall be made in local currency only and paid to the accounts o f banks located within the country.

Monitoring of payment vs. physical progress: Monitoring reports prepared for the Bank will be customized to include a form to monitor physical progress compared to payment installments to avoid upfront loaded payments.

Timeliness of payments: Payment to contractors, suppliers and consultants will be monitored through semi-annual interim un-audited financial reports (IFR) to ensure timely payments. The PIU will maintain a system/database to ensure payments to the suppliers and contractors are paid without delay according to the conditions o f the contract.

0

0

0

0

48

Initial Procurement Plan

(September 2009) a) Works and Goods

Number o f

packages

Package No. Procurement method

Description/ Location

1

Review by Bank

(Priorlpost)

ICB

Invitation date

Contract award date

Completion date

Start date

H

Expected bid-

opening date

F A D E G I

1. Works

Rehabilitation of about 30kms o f the Osh-Batken- Isfana Road corridor

28 Ma 2010

OBI/ICB- cw-0 1

1 Dec 2009

15 Jan 2010

28 Feb 2010

28 Mar 2012 Prior

2. Goods

OBI/SH-OE Office Equipment

10 Jan 2010

25 Jan 2010

10 Feb 2010

10 Feb 2010

lOFeb 2010

lOFeb 2010

10 Mar 2010 Prior

OBI/SH-OF Office Furniture 1 1 SH Prior 10 Jan

2010 25 Jan 2010

10 Mar 2010

Legend

I C B International Competitive Bidding (in accordance with section 2 of the Guidelines)

For works contracts valued at or more than $1 million For goods contracts valued at or more than $100,000

For works contracts valued less than S lmillion National Competitive Bidding (in accordance with section 3.3 of the Guidelines)

NCB

D C Direct Contracting (in accordance with section 3.6 of the Guidelines)

Shopping (in accordance with section 3.5 o f the Guidelines) For works contracts valued at or less than $100,000 For goods contracts valued at or less than $100,000

Aggregate Shopping amount for the project: $500,000 to be monitored during the project period For Works contracts: A l l ICB contracts. First two NCB contracts regardless o f value of contract.

For Goods contracts: A l l ICB contracts. First two shopping contracts.

S H

Prior review

Pre Qualification Will apply to works contracts valued at or more than $10,000,000

Domestic Preference Will not apply

49

b) Consultants’ Services

1 Package Description/ Location

Number o f

packages

Selection method

Review by Bank

(Priorlpost)

Advertisement for EO1 Date

Expected Proposal

Submission date

Contract award date

Start date

Completion date

I A B C D E F G H I

Consultants’

OBI/CS- QCBS-01

OBI/CS-

- 28 Mar 2010

- 28 Nov 2010

- 15 Jan 2010

1 Consulting Services for construction supervision

Consulting Services for road safety planning

PIU Staff (6 positions)

28 Mar 2012

QCBS

QCBS

Prior 28 Aug 2009

15 May 2010

15 Nov 2009

30 Nov 2009

28 Feb 2010

1 Prior 30 Jul2010 30 Oct 2010

30 Jun 2012 QCBS-02

6 IC Prior 30 Nov 2009

30 Jun 2013

15 Dec 2009 + Legend

Quality and Cost-based Selection (in accordance with sections 2.1 - 2.28 o f the Consultant’s Guidelines)

Single source Selection (in accordance with section 3.9-13 o f the Consultant’s Guidelines)

Individual Consultant (in accordance with section V o f the Consultant’s Guidelines)

For f i rms: A l l contracts equal to USD100,OOO or more. First two contracts regardless o f value and all SSS contracts.

For individual consultants: A l l contracts equal to USD50,OOO equivalent or more. First two contracts regardless of value and all SSS contracts.

QCBS

sss IC

Prior Review

50

Annex 9: Economic and Financial Analysis

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Summary

163. An economic analysis was carried out by Finnroad O y (Finland) for the Osh-Batken- Isfana road including the Pulgon-Burgandy road section to be financed by the IDA under the proposed Project as a part o f the feasibility study commissioned by the Ministry M o T C o f the Kyrgyz Republic in 200816. Given the revised GDP growth rates projections for Kyrgyz Republic in the short and medium terms due to the global economic and financial crisis the economic analysis was redone to account for the possibility o f reduced traffic levels. Table 9.1 summarizes the key assumption used in this analysis.

164. The evaluation was conducted using the Highway Development and Management Tool (HDM-4), which simulates life-cycle predictions o f road deterioration, road works effects and their costs and provides economic decision criteria for road construction, rehabilitation and maintenance. The H D M - 4 analyses projects by computing cost and benefits o f different investment options in terms o f savings in road maintenance costs, vehicle operations costs (VOC) and travel time costs. The comparison i s done between the “do something” scenario (project case) and the “do minimum” scenario (without project case) over the evaluation period.

165. The development objective o f the proposed project i s to reduce transport costs and travel time along the Osh-Batken-Isfana Road corridor through rehabilitation o f a 30 kilometer long section bringing direct benefits to road users arising f rom reduction in vehicle operating costs (VOC), the value o f passenger time savings and savings for transported cargo as a consequence o f improved riding quality. The improvement o f the Osh-Batken-Isfana road corridor will also have major impact on communities living in vicinity to the corridor through stimulation o f economic activities in the region and provision o f better access to non-farm employment opportunities, local markets and basic social services. However, these benefits are usually difficult to quantify and, therefore, they were not part o f the feasibility study commissioned by the Ministry o f Transport and Communications o f the Kyrgyz Republic. The returns are expected to be higher considering potential additional social benefits f rom the project including road safety.

166. To estimate economic benefits o f the rehabilitation o f the road section to be financed under by the IDA and Osh-Isfana-Batken road corridor the project scenario (project case) was compared against the “do minimum” scenario (without project case). The “do minimum” scenario incorporates an assessment o f what would happen if the project was not undertaken. The “do minimum” scenario, therefore, consists o f continuation o f the current maintenance practices in Kyrgyz Republic. The current maintenance practices include periodic maintenance, consisting mainly o f overlay, which i s conducted every 6 years and annual routine maintenance consisting o f patching, crack sealing, winter maintenance (sanding, snow clearance), drain cleaning and maintenance. The project scenario consists o f rehabilitation o f the existing road

l6 Feasibility Study for National Roads Rehabilitation (Osh-Isfana) Project (NRRP), Finnroad Oy, June 2009.

51

sections and construction o f new sections necessary for the detours according to the Russian (SNIP) norms series corresponding to road category I11 class.

167. An economic analysis was conducted for the entire Osh-Batken-Isfana road corridor (by individual section), including the section proposed to be financed by the Project. The overall return on the investment for the rehabilitation o f the project road section between Pulgon to Burgandy i s very robust with an EIRR o f 74.5 percent and Ne t Present Value (NPV) o f US$123.08 mi l l ion at a discount rate o f 12 percent. The overall return o n the total investment (rehabilitation o f the Osh-Batken-Isfana road corridor) confirms the economic soundness o f the overall road corridor investment with an EIRR o f 36.6 percent and N P V o f US$420.59 mi l l ion at a discount rate o f 12 percent. The economic analysis yielded lower N P V and EIRR than those estimated by the Finnroad Oy as a reflection o f the impact o f the reduced traffic growth rates o n the economic returns and updated construction costs based on the detailed design o f the proposed c iv i l works. The summary o f economic indicators i s presented in Table 9.2.

Assumptions and Inputs

168. An economic analysis for the Osh-Batken-Isfana road rehabilitation project was conducted for eight separate homogeneous road sections o f the project road divided according to their pavement structure, geometric characteristics, condition, and traffic levels covering 3 55.7 km and the entire corridor. The proposed investments were evaluated over the period 2010 (construction 2 years, 2010 and 101 1) to 2035, giving 25 years o f benefits at the discount rate o f 12 percent. Traffic and road condition data were collected 2001,2007 and updated in 2008.

169. Traffic surveys were conducted by Finnroad in collaboration with the Kyrgyzdortransproekt (Kyrgyz Road Design Institute) in 2008. Some seasonal factors were used from the feasibility study for Osh-Batken-Isfana road rehabilitation project prepared by the Finnroad in July 200117. The future traffic growth was based o n expected growth in gross domestic product (GDP) in Kyrgyz Republic and income elasticities o f demand. Income elasticities o f demand o f 1.4, 1.2, and 1.0 were used for cars, buses and trucks respectively to come up with the respective traffic growth rates for different vehicle classes. Given the global economic crisis and revised GDP growth rates projections for Kyrgyz Republic in the short and medium terms conservative traffic growth rates were accepted for the analysis in a range o f 2.5 percent to 3.5 percent between 20 10 and 20 1 1 , and in average 4 percent onwards. It was assumed that the rehabilitation o f the road will generate traffic ranging f rom 10 percent to 35 percent o f normal traffic depending on the degree o f improvement o f the riding quality o f different road sections.

,

170. Itemized Bi l ls o f Quantities (BoQ) to estimate total investment needs have been prepared based on 2008 prices according to planned works for each section o f the Osh-Batken-Isfana road for which economic analysis has been carried out. The tendered costs o f the most recent similar contracts for rehabilitation o f major corridors in Kyrgyz Republic have been used as a basis for the final adjustment o f the unit prices. It has been assumed for the purposes o f the analysis that financial costs represent 120 percent o f economic costs which i s the real cost to the economy, net o f al l subsidies, taxes and transfers. Annual routine and periodic maintenance costs were ,

l7 “Rehabilitation o f the Osh to Isfana Road in the Kyrgyz Republic” Feasibility Study (EU TACIS Project “NKYR9901).

52

estimated based on the information provided by the MoTC. The summary o f maintenance financial unit costs i s presented in Table 9.3.

NRRP

2009: 0 percent 2010: 2.5 percent 20 11 : 2.5 percent 2012-2034: 4 percent Cars and Jeeps: 2010-2011: 3.5 percent 2012-2034: 5.6 percent

171. The vehicle fleet characteristic, vehicle operating costs, and values o f time were based o n the data collected in Kyrgyz Republic in 2008 during f ield surveys and desk studies. Given the volatile nature o f the fuel prices a long-run average economic price o f US$0.4 and US$0.5 for gasoline and diesel were taken respectively. The summary o f vehicle characteristics and vehicle operating costs that were used in the HDM-4 is presented in Table 9.4 and 9.5.

Finnroad Oy

2009: 7 percent 20 10: 7 percent

2011-2034: 5 percent Cars and Jeeps: 2010-2034: 7.1 percent

Sensitivity Analysis Results

Trucks: 2010-201 1: 2.5 percent 2012-2034: 4.0 percent Costs based on the Itemized Bills o f Quantities (BoQ) were used

172. A sensitivity analysis was carried out to assess the robustness o f the results to possible variations in key project parameters, which in this case were identified as construction costs and the forecast traffic growth rates. The analysis tested the impact on the economic returns o f a 25 percent upward variation in the construction costs, a 25 percent downward variation in the traffic growth rates and combination o f both o n the project and i t s sections including the road section proposed to be financed by the Project. A severe worst case scenario with construction costs increased by 25 percent and traffic growth rates benefits decreased by 25 percent s t i l l shows a reasonable return for the Project road section with an EIRR o f 55.2 percent and N P V o f US$103.69 mi l l ion as well as for the o f Osh-Batken-Isfana road corridor with an EIRR o f 29.1 percent and NPV o f US$327.13 million. The results o f sensitivity analysis are presented in Table

Trucks: 2010-2034: 5.1 percent

US$ 525,000.00 per k m

9.6.

173.

Gross Domestic Product (GDP) growth rate

Traffic growth rates

Construction Unit Costs (Economic Costs)

Table 9.1 Summary of the key assumptions

Buses: 2010-201 1: 3.0 percent 2012-2034: 4.8 percent

Buses: 2010-2034: 6.1 percent

53

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7- 0 0 : g .9 6 $ 9 4

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HI HI 2 N Q

Annex 10: Safeguard Policy Issues

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Regulatory Framework and Institutional Capacity

174. The Kyrgyz Government shows a high degree of ownership and interest in the project due to its strategic importance. Under the Government’s auspices a number o f technical and environmental studies were prepared, both by local f i r m s (e.g. Kyrgyzdortransproekt - KDTP), and international Consultants (Finnroad). The involvement o f an international Consultant for the production o f safeguards documents has mitigated shortcomings identified during a World Bank mission in 2007, when KDTP, then the main designer for the corridor, was found to have insufficient staff resources and capabilities in the areas o f environmental and social safeguards.

175. Role of Environmental Authorities: Besides the project specific due diligence mechanisms the environmental authorities on state and regional levels will play an important role in supervising and monitoring project implementation. During project preparation the State Environment Expertise Department has the role o f reviewing the design documents and the associated environmental assessment reports and management plans. This i s typically done at the FS stage and may be executed by the central unit in Bishkek, or the regional units. The regional authority responsible for the project area i s a recently merged unit consisting o f the former Oblast un i t s from Osh and Batken (called “Osh-Batken Regional Environmental Expertise Unit”). The official environmental review typically focuses on roadside property and common environmental goods, on emission and waste management during construction, on the protection o f and minimal impact on fauna, vegetation, soil and water resources, on the establishment and management o f quarries and borrow pits, and on the planning, budgeting and implementation o f post-construction recultivation works. The actual’ road alignment i s rarely changed as a result o f the environmental review.

176. As a result of the review the State Environment Expertise Department issues an opinion, which contains the major findings o f the review, proposed changes and modifications, and any conditions for the endorsement o f the project. The review process may legally take between 1 and 3 months and usually results in an official approval (with any applicable conditions). Evaluations are conducted according to official Guidelines on Environmental Assessment, which exist as legal document in Kyrgyzstan. There i s a national Kyrgyz NGO called “Independent Enviromhental Expertise” which, although it does not have a legal / official function, reviews and comments all major projects in the country. The opinions and comments provided by this NGO appear to be highly regarded by the Kyrgyz environmental authorities.

1 77. During project implementation the State Environmental Expertise Department exercises site supervision through i ts Oblast and Rayon level organizations, which reportedly have a sufficient number o f trained environmental inspectors. They check the compliance o f design and EMPs with site conditions and impose fees and fines on the Contractor as deemed appropriate. Evidently fees are collected in a routine manner for “land use” and “environmental damage” as expected and unavoidable impacts from a road project. Additional fines are collected for “excessive emissions” and pollution o f valued environmental components such as air and water. The fees and fines are defined and documented in legal “acts” drawn up for the specific project and containing a description o f the situation, a rationale for the payment calculation and the legal justification.

57

178. This might be a certain risk element for the project, if the expected fees are not clearly and unambiguously defined and financially quantified before project implementation starts. Ideally the legally applicable environmental obligations and costs would be elaborated by the State Expertise Department based on the detailed designs, and this relevant information incorporated into the tender documents. This would enable the bidders to factor legal procedures and fees associated with environmental due diligence into their bids.

Project Location and salient physical characteristics relevant to the safeguard analysis

179. The Osh-Batken-Isfana road corridor, which is central to the economy of Southwest Kyrgyzstan, is in poor to fair condition. The road corridor runs close to the Kyrgyz Republic’s international border with Uzbekistan. The current road cuts through Uzbek territory at Kok- Talaa, through the Uzbek enclave Sokh and through the Taj ik enclave Vorukh. This original alignment dates back to a time when there was one transport network connecting cities from within the Former Soviet Union and the Fergana Valley. Since 199 1, the situation has changed. There are frequent delays at the border crossing points arising f rom lengthy, arbitrary and sometimes harassing control procedures, which severely hamper access and increase travel times along the road. This has resulted in the local communities along the road feeling physically and economically isolated from Osh and the rest o f the Kyrgyz Republic. Agriculture as one o f the region’s main economic activities and indeed general economic development, are restrained by the poor access.

180. The road traverses two oblasts (Osh and Batken) in the South West of the country which together comprise a population of just over 1.5 million people. The road leads west over a distance o f about 356 km from the outskirts o f Osh (km 2) through Batken (km 220) to Isfana (km 358), a town close to the Taj ik border in the South West o f the country. According to the updated feasibility study, a major part o f the project alignment will fo l low the existing road where the new surface elevation will be approximately 0.5 meters above the existing road on average. Deviations from the original road corridor total 110 kilometers, where the new corridor will fol low existing secondary roads and unpaved tracks. The only entirely new section will be at km 195 to km 200 that includes a bridge over the Sokh River as wel l as i t s access roads, which mostly follows existing secondary roads and involves only minor Greenfield construction. Settlements along the existing road are sparse.

18 1. According to the updated Feasibility Study (FS) prepared for the entire corridor, a 6 kilometer long bypass for Batken city is proposed, by upgrading existing generally wide and unencroached roads. This bypass runs past the airport on the south-east side o f the city. Another alternative proposed on the other side o f the airport i s possible, but would be considerably more expensive as it would include 9 kilometers o f mainly new alignment. An improved alignment was also proposed for Naukat pass (km 10-28) under the second phase, but this would have involved additional land acquisition and demolition o f restaurants, hence it has been decided by the MoTc to fo l low the existing unencroached road for this bypass.

182. The climate in this region of Kyrgyzstan is continental and dry, resulting in arid, often semi-desert landscapes with few perennial water courses. The road corridor is located mostly on the flat alluvial fans and gentler hi l ls o f the foreland, occasionally climbing slightly higher into the foothills to altitudes just below 1,500 m. The natural vegetation is very sparse, dominated by grassy rangelands with small clusters o f forest near rivers and in valleys, or where irrigation based agriculture is located. The few perennial streams crossing the alignment are fed from snow- and glacial melt f rom the mountains, which’s highest peaks reach an altitude o f over

58

7,000 m. The land i s mostly, used for animal grazing; agriculture and horticulture are concentrated around settlements along the perennial rivers, where irrigation sustains mainly fruit and vegetable crops.

Key Design recommendations from Environmental Impact Assessment (EIA)

1 83. A comprehensive Environmental Impact Assessment (EIA) was carried out by the Government through an international reputed consultant as part o f the update o f the Feasibility Study for phase I o f the Osh-Batken-Isfana Road corridor. This EIA as well as the adjoined environmental management plan (EMP) represent the key safeguards instrument for the Project. They were reviewed by the Bank team and found o f acceptable quality and adequate detail to function effectively for safeguards implementation o f the Project.

184. Design standards are a primary way to influence the environmental performance of a roads project. Standards o f curvature and gradient are o f particular relevance in terms o f the space required for the road and the amount o f soil and rock, which has to be excavated, hauled and stored, especially in the case o f the new alignments. Road width i s also important, particularly in the rehabilitation o f the existing road. Widths should be uniform and appropriate to the anticipated traffic flows. Over-dimensioning may cause excessive problems particularly in populated areas and environmentally sensitive areas such as narrow gorges.

185. Road Alignment: New road alignment sections shall avoid environmentally sensitive areas such as areas with erodible soils, forests, reservoirs, rivers, cultivated land and areas with contaminated soils. If this cannot be achieved, measures to minimize the negative effects to the areas in question should be taken. There are no new alignment sections expected in the World Bank-financed road section.

186. Erosion Prevention: Every possible means should be used to prevent erosion. Special attention should be paid to the design o f drainage structures, river training works, slopes, spoil dumping areas and reinstatement o f quarries and borrow areas. The potential locations o f quarries and borrow pits should be identified and the areas and depths o f permissible utilization determined in the designs. Areas for the disposal o f surplus materials should also be identified in the designs. Specifications should clearly state the methods o f operation, clean-up and landscaping for such areas. These procedures should comply with Kyrgyz legislation and any specific national guidelines regulating these activities.

187. Traffic Safety: All necessary markings, signs and guardrail locations should be shown on the drawings. The designs should account for pedestrian movements in urban and semi-urban areas and proper provision for sidewalks where needed to give satisfactory and convenient separation o f traffic and pedestrians should be included. The designs should also incorporate measures to improve access to and across the main stream o f traffic for light flows on side roads. Controlled pedestrian crossings should be provided where appropriate in urban areas. The designs should include proper rest areas for trucks and other vehicles with environmentally safe service facilities. Rest areas should be provided in places where private service entrepreneurship has already arisen.

188. Foul Water Drainage: Drainage system design should take into account local irrigation systems and the other needs o f water users. Mixing o f foul waters with water for irrigation purposes must be avoided. Consultation with local people i s compulsory. Special attention should be paid to the protection o f water quality in rivers adjacent to the roads. Direct discharge

59

o f drainage waters from the rest areas should be prevented to avoid spillage from vehicles getting into rivers.

Safeguards Policies Triggered and Underlying Rationale

189. The Bank team had, after a f i rs t screening o f the road corridor in the pre-feasibility stage, originally proposed a Category A safeguards classification for the project (ISDS dated October 28, 2007). This was a precautionary classification based on the very limited information available during the identification mission. After further analytical work on the safeguards situation o f the Project, the team proposed to change the Environmental Assessment Category from A to By based on the following considerations:

a) A detailed EIA has meanwhile been made available, which presents a thorough description and analysis o f the environmental and social conditions and baseline data along the project corridor. The EIA concludes that the environmental and social conditions are characterized by lesser sensitivity / vulnerability than previously thought. An example i s the potential hydrological impact o f Sokh Bridge, which the team originally thought to be considerable, while the EIA demonstrated that the impact i s insignificant.

A techno-economic Feasibility Study was recently submitted by the Government, which describes a more advanced stage o f design, than hitherto available conceptual designs. From the updated FS it becomes evident, that newly constructed road alignments are restricted to a few kilometers (Sokh Bridge).

The FS and EIA in detail describe the environmental and social impacts o f the planned project, which are deemed routine for any civil construction projects, are manageable in scale and require mitigation measures which are off-the-shelf, readily available and well tested on similar project context both in the country and internationally. Thus the key objective o f environmental activities around the project wi l l mainly be the preparation and implementation o f a well designed EMP and monitoring plan, rather than extensive analyses and assessments o f alternatives.

The Consultant stated in the EIA that no protected areas or important natural habitats will be affected by the project, which correlates with the team’s observations made during an identification mission in 2007.

b)

c)

d)

190. during road construction i s available as an Annex to the EIA produced by the Government.

A chance finds procedure for the case o f encountering physical cultural resources (PCR)

191. OP4.12 is triggered due to the potential for land acquisition. The main findings o f the social assessment undertaken as part o f the updated FS were that the loss o f land and buildings would not be significant. This i s mainly due to the fact that the road (i) be constructed within an existing transport corridor, (ii) will mostly follow existing alignments o f secondary tracks and gravel traces. (iii) The road corridor runs largely through uninhabited land except at the beginning and the end o f the corridor. Nevertheless, the works planned may result in some minor land acquisition in the form o f agricultural land, gardens, walls and possibly some commercial or residential structures. Informal land users with or without structures such as sellers o f fue l and other items, (eg. bread and other consumer goods) on the roadside may also be impacted by the works. Some land may have to be acquired for quarrying road making materials and some land may be affected by the dumping o f soil. The precise extent o f these losses will not be known until the designs have been finalized.

60

I

192. The capacity o f the PIU to deal with resettlement has been built through their experience with resettlement planning under ADB projects, the recruitment o f a social specialist for ADB projects, and the active engagement o f the PIU in the resettlement planning process for the proposed Project with Finnroad experts. Going forward, attention will be paid to building capacity further, through staff participation in regional safeguards training workshops provided by the World Bandk and the recruitment o f an additional social specialist.

Effects on Local Fields and Farming

193. As the project area has been in use as transport corridor and settlement area for several decades an equilibrium between natural processes and conditions as well as human land use has been established. A key limiting factor to development appears to be the availability o f ferti le land in reach o f perennial water courses. Thus the sustainable use o f natural resources i s not expected to be significantly impacted by the better transport capacity the improved road corridor will offer. The main positive impacts will be improved access to markets, better service delivery to the population and generally enhanced mobility. There i s a very l o w probability that the project would trigger or contribute to major economic shifts, such as development o f large areas, construction booms or similar.

Existing Safeguards Documentation

194. The updated updated feasibility study (FS) which was carried out by the Government through an international consultant, Finnroad Oy (hereafter the Consultant) included an Environmental Impact Assessment (EU). Detailed designs are being finalized for the sections o f the first phase, mainly Pulgon - Burgandy - Batken (km 123-220). In the updated FS for this project, the corresponding environmental and social documentation has identified potential impacts, and for negative ones drafted mitigation measures and plans for management and monitoring o f environmental and social due diligence measures. The safeguards documentation was reviewed by the Project Team’s environmental and social specialists and found to be acceptable to the Bank in scope and substance.

195. A Resettlement Policy Framework (RPF) has been prepared and revised in accordance with comments provided by the Project Team’s social development specialist and has been disclosed nationally and locally. The RPF sets out the objectives, eligibility criteria for project affected people (PAPs), entitlements, legal and institutional framework, establishing compensation rates and unit rates, modes o f compensation and rehabilitation, participation and consultation procedures, and grievance redress mechanisms which will be employed to compensate, and rehabilitate the livelihoods and living standards o f PAPs. The RPF also sets out the steps for preparation and implementation o f resettlement plans (RPs) to be prepared under the Project.

196. This RPF covers the entire corridor and its main principles apply retroactively to land acquisition that has already taken place adjacent and along the approach to the Sokh bridge (km 197). A due diligence exercise conducted by the consultants confirmed that there were five affected people, and that compensation for the land acquired had not yet been completed. In one case, temporary acquisition o f 0.4ha rice paddies occurred, and a local government valuation commission provided compensation based on the market value o f the harvest forgone. For the other cases, land was permanently acquired, and the valuation commission decided to offer alternative land which was not deemed o f comparable value by the affected persons. Therefore, the P I U has agreed to establish a valuation commission to assess the replacement value o f the

61

land lost. This commission would follow the same model applied to land acquisition carried out on km 248 - 271 o f the corridor during 2008 under an EC financed project conceived in 2005 where the local administration established a valuation commission on behalf o f the MoTC to estimate the cash compensation to be provided. This commission was required to hire a valuation expert who based the valuation on market comparators. Following the completion o f the valuation, the expert’s report was circulated to the relevant state agencies and ministries for comment and correction. Even though compensation i s not yet complete for this section, it i s anticipated that it will be completed soon and that the assessed value will reflect the replacement value o f the assets lost. In comparison with Km 248 - 271, the Sokh bridge valuation and compensation process wi l l be simpler and quicker to complete as there are fewer affected persons and the asset being assessed i s the land as opposed to agricultural structures or plantings. The PIU i s committed to the timely completion o f the valuation and compensation process. Once this i s finalized, the land acquisition carried out wi l l be in compliance with the procedures outlined in the resettlement policy framework.

Consultation and Disclosure

197. The draft environmental documentation produced by the Government’s Consultant by the time of the pre-appraisal mission in July 2009 was deemed appropriate for disclosure to the public and as information basis for the required public hearings. The key actions to organize the disclosure o f the full EA report as well as appropriate information for non-specialists, and the organization and execution o f public hearings were jointly undertaken by the Government and the Finnroad. Parallel and subsequent to the consultation process the finalization o f the EIA was undertaken by Finnroad, incorporating World Bank comments and feedback from consultations. I t was agreed to disclose hardcopies o f the safeguards documentation in publicly accessible places (e.g. the city hall) in Pulgon, which i s the main town on the Bank financed road section. Consultations have been held in Pulgon for the local affected stakeholders (August 14, 2009), as well as in Bishkek for national and international NGOs, the press and public institutions and entities (August 13,2009). The EIA has been received by the Bank on June 6,2009, disclosed on August 4,2009 in-country and disclosed on August 5,2009 in the Info-Shop.

62

Annex 11: Governance and Anti-Corruption Action Plan

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Governance and Anti-Corruption at the Country Level

198. The benefits of a more stable political system and a more effective state achieved in this period has come at the expense of reduced media freedom and controls on civil society. Stricter legal controls were imposed on freedom o f assembly in 2008 and pressure has increased on journalists and active NGO workers. During the review period, independent newspapers “De Facto” and “Alibi” have closed and the U S financed RFERL’s Kyrgyz-language T V and radio broadcasts are no longer broadcast by state-owned TV and radio. Corruption has also increased, as defined by the Transparency International Corruptions Perceptions Index which l is ts the Kyrgyz Republic at 166 out o f 180 states in 2008; Kyrgyz Republic’s CPI score deteriorated from 2.1 in 2007 to 1.8 in 2008. This represents a fall o f 14 places in one year, with the corruption score. According to the Index, rule-based governance remains a challenge in the country.

199. Despite the general weak governance environment, the Kyrgyz Republic continues to do better than its neighbors in freedom of speech and has relatively liberal legislation in many areas18. Further improvement was seen in this period with the Law on Freedom o f Information which came into force in early 2007. The more stable political environment in 2008 also enabled several changes in legislation, including improvement in business legislation. The ease in changing legislation i s not always positive, as seen in the passage o f legislation to limit the freedom o f assembly and religious freedom in the last year, and current plans to impose severe legal restrictions on NGOs in 2009. The trend towards authoritarian control i s disturbing.

Project Governance and Anti-Corruption Action Plan

200. The Governance and Anti-Corruption Action Plan presented is recognizant of both the Kyrgyz Republic country situation and the road sector environment. The GAC Action Plan i s designed to strengthen the procurement and financial management systems and procedures to be used by the PIU within MoTC with specific actions to protect the Project. The plan i s intended to mitigate r isks that may arise due to possible rent-seeking behavior or those that compromise the delivery o f the Project. This i s intended to be achieved through the application o f transparent and well documented procedures, based on the analysis o f risks and the governance environment. Five elements have been identified to formulate the Governance and Anti-Corruption Action Plan for this Project. These elements have been built on the notion that corruption manifests i tse l f readily in the procurement process, quality control, and financial control 19, while governance i s directly related to institutional aspects. The elements have been built using in part the emerging best practice for dealing with governance and anti-corruption r isks in project lending, based on World Bank (2008), “Dealing with Governance and Corruption R isks in Project Lending: Emerging Good Practices”. Discussion Draft, Operations Policy and Country Services, dated December 12,2008.

The World Bank Institute ‘Governance’ scores for ‘Voice and Accountability’ in 2007 range from -2.5 (worst) to + 2.5 (best).

See World Bank (2007), J. Edgardo Campos and Sanjay Pradhan (eds). “The Many Faces of Corruption”: - William D. 0. Within t h i s range, Kyrgyzstan scores -0.64, Tajikistan -1.26, Uzbekistan -1.91, Kazakhstan -1.06, and China -1.70.

Paterson and Pinki Chaudhuri in “Making Inroads on Corruption in the Transport Sector Through Control and Prevention”. 19

63

Bank Procurement and Financial Management Procedures and Institutional Support

201. First, as with al l Bank-financed projects, the fiduciary due diligence o n procurement and financial management will be implemented by following Bank’s operational policies, guidelines, and procedures. Given noted fiduciary risks, further actions have been incorporated in the G A C plan. At the design stage, checks have been built in to ensure the reliability o f the bills o f quantities, cost estimates, and designs through the use o f a reputable international consulting firm (Finnroad Oy). In addition to this, Finnroad will assist with the preparation o f the bidding documents and in bid evaluations, as well as on the job training.

202. Further efforts will be made to: (1) ensure proper advertising o f a l l procurement notices, pre-qualifications, Expressions o f Interest, Tenders and Requests for Proposals on the United Nations Development Business (UNDB) and dgMarket, o n MoTC’s website and in local newspapers, together with notifying bidders o f the outcome o f the bidding/selection process. (ii) monitor the bidding process, (iii) ensure that to any clarifications sought by any biddeds, replies will be sent to al l bidders to avoid any unfair advantage, (iv) check the financial bids/proposals, when needed, for signs o f possible collusion, and (v) refer potential cases o f fraud, collusion, corruption, and coercive practices to the Bank’s Investigation Unit, INT (24 hourdday).

203. As further oversight, the proposed procurement plan sets out in detail al l procurements subject to prior review by the World Bank. As evidenced in some projects, one important issue worth mention i s the misuse o f mobilization advances by contractors through diversions to other uses, thus compromising the works as the contractors run into cash f low difficulties. To mitigate against this risk, the qualification criteria will be set to allow only for the selection o f reputable contracting f i r m s with proven experience in similar works and sound financial footing to undertake these works. As i s common with mobilization advances, the requirement for advance payment guarantees from Banks and financial institutions i s an extra-mitigation safeguard, if matters deteriorate further.

204. The Bank team will ensure the compliance with Bank procurement and financial management rules through i t s oversight with Bank procurement and financial management specialists’ reviews o f documentation, carrying out office visits, interviews and inspection; and recommending actions to be taken if any inconsistencies are identified. Bank technical experts will also be involved in the review o f al l documentation as deemed necessary including but not limited to prequalification documents, requests for proposals, terms o f references, bidding documents, contract documents, and evaluation award reports.

205. As part o f Component 3, training o f PIU staff in procurement and financial management issues is envisaged to further strengthen internal technical capacity. This will not only apply to staff within the P I U and the Roads Department o f M o T C which i s planning to hire Procurement Specialist whose responsibility may also be to oversee project activities.

I n dependent Technical and Financial A udit

206. Complementing these efforts will be enhanced Bank supervision o f the implementation o f the works through physical site inspections, and careful review o f progress reports. Field based staff will also play an integral role in carrying out random supervision checks, and reporting shortcomings during the project implementation. An integral part o f the Bank supervision will involve the commissioning o f periodic field data collection, laboratory tests, and analysis as part o f the normal supervision o f the Project. This will provide an additional

64

professional opinion on the efficiency, economy, and transparency o f the works undertaken and supervised under the Project.

207. Field data collection and laboratory tests will include layer thickness measurements, visual condition survey, transverse profile (rut depth), macro- and micro-texture, deflection testing, roughness (using high precision rod and level technique or equivalent), as wel l as other measurement deemed necessary by M o T C and Bank supervision missions. At the same time, samples will be properly collected for laboratory testing which include empirical properties, as wel l as simulation tests and fundamental mechanical properties o f materials used in al l pavement layers such as surfacing, base, sub-base, as wel l as sub-grade.

208. The technical audit will ' include the hiring o f an independent consulting firm to carry out materials testing on drilled core samples from completed road sections to check compliance with the technical specifications. The nature o f the tests and sampling required will be further detailed in the terms o f reference o f the technical audit, which will be subject to formal clearance by the Bank. This independent quality check will be an integral part in ensuring not only that quality i s met, but also that the sustainability o f such an important asset i s maintained to yield better governance outcomes for road users and al l other stakeholders.

209. The details o f the financial audit using independent auditors fol lowing international auditing standards are discussed in Annex 7 on Financial Management and Disbursement Arrangements.

Supervision Arrangements

210. Second, al l construction supervision by the Government i s to be undertaken by using reputable engineering consulting f i rms . This i s to ensure not only the proper construction o f the project elements to the set technical specifications, but also to keep a check on unwarranted variation orders and time extensions. The contract management setup will fol low FIDIC arrangements, with M o T C maintaining the Employer role and the supervising engineering firm maintaining the role o f the Engineer (Employer's Representative). As such decisions on variation orders and time extensions will only be made with the express consent o f the Employer, who has an inherent desire to control costs, reducing the possibility for collusion practices between the Engineer and the Contractor.

I n formation Disclosure and Civil Society Oversight

21 1. Independent oversight by c iv i l society i s to be achieved through a coalition o f citizens and road user groups, and implementation o f an effective system o f complaint handling, with transparent investigation and reporting o f the results. The disclosure o f project documentation as per Bank disclosure policies, and the transparent procurement mechanisms with proper advertising, and declaration o f contract awards will serve to equip the c iv i l society (road users, stakeholders, media, Non-governmental Organizations) with the information to ensure the Project i s being conducted in a satisfactory manner. Concerns o f affected stakeholders or aggrieved parties are to be handled through a complaint register system. The supervision engineer will be asked to run a complaint book, with the l i s t o f complaints forwarded to the responsible officials at M o T C for feedback or redress. All complaints received shall be responded to by M o T C within seven days o f receipt, with copy to the World Bank. Further, any party i s entitled to lodge complaints on corruption issues to the World Bank INT (details online at http://www.worldbank.orn/intenritv).

65

Annex 12: Project Preparation and Supervision

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Planned Actual PCN review Initial PID to PIC Initial ISDS to PIC Appraisal Negotiations Board/RVP approval Planned date o f effectiveness Planned date o f mid-term review Planned closinrr date

09/20/2007 09/12/2007 09/12/2007 09/14/2009 09/22/2009 11/03/2009 11/30/2009 06/30/20 1 1 06/30/2013

01/09/2008 01/23/2008 01/23/2008 09/14/2009 09/22/2 0 0 9

Key institutions responsible for preparation o f the project: Ministry o f Transport and Communications, Bishkek, Kyrgyz Republic

Bank staff and consultants who worked on the project included:

Name Tit le Cordula Rastogi Jacques Bure Henry G. Kerali George A. Banjo Nargis Ryskulova Serdar Jepbarov Gurcharan Singh Nurbek Kurmanaliev Galina Alagardova Wolfhart Pohl Martin H. Lenihan Kenneth K. Mwenda Hannah Koilpillai Lorraine McCann Kosinski Aida Japarova Zarina Omoeva

Transport Economist (Team Leader since 06/2009) Sr. Highway Engineer Lead Transport Specialist (TTL until 05/2008) Sr. Transport Specialist (TTL 06/2008 - OY2009) Operations Analyst Operations Officer/Transport Economist Sr. Procurement Specialist Procurement Specialist Financial Management Specialist Sr. Environmental Specialist Social Development Specialist Sr. Counsel Sr. Finance Officer Program Assistant Program Assistant (until 04/2009) Team Assistant (since 05/2009)

Unit ECSSS ECSSS ECSSS ECSSS ECSSS ECCTM ECSC2 ECSC2 ECSC3 ECSS3 ECSS3 LEGEM CTRFC ECSSS ECSPF ECCKG

Bank funds expended to date on project preparation: 1. Bank resources: 330,000 2. Trust funds: None 3. Total: 330,000

Estimated Approval and Supervision costs: 1. Remaining costs to approval: 10,000 2. Estimated annual supervision cost: 120,000

66

Annex 13: Documents in the Project File

1.

2.

3.

4.

5.

6.

7.

8.

9.

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) Project

Project Information Document, Concept Stage, December 5,2007

Project Information Document, Appraisal Stage, August 16,2009

Integrated Safeguards Data Sheet, Concept Stage, January 23,2008

Integrated Safeguards Data Sheet, Concept Stage, August 13,2009

Identification Mission Aide-Memoires, October 2007 and February 2008

Preparation Mission Aide-Memoire, November 2008

Pre-Appraisal Mission Aide-Memoire, July 2009

Updated Feasibility Study, Inception Report (prepared by Finnroad, Helsinki), December 2008

Updated Feasibility Study, Draft (prepared by Finnroad, Helsinki), June 2009

10. Draft Resettlement Policy Framework (prepared by Finnroad, Helsinki), July 2009

1 1. Draft Environmental Impact Assessment , Full Report and Executive Summary (prepared by Finnroad, Helsinki), July 2009

12. Draft Environmental Management Plan (prepared by Finnroad, Helsinki), July 2009

13. Agreed Minutes o f Negotiations between Kyrgyz Republic and International Development Association (IDA) regarding National Road Rehabilitation (Osh-Batken-Isfana) Project, including Attachments, September 2009.

67

Annex 14: Statement of Loans and Credits KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana)

Difference between' expected and actual

disbursements Original Amount in US$ Millions

ProjectID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd

P110267 2009 SECOND RURAL WATER SUPPLY & 0.00

P108525 2009 P108178 2009

P101392 2009 P104994 2008

PO96993 2008 PO98949 2007 PO96409 2007 PO87811 2007

PO88671 2006 PO84977 2006 PO99453 2006

PO83377 2005 PO49724 2005 PO78976 2005 PO74881 2004 PO83235 2004 PO71063 2003 PO69814 2000

SANITATION CAPACITY BLDG ECON MGT

SECOND LAND & REAL ESTATE REGISTRATION

EMERGENCY ENERGY ASSISTANCE BISHKEK AND OSH URBAN INFRASTRUCTURE AISP VIP 2 OIP-2

RED TECH BARRIERS FOR ENTREPR & TRADE WATER MGMT IMPRVMT HEALTH & SOC PROT

AVIAN FLU (AICHPPCP) SMALL TOWNS INFRA & CAP BLDG AGRIBUSINESS & MARKETING

RURAL EDUC PYMNTDANK SYST MOD DISASTER HAZARD MITIGATION

GOV TA CONSLD TA

0.00 0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

10.00

3.00

5.85

11.00 12.00

13.00 15.00 16.00 5.00

19.00 21.00 4.00

19.00 8.10

15.00 9.00 6.90 7.78 5.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00

0.00

0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 10.17 0.59 0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

2.88

4.94

6.52 10.51

7.76 0.86

13.14 4.73

16.11 8.70 1.53 4.81 3.84 3.40 4.18 4.72 6.89 2.63

0.66

0.08

4.35 2.64

-0.88 -1.08

0.38 3.55

5.45 -1.14 0.82

-1.35 2.00 2.86 3.88 4.12

5.61 2.12

0.00 0.00

0.00 0.00

1.39 0.00 0.00

-0.40

0.00 1.74

0.00 -1.10 0.00

0.00 0.00 0.00

2.15 0.00

Total: 0.00 205.63 0.00 0.00 0.00 118.32 34.66 3.78

68

KYRGYZ REPUBLIC STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f US Dollars

Corn m itted Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2004 AKB Kyrgyzstan 1.50 0.00 0.00 0.00 1.50 0.00 0.00 0.00 2006 Bai Tushum 1.20 0.00 0.00 0.00 1.20 0.00 0.00 0.00

1996 Demirbank Kyrgyz 0.00 0.45 0.00 0.00 0.00 0.45 0.00 0.00 2003 Demirbank Kyrgyz 0.00 0.11 0.00 0.00 0.00 0.11 0.00 0.00 2001 FMCA 0.00 1 .oo 0.00 0.00 0.00 1 .oo 0.00 0.00 2004 Ineximbank 1.50 0.00 0.00 0.00 1.50 0.00 0.00 0.00

KKB Kyrgyzstan 2.00 0.00 0.00 0.00 1.60 0.00 0.00 0.00 2001 SEF Akun Ltd. 0.91 0.00 1 .oo 0.00 0.91 0.00 1.00 0.00 2005 SEF Altyn-Ajydar 1 .oo 0.00 0.40 0.00 0.30 0.00 0.40 0.00 2000 SEF KICB 0.00 1.40 0.00 0.00 0.00 1.40 0.00 0.00

2005 SEF KICB 2.50 0.00 0.00 0.00 1.00 0.00 0.00 0.00

Total portfolio: 10.61 2.96 1.40 0.00 8.01 2.96 1.40 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi PartlC

2006 Bai Tushum 0 00 0 00 0 00 0 00

2006 GeoPark 0.02 0.00 0.00 0.00

Total pending commitment: 0.02 0.00 0.00 0.00

69

Annex 15: Country at a Glance

KYRGYZ REPUBLIC: National Road Rehabilitation (Osh-Batken-Isfana) POVERTY and SOCIAL Kyrgyr

Republic 2007 Population, mid-year (millions) 5.2 GNipercapita (Afiasmethod, US$) 590 GNI (Atlas mefhod, US$ billions) 3.1

Average annual growth, 2001-07

Population (sa) 0.9 Laborforce (%) 2.0

Poverty (% of population beio w nationalpo vertylina)

M o s t recent es t ima te ( la test year avai lable, 2001-07)

43 Urban population (%of total population) 36 Life expectancy at birth (pars) 68 Infant mortaiity(per?,OOOiive births) 36 Childmainutlition (%ofchildrenunder5)

89 Literacy (%ofpopulation age St)

97 Male 97 Female 96

Access to an improvedwatersource (%ofpopulation)

Gross primary enrollment (%of school~agepopulation)

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1987 1997

GDP (US$ billions) .. 18 Gross capital fo rmatio WGDP 313 217 Exports of goods andservices/GDP .. 36.3 Gross domestic savings/GDP P.4 73.8 Gross national savings/GDP .. 73.9

Current account balance/GDP .. -7.8 interest payments/GDP .. 3.1 Total debUGDP .. 75.9 Total debt serviceiexports .. 114 Present value of debt/GDP Present valueof debt/exports

1987-97 1997-07 2006 (average annual growth) GDP 6.2 4.0 2.7 GDP percapita -7.3 3.0 17 Exports of goods and services -2.4 16 -0.3

Europe 8 Centra l Low-

As ia i ncome

445 6,052 2,694

0.0 0.5

64 69 23

95 97 97 98 96

2006

2.6 v.4

39.3 -19.8

4.4

-73.7 0.7

84.5 4.9

44.6 64.0

1296 578 749

2.2 2.7

32 57 85 29 68 61 94

r10 69

2007

3.5

2007 2007-11

7.4 6.4

Deve lopmen t diamond'

Life expectancy

7-

Gross

capita enrollment primary

1

Access to improved water source

-Kyrgp Republic ~ Low-incomegroup

Econorn lc ra t los '

Trade

Capital savings Domestic -3 formation

Indebtedness

-Kyrgp Republic ~ Low-incomegroup

STRUCTURE o f the ECONOMY

(%ofGDP) Agnculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure imports of goods andservices

M anufactunng

(average annualgrowth) Agnculture Industry

Sewices

Household final consumption expenditure General gov't final Consumption expenditure Gross capital formation Imports of goods and services

M anufactunng

1987 1997

44 6 22 6 148 32 6

646 689 226 Q3

46 2

1987-97 1997-07

-13 34 -733 0 7 - 6 5 0 0 -37 62

-112 75 -146 16 -70 02 -111 6 0

2006

33.0 20.1 0.9

46.9

r10.8

76.5 18.9

2006

15 -7.4

-12.8 8.4

22.1 0.4 0.2

38.7

2007

2007

Growth o f capi ta l and GDP (%)

40 T

-GCF -GDP - Growth of expor ts and Impor t s (%)

Bo 1

Note 2007 data are preliminaryestimates This table was produced from the Development Economics LDB database *Thediamonds showfourkeyindicators in thecountry(in bold)compared with its income-groupaverage If dataaremissing thediamondwll

be incomplete

70

Kyrgyz Republic

PRICES a n d G O V E R N M E N T F i N A N C E 1987

D o m e s t i c p r i c e s (%change) Consumer prices Implicit GDP deflator

Governmen t f inance (%of GDP, includes current grants) Current revenue Current budget balance Overall surplusldeficit

T R A D E

(US$ millions) Totalexports (fob)

Electricity Gold Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index(2000=WO) Import pnce index(2000=WO) Terms of trade (ZOOO=WO)

B A L A N C E o f P A Y M E N T S

(US$ millions/ Exports of goods and services imports of goods and services Resource balance

1987

1987

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

M e m o : Reserves including gold (US$ millions) Conversion rate (DEC,/oca//US$)

EXTERNAL D E B T and RESOURCE FLOWS

(us$ rni/lions/ 1987

Total debt outstanding and disbursed IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreigndirect investment (net inflows) Portfolio equity(ne1 inflows)

World Bank program Commitments Disbursements Pnncipai repayments Net flows Interest payments Net transfers

1997

23 4 193

20 0 -5 7 -9 0

1997

631 83

184 I77 725 87

200 a 3

1P 128 95

1997

676 8 7 -141

-65 68

-238

186 -48

196 I74

1997

1,341 0

251

78 0 2

45 132 23

0 84

60 67 0

67 2

65

2006

5 6 9 2

26 1 0 5 -3 1

2006

811 25

206

1,723 2 11

507 386

144 PO PO

278

2006

1.285 2 253 -1,068

-34 716

-386

579 -193

8I7 40 2

2006

2,382 0

6P

97 0 11

105 60 82

182 0

0 26

6 19 5

25

2007

7 6

2007

2007

37 3

2007

0 651

0 14

0 22

9 23 5 8

1 02 03 ~34 05

-GDPdefiator &CPI

/ E x p o r t and i m j i o t l eve l s (US$ mill.) I I

I I ' 01 02 03 04 05 06 07

EXpOrlS ElWOrlS

Cur ren t a c c o u n t ba lance t o GDP (%)

I , 1

composition o f 2006 deb t (US$ mill.)

I G x)8

D 576

A - IBRD E - Bilateral 8-IDA D-Otherrrultilateral F-Private C-IMF G - Short-terr

Note This tablewas produced from the Development Economics LDB database 9/24/08

71

MAP SECTION

B A T K E N

T A L A S

J A L A L - A B A D

C H U I

I S S Y K - K U L

O S H

N A R Y N

SulyuktaKyzyl-Kiya

Tash-Kumyr

Kara-Kul

At-Bashy

KirovKara-Balta Tokmok

Balykchi

Chaek

Cholpon-Ata

Barskaun

Kara-Say

Sary-Tash

Daraut-Korgan

Gul'cha

Toktogul

Tunuk

Tyup

Enilchek

Shyirak

Osh

Jalal-Abad

Batken

Naryn

TalasKarakol

BISHKEK

Isfana

Sulyukta

Isfana

Kyzyl-Kiya

Tash-Kumyr

Kara-Kul

At-Bashy

KirovKara-Balta Tokmok

Balykchi

Chaek

Cholpon-Ata

Barskaun

Kara-Say

Sary-Tash

Daraut-Korgan

Gul'cha

Uzgen

Aidarkent

Toktogul

Tunuk

Tyup

Enilchek

Shyirak

Osh

Jalal-Abad

Batken

Naryn

TalasKarakol

BISHKEK

TAJIKISTAN

UZBEKISTAN

C H I N A

KAZAKHSTAN

KAZAKHSTAN

Lake Issyk-Kul

To PanfilovTo UshtobeTo Burylbaytal

To Shymkent

To Tashkent

To Bukhoro

To Murghab

To Dushanbe

To Hotan

For detail, see inset above 0 25 50 75

0 25 50 75 Miles

100 Kilometers

72°E 74°E 76°E 78°E 80°E

72°E 74°E 78°E 80°E

42°N42°N

40°N 40°N

Sokh R.

BATKENO S H

155

OSH

Ozgor

Uch-Bay

KyetermyeZhany-

Naukata

Eski-Naukata

Dzhiyde

Aravan

Bel’-KyshtakArap

Markhamat

Nayman

Karavan

Kyzyl-Kiya

Uch-Korgon

Shakhimardan

Orozbekov

Rishtan

Burgandy

Chongara

Isfara

Sogment

Vorukh

RavatLeylek

Kara-Suu

Ozgorush

Korgon

Beshkent

Kulundu

Sulyukta

Samat

Zharkyshtak

Isfana

Kok-Tash

Kara-Bulak

Toguz-Bulak

Proletarsk

Khudzhant

BATKEN

Sokh

Khaydarkan

Kyek-Zhar

Tyuleyken

Kok-Talaa

Tortkul

Pul’gon

Ak-Tatyr

OSH

Ozgor

Uch-Bay

KyetermyeZhany-

Naukata

Eski-Naukata

Dzhiyde

Aravan

Bel’-KyshtakArap

Markhamat

Nayman

Karavan

Kyzyl-Kiya

Tenizbay

Uch-Korgon

Kok-Talaa

Pul’gon

Shakhimardan

Orozbekov

Rishtan

Burgandy

Chongara

Isfara

Sogment

Vorukh

RavatLeylek

Ak-Tatyr TortkulKara-Suu

Ozgorush

Korgon

Beshkent

Kulundu

Sulyukta

Samat

Zharkyshtak

Isfana

Kok-Tash

Kara-Bulak

Toguz-Bulak

Proletarsk

Khudzhant

BATKEN

Sokh

Khaydarkan

Kyek-Zhar

Tyuleyken

TAJIKISTAN

TAJIKISTAN UZBEKISTAN

84 40

0

108

123

175195

200

235

245271

359

386

248

Detour 2

Detour 3

Detour 1

0

0 30 Mi.

50 Km.

TRANSPORT CORRIDORS (ROADS)

MAIN ROADS

RAILROADS

NATIONAL CAPITALS

OBLAST CAPITALS

MAJOR CITIES AND TOWNS

OBLAST BOUNDARIES

INTERNATIONAL BOUNDARIES

KYRGYZ REPUBLICNATIONAL ROAD REHABILITATION(OSH-BATKEN-ISFANA) PROJECT

IBRD 36940

AUGUST 2009

WORLD BANK PROJECT COMPONENT 1(Pulgon km 123 to Burgandy km 155)

EC GRANT (Tortkul km 248 to Ak Tatyr km 271)

EBRD LOAN (km 155 to Burgandy to Batken km 220)

OSH-BATKEN-ISFANA CORRIDOR

INTERNATIONAL ROADS

LOCAL ROADS

KILOMETER MARKERS (KM)

OBLAST CAPITALS

OBLAST BOUNDARIES

INTERNATIONAL BOUNDARIES

84

This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other information shown onthis map do not imply, on the part of The World Bank Group, any judgmenton the legal status of any territory, or any endorsement or acceptance ofsuch boundaries.