Central Asia Regional Economic Cooperation Corridor 2 (Mangystau Oblast Sections) Investment Program (RRP KAZ 43439) SECTOR ASSESSMENT (SUMMARY): ROAD MAP

A. Road Sector Roadmap

1. Strategic Objective

1. The Government has adopted the 2020 Strategy for Economic Development (approved in February 2010) and the State Program on Accelerated Industrial-Innovative Development (SPAID) (approved in March 2010) to diversify the economy and promote all sectors’ balanced developments.1 To effectively support the 2020 Strategy and SPAID, the Government’s road development plan for 2006–2012 (RDP) has been reshaped and expanded into the Transport Sector Program for 2010–2014 (TSP), approved in July 2010. The TSP will develop an efficient transport system, which is integrated into the international transport system.2

2. Challenges

2. With ’s relatively low density of railways and waterways, roads are the dominant transport means. The total road length is 148,000 kilometers (km), 93,600 km of which is public roads, which are classified by national and local. International and republican roads constitute 25% of public roads, carrying 50% of freight.

3. Located at the center of transport flows between Europe and Asia, and thus providing strategic arteries of emerging transcontinental routes, Kazakhstan has great transit potential. Few land transport routes can avoid Kazakhstan when linking north to south or east to west. Trade between Asia and Europe, amounting to $700 billion in 2009, is expected to reach $1 trillion by 2015, of which 20% will pass through Kazakhstan. This transit traffic is forecasted to generate $1.1 billion in revenues for Kazakhstan.

4. Much of the road network is in poor condition, as 40% of republican roads require major rehabilitation and proper maintenance. The feeder road network serving the rural population is not fully developed. Roads on the six main international corridors are mostly paved with asphalt, but their technical and operational characteristics (e.g., evenness and strength) are below international standards with traffic exceeding allowable loads. The average driving speed along the Transport Corridor Europe–Caucasus–Asia, one of the six international transit corridors, is less than 20 km per hour. Combined with cross-border impediments, deteriorated road infrastructure has led transit traffic to have fallen far short.

5. More than half of the road surface in Mangystau Oblast is gravel or earth, and most of the paved sections are severely deteriorated and impassable. Traffic on the Akau–Beineu road has grown by 7% annually. Despite its strategic role as an arterial route, most of the road is in bad shape, as steep slopes and sharp turns limit the allowable speed. Congestion occurs daily, and the actual axle load of vehicles exceeds the road's design capacity. The road's inadequate serviceability and the consequent 12-hour travel time between Aktau and Beineu bloat transport costs and restrict trade.

1 Kazakhstan’s previous Transport Strategy for 2006-2015, which supported ADB’s 1st MFF for CAREC Corridor 1, has been integrated into the 2020 Strategy, SPAID, and TSP. 2 The contents of RDP (e.g., vision, strategic focus, investment projects) remain unchanged in TSP. TSP, integrating development plans for all subsectors (roads, railways, waterways, aviations, ports), has the additional focuses: (i) transport with high-technology, competitive and international standards; and (ii) closely driven by economic interests, national security, geopolitics and businesses. 2

6. In 2008, 13,739 road accidents were registered in Kazakhstan, killing 3,351 people and injuring 16,400. Though road accidents have been falling by 7%–8% per year, speeding and inadequate road design still cause many accidents. Inadequate road operation and traffic management cause many problems, including high fatality rates, truck overloading, and depressed revenues from transit charges. Efficient road operations and traffic management require reliable road network data. Advance information systems could be applied to include axle load monitoring and control, road weather information systems, highways advisory radio and electronic signs, and traffic-recording equipment. Such systems would provide the data required by maintenance managers to make the right maintenance decisions to ensure that road restrictions are minimized and costs are low, as well as to inform road users of road conditions in a timely way.

7. Complete road and traffic data are crucial for efficient planning. The government will develop a road data management system that will provide reliable indications of the long-term consequences of the strategies and plans being implemented. Existing road inspection systems and traffic surveys need to be modified so that road conditions and road work needs are collected. Traffic surveys need to be strengthened and expanded, as does the quality of accident data, so that the causes of accidents can be identified.

3. External Assistance and Lessons Learned

8. ADB is the lead agency in transport, customs cooperation, and trade facilitation activities of CAREC. International Financial Institutions involved in Kazakhstan’s road sector include ADB, EBRD, Islamic Development Bank, JICA, and the World Bank. ADB financed Gulshad– Akchetau and –Bishkek roads, completed in 2002 and 2006. The first project was rated successful.3 The Government made progress in institutional development and policy reforms. Road maintenance budgets have been increased. The second project was rated satisfactory.4 ADB approved the 1st MFF and a $340 million loan for the 1st tranche in 2008, a $189 million loan for the 2nd tranche in 2009, and is expected to approve a $173 million for the 3rd tranche project in 2010. First two projects have been complying with the requirements of FFA and the loan agreements.

B. Transport Sector Program (TSP)

9. The government places high priority on well-integrated investments in the international transit corridors and their connecting roads. Physical investments focus on reconstructing the corridors and improving road operations and maintenance systems to establish an efficient transport system that is well integrated into the international transport system.

1. Physical Investment

10. The TSP plans to upgrade 4,417 km of national roads on the six international corridors passing through Kazakhstan. Priority investment projects are (i) reconstructing the Western Europe–Western Corridor; (ii) reconstructing 12 road sections totaling 4,417 km: Shuchinsk––Petropavlovsk–border of , border of Russia–Uralsk–, Astana–Kostanai–Chelyabinsk, Zhetybay–border of , Astana–Karagandy, Almaty– Kapshagay, Taskesken–Bakhty, Usharal–Dostyk, Beyneu–Akzhigit–border of Uzbekistan,

3 ADB. 2006. Project Performance Evaluation Report on the Road Rehabilitation Project in Kazakhstan (Loan 1455). Manila. 4 ADB. 2002. Project Completion Report on the Almaty–Bishkek Road Rehabilitation Project in Kazakhstan (Loan 1774). Manila. 3

Omsk––Maikapshagai, Kurty–Burylbaytal, and Beineu–Aktau; and (iii) exploring other potential transit routes west–east and north–south. The government plans to (i) construct or upgrade 7,127 km and repair 9,951 km of national roads (ii) and repair and improve the operation of 12,485 km of local roads. By 2020, 16,000 km of national roads are planned to be constructed or reconstructed. The volume of traffic in Kazakhstan will be increased for more than 2 times.

Table 1: Road Works by Road Type, 2010–2014 (kilometer) 2010 2011 2012 2013 2014 2010–2014 National construction or upgrade* 550 1,290 1,914 2,001 1,370 7,127 roads Repair 1,429 2,720 3,424 4,942 4,563 17,078 Local roads 2,274 2,313 2,273 2,805 2,820 12,485 Total 3,703 5,033 5,697 7,747 7,383 29,563 * Including sections to be implemented through concession. Source: Ministry of Transport and Communications of Kazakhstan.

Table 2: Construction, Upgrade, and Repair of Public Roads, 2010–2014 (billion T) 2010 2011 2012 2013 2014 2010–2014 National Construction or upgrade* 153.9 290.6 448.22 454.9 239.5 1,587.1 roads Repair 20.0 25.0 27.0 27.0 30.0 129.0 Subtotal 173.9 315.6 475.2 489.9 269.5 1716.1 Local roads 38.1 41.3 53.9 60.8 67.3 261.3 Total 212.0 356.4 529.1 542.7 336.8 1,977.4 External borrowing 89.6 153.0 182.5 21.2 43 489.3 Concession 94.2 215.9 257.4 39.2 606.7 T = tenge. * Including sections to be implemented through concession. Source: Ministry of Transport and Communications of Kazakhstan.

2. Nonphysical Investments

11. The TSP aims to improve managerial and strategic planning capacity; promote market reforms; enhance safety, construction, and maintenance standards; and promote private sector participation in transportation. It focuses on mitigating nonphysical barriers to transit cargo movement by addressing limited coordination among parties, inadequate technology at border crossings, and poor information management in the legal sphere, etc. Reform in transport is on track. A competitive environment for the provision of transport services will be created to accelerate the integration of Kazakhstan transport into the international transport system and realize the country’s transit potential.

12. Nonphysical investment opportunities are directed toward promoting private sector participation in selected road sections, applying cost-recovery principles, establishing a private sector participation framework that will ensure the transparent and competitive selection of project sponsors, developing a risk-sharing management framework, and enhancing road maintenance management. These would improve good governance and accountability and road sector sustainability. Improved good governance and accountability could also be achieved by improving the accountability and capacity of the Ministry of Transport and Communications (MOTC), clarifying the functions of different levels of governments, and enforcing stricter safeguard compliance. Improving transport operations through the application of information technology will ensure seamless cross-border movement. Improving road safety through comprehensive and coordinated programs, the continuous improvement of road regulations, and the preparation of a better and more accountable road sector development program are on the government’s agenda. 4

C. Strategic Context

13. The investment program fits in ADB's Strategy 2020 and its Country Operations Business Plan (2010–2011) as well as CAREC’s Transport and Trade Facilitation Strategy and Action Plan.5 The investment program is aligned to the Government's 2020 Strategy, SPAID, and TSP. CAREC Corridor 2 connects the Caucasus and Mediterranean to East Asia via Central Asian countries. The investment program targets Kazakhstan’s Mangystau Oblast sections of the corridor. The investment program, focusing on national networks that are critical links in the regional network, support reducing physical and nonphysical barriers to regional trade and movement of goods and people.

D. Policy Framework

14. A road sector policy framework for 2006-2012 was developed and included in the 1st MFF.6 It embodies basic operating principles and best practice approaches with regard to good governance and accountability, sustainable financing, policy and regulatory framework, institutional reform and capacity development, road safety, and road sector sustainability and operations. Under the policy framework, MOTC has made progresses: (i) bidding for concession projects is nearly completed, (ii) a law on concession was amended; (iii) an anti-corruption manual was endorsed; (iv) financial department was set up in MOTC; and (v) fiduciary staff is under training. The policy framework has been stretched to 2010–2014, reflecting these progresses and planned activities. Once the Investment Program is approved, the previous policy framework will be replaced with this one (Table 3).

Table 3: Road Sector Policy Framework (2010–2014) Reform Agenda Action Status Planned Good Private sector • 1st concession Almaty–Horgos road with • Bidding for governance participation EBRD and ADB help – negotiations are concession for and framework for good underway. Astana–, accountability governance through • Bidding documents for South KAZ border to Almaty–Kapshagay transparent, Uzbek border are being prepared with projects; and for ITS competitive selection EBRD help. on Astana– • In Apr 2010, a law on concession was Shchuchinks amended. Improve • Performance indicator targets set for TSP. • MOTC to follow accountability of • World Bank's Anti-Corruption Manual was Anticorruption Action MOTC endorsed by MOTC. Plan prepared by the • Online Forum was launched. World Bank Clarify functional • The Committee of Roads is responsible for assignments roads. between different • Budget transfers to local roads levels of government • National roads maintained by Kazakhavtodor and local roads by contractors. • "OblZholLaboratory" set up for control of quality construction materials and civil works. • Construction supervision outsourced to the private sector.

5 ADB. 2008. CAREC Transport and Trade Facilitation Strategy and Action Plan. Manila. TTFS and its Action Plan for 2008-2017 aim to increase the region’s connectivity and competitiveness. 6 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility and Administration of Loan to the Republic of Kazakhstan for the CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe–Western People’s Republic of China International Transit Corridor] Investment Program. Manila. 5

Reform Agenda Action Status Planned Stricter safeguard • Environmental impact assessment compliance instruction was issued in 2004. • Projects are required to comply with regulations. • Land code and Law was amended. • Requirements were introduced for importing used cars and switching to EURO 4. Sustainable Apply cost recovery • Cost recovery and road user charge study financing principles was completed. Promote private • Bidding procedures for proposed concession • Bidding for sector participation projects are underway. concession project in selected road with EBRD's help section Risk management • Preparing risk- framework sharing framework with EBRD’s help Policy and Improve road law • Road Act was enacted in 2001 and amended • Harmonize regulatory and prepare sector in 2006 and 2008. legislation to comply Framework development • Transport Strategy has been integrated into with international program the State Program for Accelerated Industrial standards Innovative Development. Institutional Achieve world-class • Road sector institutional restructuring was • Planning, reform and road agency completed. management capacity • New Procurement Law became effective in systems to be development January 2008. established • Financial management systems to be • Software program adopted. for financing • Training road sector staff and private planning and contractors in contract management and managing roads implementation • Innovation and • Regional training centers development • Human resource development plan was completed. Road safety Improve road safety • Road Regulation Rules was adopted in 1997 • Findings of safety through • Road police committee was set up. management comprehensive and • Vehicle dimension and safety rules were capacity reviews in coordinated introduced in 2004. Kazakhstan Road programs • Accident data collection and road safety safety action plan action plan were prepared. • Harmonization of • Regulations for design for safety became road safety effective. legislations and • Placing of fences on roadsides introduced. documents • ITS to be introduced Road sector Improve • Maintenance manual was completed. • Review of sustainability effectiveness of road • Maintenance funds allocation has been maintenance funding maintenance increased. mechanism management system • Substantial outsourcing of road • Competitive bidding construction—95% of road works for maintenance and outsourced to private contractors performance-based • Regular diagnostics of roads carried out. maintenance system • Assessing road fund and private sector’s role in operation Road transport Seamless cross- • Transport and sanitary control posts on • Cross-border operations border movement borders were removed. agreements to be • Negotiations are underway. implemented; and • No vehicle dimension and weight issues customs and with vehicles from Central Asian countries. regulations and 6

Reform Agenda Action Status Planned procedures to be harmonized • Vehicle weight and dimension limits to be harmonized Application of • Speed cameras are used. • Developing a plan information • Part of traffic signal is coordinated. for ITS deployment technology • Consulting services selection for ITS for road network development under ADB's CAREC Corridor • Preparation of an 1 project underway. implementation plan, equipment specifications, layout design for 1st MFF ADB = Asian Development Bank, EBRD = European Bank for Reconstruction and Development, ITS = intelligent transport system, km = kilometer, MOTC = Ministry of Transport and Communications. SPAID = State Program on Accelerated Industrial-Innovative Development, TSP = Transport Sector Program. Sources: Kazakhstan 2020 Strategy, Transport Sector Program and SPAID.

E. Proposed Investment Program

15. The investment program will reconstruct the 790 km roads of CAREC Corridor 2 in Mangystau Oblast. The investment program roads connect Kazakhstan to , Europe, and through the to the west; to the Russian Federation to the north; to Uzbekistan to the southeast; and to Turkmenistan to the south. The 790km roads will comprise the 430km Aktau–Manasha section, the 84km Beineu–Akzhigit (Uzbekistan borer) section, and the 237km Zhetybai–Fetisovo section.

16. Tranche 1 will comprise physical investments in the 200km sections and project management and institutional support. It will include (i) construction supervision and project management; (ii) feasibility studies of subsequent tranche projects; and (iii) capacity development for road construction and maintenance, procurement design, management of contracts, enforcement of environmental and resettlement safeguards, and border crossing activities.

Table 4: Proposed Investment Plan ($ million) Item Amounta Investment Program Road Development Component 1,177.0 Capacity Development Component 35.0 Total 1,212.0 a Includes taxes and duties to be financed from government resources. Sources: Asian Development Bank and Ministry of Transport and Communications of Kazakhstan.

Table 5: Financing Plan for Investment Program Source Amount ($ million) % Asian Development Bank 800.0 67.0 Government 412.0 33.0 Total 1,212.0 100.0 Source: Asian Development Bank and Ministry of Transport and Communications of Kazakhstan.