Report No. PID8307

Project Name -Transport Project(@)

Region and Central Asia

Sector Transport

Project ID AMPE44829 Public Disclosure Authorized Borrower(s) Ministry of Finance and Economy,

Implementing Agency Ministry of Transport and Communications Zajian 10 375015 , Armenia Tel: 3742-56-33-91 Fax: 3742-56-05-28

Environment Category B

Date This PID Updated March 31,2000 Public Disclosure Authorized Appraisal Date October 10, 1999

Projected Board Date June 8, 2000

Country and Sector Background

1. The Armenia Highway Project, approved on September 14, 1995, was undertaken to assist the Government to preserve the Armenia road network, thereby avoiding costly rehabilitation and reconstruction, and to improve the operations of the Armenia Road Directorate (now called Armenia Roads SS CC). It is expected that the Credit will be fully disbursed by the end of the year Public Disclosure Authorized 2000 construction season. Much of the most heavily traveled parts of the road network has been improved, Armenia Roads personnel have been trained in the use of economic analysis, competitive bidding has been introduced, the overall quality of the periodic maintenance has been greatly improved, background work has been carried out by consultants to prepare for routine maintenance by contract, and a road safety plan and program have been designed and are ready for implementation. Budget support for the road maintenance operations is still at an inadequate level due to the continuing economic constraints that affect all aspects of the Armenian economy, routine maintenance by contract has not yet been made operational, and there remains a large backlog of deferred road maintenance. Also, Armenia now needs to give attention to other aspects of its transport network in order to provide the support necessary for private sector investment Public Disclosure Authorized and growth. The Armenia Railways Department (ARD) is in serious financial and operational decline, with only limited service to and from ; a breakdown of this line would seriously hinder the shipment of bulk foodstuffs and other critical goods from Europe, since Armenia's borders to and are still closed. Objectives

2. The overall objective of the project is to improve the reliability and reduce the cost of Armenia's transport system in support of expanding the country's growth and development. Specifically, it will include:

(i) improvement of the main road network, with commensurate reductions in total transport costs, improved road safety, and in the operational efficiency of Armenia Roads SS CC (AR);

(ii) improvement of the rail service between Armenia and Georgia, and in the financial performance of ARD; and

(iii) strengthening the Ministry of Transport's capacity for planning and economic analysis as a basis for making investment decisions in the transport sector.

Description

3. The proposed Highway Project would have three components, described below:

(a) Road Rehabilitation of the most important parts of the main road network, with special reference to routes important for interstate trade. This component will include surface dressings, overlays, and reconstruction of the road network, improvement of bridges, implementation of the road safety plan including elimination of traffic bottlenecks and accident black spots, and a continuation of the institutional strengthening of Armenia Roads started under the IDA-financed Highway Project.

(b) Support for the Armenia Railways Department (ARD) through the provision of rails and sleepers, spare parts needed to improve the energy supply and telecommunications systems and to overhaul locomotives and railway cars, and the institutional strengthening of ARC.

(d) Strengthening the Ministry of Transport through technical support and training in planning and economic analysis relating to transport investment projects.

Project Costs and Financing

4. The total project is estimated to cost US$47.0 million. The proposed IDA Credit would provide 29.9 million SDRs (equivalent to US$40.0 million), or 85 percent of the total project cost. The Government would finance US$6.4 million, or 13.6 percent of total project costs. Grant co-financing is expected of US$0.6 million.

Implementation

5. The Ministry of Transport and Communications (MTC) will have overall responsibility for project execution. MTC will

-2 - establish, under the direction of the Under-Secretary of Transport, a Project Implementation Unit (PIU) capable of controlling and coordinating the various project components. AR, which is thoroughly familiar with World Bank procurement procedures because of its experience with administering the Highway Project, will administer the Road Component. AR and ARD will establish small coordinating offices under the direction of Coordinators, who will provide liaison with the MTC's PIU and the other agencies involved in the project. The project implementation period is expected to be four years.

Project Coordination

6. MTC's PIU will be responsible for overall project coordination, including the submission of work programs, quarterly progress reports, and audits. It will also handle the coordination with the financing institutions involved in the project, including the preparation and submission of withdrawal requests. AR and ARD will, however, maintain direct links to the financing institutions for day-to-day operational matters such as the submission of procurement documents for review. Sustainability

7. Sustainability in the road sector is contingent on the establishment of an adequate level of road user charges. It is also dependent on Government leadership that recognizes that investments should be made on the basis of economic analysis. Sustainability of railway improvements depends on the establishment of an effective railway organization and freight and passenger charges that cover operational costs. Lessons learned from past operations in the country/sector

8. The Bank has had considerable experience in the transport sector in other parts of the world, including . The lessons learned from this related experience include the need to ensure an adequate level of maintenance expenditures, with priority given to maintenance over new construction since it frequently produces a higher return on investment up to the optimum level of maintenance expenditures; the need for strong and effective maintenance organizations; the frequent need for improved technologies and methods; and the importance of a sustainable, non-subsidized set of road user charges and rail tariffs. These lessons have been incorporated into the design of this project.

9. The Bank's experience with the Highway Project, which is the only transport project previously undertaken in Armenia, has been extremely favorable. The Armenian counterparts have been conscientious and serious in finding improved methods of operation, have accepted the need for change, and have eagerly adopted the new technologies made available to them. Also, there is a very constructive attitude on the part of the new leadership of the ARD, and the generally favorable policy framework of the Government remains in effect.

-3- Poverty

10. The project will have a favorable but indirect impact on the rural poor, who will have improved access to markets and urban centers. It will also assist in job creation, both directly through the project activities and through the increased investment that may result from improved transport in Armenia. Environmental Aspects

11. The project will have only a limited environmental impact since the road and rail rehabilitation will take place on sites already in use for these purposes. An Environmental Assessment has been carried out, and the Government has committed itself to carry out the Environmental Management Plan recommended in the Assessment.

Program Objective Categories

12. The project supports private sector development by improving transport services at reduced cost, both within the country and abroad. It also relieves the Government's financial management burdens to the extent that an adequate level of road user charges and rail tariffs result in income streams that do not have to come from central Government general revenues.

Contact Points:

The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500

Task Manager Anders Bonde The World Bank 1818 H Street N.W. Washington, DC 20433 Telephone: (202) 473-9272 Fax: (202) 614-0900

Note: This is information on an involving project. Certain components may not be necessarily included in the final project.

Processed by the InfoShop week ending April 7, 2000.

- 4 - Annex

Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) .

If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID.