ASIAN DEVELOPMENT BANK PCR: KAZ 28403

PROJECT COMPLETION REPORT

ON THE

ROAD REHABILITATION PROJECT (Loan 1455-KAZ)

IN

KAZAKHSTAN

April 2004

CURRENCY EQUIVALENTS

Currency Unit – tenge (T)

At Appraisal At Project Completion (1 May 1996) (14 August 2001)

T1.00 = $0.0154 $0.0066 $1.00 = T65.00 T151.99

ABBREVIATIONS

AASHTO – American Association of State Highway and Transportation

Officials ADB – Asian Development Bank ADT – average daily traffic ADTA – advisory technical assistance BER – bid evaluation report CEL – Committee of External Lending COCS – Consulting Services Division COR – Committee of Roads DOR – Department of Roads EA – Executing Agency EBRD – European Bank for Reconstruction and Development EIRR – economic internal rate of return FIDIC – Fédération Internationale des Ingénieurs Conseils GOST – Gosudarstvennye Standarty, Soviet Standards IA – implementing agency IsDB – Islamic Development Bank km – Kilometer m – meter MOF – Ministry of Finance MOTC – Ministry of Transport and Communications MOTCT – Ministry of Transport, Communications, and Tourism PAO – project administration officer PCR – project completion report PIU – project implementation unit PPTA – project preparatory technical assistance PSC – project steering committee RSPS – Road Sector Policy Statement TA – technical assistance TOR – terms of reference VOC – vehicle operating cost VPD – vehicles per day

NOTE In this report, "$" refers to US dollars.

The project completion report was prepared by K. Saari (team leader), P. Seneviratne, and T. Capati.

CONTENTS

Page

BASIC DATA ii

MAP vii

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 5 G. Conditions and Covenants 6 H. Related Technical Assistance 6 I. Consultant Recruitment and Procurement 8 J. Performance of Consultants, Contractors, and Suppliers 9 K. Performance of the Borrower and the Executing Agency 10 L. Performance of ADB 11

III. EVALUATION OF PERFORMANCE 12 A. Relevance 12 B. Efficacy in Achievement of Purpose 13 C. Efficiency in Achievement of Outputs and Purpose 13 D. Preliminary Assessment of Sustainability 14 E. Environmental, Sociocultural, and Other Impacts 14

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons Learned 15 C. Recommendations 15

APPENDIXES 1. Project Framework 17 2. Chronology of Major Events in Project Implementation 21 3. Contract Packages 26 4. Maintenance Equipment Procured under the Loan 27 5. Road Maintenance Component 28 6. Cost and Financing 29 7. Cumulative Disbursements 30 8. Schedule 31 9. Compliance with Loan Covenants 32

10. Economic Reevaluation 35 11. Rating of the Project 38

ii

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Kazakhstan 1455 Road Rehabilitation Project Republic of Kazakhstan Ministry of Transport and Communications $50.0 million PCR: KAZ 808

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

7 May 1996 17 May 1996 24 July 1996 26 July 1996 27 August 1996 18 October 1996 16 January 1997 31 March 1997 1 30 November 2000 11 December 2002 3 pool-based variable lending rate 24 4

8. Disbursements

a. Dates

Initial Disbursement

5 June 1997

Final Disbursement

11 December 2002

Time Interval

66 months

Effective Date

31 March 1997

Original Closing Date

30 November 2000

Time Interval

44 months

iii

b. Amount (in $)

Category or

Subloan

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance

1 Civil Works 27,000,000 30,800,000 - 30,800,000 29,361,7474 1,438,2532 Equipment 5,500,000 10,500,000 - 10,500,000 9,844,640 655,3603 Consulting Services 4,800,000 4,800,000

- 4,800,000 4,558,835 241,164

4 Interest and Commitment Charge

6,200,000a 0 0 0 0

5 Unallocated 6,500,000 3,900,000 - 3,900,000 0 3,900,000 Total 50,000,000 50,000,000

6,234,777 50,000,000 43,765,222 6,234,777

a Reallocated to civil works and equipment category on 7 July 1997. Source: ADB Files 9. Local Costs (Financed)

- Amount ($) 7,119,591 - Percent of Local Costs 23 - Percent of Total Cost 9 C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 40.00 46.29 Local Currency Cost 37.00 31.71 Total 77.00 78.00 Source: ADB Files

2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower-Financed 27.00 25.11 ADB-Financed 43.80 43.77 Other External Financing 0.00 0.00 Subtotal 70.80 68.88 IDC Costs Borrower-Financed 0.00 9.12 ADB-Financed 6.20 0.00 Other External Financing 0.00 0.00 Subtotal 6.20 9.12 Total 77.00 78.00

ADB = Asian Development Bank, IDC = interest during construction. Source: ADB Files

iv

3. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual Road Rehabilitation Civil Works 36.20 41.17 Road Maintenance Equipment, Materials, and Human Resources 19.00 22.23 Consulting Services

(i) Detailed Design and Construction Supervision of Road Rehabilitation, Road Maintenance Assistance, and Benefit Monitoring and Evaluation Services

(ii) Detailed Design of Other Selected Priority

Road Sections

4.70

0.40

4.56

0.91

Contingencies

10.50

-

Interest and Other Charges During Construction 6.20 9.12

Total 77.00 78.00 Source: ADB Files 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants Aug 1996 22 Nov 1996 Completion of Engineering Designs Feb 1996 Feb 1997 Civil Works Contract Date of Award Jan 1997 31 Jul 1997 Completion of Work Oct 1999 14 Aug 2001 Equipment and Supplies Dates First Procurement Aug 1996 Nov 2000 Completion of Equipment Installation May 2000 Nov 2001 Start of Operations Completion of Tests and Commissioning May 2000 14 Aug 2002 Beginning of Start-Up May 2000 14 Aug 2001 Other Milestones No Source: ADB Files 5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

From Nov 1997 to Dec 1998

Unsatisfactory

Unsatisfactory

From Dec 1998 to Jan 1999 Satisfactory Unsatisfactory From Jan 1999 to Sep 2000 Satisfactory Satisfactory From Oct 2000 to Dec 2001 Satisfactory Partly Satisfactory From Jan 2002 to Dec 2002 Satisfactory Satisfactory a Satisfactory rating was given after the Review Missions during the implementation. During preparation of the

PCR it was found that development objectives were not fully reached, and the rating should have been onlypartly satisfactory.

v

D. Data on Asian Development Bank Missions

Name of Missiona

Date

No. of Persons

No. of Person-Days

Specialization of Membersa

Fact-Finding 21 Feb–6 Mar 1996 3 37 a, c, d Appraisal 7–17 May 1996 3 32 a, d, g Special Loan Administration 9–11 Aug 1996 1 3 a Inception 5–9 Dec 1996 1 5 a Review 1 7–9 Oct 1997 2 5 a, d Midterm Review 12–16 Mar 1999 3 15 a, d, h Review 3 10–14 Apr 2000 1 5 a Review 4b 29 Aug–5 Sep 2001 2 8 a Review 5c 22–26 Apr 2002 1 2 a Review 6b 27 Aug–6 Sep 2002 1 5 a Project Completion Reviewd 9–16 July 2003 2 16 a, h Note: a a - engineer, b - financial analyst, c - counsel, d - economist, e - procurement consultant or specialist, f - control

officer, g - programs officer, h - assistant project analyst. b In conjunction with Loan 1774-KAZ: Almaty-Bishkek Regional Road Rehabilitation Project. c In conjunction with Loan 1774-KAZ: Almaty-Bishkek Regional Road Rehabilitation Project and proposed Almaty-

Horgos Corridor Project. d The project completion report was prepared by K. Saari, transport specialist/mission leader, and Teresita S. Capati,

assistant project analyst. Source: ADB Files

vii

1

I. PROJECT DESCRIPTION

1. The Almaty-Astana road was designed according to Soviet standards for 6 ton axle loads. It was built in the 1960s and 1970s, but the design was not fully adhered to and substandard materials and work methods were sometimes used. Recent heavy traffic with more than 10 ton axle loads, poor initial construction and insufficient maintenance had caused serious deterioration of most road sections prior to the start of the Project. As Kazakhstan moves toward a market-based economy, rehabilitation of the national road network connecting the key centers of the country as well as routine road maintenance are essential for the country’s economic development. Astana (known as Akmola until 1998) was made the capital of Kazakhstan in 1997 and the Almaty-Astana road was selected as the first road to be rehabilitated by international financing. The loan from the Asian Development Bank (ADB) was the first road rehabilitation loan in Kazakhstan and the first of several loans for the Almaty-Astana road. The World Bank, the Islamic Development Bank (IsDB), and the Kazakh Government financed the rehabilitation of the other sections of the road. The rehabilitation of the road was completed in October 2003. 2. The main objective of the Project was the rehabilitation of the 192-kilometer (km) road section between Gulshad and Akchetau (km 596 to km 788) of the Almaty-Astana road, routine maintenance of other sections of the road, procurement of road maintenance equipment, and development of a new routine road maintenance system. 3. The Project was also intended to assist the Government in (i) implementing market-oriented policy, regulatory reforms, and institutional restructuring; (ii) increasing road funding through improved cost recovery measures; (iii) developing institutional capacity; and (iv) preparing a human resources development plan. Institutional strengthening of the road sector was supported by Technical Assistance (TA) 2631-KAZ1 attached to the loan. 4. Feasibility studies for road sections to be selected for rehabilitation under the second road project2 were done under TA 2632-KAZ3 attached to the Loan. II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. The Project was highly relevant during appraisal and continued to be so after completion, as it rehabilitated the most deteriorated section of the most important road in Kazakhstan, leading from the cultural and commercial center of Almaty to the new capital, Astana, which is located 1,220 km away. The road is also a major international transport corridor from the Kyrgyz Republic and Uzbekistan to the Russian Federation. 6. At the time of project preparation, the main objective of ADB’s interim operational strategy in Kazakhstan was to facilitate the country’s transition to a market economy. In cooperation with the International Monetary Fund (IMF) and the World Bank, ADB selected the transport sector as one of the areas to assist Kazakhstan to improve its infrastructure. ADB’s

1 ADB. 1996. Institutional Strengthening of the Road Sector. Manila. (TA 2631-KAZ for $750,000, approved on 27

August 1996). 2 ADB. 2000. Almaty-Bishkek Regional Road Rehabilitation Project. Manila. (Loan 1774-KAZ for $50 million,

approved on 31 October 2000). 3 ADB. 1996. Feasibility Study of Priority Road Sections. (TA 2632-KAZ for $250,000, approved on 27 August

1996).

2

sector strategy was to (i) corporatize and privatize transport, road maintenance, and construction industry operations; (ii) restructure road administration to meet market demands; (iii) secure and increase road sector funding; (iv) develop human resources; and (v) protect the environment. Elements of all these issues were included in the Project and were addressed during the Project with variable success. The project framework is in Appendix 1. 7. The Borrower and the Executing Agency (EA) showed strong ownership in the Project and tried to direct its preparation and implementation as best as they could. No major changes were made to the project during its implementation except for the frequent changes in the staffing of the EA and the consultant for detailed design and construction supervision (the Engineer). 8. The project preparatory technical assistance (PPTA) for the Project was implemented from July 1995 to February 1996.4 The PPTA identified the section of the road to be rehabilitated, and prepared a feasibility study and preliminary engineering design. The consultant for detailed engineering design considered the preliminary design as inappropriate particularly with regard to the technical solutions proposed, and the EA wanted to execute the civil works following Soviet standards, Gosudarstvennye Standarty (GOST), instead of the US standards, American Association of State Highway and Transportation Officials (AASHTO) standards, used in the design. 9. The cost estimate of the rehabilitation civil works at appraisal was $36.2 million. The actual civil works contract awarded was $34.95 million, and the final cost of the civil works contract was $41.2 million. 10. The road maintenance component of the loan was also relevant as the project road was the first section of the Almaty-Astana road to be rehabilitated, and the Kazakh road maintenance enterprises did not have sufficient and proper equipment to maintain the road. However, the road maintenance component was not carefully formulated. The equipment procured under the loan for $9.84 million was given to the Republican State Road Enterprise, Kazakhavtodor, which was not in line with the Project’s aim to corporatize and privatize the road maintenance industry and to increase private sector involvement. Because the road maintenance industry was not privatized, Kazakhavtodor was the only state owned road maintenance firm to take over the equipment, though establishment of an equipment rental company is a covenant under a follow-on loan (Loan 1774-KAZ). Kazakhavtodor was awarded a road maintenance contract for $6 million and three semi-private companies were awarded contracts for $0.5 million equivalent using counterpart funds, without prior knowledge of ADB. Similarly, ADB was not consulted regarding the contract awarded to Kazakhavtodor for $4.25 million using counterpart funds to repair buildings belonging to the Ministry of Transport and Communications (MOTC). B. Project Outputs

1. Civil Works 11. The civil works were packaged in one contract, which was procured through international competitive bidding (ICB) procedures. The contract was awarded to a British-Turkish-Kazakh joint venture (the Contractor) on 31 July 1997 and signed on 6 November 1997. The works were completed on 14 August 2001. The major events of the Project are listed in Appendix 2 and the contract packages financed by the ADB loan are listed in Appendix 3. 4 ADB. 1995. Road Rehabilitation Project. Manila. (TA 2285-KAZ for $600,000, approved on 11 January 1995).

3

12. Due to the Contractor’s internal problems coupled with the high staff turnover of the EA and the EA’s weakness in construction management even with the help of international consultants, the civil works suffered delays and were completed 22 months behind the original schedule. In addition, the cracking of the asphalt concrete pavement during the first winter season caused further delays in the works. The EA, the Engineer, and the Contractor could not agree on the reasons for the defects and several studies were conducted on the aggregate and the bitumen. The EA requested the Engineer to adopt former Soviet standards in preparing mix designs for asphalt concrete, but the Engineer refused and claimed that the mine waste that had been recommended by the EA for use as aggregate was the main cause of the defects. The completed road surface shows cracks throughout the project section. According to an independent study completed in February 2003,5 the main reason for the defects can be attributed to the quality of the bitumen;6 also, the pavement will need additional maintenance (by crack sealing) over the next 5 years at an annual estimated cost of $600,000. The study further recommends that the present wearing course should be recycled and compacted and a new wearing course should be placed during the sixth year at a cost of about $20 million.

2. Road Maintenance Program 13. The road maintenance program consisted of procurement of road maintenance equipment and routine maintenance of road sections not under rehabilitation (by ADB, IsDB, or World Bank). 14. The road maintenance equipment was procured under the loan for $9.84 million following ICB procedures (Appendix 4). The bids were received in January 1999 and the contract was awarded on 12 November 1999. The contract was signed on 26 April 2000 and delivery of equipment was completed on 18 May 2001. The long delays in the procurement process were due to the disagreements between the EA, the Engineer, and ADB about the bid evaluation. The EA wanted to declare all bids nonresponsive except for one. The Engineer and ADB finally persuaded the EA to accept the bid evaluated by the Engineer as the lowest as well as substantially responsive. The equipment is being used by Kazakhavtodor’s maintenance units.7 15. Counterpart funds amounting to $12.39 million were used for road materials and routine maintenance, including $1.66 million for maintenance equipment, and $4.25 million for repair of buildings (Appendix 5). The road maintenance contracts were awarded for $10.73 million during 1999–2002 using local bidding procedures as planned at appraisal. 16. The Engineer prepared a maintenance manual for the Almaty-Astana road as part of the road maintenance services component of the consulting services contract. However, the EA did not use it as it considered the manual inappropriate for adoption.

5 Finnroad Ltd. 2003. Services of Independent Expert to investigate the Cause of Pavement Defects in Gulshad to

Akchetau Section (km 596-788) 6 Similar pavement cracks were observed in some ADB-financed road rehabilitation works in the Kyrgyz Republic

(Loan 1444-KGZ), and Mongolia (Loan 1364-MON), where the bitumen quality was found to be the main reason for the defects.

7 Kazakhavtodor is MOTC’s maintenance company, which maintains most public roads in Kazakhstan.

4

C. Project Costs

17. The actual project cost amounted to $78.00 million, compared with the appraisal estimate of $77.00 million. The actual foreign and local costs were $46.29 million and $31.71 million, respectively, as against appraisal estimates of $40.00 million and $37.00 million, respectively. The ADB loan of $50.00 million was originally envisaged to finance 100% of the foreign exchange cost ($40.00 million) and 27% of the local currency expenditure ($10.00 million). At loan closing, ADB’s financing of $43.77 million consisted of 79.2% ($36.65 million) of the foreign exchange cost and 22.5% ($7.12 million) of the local currency cost. The reduction in ADB’s financing of the foreign exchange cost (from 100% to 79.2%) was due to the shift from ADB to the Government of financing the interest during construction ($9.12 million) and consulting services for detailed design of other selected priority road sections ($0.91 million). ADB’s financing of the local currency cost decreased from 27.0% to 22.5% because of the increase in its financing of the civil works contract that was in the foreign exchange component; ADB financed all consulting services in foreign currency. A summary of the project cost financing is in Table 1 and the details by component are in Appendix 6 a and b.

Table 1: Project Cost and Financing ($ million)

Appraisal % of Actual % of Foreign Local Total Total Foreign Local Total Total ADB 40.00 10.00 50.00 64.9 36.65 7.12 43.77 56.1 Government 00.00 27.00 27.00 35.1 9.64 24.59 34.23 43.9 Total 40.00 37.00 77.00 100.0 46.29 31.54 78.00 100.0 Source: ADB files.

D. Disbursements

18. Of the $50.00 million loan, $43.77 million was disbursed and the unutilized amount of $6.23 million was cancelled upon loan closure on 11 December 2002. Disbursement of loan proceeds took 20 months longer than envisaged during appraisal (66 months actual vs. 46 months estimate) mainly because of the delays in the implementation of the civil works contract and partly because of the delay in the release of the counterpart funds in 1999. To allow the disbursement of loan proceeds, the original loan closing date of 30 November 2000 was extended three times up to 31 March 2003. The annual disbursements are shown in Table 2 and the cumulative annual disbursements are shown in Appendix 7

Table 2: Annual Disbursements ($ million)

Year Disbursement % of Total Cumulative %

1997 4.61 11 4.61 9 1998 7.00 16 11.61 27 1999 5.43 12 17.04 39 2000 19.04 43 36.08 82 2001 5.60 13 41.68 95 2002 2.09 5 43.77 100

Source: Staff calculations.

5

E. Project Schedule

1. Civil Works

19. The loan negotiations were held in July 1996 and the loan was approved in August 1996; however, the loan became effective only on 31 March 1997 due to the delays in Parliament’s ratification and preparation of the legal opinion by the Government. 20. The civil works contract, completed on 14 August 2001, was delayed by 22.5 months from the original schedule of October 1999 (Appendix 8). The delayed completion occurred due to: (i) long preconstruction activities of 14.5 months (from prequalification on 23 August 1996 to contract signing on 5 November 1997) due to the EA’s lack of experience in international bidding processes and unfamiliarity with Fédération Internationale des Ingénieurs Conseils (FIDIC)-type contracts, compared with the appraisal schedule of 6 months; (ii) prolonged mobilization period of about 6 months due to winter conditions and due to the difficulties of transporting road construction equipment to Central Asia (from contract signing in November 1997 to commencement of work in May 1998) compared with the appraisal schedule of 2 months (February–March 1997); (iii) delayed counterpart funds in 1999 when the contractor stopped working for a few weeks until the arrears were paid; and (iv) additional civil works needed in several sections of the project road where the designed rehabilitation strategy was found inappropriate. 21. The settlement of disputes between the Contractor’s final claim and the Engineer’s final statement of satisfactory completion of works failed to materialize since the disputes remain unresolved and the parties (Government represented by the Ministry of Justice, and Contractor) are expressing their intentions to go to arbitration as provided for under the civil works contract.

2. Consulting Services 22. The consultant for detailed design and construction supervision, road maintenance assistance, and benefit monitoring evaluation (the Engineer) started working in November 1996. The contract sum for services until 30 April 2000 was $3.70 million. Due to the delay in the civil works and the need for additional services during the defects liability period of the civil works, the consultant’s contract was extended three times until 14 August 2002. The terms of reference (TOR) of the consultant’s contract were revised in November 1998 to include 30 person-months of international and 60 person-months of domestic consultant work for the road maintenance component of the contract, which were omitted in the original TOR and contract. The final cost of the consulting services was $4.56 million. 23. There was a plan to use part of the loan funds to finance the detailed design of Almaty-Bishkek Road Rehabilitation Project during 2001 while the Almaty-Bishkek Road Rehabilitation Loan (1774-KAZ) was not yet effective. After the consultants were selected in October 2001, the Government decided to finance the work from government funds. F. Implementation Arrangements

24. The Ministry of Transport, Communications, and Tourism (MOTCT) was the EA and the Department of Roads (DOR) was the implementing agency (IA) for the Project until 1999, when MOTCT was renamed the Ministry of Transport and Communications (MOTC) and DOR was replaced by the Committee of Roads and Road Transport (COR) (para. 31).

6

25. The EA and project implementation unit (PIU) personnel were frequently replaced, which was detrimental for successful implementation of the Project. The Minister of MOTC was replaced four times and MOTC was reorganized twice. With every change of minister or the ministry, a new team was posted to PIU and assumed responsibility for project implementation. The new PIU teams had no, or only a little, understanding of the Project and its implementation requirements. In 2001 the Ministry of Finance (MOF) decided to abolish all PIUs in Kazakhstan to cut administrative costs and the MOTC’s PIU was abolished with effect from 1 January 2002. This further disrupted project implementation. 26. While a project steering committee (PSC) was established under the Project as planned, there was no information available to the ADB missions to indicate the contribution of the committee. PSC was abolished on 1 January 2002 and its functions were transferred to Department of State Borrowing, which has not had any meetings on the Project. G. Conditions and Covenants

27. Compliance with the loan covenants is listed in Appendix 9. The covenants were not revised during the implementation of the Project. However, some covenants were only partially complied with as follows:

(i) PIU staff were frequently changed during the Project and finally the PIU was abolished at the beginning of 2002 and prior to the completion of the Project;

(ii) PSC was abolished 1 January 2002 and its functions were transferred to the Department of State Borrowing. There is no information available to indicate the effectiveness of either body;

(iii) Following the recommendations of TA 2631-KAZ attached to the loan, a cost recovery plan was adopted and the Road Fund was established in 1995.8 However, the Road Fund was abolished in 1998 when it was merged with the general revenue account of MOF, in spite of the recommendations of TA 2631-KAZ; and

(iv) The Committee for Transport Sector Legal Reforms and the National Transport Advisory Committee have not had any meetings.

28. Specific loan covenants on a cost recovery plan, road funding, maintenance, and privatization/corporatization of the road construction industry may have made the situation clearer. The project financed road maintenance in the amount of $23 million or almost 30% of the total project cost. The back-to-office reports of review missions and minutes of site meetings held during the missions reflect ADB’s desire to establish an equipment rental company for the equipment procured under the loan. No such company was formed and the Government expressed the desire that such a role in the future would be carried by Kazakhavtodor.

8 The Road Fund was established by Decree No. 2701 of the President of Kazakhstan on 21 December 1995.

7

H. Related Technical Assistance

29. During the project preparation (1995), MOTCT requested assistance for the EA in practical project management and training of domestic consultants and contractors in competitive conditions.9 The consultants for TA 2285-KAZ conducted two seminars involving the officials of the Roads Department, Kazzhol (predecessor of Kazakhavtodor), as well as private road construction companies in tendering procedures and contract management. About 80 people from these organizations attended a 2-day training course. Also, the consultants of TA 2631-KAZ (footnote 1) conducted some training to the personnel of MOTCT. 30. The TA was intended to provide institutional strengthening for the Kazakh road sector. The work on the TA began in December 1996 and was completed in October 1997. The TA had an ambitious plan to (i) restructure the Kazakh road administration; (ii) train the personnel of the EA and prepare a continuous training program; and (iii) provide a legal framework for the road sector and recommend revisions to the law. The TA produced the following reports: Final Report (general); Systems Development Plan; Human Resources Development Plan; Road User Cost Recovery Program; and Road and Road Transport Act and Regulations Study. 31. Following the recommendations of the TA, a new Road Act was passed, including legislation relating to a Road Fund, and MOTCT was renamed MOTC and DOR was renamed COR in 1999. 32. In practice, nothing significant has changed (para. 24). COR continued to manage the projects and Kazakhavtodor continued working as a contractor with an almost complete monopoly in road maintenance works and with preferred status as contractor of road works financed by MOTC. Consequently, MOTC asked the European Bank for Reconstruction and Development (EBRD) to assist in reorganizing the road administration under the Aktau-Atyrau road rehabilitation feasibility study contract, which was completed in January 2003. The reorganization of the Kazakh road administration was also included in TA 3530-KAZ10, attached to loan 1774-KAZ (footnote 2), which is presently being implemented and is scheduled for completion by April 2004. MOTC apparently did not consider the recommendations of the consultants of EBRD as appropriate and was expecting to get what it hopes to be better advice from the consultants under the ongoing TA 3530-KAZ. Better coordination between ADB, EBRD, and MOTC might have eliminated some redundancy and overlapping in the scope of some of these TAs. 33. The main reasons for the lack of major impact of TA 2631-KAZ is the limited ownership of MOTC of the recommendations of the TA to first implement the recommendations of the TA and later revert to the status quo (see para. 7 above). The EA had implemented the restructuring of road sector institutions and reallocated activities between DOR and Kazakhavtodor. The progress stopped in terms of reforming road sector institutions and road funding after the move of the MOTC to the new capital, Astana. The Road Sector Policy Statement (RSPS)—earlier adopted by MOTC to provide a policy framework for the road sector

9 The COR repeated the same request for practical guidance during the inception and midterm meetings of the

ongoing TA 3530-KAZ in May and September 2003. MOTC wants to obtain training for its personnel in project administration, training for domestic consultants to improve the quality of supervision, and training for domestic contractors to improve the quality of works and enable them to observe international contract conditions.

10 ADB. 2000. Improvement of the Road Sector Efficiency. (TA 3530-KAZ for $740,000, approved on 31 October 2000).

8

and to promote efficient transport through free competition subject to justifiable limits of economic, safety, and environmental considerations—was ignored. This was mainly because of an almost complete turnover in the personnel of MOTC and DOR/COR when the capital was moved to Astana. The TA consultant may have been too independent in recommending the reforms in the road sector and did not foresee such drastic changes in the Government’s structure and location. ADB’s intervention to keep the reforms on track, as recommended by the consultant, could have been more active. During the course of the TA, ADB fielded only one loan review mission, which did not appear to have interacted with the consultant in the field. 34. The second TA attached to the loan (TA 2632-KAZ, footnote 3) prepared a feasibility study and preliminary design for Almaty-Bishkek Regional Road Rehabilitation Project (Loan 1774-KAZ). TAs 2631-KAZ and 2632-KAZ were completed in 1997 and 1998, respectively. In the late 1990s no TA Completion Reports were prepared on TAs attached to loans. I. Consultant Recruitment and Procurement

35. Seven firms were short-listed for the consultant selection11 in April 1996 for detailed design, construction supervision, and benefits monitoring and evaluation. The proposals were received on 25 July 1996. The contract was signed on 22 November 1996. The delays were due to the EA’s original reluctance to use ADB’s evaluation criteria and format. 36. The TOR and schedule of the design and construction supervision consultant should have anticipated delays in project implementation and the need for services during the defects liability period. The person-month estimates were 80 person-months of international and 100 person-months of domestic consultant work. The actual consultant inputs were 300 and 800 person-months, of which about 40% were due to the delay in the construction works by 22 months and additional services of the Engineer during the defects liability period, which extended the consultant’s contract period from 35 to 70 months. When selecting the Engineer, the EA failed to pay enough attention to the Engineer’s experience in working in extremely cold conditions, which may have contributed to the poor quality of the pavement. None of the Engineer’s team members had previous experience in arctic conditions. 37. Advance recruitment action and retroactive financing for $1.5 million were approved for consulting services on 12 April 1996 and the consulting services from 30 November 1996 to 31 March 1997 were financed under it until the loan became effective. 38. There were 17 applicants for prequalification as civil works contractors, from which seven were prequalified on 23 April 1997. The main reason for disqualification was lack of experience as a road contractor in Central Asia or similar conditions. As the EA wanted the civil works to be started in 1997, the bidding period was reduced to 60 days. In short, due to the delays in contract award, the 1997 construction season was lost. Four bids were received and their respective bid prices were $34.95 million, $36.29 million, $39.76 million, and $54.66 million. The second lowest bidder proposed an alternative pavement structure to replace the lower layer of the pavement with penetration macadam to be placed using a paver. The alternative would have reduced the bid price by $5.23 million but the alternative design was not approved for technical reasons. The contract was awarded on 31 July 1997 to the lowest bidder,

11 One each from Canada, Germany, India, Japan, Switzerland, Turkey, and United States.

9

a joint venture company from Kazakhstan, Turkey, and the United Kingdom,12 for $34,945,000. Initially, MOF’s Committee of External Lending (CEL) did not understand the conditions of the contract and wanted to change the lump sum items to itemized ones. CEL also wanted all the payments to the Contractor to be made in local currency through a local bank. The contract was signed only on 5 November 1997 after lengthy negotiations with the Contractor without any change in the contract. During the negotiations, problems emerged in the Contractor’s joint venture agreement and it had to be modified, which further delayed the signing of the contract. 39. Due to the delayed implementation of the civil works contract, the procurement of the road maintenance equipment was deferred from mid-1996 to the last quarter of 1998. The bids for procurement of road maintenance equipment were received in January 1999. The first bid evaluation report (BER) submitted by the EA in May 1999 was unacceptable to ADB because the recommendation for the award of contract was based on the opinion of the Government Tender Committee, and not on an evaluation of bids. The revised BER was received by ADB in August 1999. After several clarifications on the BER and two procurement committee meetings, ADB approved the BER in October 1999. Even after approval by ADB, EA delayed the contract signing until November 2000. There were some delays also on the part of ADB, mainly because of delays in clarifying the critical issues in the BER. The EA did not understand the ADB Guidelines for Procurement and could not present their evaluation according to the guidelines. Therefore they finally had to accept the Engineer’s evaluation, which was acceptable to ADB. J. Performance of Consultants, Contractors, and Suppliers 40. The Engineer did not always strictly supervise the works. Despite evidence of inferior bitumen (with penetration grade of only 50 as against a minimum requirement grade 80 and bitumen been overheated in storage) no action was taken by the Engineer to reject the substandard bitumen. The EA was not satisfied with the Engineer’s performance in checking and revising design, which the EA thinks caused cost overruns and contributed to pavement defects. 41. The Engineer did not want to take any responsibility for the poor quality of the pavement as evidenced by the cracking. The EA several times asked the Engineer to prepare the asphalt mix design according to GOST standards. The Engineer refused stating that GOST standards could not be accepted because they were not in the original bid documents.13 The Engineer did not understand GOST standards, the use of which can lead to good quality pavement, if applied properly. The EA did not understand AASHTO standards but asked the Engineer to use the AASHTO standards properly, stating that good quality pavement can be laid in extremely cold places like Alaska according to AASHTO standards. 42. The Engineer prepared the tender documents for road maintenance equipment including specifications, but failed to specifically mention the performance requirements in Kazakhstan’s harsh climatic conditions. 43. The design and supervision consultants wanted to independently exercise their power as per their contract. The EA did not recognize them as the Engineer’s representatives, which

12 Balfour Beatty and Mensel in association with Afdan and Zhezkazgan Zholdary. 13 6 April 2001 letter from the Engineer to the EA.

10

caused problems as the EA suspected them to be more sympathetic to the Contractor and equipment suppliers. That became very clear in the context of the pavement defects as the Engineer had to defend his own design. The consultants defended their attitude in the draft project completion report prepared in September 2002. However, the report reveals that the consultants did not fully understand their role as the Engineer’s representatives, whose task was to supervise the works and procurement to be done according to the contract. 44. All international consultants of the Engineer’s team were replaced at least once. The original Project Manager (Chief Resident Engineer) could not come to Kazakhstan and was replaced immediately after signing the contract. During project implementation, the Engineer changed project managers three times for various reasons. 45. Due to the delayed tendering and the Contractor’s internal problems, the first full construction season was almost completely lost (1998), and the EA threatened to cancel the contract in August 1998 due to the delay in mobilization. During 1998, the Contractor carried out earthworks on the first 12 km long section and only 6 km of asphalt pavement was laid. It was found to be of poor quality and was replaced in 1999. Again in spring 2000, the Contractor was asked to repair, at his own cost, the cracks on a 42 km long section of the road built during the previous winter. 46. On 13 March 1998, the Contractor asked to use Russian bitumen because Kazakh bitumen was unavailable; the Contractor understood that the contractor of the Bishkek-Osh road rehabilitation project (Loan 1444-KGZ) was using Russian bitumen. ADB declined the request and assured him that in the Kyrgyz project Uzbek bitumen was being used. The Contractor had probably found only suppliers of Russian bitumen as, in a site meeting on 12 August 2000, the delay in supplying Russian bitumen was mentioned as a reason for delays in the asphalt works. The Contractor informed the meeting that in 1999 such delays had not occurred. 47. Traffic safety on the road being rehabilitated was poor. In a site meeting on 25 August 2000, the Engineer criticized the Contractor for not taking care of traffic safety, because during 1999 14 people were killed and 41 injured in traffic accidents on the project road. However, the Engineer should also bear some responsibility as it is the Engineer’s responsibility to supervise the Contractor in meeting the requirements of traffic safety on the construction site. 48. The supplier of the road maintenance equipment was late in providing some of the equipment. Instead of imposing liquidated damages, the EA accepted the supplier’s offer to provide additional spare parts free of charge. K. Performance of the Borrower and the Executing Agency

49. Due to the delays in payment of counterpart funds, the Contractor stopped working in July 1999. The EA frequently requested approval to deviate from ADB’s Guidelines for Procurement. ADB approved a reduction of the bidding period from 90 to 60 days, though this did not help expedite matters as the EA spent almost 6 months, from June to November 1997, negotiating the contract.

11

50. The EA’s and Borrower’s personnel were changed several times during the Project. One Minister of MOTC was replaced after the President of Kazakhstan visited the construction site and learned about the pavement defects. 51. The EA’s actions were not always consistent throughout the Project. For example, in June 2000 the EA presented a claim for $951,570 to the Engineer for defects of the pavement on the 48 km section between km 596 and km 644 because the EA wanted GOST standards to be used and felt that Kounrad mine waste stone was unsuitable as it did not meet the requirements of GOST standards on freeze-thaw testing. However, this claim was withdrawn on 21 September 2003 without any explanation.14 The Contractor wanted to use mine waste rock because the local government wanted to charge for rock from the quarries identified in the design documents (the bidding documents did not mention the cost of the rock to be taken from government-owned quarries, which was confirmed in the prebid meeting in May 1997), and the EA could not help the Contractor. 52. The fact that some of the EA’s personnel were former employees of the Kazakh partners of the Contractor’s joint venture further complicated issues and made the international partners of the joint venture suspicious of the EA’s objectivity. Also, the Engineer was alarmed after seeing how deputy ministers discussed the civil works contracts with the subcontractors without disclosing the contents of the discussions to the Engineer.15 53. By an administrative measure of MOF, the PIU was abolished on 1 January 2002 without prior notice to ADB, and that greatly affected the performance of the EA. 54. Problems were caused by the fact that the consultant’s contract did not mention the taxes payable by the consultants. In August 1999, MOF started demanding that the domestic consultants pay income tax and stopped processing the withdrawal applications. ADB sent a letter16 stating that because the consultant’s contract was signed before the new tax code was approved, the taxes of the domestic consultants should be paid by the Government. According to FIDIC, only the international consultant and contractor are tax free and the local subcontractors, subconsultants, and personnel should pay local taxes unless otherwise agreed in the contracts. In this Project there was no tax exemption for the local companies and personnel. 55. The Borrower’s and the EA’s performance can be rated satisfactory since the works were completed and the delays in project completion were largely due to the Contractor. The EA’s satisfactory performance was largely due to the dedicated work of the few people working in DOR (COR since 1999). MOTC has stated, in its draft project completion report that it “has learned from the successful and even unsuccessful experience gained during the Project”.

14 Snowy Mountains Engineering Consultants’ investigation found Kounrad mine spoil suitable on 29 May 2001. 15 Consultant’s letter to ADB dated 12 September 2000. 16 ADB letter dated 12 April 1999 on taxes of the domestic consultants.

12

L. Performance of ADB

56. The selection of the PPTA consultant could have been more rigorous taking into account the consultant’s experience in cold climatic conditions like the winters in Kazakhstan. The TOR for the design and supervision consultant should have been more detailed and specific. The TOR is a generic one with no reference to the harsh continental climatic conditions with arctic winters and hot and dry summers. 57. ADB took prompt action in conveying its decisions concerning all project management issues including use of materials from nonmember countries. The use of Russian bitumen was discussed on several occasions, and ADB advised the use of bitumen from Uzbekistan or any other member country that met the required specifications. Despite objections by ADB, Russian bitumen was reportedly used by the contractors on a few occasions.17 58. The bidding documents for road maintenance equipment were prepared by the Engineer, cleared by the EA, and approved by ADB. However after the bid was opened, the EA wanted to include in the evaluation criteria a provision that the proposed equipment must meet performance requirements in Kazakhstan’s harsh climatic conditions. The EA’s preference to procure road maintenance equipment that it deemed more suitable for operations in such conditions was not supported by ADB or the Engineer, as the award of contract to a bidder other than the lowest evaluated and substantially responsive one is not permitted under ADB’s Guidelines for Procurement. The EA reluctantly agreed to the Engineer’s recommendation to award the contract to the lowest evaluated and substantially responsive bidder. The road maintenance equipment subsequently proved to be less than ideal for Kazakhstan’s harsh conditions. In hindsight, ADB should have advised the EA to ask the Engineer to incorporate in the bidding documents a provision requiring equipment to meet the performance requirements in Kazakhstan harsh climatic conditions. 59. ADB did not agree to the EA’s request to use GOST standards for asphalt pavement mix design and insisted, with the Engineer, on keeping to AASHTO standards. This is because international contractors are seldom familiar with GOST standards, and equipment referred to by GOST may not be available outside the former Soviet Union.18 60. ADB fielded four missions during the 1-year preparation of the Project and six missions during its 6-year implementation period. In 1998 no missions were fielded, although during 1998 the progress of the civil works was very slow and there were many problems between the EA and the Contractor, which ADB missions could perhaps have alleviated. In 2002 two missions were fielded. The missions did not provide any organized training to the personnel of the EA. If training had been offered, it should have been repeated by each mission since the EA’s personnel were frequently changed. Only the mission of the representative of ADB’s Consulting Services Division, who attended the contract negotiations with the Engineer, mentions in its BTOR having given training to the EA personnel and recommends continual training in the use of consultants and in procurement.

17 Russian bitumen was used in the civil works of the Project at least in 1999 and 2000, according to the August 2000 monthly report of the Engineer.

18 GOST standards are more suitable for operations on a force account basis to ensure efficient utilization of resources owned by the state; they are not suitable in a market environment.

13

61. After the initial start-up delays, ADB’s early missions received an optimistic impression about the work performance and quality of works (which later turned out to be unfounded). This was mainly because project implementation progressed more smoothly in the earlier part of the Project, before the capital was moved to Astana. Project implementation suffered as experienced PIU staff were replaced and the ministry took a new shape in Astana. ADB’s September 2001 Mission noted that due to the considerable delays in civil works over the first 2 years, the Project had become “at risk”. 62. Only the first loan review mission in October 1997 mentioned the road maintenance component financed by the government counterpart funds for $12.6 million, stating that the maintenance works would commence in April/May1998. 63. ADB’s Resident Mission conducted intensive dialogue with the Government on the delayed payments to the Contractor in 1999, which contributed to solving the problem. ADB’s performance is rated partly satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

64. The Project is important for Kazakhstan’s transport sector; the most deteriorated section of the Almaty-Astana road—the most important road in the country—was rehabilitated. It was the first internationally financed road rehabilitation project in Kazakhstan. With the Project, ICB has been introduced to the Kazakh road sector, and it will also be applied in domestically financed road rehabilitation projects in the future. Despite the pavement defects and lack of institutional impact, the Project is highly relevant. B. Efficacy in Achievement of Purpose

1. Traffic 65. An assessment made during a feasibility study showed that average daily traffic (ADT) had declined from about 3,400 vehicles in 1990 to about 2,000 vehicles on the project road in 1994. By July 2002, the ADT had increased to 2,100–2,250 vehicles, or by about 21%. This is equivalent to an average annual growth rate of about 3% and in line with the 2–4% expected at appraisal. 66. The largest growth has been in the number of automobiles in the various sections of the project road, which increased on average by 71% between 1995 and 2002. The number of buses and minibuses increased by about 61%, but the number of trucks decreased by 43%. The reduction in truck traffic has largely been in the three- and four-axle category. According to an origin-destination survey conducted in 1995, about 60% of the trucks had origins or destinations outside of Kazakhstan, but in July 2002, the share was down to less than 15%. While the increase in automobiles and buses can be attributed to the relocation of the capital from Almaty to Astana and the general increase in economic activity in Kazakhstan, the reason for the reduction in transit traffic is the decreased transport from the Kyrgyz Republic, Tajikistan, and Uzbekistan to the Russian Federation. The decrease is probably due to the economic problems in the Russian Federation after the currency crisis in 1998 and the new customs procedures and value-added tax (VAT) collections at Russian border stations.

14

2. Economic Benefits 67. The economic analysis prepared at appraisal was recalculated while taking into account the following: (i) economic capital cost of the Project (civil works and consulting services) was $45.7 million compared with $40.9 million estimated at appraisal, (ii) there was a 3-year delay in project completion, and (iii) the average normal traffic growth from 2002 to 2020 is 3% compared with 4% estimated at appraisal. The economic analysis shows an economic internal rate of return (EIRR) of 14.7%, against the 21.5% estimated at appraisal (Appendix 10). The reduction in EIRR is due to the lower than predicted growth in truck and transit traffic. If the increase in the annual maintenance costs ($600,000) due to pavement defects during the first 5 years and the major maintenance works during the sixth year ($20 million) are taken into account, the EIRR drops to 10.5%. Overall the Project is rated less efficacious. C. Efficiency in Achievement of Outputs and Purpose

68. The direct benefits of the road rehabilitation works are reductions in vehicle operating costs along the project road and in travel time from Almaty to Astana, which is presently about 16 hours. In 1996 the travel time was 30–40 hours. About one sixth or 2.5 hours of the reduction of the travel time from Almaty to Astana is due to the Project as the average operating speed on the road is 85 km/h. Overall vehicle operating costs fell by about 8% (savings derived by 5-axle trucks amounted to about 40% of the total savings). 69. The road maintenance manual for the Almaty-Astana road prepared by the Engineer was not used by the EA, which found it unacceptable. Reasons for the EA’s decision may have been the frequent changes in EA personnel, resulting in a lack of cooperation between the EA and the Engineer during the manual’s preparation, and a consequent lack of ownership on the EA’s side. The Project was rated as less efficient. D. Preliminary Assessment of Sustainability

70. The rehabilitation works of bridges and drainage structures will last for the designed service life, 20–30 years, provided that routine maintenance is done as required. According to the independent technical audit conducted on the works, the rehabilitation of the asphalt pavement works carried out under the Project can be postponed by 5–6 years if annual repair works for $600,000 are done (para. 71). After 5 years, i.e., in 2007, the existing asphalt concrete pavement will have to be recycled and compacted, as an additional base course and a new wearing course will have to be put in place. The estimated cost of the rehabilitation is $20 million. The original plan was to have at least a 20-year service life for the pavement. 71. Between the completion of the civil works in August 2001 and August 2003 the road maintenance costs of the project road section were T27,196,058, equivalent to $185,000 or $964/km, which is an acceptable sum for a new road without defects. To prevent drastic deterioration of the road the maintenance funding has to be increased by $600,000 a year, or $3,000/km. 72. The Road Fund was established in 1995 but ceased to exist in 1998. The Government needs to find other sources to finance the maintenance of the national road network.

15

73. The EA in its PCR regretted its failure to insist on the inclusion in the bidding documents of road maintenance equipment specifications, which could have specifically mentioned the equipment’s performance requirements for Kazakhstan. The procured equipment is partially nonfunctioning after 2 years of usage due to severe wear, particularly in the hydraulic systems, and to lack of spare parts as the manufacturer does not have a local distributor in the country and this was not taken into account in the bidding documents. The Project was rated as less likely in terms of sustainability. E. Environmental, Sociocultural, and Other Impacts

74. The Project has had limited environmental impact, though greater numbers of wildlife are hit and killed by the traffic. In addition, the number of traffic accidents and human casualties has risen, caused by vehicles’ greater travel speeds. 75. The Project provided employment for local unskilled labor for 6,000 person-months, which had a big impact on a population of less than 100,000 along the project road. Establishment of roadside services has further benefited local people. IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

76. The Project remains highly relevant after completion. Because its efficacy, efficiency, and sustainability are lower than those anticipated at project preparation, and because its institutional impacts are minimal, the Project is rated only partly successful (Appendix 11). B. Lessons Learned

77. Better and more project-specific TOR for the consultants (including the PPTA consultant), closer supervision, and more training in ADB procedures for the PIU and EA, as well as advice in selection of consultants and contractors, would have reduced the technical problems during the Project. 78. Many delays in the Project were due to the EA’s and MOF’s reluctance to accept the international contract conditions, and the failure to honor the Engineer as the Borrower’s representative in the Project. The Borrower (represented by MOF) would have benefited from more and continual training in ICB procedures and in application of ADB’s various guidelines. 79. The EA has learned that it should be prepared to actively participate in project preparation (including PPTA and advisory TA) and to oversee the work of consultants and contractors to gain strong ownership in all project components and in all decisions made. In this Project the EA largely ignored the advisory TA and the maintenance assistance during the civil works. 80. ADB has learned that the EA’s opinion needs to be considered in procurement, even if the EA does not fully understand the procedures of ADB’s Guidelines for Procurement.

16

C. Recommendations

1. Project Related

81. Future Monitoring. The development of traffic intensity should be monitored to predict the needs of future rehabilitation measures. Traffic safety should be monitored and improved to decrease traffic accidents. 82. Covenants. The covenants not complied with in this Project (efficient PIU, sufficient funding of road sector, modernizing road administration, corporatization and privatization of the Government’s road maintenance and construction companies) should be made covenants of subsequent loans. 83. Further Action or Follow-Up. The EA has to follow the performance of the pavement and take required remedial measures in a timely manner to avoid a complete loss of investment in the pavement works. 84. Additional Assistance. Forthcoming loans should make a functioning PIU a major covenant of the loans. The consultants of the loans or advisory TAs should be required to give training to the personnel in project management and in procurement. 85. Timing of PPAR Preparation. ADB should consider preparing the PPAR in 2004 and preparing an in-depth evaluation report of the loan together with the Loan 1444-KGZ. .

2. General

86. During project preparation the following should be taken into account: (i) The issues and recommendations mentioned in the project framework should be made

covenants of the loan. Otherwise, ADB has no means to make sure that the recommendations are implemented or observed;

(ii) TORs for the consultants of road rehabilitation projects should take into account the climatic and geological conditions of the country, and in the selection of the consultants for TAs and supervision, their experience in similar climatic and geological conditions should be emphasized;

(iii) A borrower should be encouraged to finance the PIU through the loan if the government salaries are not competitive with the salaries of the private sector;

(iv) If equipment is procured under a loan, the loan should have a covenant saying how the equipment will be used and who will use it;

(v) ADB should also monitor use of the counterpart funds, as they are part of the total project;

(vi) Optimistic schedules should be avoided. They mislead the EA and the borrower and cause resentment toward ADB when construction seasons are lost due to delays in procurement procedures; and

(vii) ADB should coordinate the TA assistance with other international finance institutions to avoid duplication.

17

87. During project implementation the following should be taken into account: (i) ADB should review the technical performance of the Project and of the attached advisory

TA, in addition to procurement, disbursements, and covenants. In road rehabilitation projects, it is important that an engineer takes part in all ADB missions;

(ii) To avoid an adverse impact on relations with the borrower, ADB should carefully consider the EA’s views on procurement, explain ADB’s various guidelines to the EA, and assist the EA in actively participating in bid evaluation with the consultants to reach common understanding according to ADB’s Guidelines for Procurement;

(iii) If ADB’s missions or Project Administration Officers recognize problems in implementation, missions should be fielded more frequently than on an annual basis. The missions should discuss matters separately with the EA, consultants, and contractor and try to find indications of problems and bring up the problems in common meetings and help the parties to see the threats and act proactively to eliminate them. If serious problems emerge, the projects could be reviewed even several times a year, either through the fielding of additional, dedicated missions or in connection with other projects in the country or in neighboring countries;

(iv) EAs and PIUs should be encouraged and trained to use email to discuss the problems informally. Through proactive involvement of the Project Administration Officers many problems can be prevented from developing in a project; and

(v) If construction materials are not available in the borrowing country and when material cost or transport costs from other ADB member countries are high, it should be considered during the project preparation to request permission from the ADB’s Board of Directors (3/4 majority is needed) to allow acquisition of bulk materials from nonmember countries. The origin of materials like fuel, bitumen, stone aggregate, and sand may be impossible to verify if intermediaries are used, which makes difficult to enforce the procurement regulations.

Appendix 1 18

PROJECT FRAMEWORK

Design Summary Project Targets (Verifiable Indicators)

Result Monitoring Mechanisms

Risks/ Assumptions

Goal To rehabilitate and

maintain roads to arrest the ongoing decline in the potential for future sustainable development

1. Deterioration of about 600 kilometers (km) of road section in Almaty-Akmola corridor arrested through rehabilitation and maintenance

Rehabilitated Project completion review and subsequent project administration (PA) missions

2. Department of Roads (DOR) capability improved for project management and supervision, contract administration, and road maintenance

DOR capability was somewhat improved

Project midterm review (MTR) and subsequent PA missions

Gov’t. will improve its civil service conditions to retain its trained staff

3. Road sector policy environment improved for private sector to participate

No policy improvement, no privatization

Project MTR, subsequent PA, and project processing missions

Gov’t. will continue to open its economy

Purpose 1. To improve the road

infrastructure through rehabilitation and maintenance for efficient movement of freight and passengers

1.1 Economic internal rate of return (EIRR) of about 21.5% on the project road achieved by 2000

Economic internal rate of return (EIRR) max. 14.7%, probably only 10.5%

EIRR assessment in benefit monitoring and evaluation report

2. 3.

To improve Institutional capacity To improve the policy support environment

1.2 International roughness index of the roads maintained under the Project measured less than 4 meters per kilometer..

Achieved Road roughness assessment in benefit monitoring and evaluation report

2.1 The systems (management information, accounting, and project management ) in State Road Authority (SRA) and selected oblast road authorities (ORAs) established

SRA and ORAs not established

PA missions and progress report of the consultants

Gov’t. will continue to address capacity development issues recognizing their importance and by mobilizing adequate resources in future

2.2 Routine road maintenance management system on selected road maintenance depots (RMDs); about six RMDs established

Ministry of Transport and Communic-ations (MOTC) did not adopt the Road Maintenance system developed by the consultant

PA missions and progress report of the consultant

2.3 Medium-term human resources development (HRD) plan adopted

No HRD plan adopted

HRD plan

Appendix 1 19

Design Summary Project Targets Result Monitoring Risks/ (Verifiable Indicators) Mechanisms Assumptions

omponents/ Outputs 1.1 Rehabilitation of about

192 km section of deteriorated paved national road, feasibility study, and detailed design of about 200 km of other selected road sections and maintenance of selected sections of the road in Almaty–Akmola corridor

1.1 Rehabilitation of 192 km road section completed by end-1999

192 km of road rehabilitated

PA missions and progress reports

Inadequate budget allocation for rehabilitation and maintenance in general

1.2 Feasibility study and detailed design of 200 km of roads prepared by end-1998

Done PA missions and consultants’ feasibility study and design reports

1.3 Maintenance of about 600 km of road progressing satisfactorily and other RMDs identified for introduction of the road maintenance system

Almaty-Astana road was maintained during 1999-2001

PA missions and progress reports

2.1 Strengthening of DOR by establishing an SRA and 19 ORAs

2.1.1 Number of staff under DOR increased No SRA and ORAs, staff reduced

PA missions

2.1.2 Qualified staff mobilized under DOR No PA missions 2.1.3 Quality of DOR’s project output

improved No PA missions

2.2 Enhancement of SRA’s capability to implement projects

2.2 On-the-job training of counterpart staff and exposure of domestic consultants in project management, supervision, and administration by international consultants for construction supervision completed

Insufficient training

PA missions and progress reports

Limited ability of counterpart staff to learn and accept new ideas and knowledge due to language problem

2.3 Enhancement of the road maintenance capacities of SRA and ORAs

2.3 Road maintenance standards prepared, maintenance training conducted, maintenance equipment delivered, and maintenance program successfully implemented and being expanded to cover more roads

Not adopted by MOTC

Maintenance manuals, standards PA missions, and progress reports

Adequate fund allocation from Road Fund for road maintenance in general

2.4 Implementation of HRD plan

2.4.1 Improved institutional structure and setup implemented

No improvement

MTR and PA missions

2.4.2 Number of staff being trained within and outside the country increased

No international training

MTR and Project completion report (PCR) missions

3.1 Adoption of Road Sector Policy Statement (RSPS)

3.1.1 Progressively greater responsibility and autonomy being given to functioning of state-owned and private enterprises

No privatization Advisory TA (ADTA) consultants’ final report

3.1.2 Committee for Legal Reform formed by 30 June 1997

No ADTA consultants’ final report

3.1.2 Committee for Legal Reform formed by 30 June 1997

No PA review missions and ADTA consultants’ report

3.1.3 National Transport Advisory Committee established by 31 December 1997

No PA review missions and ADTA consultants’ report

20 Appendix 1

Design Summary Project Targets (Verifiable Indicators)

Result Monitoring Mechanisms

Risks/ Assumptions

3.2 Implementation of Road Fund Decree

3.2 Road Fund collected in accordance with the Road Fund estimate

Road Fund was abolished

Budget document of DOR

Difficulty in collecting Road Fund

3.3 Adoption of recommendations for rationalized road-user cost recovery practices

3.3 Improved cost recovery measures adopted by 31 December 1997 and incorporated in the updated Road Act

Done The Road Act Gov’t. opposition to increased tax on fuels

3.4 Implementation of the updated Road Act

3.4.1 Organizational jurisdictions of sector institutions defined and clarified

No PA missions

3.4.2 Road infrastructure classified No DOR’s road standards and specifications

3.4.3 Policies regarding road industry licensing tariffs, and fares updated

No Freight tariffs and passenger fares

3.4.4 Policies regarding motor vehicles registration, licensing, inspection, and weight and dimension control updated

No PA missions

3.4.5 Policies regarding road-user cost recovery adopted

No DOR’s budget and tax returns of the items through which cost recovery has been proposed

Activities 1.1 Providing adequate

counterpart funds for the Project implementation

1.1 Funds allocated from Road Fund Yes DOR budget estimate

In case of shortage, Gov’t. will allocate additional funds

1.2 Recruiting detailed design and construction

1.2 Consultant recruited in August 1996 In December 1996

Contract documents

1.3 Carrying our survey and design

1.3 Survey and detailed designs completed by October 1996

February 1997 Survey and design reports

1.4 Awarding of contracts 1.4 Civil works awarded by March 1997 November 1997

Progress reports and PA missions

Limited international competition

1.5 Carrying out road rehabilitation and maintenance of selected road sections

1.5 Rehabilitation completed by October 1999 and routine road maintenance continues to be implemented satisfactorily

August 2001 Progress reports and PA missions

1.6 Supervising the construction and on-the-job training of counterpart staff

1.6 Construction supervision completed by October 1999 and DOR, SRA, and ORA staff trained in construction supervision and contract administration

Consultant ‘s contract completed September 2002, no SRA, ORAs

Progress reports and PA missions MTR, PCR, and future Asian Development Bank (ADB) missions

2.1 Establishing an SRA and 19 ORAs

2.1 Decree no. 1598 establishing SRA and ORAs Issued on 27 November 1995

No Completed

2.2 Recruiting ADTA consultants

2.2 ADTA consultants recruited by mid-1996

December 1996

Contract documents

2.3 Introducing works accounting, financial and management information systems in SRA and ORAs

2.3 Systems introduced in DOR from the beginning of 1998

No PA missions

2.4 Recruiting detailed design and construction supervision consultants

2.4 Consultant recruited by mid-1996 December 1996 Contract documents

2.5 Recruiting road maintenance assistance consultant

2.5 Consultant recruited by mid-1996 December 1996 Contract documents

Appendix 1 21

Design Summary Project Targets Result Monitoring Risks/ (Verifiable Indicators) Mechanisms Assumptions

2.6 Preparing road maintenance standards and manuals

2.6 Maintenance manual prepared and approved for implementation by the end of 1997

April 1998 PA missions and progress reports

2.7 Training of road maintenance staff

2.7 Training continued until mid-2000 No MTR and PCR missions and progress reports

2.8 Procuring road maintenance equipment

2.8 Equipment procured by September 1997

November 2000 Contract documents and PA missions

2.9 Reviewing the organizational structure, roles, responsibilities, and functions of DOR and properly defining them and preparing HRD plan for DOR

2.9 HRD plan prepared; four DOR staff trained abroad

No Consultant’s final report

3.1 Preparing RSPS and adopting it

3.1 Ministry of Transport Communications adopted RSPS with effect from 31 March 1996

Yes Completed

3.2 Enacting Road Fund Decree

3.2 Road Fund Decree No. 2701 issued on 27 December 1995

Yes Completed

3.3 Carrying out the road-users cost recovery study by ADTA consultants

3.3 Cost recovery proposals reviewed by ADB and Gov’t. and incorporated in the Road Act

Yes ADTA consultants’ report

3.4 Updating Road Act with the help of ADTA consultants

3.4 Road Act reviewed by ADB and the Government; Road Act approved by Gov’t. by December 1997

Yes Draft Road Act

Inputs/Resources

Project Costs ($ million)

(including taxes)

Estimate Actual 1. Civil Works 36.2 41.2 2. Road Maintenance,

Equipment, Materials, and Human Resources 19.0 22.2

3. Consulting Services (i) Detailed Design, Construction

Supervision, Maintenance Assistance, and Benefit Monitoring

4.7 4.6

(ii) Detailed Design of Selected Roads 0.4 0.9 4. Contingencies 10.5 0.0 5. Interest During Construction 6.2 9.1 Total 77.0 78.0

Appendix 2 22

CHRONOLOGY OF MAJOR EVENTS IN PROJECT 11 Jan 1995 PPTA for the project, TA 2285-KAZ: Preparation of a Road

Rehabilitation Project, for $600,000 was approved.

21 Feb–6 Mar 1996 Loan Fact-Finding Mission.

12 Apr 1996 Management Review Meeting.

25 Apr 1996 MOTC advised that the PIU had been established by the Department of Roads of MOTC.

30 Apr 1996 ADB approved the shortlist and invitation documents for detailed design and construction supervision consultant.

24 May 1996

Invitation letters were issued to the seven short-listed firms.

7–17 May 1996

Appraisal Mission.

7 Jun 1996

Staff Review Committee Meeting.

24–26 Jul 1996 Loan negotiations.

25 Jul 1996 Deadline for submission of consultant proposals. 9–11 Aug 1996

Special loan administration mission to assist MOTC in its evaluation of consultants’ proposals for detailed design and construction supervision.

27 Aug 1996 Loan approval.

18 Oct 1996 Loan Agreement was signed.

31 Oct 1996

ADB approved the first-ranked firm for the design and construction supervision consultant.

11–14 Nov 1996

Contract negotiations with first-ranked firm for the design and construction supervision consultant.

22 Nov 1996

Contract signing.

2 Dec 1996

Commencement of services of the detailed design and construction supervision consultant.

5–9 Dec 1996 Loan Inception Mission.

9 Jan 1997 ADB approved a 2-month extension of loan effectiveness from 16 January 1997 to 16 March 1997.

21 Jan 1997 ADB approved the replacement of consultant’s Project Manager due to illness.

Appendix 2 23

27 Feb 1997 ADB approved the replacement of consultant’s Project Manager and Resident Engineer.

31 Mar 1997 Loan became effective. 22 Apr 1997

ADB received the signed contract of the consultant (JOC/WSA) in the amount of $3.7 million.

24 Jun 1997 Bid opening for civil works.

7 Jul 1997 ADB approved the reallocation of $6.2 million from IDC to (i) civil works ($1.8 million) to meet local currency cost, (ii) equipment ($3.4 million) for the procurement of additional road maintenance equipment—foreign exchange cost, and (iii) unallocated ($1.0 million). The Borrower was advised that IDC and other charges during construction should be paid by the Borrower from its own funds.

31 Jul 1997 ADB approved the award of the civil works contract.

7–9 Oct 1997 Loan Review Mission 1.

6 Nov 1997 The civil works contract was signed. 17 Feb 1998

ADB approved the replacement of consultant’s Project Manager.

26 Feb 1998

ADB approved the replacement of consultant’s Resident Engineer.

4 Mar 1998

ADB approved the replacement of consultant’s Soil/Material Engineer.

May 1998 Commencement of civil works. 25 Jun 1998

ADB approved the replacement of consultant’s Resident Engineer

15 Jan 1999

Bid opening for the procurement of road maintenance equipment.

26 Feb 1999

ADB approved the replacement of consultant’s Resident Engineer and expressed its concern regarding the frequent changes to the consultant’s personnel.

12–16 Mar 1999 Midterm Review Mission. 4 May 1999

ADB received the BER for road maintenance equipment.

20 May 1999

ADB advised the EA to submit a revised BER for the road maintenance equipment.

27 May 1999

ADB approved the revised manning schedule, additional site inspector, and the replacement of consultant’s Maintenance Manager.

7 Jun 1999

ADB received the revised BER for equipment proposing the award of contract to DaimlerChrysler.

Appendix 2 24

15 Jul 1999 ADB approved the replacement consultant’s as Maintenance Manager and the appointment of a new Soils/Materials Engineer.

1 Sep 1999

ADB approved the proposed training of four participants (engineers) to the XXI International Road Congress to be held in Kuala Lumpur, Malaysia on 3–9 October 1999 in the amount of $10,000.

12 Nov 1999

ADB approved the award of the equipment contract to Nichimen Corp.

19 Nov 1999

ADB received a fax from MOTC providing clarification that it could not agree to ADB’s decision to award the contract to Nichimen.

23 Nov 1999 ADB advised MOTC that if still wished to award the contract to DaimlerChrysler, ADB would not be able to finance the contract under the loan and asked the EA to seek other sources of fund.

25 Jan 2000

ADB received advice from MOTC indicating (i) its acceptance of ADB’s decision to award the contract to Nichimen, and (ii) requesting approval to negotiate a reduction in contract price with Nichimen since its bid amount substantially exceeded the amount allocated for equipment under the loan.

22 Mar 2000

ADB received a copy of EA’s approval of the appointment of a new Deputy Resident Engineer.

5 Apr 2000

ADB advised MOTC that it could not negotiate with Nichimen a reduction in its bid price and advised that a reallocation of loan proceeds could meet the expected shortfall of the equipment category under the loan.

10–14 Apr 2000 Loan Review Mission 2 19 Apr 2000

ADB approved the modified scope of equipment contract: (i) reduction in the number of inspection cars and road lining machines; (ii) cancellation of radio communication system; and (iii) cancellation of additional tipper trucks and front-mounted snow blowers, which reduced the contract price from $10.44 million to $9.86 million.

26 Apr 2000

Equipment procurement contract with Nichimen was signed.

28 Apr 2000 ADB approved a reallocation of $3.6 million loan proceeds from the unallocated category to civil works ($2.0 million) and equipment ($1.6 million) categories.

29 May 2000

ADB received a copy of Modification No. 2 extending the consultant’s services from 30 November 1999 to 27 June 2000 and increasing the contract cost from $3.7 million to $4.34 million for ADB’s approval.

31 May 2000

ADB approved the recruitment of a new Maintenance Management Computer Specialist.

4 Jul 2000

ADB approved Modification No. 2 for: (i) extension of construction

Appendix 2 25

supervision from 30 November 1999 to 27 June 2000, (ii) extension of road maintenance consultants from December 1999 to June 2000, and (iii) increase in contract cost from $3.7 million to $4.34 million.

7 Aug 2000 ADB approved extension of the loan closing date by 12 months from 30 November 2000 to 30 November 2001.

28 Nov 2000

ADB approved Modification No. 3 extending the completion of consulting services from 28 June 2000 to 30 November 2000 at no increase in contract amount of $4.34 million.

18 May 2001

Completion of delivery of equipment.

15 Jun 2001

ADB approved Modification No. 4 extending the consulting services to 30 September 2001 and increasing the contract amount to $4.79 million.

14 Aug 2001 The consultant issued the taking-over certificate (effective 14 August 2001) to the contractor for Km 695+800 to Km 664+500 of Gulshad to Akchetau. The defect liability period also commenced on this date.

29 Aug–5 Sep 2001 Loan Review Mission 3

13 Sep 2001 Ribbon cutting ceremony for the substantial completion of Km 596-Km 787+700.

22 Oct 2001 ADB approved the (i) second extension of the loan closing date by 9 months from 30 November 2001 to 30 September 2002 and (ii) extension of the consultant’s services for construction supervision by 10.5 months from 30 September 2001 to 15 August 2002 to allow supervision during the defects liability period.

7 Nov 2001

ADB received a copy of the signed contract with Louis Berger and a letter from the EA advising that financing of the detailed design would be financed from government funds.

22–26 Apr 2002 Loan Review Mission 4

27 Aug–6 Sep 2002 Loan Review Mission 5

27 Sep 2002 ADB approved the third extension of the loan closing date by 6 months from 30 September 2002 to 31 March 2003 to allow for the settlement of disputes regarding the contractor’s final claim for civil works.

24 Oct 2002 ADB’s comments to the TOR for the independent consultant who would conduct a technical investigation/audit of civil works were provided to MOTC.

4 Nov 2002 Commencement of independent technical audit by Finnroad.

11 Dec 2002 Loan closing.

18 Mar 2003 ADB received a copy of the report by Finnroad.

Appendix 2 26

9–16 Jul 2003 Project Completion Review Mission. ADB = Asian Development Bank, EA = Executing Agency, IDC = interest during construction], JOC = Japan Oversea Consultants, MOTC = Ministry of Transport and Communications, PIU = project implementation unit, PPTA = project preparatory technical assistance, TA = technical assistance, TOR = terms of reference, WSA = Wilbur Smith Associates.

CONTRACT PACKAGES

Contract Description

Number

of Contracts

Procure-

ment Method

Estimated Contract

Value ($ million)

Actual Contract

Value ($ million)

Contract Approved

Works Completed

Contractor

A. Road Rehabilitation Civil Works 1 ICB 36.20 41.17 July 1997 August

2001 Balfour Beatty (UK)-Mensel (Turkey)-Afdan (Kazakhstan)-Zheskazgan Zholdary (Kazakhstan)

B. Road Maintenance

MaintenanceEquipment

1 ICB 5.80 9.84 April 2000 November2001

Nichimen (Japan) See Appendix 4

Routine maintenance 13 KAZ 13.20 12.39 1999 2001 See Appendix 5

C. Consulting Services Detailed Design and

Construction Supervision, Road Maintenance Assistance, and BME

1

ICR

4.70

4.56

November 1996

August 2002

Japan Overseas Consultants (Japan) and Wilbur Smith Associates (US)

Detailed Design for

Selected Priority Road Sections.

1

ICR

0.40

0.66

June 1997

September

1998

Consulting Engineering Services Pty. (India) and Kazdorproekt (Kazakhstan)

Design of Almaty-

Bishkek road, Loan 1774-KAZ

1 KAZ 0.00 0.25 October2001

January 2003

Louis Berger International (US), ECIL (Pakistan), Kazdorproekt (Kazakhstan), and Kazakh Consult International (Kazakhstan)

Total 60.30 68.87

Appendix 3 27

BME = benefit monitoring and evaluation, ICB: international competitive bidding, ICR: international competitive recruitment, UK = United Kingdom, US = United States. KAZ: Direct award according to Kazakh practice Source: ADB files.

en

pre

MAINTENANCE EQUIPMENT PROCURED

Kazakhavtodor branch/oblast

Ren

ault

truc

k

Sand

spr

eade

r

Snow

plo

ugh

Snow

blo

wer

Rot

ary

broo

m

Wat

er ta

nk w

ith

spra

y

Cra

ne

Jeep

Pick

up

Bitu

men

tank

Bitu

ms

ader

Man

ual v

ibra

ting

rolle

r

Air

com

pres

sor

Pneu

mat

ic

ham

mer

Con

cret

e m

ixer

Asp

halt

saw

Mea

sure

men

t w

heel

Roa

d m

arke

r

Spar

e pa

rts

Tota

l

Akmola 9 9 9 5 9 5 1 5 2 2 2 2 4 2 3 69

Aktyubinsk 0

Almaty 10 10 10 2 4 2 1 4 3 3 3 3 6 2 1 5 69

Atyrau 0

East-Kazakhstan 0

Zhambyl 2 2 2 2 2 10

West-Kazakhstan 0

Karaganda 0 2 2 3 12322 22 22 4 6 3 1 6 5 5 5 5 1

Kyzylorda 0

Kostanai 0

Mangystau 0

Pavlodar 1 1 1 1 4

North-Kazakhstan 2 2 2 1 1 1 1 1 1 1 2 1 1 17

South-Kazakhstan 0

Road Construction 2 2 2 1 7

Total Number 46 46 46 15 22 11 3 2 17 11 11 11 11 22 6 6 12 1 299

Original value ($ million)a 5.552 0.900 0.452 0.452 0.177 0.213 0.275 0.039 0.498 0.378 0.045 0.104 0.197 0.019 0.092 0.018 0.003 0.167 0.318 9.898

a The difference between the total sum and the contract sum, $9.84 million, is due to the fact that the supplier provided additional spare parts instead of paying liquidated damages. Source: Kazakhavtodor

28 Appendix 4

ROUTINE MAINTENANCE COMPONENT

Year Contract Contractor From To Contract Amount ($'000)

Maintenance Contracts 1999 Almaty-Astana Road Maintenance Kazakhavtodor 1 Jan 1999 31 Dec 1999 2,679.56 2000 Almaty-Astana Road Maintenance Kazakhavtodor 1 Jan 2000 31 Mar 2000 163.00

Almaty-Astana Road Maintenance Kazakhavtodor 1 Apr 2000 31 Dec 2000 187.16 Almaty-Astana Road Maintenance Dorozhnik 1 Apr 2000 31 Dec 2000 488.38 Almaty-Astana Road Maintenance Dauletdorstroi 1 Apr 2000 31 Dec 2000 263.16 Almaty-Astana Road Maintenance DRSU 1 Apr 2000 31 Dec 2000 55.61 Almaty-Astana Road Maintenance Zhetysu Zholdary 1 Apr 2000 31 Dec 2000 77.50 Almaty-Astana Road Maintenance Karaganda Zholdary 1 Apr 2000 31 Dec 2000 1,132.85

2001 Almaty-Astana Road Maintenance Kazakhavtodor 12 Nov 2001 20 Dec 2002 787.90 2002 Almaty-Astana Road Maintenance Kazakhavtodor 644.19

Total Maintenance Cost 6,479.31

Procurement of Road Maintenance Equipment

Evrazia 8 Feb 2001 16 Jun 2002 1,662.00

Repair of Buildings

Repair of Buildings Kazakhavtodor 1 Jan 2001 31 Dec 2001 1,182.78 Repair of Buildings Spetsdorstroi 20 Apr 2001 3 Oct 2001 3,065.94 Total Building Repair Cost 4,248.72 Total Cost 12,390.03

Appendix 5 29

COST AND FINANCING

($ million) Appraisal Actual Components ADB Government Total ADB Government Total Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total Foreign Local Total 1.

Civil Works (Gulshad-Akchetau Road) 19.50 7.50 27.00 — 9.20 9.20 19.50 16.70 36.20 22.24 7.12 29.36 — 11.81 11.81 22.24 18.93 41.17 a

2. Road Maintenance 5.50 — 5.50 — 13.50 13.50 5.50 13.50 19.00 9.84 — 9.84 — 12.39 12.39 9.84 12.39 22.23

a. Equipment 5.50 — 5.50 — 0.30 0.30 5.50 0.30 5.80 9.84 — 9.84 — 1.66 1.66 9.84 1.66 11.50

b. Materials — — — — 9.30 9.30 — 9.30 9.30 — — — — 10.73 10.73 — 10.73 10.73 b. Human Resources —

—

—

—

3.90 3.90 —

3.90 3.90 —

—

—

—

—

—

—

—

—

3. Consulting Services 3.70 1.10 4.80 - 0.30 0.30 3.70 1.40 5.10 4.56 — 4.56 0.52 0.39 0.91 5.08 0.39 5.47

a.

Detailed Design and Construction Supervision of Road Rehabilitation, Road Maintenance Assistance, andBenefit Monitoring and Evaluation 3.40 1.00 4.40 — 0.30 0.30 3.40 1.30 4.70 4.56 — 4.56 — — — 4.56 — 4.56

b.

Detailed Design of Other Selected

Priority Road Sections 0.30 0.10 0.40 —

—

—

0.30 0.10 0.40 —

—

—

0.52 0.39 0.91 0.52 0.39 0.91 b

4. Contingencies 5.10 1.40 6.50 — 4.00 4.00 5.10 5.40 10.50 — — — — — — — — — a. Physical 2.87 0.85 3.72 — 2.30 2.30 2.87 6.02 — — — — — — — — — b. Price 2.23 0.55 2.78 — 1.70 1.70 2.23 2.25 4.48 — — — — — — — — —

Subtotal

33.80

10.00

43.80

—

27.00

27.00

33.80

37.00

70.80

36.65

7.12

43.77

0.52

24.59

25.11

37.17

31.71

68.87

5.

Interest and Other Charges During Construction

6.20

—

6.20

—

—

—

6.20

—

6.20

—

—

—

9.12

—

9.12

9.12

—

9.12

Total

40.00 10.00 50.00 — 27.00 27.00

40.00 37.00 77.00

36.65 7.12

43.77 9.64 24.59 34.23

46.29 31.71 78.00

% 100.0 27.0 64.90 0.0 73.0 35.1 51.9 48.1 79.2 22.5 56.1 20.8 77.5 43.9 59.3 40.7

a $41,169,622.24 paid against the contract as of 1 Nov 2002. Contractor is still claiming an additional $3,318,887.67 (reference: Borrower's PCR, p. 5) b Detailed design for Loan 1774-KAZ: Almaty-Bishkek Regional Road Rehabilitation Project.

30 Appendix 6a

3.15

Appendix 6b 31

Appraisal Actual

Foreign Local Total% to Total Foreign Local Total

% to total

ADB 40.00 10.00 50.00 64.9 36.65 7.12 43.77 56.1 Government 0.00 27.00 27.00 35.1 9.64 24.59 34.23 43.9 Total 40.00 37.00 77.00 100.0 46.29 31.71 78.00 100.0

32 Appendix 7

CUMULATIVE DISBURSEMENTS

0

20

40

60

80

100

1997 1998 1999 2000 2001 2002

Dis

burs

emen

t %

Source: ADB files

IMPLEMENTATION SCHEDULE

Item 1996 1997 1998 1999 2000 2001 2002J FMAMJ J A SOND J F MAM J J ASOND J F MAM J J ASOND J FMAM J J ASO NDJ FMAM J J ASO NDJ FMAM J J ASO NDJ FMAM J J ASO ND

A. Road RehabilitationMobilizeConstructio Winter Winter Construction

Civil Works x x x x x xPrequalification and TenderingMobilization Construction Defects Liability Periodx x x x x x x x x x x x x x x x

B. Road MaintenanceTendering Supply Implementation

Road Maintenance Equipment x x x x x xTendering Supply

XXX X XXXX X X X X X XX XXXXxC. Consulting Services

Detailed Design and Detailed Design andConstruction Supervision, RecruitmentTendering Services Winter Services Winter ServicesRoad Maintenance Assistance x x x xand Benefit Monitoring Services Recruitment Services

x x x x x x x x

RecruitmenServicesDetailed Design of Selected x x x x x xRoad Sections Recruitment Services

x x x x x x x x x x x x x x xD. Technical Assistance Institutional Strengthening of Recruitment Fieldwork Road Sector (TA 2631-KAZ) x x x x

Recruitmen Fieldworkx x x x x

Feasibility Study of Selected Recruitment FieldworkRoad Sections (TA 2632-KAZ) x x x x x x

Recruit Fieldworkx x x x

Actual

Prequalificationand Tendering Construction

Projected

Appendix 8 33

34 Appendix 9

COMPLIANCE WITH LOAN COVENANTS Covenants

Reference to Agreements

Status of Compliance

A. Implementation Arrangements

1. The project implementation unit (PIU) established within the Committee of Roads (COR) shall be responsible for the day-to-day implementation of the Project and provide the necessary contact between COR, the contractors, the suppliers, and ADB. A project manager appointed by COR shall serve as the head of the PIU and shall at all times be supported by a sufficient number of qualified road engineers, a materials and soil engineer, a bridge engineer, and supporting financial and clerical staff.

LA, Schedule 6, para. 1(a).

Partly complied with. The PIU was abolished with effect from 1 January 2002 and its function was undertaken by the Division of Investment Projects of COR. The division was not properly staffed.

2. The Borrower shall, by 31 March 1997, establish an adequately staffed maintenance implementation unit (MIU), headed by a maintenance manager to implement the maintenance operations under the Project and assist the PIU in the day-to-day implementation of the Project.

LA, Schedule 6, para. 1(b).

Complied with.

3. The Borrower shall ensure that the PIU and MIU remain adequately staffed at all times throughout the Project implementation period, and shall be assisted by the consultants for detailed design, construction supervision and road maintenance assistance.

LA, Schedule 6, para. 1(c).

Partly not complied with. There have been frequent changes in the staffing of PIU during project implementation and at present, the PIU is inadequately staffed.

4. The project steering committee (PSC), established by Ministry of Transport, Communications, and Tourism, shall be maintained for the duration of the project implementation period and shall (i) oversee and coordinate all project activities, including contact among the agencies involved in project implementation, and sector reforms agreed with ADB; (ii) review the status of the project implementation; (iii) monitor the progress achieved and resolve difficulties encountered; and (iv) serve as a forum for discussions on, and review of, the Project’s impact on regional development. The PSC shall be chaired by the Minister of Transport and Communications, or his representative, and its members shall include the Director of COR, the project manager, and representatives from the Committee for Utilization of Foreign Capital) and Ministry of Economy. The PSC shall meet at least twice a year, and more often if required.

LA, Schedule 6, para. 2.

Partly complied with. The PSC ceased to exist from 1 January 2002 and its functions are currently undertaken by the Department of State Borrowing.

B. Cost Recovery

5. The Borrower shall, by 30 June 1998, taking into account the recommendations of the advisory TA,

LA, Schedule 6, para. 3.

The recommendations were implemented in 1998; this

Appendix 9 35

Covenants

Reference to Agreements

Status of Compliance

adopt appropriate measures to improve cost recovery from road users.

included reducing the enterprise tax (the main source for the Road Fund but not related to the road user charges) from 0.5% of turnover to 0.2% and by moving the point of collection of the fuel tax from the retail level to the refinery/import level. However, the Road Fund was subsequently abolished in 1998, and all road development maintenance funds are appropriated from the state budget.

C. Benefit Monitoring and Evaluation

6. The Borrower shall, with the assistance of the consultants engaged under the Project, (i) establish a benefit monitoring and evaluation system for recording the baseline data, including the traffic data, and collecting the statistical data for monitoring the project benefits, and (ii) cause COR to evaluate the project benefits, and monitor and report on physical, financial, economic and social aspects of the Project during the course of project implementation.

LA, Schedule 6, para. 4.

Complied with. Final report was submitted to ADB in August 2002.

D. Environmental Considerations

7. The Borrower shall (i) ensure that appropriate environmental protection and safety devices are incorporated in the design of the Project and (ii) implement the Project, and operate and maintain the project facilities, in accordance with the initial environmental examination prepared under ADB-financed TA 2285-KAZ: Preparation of a Road Rehabilitation Program, and ADB’s Environmental Guidelines for Selected Infrastructure Projects.

LA, Schedule 6, para. 6.

Complied with.

E. Policy Issues

8. Regulatory Reforms. The Borrower shall, by 30 June 1997, establish a Committee for Transport Sector Legal Reforms (CTSLR) which shall, with the assistance of the advisory TA consultants, (i) update the Borrower’s existing Road Act and present it for the consideration of Parliament, (ii) issue regulations consistent with the existing Road Sector Policy Statement (RSPS), and (iii) undertake a comprehensive review of the existing legislation in the transport and road sector and make any amendments required to ensure consistency with

LA, Schedule 6, para. 7.

Partly complied

36 Appendix 9

Covenants

Reference to Agreements

Status of Compliance

the revised Road Act and the RSPS.

9. CTSLR shall be chaired by the Minister of Transport and Communications, or his representative, and its members shall include the representatives of the Ministry of Justice, Auto Transport Department (ATD) of MOTC, COR, and one member from the Parliamentary Standing Committee on Transport and Communications.

LA, Schedule 6, para. 8.

Partly complied with.

10. Sector Reforms. The Borrower shall, by 31 December 1997, cause MOTC to establish the National Transport Advisory Committee consisting of the representatives of MOE, COR, ATD, state transport enterprises, and the private sector.

LA, Schedule 6, para. 9.

Partly complied with.

F. Other Matters

11. Retroactive Financing. Withdrawals from the loan account may be made for reimbursement of reasonable expenditure incurred under the Project before the effective date, but not earlier than 1 July 1996, in connection with the selection and recruitment of consultants, subject to a maximum amount of $1.5 million.

LA, Schedule 3, para. 8.

12. The Borrower shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental and road practices.

LA, Section 4.01.

Complied with.

13. The Borrower shall make available the counterpart funds, facilities and services, for carrying out of the Project.

LA, Section 4.02.

Complied with.

14. The Borrower shall cause competent and qualified consultants and contractors to be employed.

LA, Section 4.03.

Partly complied with.

15. The Borrower shall ensure that the activities of its departments and agencies are conducted and coordinated in accordance with sound administrative policies and practices.

LA, Section 4.04.

Complied with.

16. Insurance. The Borrower shall make arrangements for insurance of the project facilities.

LA, Section 4.05.

Complied with.

17. Records and accounts. The Borrower shall maintain project accounts.

LA, Section 4.06(a).

Complied with.

18. Audited Project Accounts. The Borrower shall (i) maintain separate accounts for the Project, (ii) have such accounts and related financial statements audited annually, in accordance with

LA, Section 4.06(b).

Complied with.

Appendix 9 37

Covenants

Reference to Agreements

Status of Compliance

appropriate auditing standards, and (iii) furnish to ADB not later than 9 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the reports of the auditors, including the auditor’s opinion on the use of the loan proceeds and compliance with the loan covenants, all in the English language.

19. The Borrower shall furnish ADB all such reports and information as ADB may reasonably request concerning the Loan, goods and services financed under the Loan, the Project, DOR, financial and economic conditions in the territory of the Borrower, and any other matters relating to the purposes of the Loan.

LA, Section 4.07.

Complied with.

20. Borrower’s Project Completion Report. Promptly after physical completion of the Project, but in any event not later than 3 months or such later date as may be agreed between the Borrower and ADB, the Borrower shall prepare and furnish to ADB a report on the execution and initial operation of the Project, including its cost, the performance by the Borrower of its obligations under the Loan Agreement, and the accomplishment of the purposes of the loan.

LA, Section 4.07(c).

Complied with. The report was received on 5 February 2003.

21. Inspections. The Borrower shall enable ADB’s representatives to inspect the Project, the goods financed out of the proceeds of the Loan, and any relevant records and documents.

LA, Section 4.08.

Complied with.

22. The Borrower shall ensure that the Project facilities are operated and maintained in accordance with sound administrative, financial, engineering, environmental,road, and maintenance and operational practices.

LA, Section 4.09.

38 Appendix 10

ECONOMIC REEVALUATION A. Economic Analysis at Appraisal

1 The benefit and cost analysis at the time of appraisal was based on the Highway Design and Maintenance model version 3 (HDM-3), adjusted for specific conditions in the project area. The economic evaluation was made by comparing the with-project and the without-project cases. 2. The scope of the Project at appraisal included rehabilitation of 192 kilometers (km) of road, about half of which had an International Roughness Index (IRI) of more than 6.5. The civil works were contained within the original right-of-way with minor changes to vertical and horizontal alignment. The Project included the construction of cross- and side-drainage structures and failed embankments, stabilizing shoulders, and rehabilitation of the pavement structure. The pavement and geometric design standards used correspond to the forecast traffic on the improved road and international norms. 3. The analysis at appraisal considered the economic cost of improving the road and the pursuant direct economic benefits arising from future savings in road maintenance costs and vehicle operating costs (VOCs). The analysis assumed that the Project would be completed by 1999 and, consequently, benefits were evaluated for a period up to and inclusive of through 2019, providing an economic benefit period of 20 years. The project road was divided into two sections and benefits and cost estimates were prepared for each section in the with- and without project cases. VOC savings were computed for each section on the basis of volume estimates for seven vehicle categories: cars, buses, and minibuses, and four types of trucks classified according to the number of axles. 4. The estimated savings in future maintenance costs were based on forecasts of future routine and periodic maintenance costs for “with-project and without- project” cases. Routine maintenance on the improved road (the “with-project” case) included, crack sealing, snow removal, repair of traffic signs and safety devices, cleaning of culverts and drainage ditches, and landscaping. For the “without-project” case, in addition to the above-mentioned works, the cost of repairs to potholes, roadside furniture, and hydraulic structures was included. Periodic maintenance for the “with-project” case included overlays every seven years. In the without-project case, periodic maintenance consisted of chip seals every second and third year, to replace the inevitable loss of material induced by traffic and snow removal. The need for application of overlays on the reconstructed sections was determined by the pavement deterioration model in HDM-3, which predicts pavement conditions based on information on climate, soil conditions, forecast traffic, and the specific pavement design. 5. The economic analysis at appraisal indicated that the Project would have an economic internal rate of return (EIRR) of 21.5%. The sensitivity analysis tested four alternative scenarios: (i) a 10% increase in cost, (ii) a 10% decrease in benefits, (iii) a 1-year delay in completion, and (iv) a combination of the first three scenarios. In all cases, the EIRR was above 12.0% (ranging from 15.8% to 19.5%). B. Economic Analysis at Project Completion 6. The ex-post economic analysis at project completion was undertaken by recalculating project costs and benefits estimated at appraisal, taking into account some changes that took place during implementation. Compared with expectations at appraisal, two differences were

Appendix 10 39

observed: (i) the total economic cost of civil works increased from $40.9 million to $45.7 million, and (ii) project implementation was significantly delayed and the road was only fully open to traffic in August 2001, about 2 years later than planned. Additionally, it was assumed that the average annual traffic growth rate from 2003 to 2019 will would be 3% as opposed to 4% used at appraisal.. 7. Traffic counts made in 2002 as part of benefit monitoring and evaluation (BME) confirmed that road usage by automobiles and buses had increased substantially. The number of automobiles in the various sections of the Project road increased on the average by 71% between 1995 and 2002. The number of buses and mini-buses increased by about 61%, but the number of trucks decreased by 43%. The reduction in truck traffic has largely been in the three- and four-axle category. According to the an origin-destination survey conducted in 1995, about 60% of the trucks had origins or destinations outside of Kazakhstan, but in July 2002, the share was less than 15%. 8. The expectation at appraisal, of an average IRI of 3.4 was higher than the 2.5 observed in July 2002. However, the higher value was used in the economic recalculations in order to retain the unit VOCs at the same level as those computed at appraisal. 9. Total VOC savings of approximately $334 million over the 20- year period foreseen at appraisal were unlikely to be realized due to the lower than expected growth in truck traffic. The recalculated savings are likely to be in the order of about $156 million of which about 40% would accrue to 5-axle trucks and 26% to automobiles. This estimate is also based on the assumption of a 3% annual average growth rate for all classes of traffic. The VOC savings to international transit traffic were excluded from the computations to be consistent with the assumptions made at appraisal. 10. As shown in Table A10, the results from the economic analysis, taking into account the differences noted above, indicate that the Project as implemented will generate an estimated EIRR of 14.7%, against 21.5% at appraisal. The lower than expected EIRR is largely attributable to the reduction in truck traffic, delayed project completion, and the slightly lower overall traffic growth rate used. The EIRR drops to 10.5% when the annual maintenance cost is increased by $600,000 during the first five 5 years and major rehabilitation for $20 million is done during the sixth year (due to defective civil works). However, if traffic grows at 6% per annum, the EIRR will remain at 14.7%, despite the added maintenance costs.

11. The appraisal did not provide analysis of the likely distribution of project benefits, nor has such analysis been performed at a later stage. It is suggested that future traffic counts be supplemented with socioeconomic interviews of road users on a stratified sample basis, to assess the distribution of transport related benefits over social-, economic-, travel purpose-, and modal strata.

40 Appendix 10

Table A10.1: Economic Reevaluation without Additional Maintenance Cost Due to the Pavement Defects

Costs Benefits

Year Capital Routine Periodic Total VOC Without Project Total Costs Maint. Maint. Costs Savings Routine Periodic Benefits Maint. Maint.

1996 0.12 0.12 0.00 1997 0.84 0.84 0.00 1998 9.47 9.47 0.00 1999 10.00 10.00 0.00 2000 14.94 14.94 0.00 2001 7.49 7.49 2.19 2.19 2002 0.66 0.66 6.58 6.58 2003 0.50 0.00 0.50 6.78 1.02 0.00 7.80 2004 0.50 0.00 0.50 6.98 1.02 1.39 9.39 2005 0.50 0.00 0.50 7.19 1.02 1.39 9.60 2006 0.50 0.00 0.50 7.40 1.02 0.00 8.42 2007 0.50 0.00 0.50 7.63 1.02 1.39 10.04 2008 0.50 3.00 3.50 7.85 1.02 1.39 10.26 2009 0.50 3.41 3.91 8.09 1.02 0.00 9.11 2010 0.50 0.00 0.50 8.33 1.02 1.39 10.74 2011 0.50 0.00 0.50 8.58 1.02 1.39 10.99 2012 0.50 0.00 0.50 8.84 1.02 0.00 9.86 2013 0.50 0.00 0.50 9.11 1.02 1.39 11.52 2014 0.50 0.00 0.50 9.38 1.02 1.39 11.79 2015 0.50 3.00 3.50 9.66 1.02 0.00 10.68 2016 0.50 3.41 3.91 9.95 1.02 1.39 12.36 2017 0.50 0.00 0.50 10.25 1.02 1.39 12.66 2018 0.50 0.00 0.50 10.56 1.02 0.00 11.58 2019 0.50 0.00 0.50 10.87 1.02 1.39 13.28

Economic internal rate of return = 14.7 %.

VOC = vehicle operating cost. Source: ADB staff calculations.

Appendix 11 41

RATING OF THE PROJECT Criterion Weight Rating Description Rating Value Score Total Rating

Relevance 0.20 Highly relevant 3 0.60 Efficacy 0.25 Less efficacious 1 0.25 Efficiency 0.20 Less efficient 2 0.20 0.4 Sustainability 0.20 Less likely 1 0.20 Institutional Impacts 0.15 None 1 0.00 0.15

Overall Weighted Average 1.25 Partly Successful Source: ADB Staff estimates. 1.60