Uzbekistan Railways Restructuring Project Final Report

EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

UZBEKISTAN RAILWAYS RESTRUCTURING PROJECT

TECHNICAL ASSISTANCE FOR DUE DILIGENCE

FINAL REPORT

SCOTT WILSON KIRKPATRICK APRIL 1999 UZBEKISTAN RAILWAYS RESTRUCTURING PROJECT FINAL REPORT TECHNICAL ASSISTANCE FOR DUE DILIGENCE

TABLE OF CONTENTS

1. INTRODUCTION...... 1.1 BACKGROUND...... 1.2 PROJECT EXECUTION...... 1.3 REPORT STRUCTURE...... 2. CURRENT SITUATION...... 2.1 INTRODUCTION...... 2.2 NETWORK DESCRIPTION...... 2.3 TRAFFIC VOLUMES...... 2.4 CURRENT FINANCIAL PERFORMANCE...... 3. EVALUATION FRAMEWORK...... 3.1 INTRODUCTION...... 3.2 ECONOMIC OUTLOOK...... 3.3 THE ENERGY SECTOR...... 3.4 FORECAST FREIGHT TRAFFIC...... 3.5 FORECAST PASSENGER TRAFFIC...... 3.6 EVALUATION FRAMEWORK...... 4. PURCHASE OF ELECTRIC LOCOMOTIVES...... 4.1 INTRODUCTION...... 4.2 DESCRIPTION OF THE PROJECT...... 4.3 OPERATIONAL ANALYSIS...... 4.4 CASES FOR EVALUATION...... 4.5 FINANCIAL EVALUATION...... 4.6 ECONOMIC EVALUATION...... 4.7 ENVIRONMENTAL EVALUATION...... 4.8 OPTIONS FOR UTY...... 5. ELECTRIFICATION OF MEKHNAT - DJIZAK...... 5.1 INTRODUCTION...... 5.2 DESCRIPTION OF THE PROJECT...... 5.3 OPERATIONAL ANALYSIS...... 5.4 FINANCIAL EVALUATION...... 5.5 ECONOMIC EVALUATION...... 6. FINANCIAL PROJECTIONS...... 6.1 INTRODUCTION...... 6.2 BASE ASSUMPTIONS...... 6.3 PROJECTIONS...... APPENDICES

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APPENDIX 1 LOCOMOTIVE CONDITION AND OUTLINE SPECIFICATION

APPENDIX 2 ENVIRONMENTAL REVIEW

APPENDIX 3 UTY STAFFING 1999

SCOTT WILSON KIRKPATRICK ii 29-Apr-18 D:\Docs\2018-04-06\030fccebbc486a04896f81a63450f042.doc UZBEKISTAN RAILWAYS RESTRUCTURING PROJECT FINAL REPORT TECHNICAL ASSISTANCE FOR DUE DILIGENCE SUMMARY

SUMMARY Introduction The EBRD is currently considering extending a loan to the Uzbekistan Government to finance priority investments in support of the restructuring process currently being undertaken by Uzbekistan Railways (UTY1). The proposed loan will complement others being undertaken by ADB and OECF, which focus on infrastructure and workshop rehabilitation and upgrading. The project originally considered for the loan involved the electrification of two sections of track which formed part of a more extensive electrification program which has been in progress since 1993. In the course of meetings during an initial visit with EBRD to Tashkent between 17-21 November 1998, UTY stated that electrification work on one of the sections originally proposed for funding by EBRD was well-advanced and it was agreed that EBRD would consider the procurement of new electric locomotives as an alternative to the electrification of the remaining line section originally proposed. This report evaluates both the alternative locomotive replacement project as well as the original electrification project. It also makes a projection of UTY’s financial position and estimates its forward borrowing capacity given assumptions on tariff and staffing levels. The Current Situation Prior to 1990, what is now UTY was the major part of the Central Asia Railway, based at Tashkent. In common with all FSU railways, traffic declined sharply following the break-up of the FSU and by 1995 freight and passenger turnover had declined to around 30% of their 1990 levels. Passenger and freight volumes have now stabilised and are currently running at annual level of nearly 16 billion ntkm and just over 2 billion pkm respectively. UTY currently (February 1999) has a total of 68,954 staff. Staff levels have reduced by some 3,000 over the last year and by 8,000 since December 1996. Of the current staff, 52,200 are working in the railway proper, of which some 35,900 are working in the operating divisions, with a further 8500 working for the newly-formed passenger enterprise; these latter include on-board staff as well as those associated with rollingstock repair and maintenance. The other 16,000 staff work in construction units, railway industries or for the railway health and education services. Network and Operations The UTY network consists of 3462 route km of track at the Russian gauge (1520 mm), mostly are single-track. The network is almost unique in that it consists of five disconnected segments, which can only be accessed by transitting through neighbouring countries. The network also includes a short section and branchline passing through Kazakhstan (and disconnected from the main Kazakhstan network), for which it has a long-term lease. The network consists of five principal corridors; connecting the central part of Uzbekistan with Kazakhstan to the north and northwest (two corridors), Turkmenistan and Tajikistan to the south and east to the Fergana Valley. Although UTY is predominantly a freight railway (83% of trailing tonne-km in 1997), it operates a significant number of passenger services and these form 47% of the train-km. Loco-hauled passenger services to and from Tashkent are operated on the main lines and principal branch lines. These include international services to and from Moscow, major centres in Siberia and southern Russia. In addition, international services to and from Turkmenistan and Tajikistan also transit Uzbekistan. Freight traffic is concentrated within a triangle in the north and east of Uzbekistan connecting the Kazakhstan border (which is very close to Tashkent) with Bokhara and the Fergana Valley and the volumes moving over these sections of route average over 20 million gross tonnes. UTY are progressively electrifying this part of their network (which includes the sections originally proposed for funding by EBRD) and aim to complete these works by 2000.

1 Uzbekistan Temir Yullari

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UTY operates fleets of electric locomotives and diesel locomotives, as well as electric multiple- units (EMU) for passenger services on the electrified part of the network. The diesel linehaul locomotives fleet nominally comprises 460 linehaul locomotives and nearly 300 shunting locomotives. However, many of these locomotives are well over 20 years old and can be considered life-expired where they have not already been stripped for spare parts. The electric passenger locomotives are all more than 30 years old and have very little life remaining. The electric freight locomotive fleet consists of two groups. One group are of similar age to the passenger locomotives and are similarly life-expired, currently operating under a system of temporary permits. The remainder are around 10 years old, and can be expected to operate for a further 20 years, but are insufficient to handle the projected traffic volumes following completion of electrification projects either in progress or approved. The prime purpose of the proposed EBRD locomotive project is to supply replacement locomotives for the first group of electric locomotives to enable full advantage to be taken of these electrification projects. Suburban passenger traffic has held up in recent years but local long-distance traffic has declined significantly, largely because of a large tariff increase in mid-1994 and another in 1997. Freight tonne-kilometres remained stable until 1996 but have since declined by 16%, at least in part because of the continuing civil war in Tajikistan. Around 70% of the UTY freight task (and nearly 80% by tonnage) is within Uzbekistan, although a substantial part transits through the adjacent networks en route. The remainder is split between import/export and transit traffic. The single largest traffic (40% of the task and 30% of the tonnage) is oil, both as crude oil from the oilfields to refineries and as refined product from the refineries to the final market. Another major traffic is construction materials, also around 30% of the tonnage handled but only 10% of the task. Cotton is a major export, transitting either via Russia or the Black Sea and UTY also handles significant volumes of import and transit grain. The current UTY forecast is for 1999 to show a small increase of 2%. Freight rates increased sharply in 1995 and 1996; rates for ‘pure’ transit traffic are denominated in Swiss Francs and hence are effectively inflation-indexed but rates for local traffic have remained unchanged for over two years. Finance UTY has reported substantial annual profits in recent years, ranging between US$130 million and $US200 million since 1994, other than in 1996, when there were extraordinary exchange losses mostly associated with the one-off repayment of debts to Russian Railways dating back several years. However, these reported profits only include very small depreciation allowances, apparently caused by a large proportion of UTY assets being life-expired, and thus over-state the true position of UTY. Calculating depreciation as an annual provision for asset replacement would give a much larger figure, probably of at least US$50 million p.a (equivalent to soum 4000 million at the 1998 exchange rate). Financial results by business segment since 1994 show the passenger business has typically covered around 50% of its allocated costs while freight has returned surpluses of US$120+ million throughout the period, increasing to nearly US$170 million in 1997. The ancillary businesses have made small surpluses of $10-30 million, depending on the turnover mix. Other revenue (revenue earned from non-physical activities, such as fines, penalties, demurrage and rents, together with previous years’ income and other revenue from operations not connected with industry or the manufacture of products) has been the equivalent of around $40 million since 1995. Net financial revenue fluctuates, depending on foreign exchange losses, which were particularly high in 1996, when the outstanding debts with MPS were settled. The UTY balance sheet shows fixed assets are clearly heavily undervalued (leading to the vary small depreciation charges in the income statement), in spite of there having been three revaluations since 1990, most recently in January 1995.

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As at December 1997, 9350 million soum of accounts receivable were for freight, of which 5412 million is overdue. The biggest single debtor is the Uzbek Oil and Gas Corporation, owing 6877 million soum, followed by the chemical company, owing 904 million soum. A further 8 state companies owe 1683 million soum. Freight has to be prepaid, unless the customer is authorised as an account customer by Government edict; in practice this covers the State corporations together with some other favoured enterprises. The practical effect is that most transit traffic and some of the remaining traffic is prepaid whilst much of the local traffic is carried on account. In general, accounts with other departments are settled periodically, although this may require lobbying within the Government; there is a specific organisation with the Cabinet of Ministers which deals with the mutual cancellation of debts between State enterprises. Payment by barter is negligible; the only instances are on the rare occasions a debtor can supply material required by UTY for its internal use. Investment UTY investment is based on a ten-year development plan, due to be revised in 1999. One of the key elements of the plan is the construction of two new railways to connect the various sections of the UTY network currently only accessible through Turkmenistan: Both lines are being grant-funded by the Government but will probably take several years to complete at current funding rates. The Government is also promoting the construction of a 70 km direct link from Angren to Pap in the Fergana Valley; which would avoid the current transit of northern Tajikistan. This line is also likely to take several years to complete. In the meantime, the Government is constructing a pipeline along this route, which will feed into the rail network at each end. In addition to these Government-funded projects, UTY itself funded Soum 2.4 billion soum of investment in 1998; of which Soum 550 million was for electrification and Soum 1.85 `million for upgrading facilities. In 1999, UTY will invest Soum 3 billion; of which Soum 1 billion represents its local contribution to the ADB track project and Soum 2 billion will be spent on electrification and facilities. The electrification projects have been under construction since 1993. The section from Djisak to Djambay is currently nearing completion and this will then be extended to Marakand. UTY are currently undertaking feasibility studies to establish if electrification should then be extended to Bokhara. However, they are also planning to electrify the 120 km Tashkent to Angren line, serving the new pipeline to Fergana, for which they are seeking private-sector participation. This project is budgetted at US$90 million, of which US$20 million would be funded by GOU/UTY and the remainder by the private investor. UTY is currently disbursing an ADB loan for US$70 million for track rehabilitation as part of an overall project of $126 million. This loan is due to be disbursed over five years to 2003. UTY are also disbursing an OECF loan of Yen 6120 million for a passenger carriage workshop and procurement of new carriages and spare parts. Although UTY has a surplus of wagons, carriages and diesel locomotives, a large proportion of its electric locomotive fleet is life-expired and will need to be replaced in the short/medium term. UTY have been considering proposals from a number of manufacturers in addition to the current project proposed for funding by EBRD. However, UTY will initially require only one of these manufacturers’ proposals in addition to the EBRD loan. Future prospects Uzbekistan’s economy declined until 1995 but since then has been registering steady growth at around 3% p.a. Growth has been underpinned by steady increases in industrial production, particularly from oil production and food processing and agriculture has also shown steady gains. In 1998, there was a sharp fall in foreign trade, triggered partly by the Russian crisis and partly by the fall in cotton exports caused by a poor harvest, but UTY is relatively insulated from fluctuations in import and export volumes to and from Russia; as almost all this traffic passes through the Chengeldy crossing point with much only travelling to and from Tashkent, some 30 km to the

SCOTT WILSON KIRKPATRICK iii 29-Apr-18 D:\Docs\2018-04-06\030fccebbc486a04896f81a63450f042.doc UZBEKISTAN RAILWAYS RESTRUCTURING PROJECT FINAL REPORT TECHNICAL ASSISTANCE FOR DUE DILIGENCE SUMMARY south. In addition, Uzbekistan has been steadily re-orienting its foreign trade away from Russia and the Traceca route now carries nearly 300,000 tonnes of foreign trade. The economic outlook for Uzbekistan hinges on the ability of the authorities to implement structural reforms, liberalise both internal and external trade and reintroduce convertibility of the soum. Available ‘most likely’ forecasts predict real economic growth over the next four years of about 2% p.a., increasing to 3% p.a. in the medium term. Inflation (as measured by the Consumer Price Index) is expected to increase at around 30% pa, decreasing to 20% pa in the medium-term. Real wages are expected to increase by around 3-4% pa. Under these forecasts, the official exchange rate is expected to converge (in real terms) towards the 1998 unofficial rate of around 150 soum per US$ over the next 4 years. The energy sector, particularly petroleum, provides a substantial share of UTY’s traffic. Uzbekistan is the eighth largest producer of natural gas in the world and exports about 5% of its total production, mostly to its neighbouring countries. Since independence, Uzbekistan has increased oil production substantially and is now no longer a net importer of petroleum, although it still needs to import some refined products. Although Uzbekistan is aiming to become a net exporter of petroleum products, its remoteness from world markets and the need to pass through at least two countries to reach the sea mean that this can only be achieved in the long-term and requires the construction of one of the several long-distance pipelines that have been proposed to China or the Arabian Sea. Freight traffic forecasts have been prepared for the purposes of project evaluation and also as an input to the corporate financial projections prepared to cover the 13-year term of the EBRD loan, from 2000 to 2012. The forecasts assume continuing pressure on all rates denominated in soum, with real rates decreasing by 3% p.a. for the next five years and by 2% p.a. for the rest of the period. However, international transit traffic is priced in Swiss francs and, as the soum is forecast to depreciate against the dollar (and hence the Swiss franc), the relevant yield in soum is assumed to increase in proportion. There are likely to be substantial changes in the pattern of flows over the period, particularly for oil traffic. The construction of a new pipeline from Angren to Pap is reportedly in progress and this will cause a major reorientation of rail flows. Although its overall impact on the UTY transport task will be relatively minor; it will significantly increase traffic volumes on the Tashkent-Angren line and this is now planned to be electrified in the short-term. Most other traffics are forecast to grow more or less in line with the economy, albeit at a lower rate. Although some short distance general freight will be lost to road as the road network is improved and the trucking sector developed, such traffics are probably only about 10% of the total task. Total traffic on the network is forecast to increase by 30 percent over the period from 1998 to 2010. This rate is similar to other recent studies; the recently completed Tacis study forecast an increase in freight traffic of about 2.5% pa to 2005, whilst internal UTY forecasts assume a growth of 2% pa. Passenger traffic is already facing strong competition from buses and, given the financial performance of the segment, should probably withdraw from a number of its ‘suburban’ and branch-line services. However, the main-line serves a number of relatively large centres and should have the potential to compete effectively against bus competition for the longer-distance services. This will be helped by the establishment of the passenger service as a separate enterprise. Underlying demand is likely to grow in more or less in line with the economy, although this will be dampened by any further fare increases which the Government may introduce to improve the cost recovery and the demand for long-distance passenger services (many of which are jointly operated with neighbouring countries) have been assumed to remain constant. Suburban services have recorded an increase in reported patronage in recent years; this may be genuine or merely the result of reduced fare evasion. As with main-line passengers, suburban passengers have been assumed to remain constant. The Potential Projects

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Locomotive replacement The current electric loco fleet consists of a mixture of life-expired and relatively modern locomotives and when the current projects are completed there will be a shortage of electric traction power. At the same time, much of the existing diesel fleet will become life-expired and will either need to be refurbished or replaced. The objective of this project is to purchase new electric locomotives to provide sufficient traction capacity for all freight operations on the electrified sections (currently operated by a mixture of the 3VL80 and the life-expired 2VL60 fleets) to be loco-hauled. The UTY electric freight loco fleet consists of two groups:  a fleet of 18 sets of 2VL60 locomotives. These consist of two VL60 units which are semi- permanently coupled, built in 1961-67. 14 of the 18 sets have safety problems and are currently operating on six-month permits and the fleet is unlikely to be in service for more than a further 3-4 years;  a fleet of 32 3VL80 locomotives, built between 1988 and 1993, each equivalent to a 2VL60 for operational planning purposes. These should all remain in service for another 20 years. Based on the traffic forecasts summarised above, and the electrification program currently being implemented by UTY, UTY will require around 8-10 new freight locomotives by 2005, with the first of these required from 2002 on. Although it has surplus diesel locomotives in the medium- term, many are approaching the end of their useful life and will need to be refurbished (probably with a new engine as well as new auxiliary components such as the generator and compressor), giving around another 12-15 years life. This conclusion is relatively robust. Even if there is no traffic growth, UTY will still be short by about 5 locomotives after completion of the Marakand extension and the retirement of the 2VL60 fleet. If the Angren project is postponed or delayed, there will be little effect on the overall fleet requirements as the combined haulage task for the existing general traffic and diverted oil traffic on that line is about equal to the task reduction on the rest of the network because of the traffic diversion. The option of buying new electric locomotives was compared against the alternative of switching to diesel haulage, either with a refurbished or a new diesel loco. The purchase of new electric locomotives has a financial IRR over the 30-year period to 2029 of 17% compared to refurbished diesel locomotives and of 20% compared to purchasing new diesel locomotives. The results are relatively robust, although naturally sensitive to the assumed price of electricity. A range of sensitivity tests showed the project retains a financial IRR of over 10% as long as the relativity between electricity and diesel prices remains above 1:2.5. It is relatively insensitive to assumptions about the cost of refurbishment or of new diesels. An economic evaluation, undertaken using world prices for electricity and diesel fuel, showed an indicative IRR which is of the same order when the pollution and greenhouse gas benefits of electric traction are included. A separate environmental review was undertaken (Appendix 2), which showed that the new electric locomotives will have environmental benefits compared to the existing electric locomotives. Electric traction also has significant benefits compared to diesel haulage in terms of pollution and oil spillage and leakage. Electrification of Mekhnat - Djizak section This section of track is a 120 km double-track section, south of Tashkent. It passes across the southern tip of Kazakhstan but is operated throughout by UTY who have negotiated a 75-year lease. There is a longer alternative route via Khavast, consisting of the 82 km double-track section from Mekhnat - Khavast and a 89 km single-track section from Khavast-Djizak, which is electrified throughout. Passenger trains are currently hauled by diesels on the direct route but through freight has been diverted to the alternative electrified route, because of the lower cost of fuel.

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UTY provided estimates of the project cost in February 1998 and these are relatively unchanged at the present time. Approximately 10% of the expenditure had been made as at February 1998, leaving approximately $60 million to complete the project, split 50:50 between local and foreign costs. Although at present the through traffic is being hauled by electric locomotives via Khavast, this is unlikely to be feasible as a long-term solution. As other sections are electrified, the present surplus of electric locomotives will disappear. At the same time, any increase in traffic will lead to increased congestion on the indirect route, particularly on the single-track section. In the long-term through traffic will almost certainly revert to diesel haulage via the shortest route. When the line is electrified, which is currently planned for mid-2001, both passenger and freight trains will be hauled by electric locos throughout, assumed to produce an improvement of 10% in technical speed, as well as a 10% increase in average freight load, in addition to eliminating delays caused by changing locomotives. Under these assumptions, the IRR of the electrification project is 4%. Sensitivity tests which varied the relative prices of electricity and diesel fuel, as well as the cost of the project, showed IRR’s varying from 1% up to 9% pa. Financial projections Projections undertaken of UTY’s finances over the 13-year period of the proposed EBRD loan to 2013 demonstrate the importance to UTY’s of maintaining passenger and (particularly) freight tariffs as well as controlling the size and sources of the proposed investment program. The key assumptions follow the discussion in the earlier part of this summary:  inflation of 20-40% pa for the short-medium term, with increases in real wages of 1-2% pa;  passenger demand and real tariffs constant over the period, except for . Passenger tariffs constant in real terms, except for a 15% reduction in 1999;  freight demand growing at around 2% p.a.. Freight rates for local and import/export traffic reduce at 3% in real terms to 2003 and at 2% p.a. thereafter, except in 1999, when they reduce by 15% in real terms. Rates for non-oil local rtaffic are stable after 2010. Freight rates for transit traffic (denominated in Swiss francs) are assumed constant over the period; revenue in soum thus varies in line with the exchange rate;  operations broadly unchanged from current patterns, except for some economies in passenger train size;  unit operating costs reduce, with labour costs are assumed to achieve 30% productivity per unit of output by 2003 and to then reduce by 3% p.a. for the remainder of the period, fuel costs reducing at 2% p.a. after 2003, and non-labour costs either constant or increasing by up to 10% by 2003 to reflect increased rollingstock and infrastructure repairs, after which they reduce at 3% p.a.  receivables and payables are assumed to be reduced to 90 days each by 2003, with inventories reduced to 120 days and cash maintained at 30 days.  an annual long-term investment program of around $80 million p.a., of which UTY funds around 50%. Sources of overseas funding have been identified to around 2006, at which point UTY is assumed to become largely self-funding.  the EBRD project is assumed to become effective in late-2000 and disburse until 2002. The UTY contribution of US$9 million represents 20% VAT and 3% customs duty.  the Government is assumed to fund new line construction. UTY is assumed to fund the electrification program, excluding the Tashkent - Angren line.  the Government is assumed to make a contribution towards passenger services, commencing in 2006; it is also assumed to fund the debt service charges associated from the OECF loans for passenger carriages and workshop.  62% of net revenue is assumed to be paid in taxes, with 10% is set aside for social development and other expenditure, with the remainder available for investment. The current property tax (nominally 4% of written-down assets) is assumed to continue to apply to UTY’s new investment.

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The projections show UTY is able to maintain a modest operating surplus throughout the period and maintain its cover ratio around 1.5 but only through ensuring tariffs fall below inflation by no more than 3% pa and by implementing significant and continuing labour productivity gains throughout the period. The railway operating workforce is forecast to fall from the current 35,000 to around 20,000 by 2013, and the total ‘main activity’ workforce from 52,000 to 29,000, even though the transport task has increased by around 30%. The combined effects of income tax to 2001, and interest payments from around 2002 onwards, combine to ensure that UTY has limited net income after tax. Until around 2004/2005, there are still sufficient funds for investment using reserves and depreciation but from 2007 onwards UTY has to reduce its investment program to avoid short-term borrowings, even though the Government is contributing 2 billion soum annually as a passenger PSO payment2. The UTY Business Plan must therefore have the following elements to ensure financial stability through the period of the EBRD loan:  growth in tariffs that almost matches inflation  major long-term productivity gains  a tax regime which enables it to generate a substantial proportion of its own investment requirements. This includes the revaluation of assets to ensure a realistic depreciation allowance as well as consideration of the tax regime itself, especially the property tax which is a substantial burden on UTY in later years, when it is approximately equal to the annual funding shortfall.  a funding and investment plan which is consistent with UTY’s repayment capacity from the mid-2000’s on. Under the current tax regime and tariff policies, UTY probably has a capacity to pay debt interest and repayments of around 2 billion soum annually. With the proposed mix of loans, this is equivalent to a borrowing capacity of about US$150 - 200 million, and even this would probably require some bridging arrangements around 2005.

2 However, this is only about 65% of the property tax paid by UTY at this time.

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1. INTRODUCTION

1.1BACKGROUND The EBRD is currently considering extending a loan to the Uzbekistan Government to finance priority investments in support of the restructuring process currently being undertaken by Uzbekistan Railways (UTY). The proposed loan will complement others being undertaken by ADB and OECF, which focus on infrastructure and workshop rehabilitation and upgrading. An ADB- financed study completed in August 1997 provided a railway restructuring concept for UTY. In February 1998, UTY requested technical and financial support from EBRD for the preparation, procurement and financing of two proposed electrification and signalling projects. Restructuring covenants and an investment strategy were agreed between UTY and ADB in April 1998 and a loan agreement was signed in November 1998. The EU is also focusing on the Uzbekistan Railways because of its location within the TRACECA3 network. Their studies have included a restructuring study, completed in February 1998, designed to assist in moving the planning process towards implementation. Longer-range business planning for the future passenger, freight and infrastructure companies will be supported by an additional study financed as part of the ADB loan, planned to start in early 1999. In November 1998, Scott Wilson Kirkpatrick were appointed by EBRD to provide technical assistance in the due diligence process associated with the proposed EBRD loan. Initially, the consultancy had two main tasks:  review and update the existing financial analyses that UTY has prepared for the ADB, and the business planning process on which these are based.  confirm the financial and economic rates of return of the investments proposed by UTY. In the course of meetings during an initial visit with EBRD to Tashkent between 17-21 November 1998, UTY stated that electrification work on one of the sections originally proposed for funding by EBRD was well-advanced and it was agreed that EBRD would consider the procurement of new electric locomotives as an alternative to the electrification of the remaining line section originally proposed. The Terms of Reference for the consultancy were therefore extended to include:  a technical review of the project, covering:  a review of the locomotives to be replaced, including their age profile and reliability issues  a summary outline specification for the new locomotives, taking into account UTY’s operating environment;  the maintenance and overhaul regime of the new locomotives to be supplied, including an assessment of UTY’s ability to properly maintain such a fleet; and  a financial and economic analysis of the proposed locomotive purchase in addition to the infrastructure project originally proposed  an environmental review of the proposed project, consistent with EBRD’s environmental due diligence procedures.

1.2PROJECT EXECUTION An initial one-week field trip to Tashkent was undertaken in November 1998 by the project economist. A second one-week field trip was undertaken in February 1999 by the economist, a locomotive engineer and an environmentalist.

1.3REPORT STRUCTURE This report has five chapters in addition to this introduction (Chapter 1)

3 Transport Corridor Europe-Caucasus-Asia

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Chapter 2 provides a brief description of UTY and its recent operating and financial performance. Chapter 3 summarises the economic prospects for Uzbekistan and presents a range of medium-term traffic forecasts. Chapters 4 evaluates the proposed locomotive investment and summarises the findings of the technical and environmental studies. Chapter 5 evaluates the electrification project originally proposed; and Chapter 6 presents financial projections for UTY covering the period of the loan. Further detail is provided in three appendices. Appendix 1 summarises the technical aspects of the locomotives and gives a summary technical specification for the proposed new fleet. Appendix 2 presents the findings of the environmental review. Appendix 3 gives details of current staffing levels.

2. CURRENT SITUATION

2.1INTRODUCTION Prior to 1994, what is now UTY was the major part of the Central Asia Railway, based at Tashkent. In common with all FSU railways, traffic declined sharply following the break-up of the FSU in 1991 and by 1995 freight and passenger turnover had declined to around 30% of their 19904 levels. Passenger and freight volumes have now stabilised and are currently running at annual level of nearly 16 billion net tonne-kilometres (ntkm) and just over 2 billion passenger-kilometres (pkm) respectively. This chapter summarises the existing situation of UTY. It describes the network infrastructure and rolling stock and summarises current staffing levels and operational performance. It then reviews the existing traffic patterns. Finally, it discusses UTY’s recent financial performance.

2.2NETWORK DESCRIPTION 2.2.1 Network The Uzbekistan railway network consists of 3462 route km of track at the Russian gauge (1520 mm), of which 682 km are double-track and 2973 km are single-track. In addition to the 4339 km of mainline track, there are also 2667 km of station and yard sidings and tracks. UTY are progressively electrifying the central spine of their network between Tashkent and Bokhara; at the end of 1998, the section from Chengeldy (border point with Kazakhstan) through Tashkent, Mekhnat and Khavast to Djizak was electrified at 25000v AC, with work in progress on the section from Djizak to Djambay. The network is almost unique in that it consists of five disconnected segments, which can only be accessed by transitting through either Turkmenistan or (in one case) through Tajikistan5. The network also includes a short section and branchline passing through Kazakhstan (and disconnected from the main Kazakhstan network), for which it has a long-term lease. The network consists of five principal corridors:  from Tashkent north to Chengeldy, the exchange point with Kazakhstan, which is actually located some 65 km within Kazakhstan; this corridor carries around 25 million gross tonnes p.a.;  from Tashkent south through Samarkand to Bokhara and Turkmenistan. This is the ‘Silk Road’ route and serves as one of Turkmenistan’s two transit routes to the north as well as Uzbekistan’s outlet to the Caspian and Black Sea. It also provides a potential route through Iran to Bandar Abbas on the Indian Ocean; this corridor carries 30-40 million gross tonnes p.a. as far as Samarkand, about 15 million gross tonnes from there to Bokhara and around 9 million from there to the border;  from Turkmenistan northwest to Kazakhstan, branching off the Silk Road route at Shardzhu just south of Bokhara. This line, which averages about 3 million gross tonnes p.a., crosses the Turkmenistan-Uzbekistan border three times before finally crossing into Kazakhstan. The route crosses the arid Karakalpakstan region and UTY operate a considerable distance over the Kazakhstan border to the junction with the Aktau branch;  from the Silk Road corridor at Khavast, transiting Tajikistan to provide access to the Fergana valley. This route also provides access to three disconnected branches which terminate in southern Kyrgyzstan; it carries about 30 million gross tonnes p.a. as far as Margilan, in the Fergana valley;  from the Silk Road corridor just south of Samarkand, transitting Turkmenistan to Termes, on the Afghan border. This corridor also provides access to southern Tajikistan through two branches but volumes are minimal because of the continuing civil war there. This route carries around 15

4 Traffic had already declined at this stage by about 20% from its historic peak in the late 1980’s. 5 This is a legacy of the arbitrary boundaries defined by Stalin, after the railways had been constructed.

million gross tonnes as far as Karshi and around 3 million p.a. from there through Turkmenistan to Termes, the volume currently much reduced due to the civil unrest in Tajikistan. There are a number of generally short branch lines; the most important of these is the line from Tashkent southeast to Angren. This line serves various industrial plants but is also planned to be the first section of a direct route to Fergana which is wholly within Uzbekistan territory. Traffic is concentrated within the Chengeldy - Bokhara - Fergana triangle, with freight traffic dominated by large volumes of crude oil and petroleum products moving between the centres of production, refineries and the final markets, particularly in Tashkent.. EMU ‘suburban’ services operate over the electrified lines but are concentrated in the Tashkent area. The majority of the network is lightly-graded, with only 11% having grades greater than 0.8%; it has correspondingly few curves, with under 8% of the network having curvature of 800 metres or less. Although there are some temporary speed restrictions, the average (network-wide) technical speed of freight trains is now 42 km/hr, compared to 44 km/hr in 19906. Comparable figures for passenger services are 49 km/hr in both years. Both figures suggest the track has been maintained in a stable condition over the intervening period. 2.2.2 Infrastructure The main line is mostly laid with R65 rails (i.e. 65 kg/m), with some stretches of R60 and R50 rails but with R75 rail on some 700 km of the heaviest-trafficked sections, and is designed for a 23 tonne axle-load. The sleepers are predominantly (82%) pre-stressed concrete laid at 1840 sleepers/km, increased to 2000/km in curves. The fastening for the concrete sleepers is the standard Russian design of a base plate with a rigid clip, fastened to the sleeper through an anchor bolt. The main line has a theoretical 30-35 cm ballast bed, with ballast supplied from two quarries, at Ziadin and Jumurtau. The signalling system predominantly consists of an automatic block system, supervised by CTC located at Tashkent. The remainder (Fergana valley, Navoi to Uchkuduk and Karshi to Kutab) is manually signalled. Although around 40% of the equipment is now some 20-30 years old and beginning to pose maintenance problems, the condition of the signalling is generally satisfactory and does not constrain train operations. The locomotives are equipped with cab repeater systems. Around 20% of the network telecommunications (from Tashkent to Bokhara and Karshi) is through underground cable, with the remainder using open pole-lines. Some 520 route-km of the main-line network is electrified at 25 kV AC, much of it since 1993. The sections currently electrified are the main line from the Kazakhstan border through the Tashkent area south to Mekhnat and Khavast; the main route from Djizak to the Tajikistan border at Bekabad via Khavast and some branches in the Tashkent area to Khodjikent and Keles. UTY have recently completed the extension of the main line electrification south from Djizak to Djambay and have completed preliminary works on the direct route from Djizak to Mekhnat. They are also currently planning to extend the electrification further south again from Djambay to Marakand. 2.2.3 Rolling Stock Locomotives UTY operates fleets of electric locomotives and diesel locomotives, as well as electric multiple- units (EMU) for passenger services on the electrified part of the network (Table 2.1). The diesel linehaul locomotives fleet comprises 460 sets of either two or three sections, each of around 3000 HP. The fleet of 291 shunting locomotives are either 1200 HP (TEM2) or 1350 HP (CME3). However, many of these locomotives are well over 20 years old and can be considered life-expired where they have not already been stripped for spare parts. The VL60 electric passenger fleet (4590 kW) are all more than 30 years old and have very little life remaining. The 2VL60 freight fleet is of similar age. The locos consist of two-sections, each a six-

6 Comparison of these two speeds needs some care because of the dramatic change in the pattern and density of operations since 1990.

SCOTT WILSON KIRKPATRICK 4 29-Apr-18 D:\Docs\2018-04-06\030fccebbc486a04896f81a63450f042.doc UZBEKISTAN RAILWAYS RESTRUCTURING PROJECT FINAL REPORT TECHNICAL ASSISTANCE FOR DUE DILIGENCE axled unit with a continuous rating of 4590 kW. They are similarly life-expired and are operating under a system of temporary permits (see Appendix 1). The prime purpose of the proposed EBRD project is to supply replacement locomotives for this fleet. The freight fleet also includes 32 3VL80C locomotives; these consist of three sections of four-axled units with a continuous rating of 3260 kW. They are comparatively new and can be expected to operate for a further 20 years. Table 2.1 UTY locomotive fleet - 1998

Locomotive Average age Fleet(1) Diesel linehaul 2TE116 17 48 2TE10L 22 39 2TE10M 12 190.5 2TE10V 17 61 3TE10M 13 107 2TE10Y 9 5 TEP70 15 15 Subtotal 459.5 Diesel shunting TEM2 22 165 CME3 10 126 Subtotal 291 Electric passenger VL60K 34 28 Electric freight 2VL60K 34 18 3VL80C 9 32(2) Subtotal 51 EMU (sets) 14 33 (1) CIS locomotives generally y operate as sets of semi-permanently-coupled sections. The prefixes 2 and 3 denote two sections coupled together respectively; CIS fleet numbers conventionally give the number of coupled sets as opposed to the number of sections. (2) There is also a single VL80C section built in 1984 which is not used for operations. The EMU fleet operate suburban services on the electrified network in the vicinity of Tashkent, averaging about 7 cars per train. Vehicles Although the UTY wagon fleet is nominally some 32,500 wagons, probably only around 10,000 are required to meet the current level of demand. There is a serious lack of spare parts and a significant number of the reserve fleet have been cannibalised to provide spare parts for the operating vehicles. UTY own 1454 loco-hauled passenger carriages, of which about 600 are required to satisfy demand. 45% of the fleet is under 15 years old but most is in a poor condition due to lack of spare parts. 2.2.4 Staffing UTY currently (February 1999) has a total of 68954 staff. Staff levels have reduced by some 3,000 over the last year and by 8,000 since December 1996.

Table 2.2 UTY staff (as at February 1999) Staff Main activity Operating divisions 35928 Passenger (including car maintenance) 8542 Other (HQ, computing, training etc) 7754 Subtotal 52224 Construction 1509 Industry 4710 Social development 10511 Total 68954 Source : UTY. A more detailed breakdown is given in Appendix 3

Of the current staff, 52,200 are working in the railway proper (the ‘main activity’ of UTY in FSU nomenclature), of which some 35,900 are working in the operating divisions, with a further 8500 working for the newly-formed passenger enterprise; these latter include on-board staff as well as those associated with rollingstock repair and maintenance. The construction staff include the Design Institute as well as the various construction units. The industry group includes repair workshops, a sleeper plant and various small enterprises. Social development staff mostly consist of education and health employees, together with the technical institute. 2.2.5 Operations The heaviest-trafficked sections of the network have been progressively electrified since 1992 (Table 2.3). Some 32% of the UTY transport task was performed by electric traction in 1998, on routes with an average traffic density of around 24 million gross tonnes p.a.: for comparison, the average density on the UTY network is about 11 million gross tonnes p.a. The densest section of the network in terms of tonnage is from Djizak to Marakand, which carries around 35 million gross tonnes p.a., comprising traffic southbound from Tashkent as well as oil traffic to and from Fergana. Similar, but slightly lower, volumes are carried on the sections from Djizak to Khavast, from Khavast to Tashkent and Chengeldy and from Khavast to Fergana via Tajikistan.

Table 2.3 Traffic density on electrified mainline sections of UTY Section Distance Traffic density (million gross(1) tonnes p.a.) From To (km) Electric Diesel Total Chengeldy Uzbekistan 66 25 - 25 Uzbekistan(2) Mekhnat 51 25 - 25 Mekhnat Khavast 82 25 - 25 Khavast Bekabad 38 28 - 28 Khavast Djizak 89 29 - 29 Uzbekistan Keles 31 17 - 17 Salar Khodjikent 64 1 1 1 Djizak Djambay 99 30 - 30 Djambay Marakand(3) 32 30 - Tashkent Angren(3)(4) 114 - 7 7 Average density(5) 520 24 Source: UTY (1) Including loco (2) Name of Kazakhstan border crossing (3) Under construction or approved. (4) When electrified task will increase by around 6 million gross tonnes p.a. (5) Currently electrified lines Table 2.4 presents summary operating statistics for 1997 and 1998. Although UTY is predominantly a freight railway (83% of trailing tonne-km in 1997), it operates a significant number of passenger services and these form 47% of the train-km. Freight trains currently average 1.3 locomotives and 2980 trailing tonnes; loco-hauled passenger trains average 12 carriages and the EMU services about 7 cars.

Table 2.4 Summary Operating Statistics 1997 - 1998

1997 1998 Gross tonne-km (excl loco) (mill) Freight 30226 28480 Passenger (loco-hauled) 5520 5374 EMU 427 445 Total 36173 34299 Loco-hauled (electric) 10058 10641 Loco-hauled (diesel) 25688 23114 Train-km (000) Freight 10223 9551 Passenger (loco-hauled) 7928 7441 EMU 1038 1052 Total 19189 18044 Electric loco-km (000) Freight 3735 3863 Passenger 1184 1047 Total 4919 4910 Diesel loco-km (000) Freight 9342 8450 Passenger 7571 7101 Total 16913 15551 Vehicle - km (million) Loaded wagons 309 290 Empty wagons 236 219 Loco-hauled carriages 91 87 EMU 7 7 Total 643 603 Average commercial speed (km/hr) Freight 32 32 Passenger 46 41 Vehicles/train Freight 53 53 Loco-hauled passenger 12 12 EMU 7 7 Average trailing load/freight loco (tonnes) Electric 2480 2567 Diesel 2243 2197 Net tonne-km (operated) (1) 16761 15698 Tonnes/wagon (dynamic) 54.2 54.2 Passengers/vehicle 23 (1) Calculated from actual distance travelled. Distinct from tariff net tonne-km, which is calculated as the shortest distance between origin and destination and does not allow for indirect routing for operating purposes. Loco-hauled passenger services to and from Tashkent are operated on the main lines and principal branch lines. These include international services to and from Moscow, major centres in Siberia and southern Russia. In addition, international services to and from Turkmenistan and Tajikistan also transit Uzbekistan. Inter-railway traffic in the region is currently controlled through conventions administered by the CIS-based OSShD (Organisation for the Co-operation of Railways), of which UTY is a member. The government of Uzbekistan (generally represented by the General Manager of UTY) is also a member of the Council for Rail Transport, established in 1992, which modifies and agrees these conventions. Agreements are in place with other Central Asian railways governing freight and passenger tariffs and the inter-working of wagons and they operate under common technical regulations. Because of their common origin as a single railway only 8 years ago, there is unlikely to be any significant operational and technical incompatibility between UTY and its neighbours.

2.3TRAFFIC VOLUMES 2.3.1 Measurement of volumes The break-up of the Central Asia Railway has led to a situation which is unique in the railway world. The railways were built long before the national boundaries in the area were established and this, combined with the local topography, has resulted in railways constantly criss-crossing borders with the railways of all four ex-CAR countries consisting of a series of disconnected segments. One of the side-effects of this has been to artificially inflate the tonnages (but not the net tonne-km) carried by these railways, and particularly so in the case of UTY. UTY (and its CAR predecessor) measures tonnage handled by separating it into four groups:  local traffic, which is traffic which is carried entirely within a single system  export traffic, which is loaded in UTY and unloaded elsewhere  import traffic, which is loaded elsewhere and unloaded in UTY  transit traffic, which is both loaded and unloaded elsewhere This classification was implemented in practice in terms of border-crossings; e.g. a traffic was classified as export if it crossed a railway border before it reached its final destination. Although this procedure worked perfectly satisfactorily until the break-up of the CAR, when UTY became internally disconnected it led to substantial double-counting of the tonnage carried. As an example, oil traffic from Bokhara to Fergana (both within UTY) crosses into Tajikistan for about 100 km between Bekabad and Kanibadan; this traffic was treated as an export traffic for the Bokhara - Bekabad leg and as import traffic for the Kanibadan - Fergana leg. Traffic to western Uzbekistan from Tashkent was counted three times, once as an export, once as transit (at Urgench) and finally as an import. The tonnages carried by UTY (and to a lesser extent by Turkmenistan Railways) have thus all been systematically overstated since 1992, by about 40% in the case of UTY. Since March 1998, however, UTY have changed their method of counting tonnage and any given consignment is now only counted only once for tonnage purposes, regardless of how many times it crosses inter-railway borders.7 This redefinition has led to a large apparent drop in tonnage carried for 1998 but the true change in traffic levels is better measured by the change in the transport task, as measured in net tonne-km, which has been unaffected by the redefinition. 2.3.2 Traffic and revenue trends Table 2.5 summarises the traffic carried from 1994 to 1998. Prior to 1994, UTY was still part of the Central Asian Railway, along with the Turkmen, Kyrgyz and Tajik railways. Freight tonnages pre- 1998 are not comparable with those from 1998 on because of the definitional change discussed in the previous section.

7 Table A gives some other examples of the impact of this change in definition. Table A Measurement of tonnage pre and post March 1998 Classification pre March 1998Classification post March 1998FromToLocalImportExportTransitTotalLocalImportExportTransitTotalChengeldyDushanbe11211BukharaKokand11211Tashkent Dushanbe11211KokandKungrad112411BeinauDushanbe4411ChengeldyTermes11211

Table 2.5 Traffic and revenue 1994 - 1998 1994 1995 1996 1997 1998(1) 1998(2) Passenger (000) Intl/long-distance 10789 5374 5159 5280 4612 - Suburban 10838 10348 10678 11198 12778 - Total 21627 15722 15837 16478 17390 - Passenger-km (mill) Intl/long-distance 4581 1826 1303 1267 1095 - Suburban 785 571 726 919 1094 - Total 5366 2397 2029 2186 2189 - Freight (000 tonnes) Local 30302 20178 22070 23062 36689 40954 Import 12940 21272 22627 20558 7102 4310 Export 9315 15224 15275 16471 5208 3154 Transit 14003 14810 11014 11027 5509 4098 Total 66560 71484 70986 70881 54480 52515 Net tkm (million) Local 7038 3768 3605 3193 9435 10888 Import 3485 4179 4539 3778 1666 1338 Export 3285 4745 6625 5588 1946 1270 Transit 5060 5147 3837 3939 2716 2266 Total 18868 17839 18606 16498 15762 15762 Revenue (soum million) (6 mths) Passenger 137 1083 1392 2411 1284 Freight 1975 8339 13914 24430(3) 14227(3) Yield (soum/pkm-ntkm) Passenger .026 .452 .686 1.103 1.173 Freight .105 .468 .748 1.481 1.780 Average exchange rate 11.4 30.2 41.1 66.7 85.0 Yield (USc/pkm-ntkm) Passenger 0.23 1.50 1.67 1.65 1.38 Freight 0.92 1.55 1.82 2.22 2.09 Source: UTY (1) As given by UTY (includes 2 months on old basis) (2) Tonnages for January and February estimated on new basis (3) Accrual basis. 3.9 billion soum was carried over from 1997 and subsequently paid in 1998 I. Suburban passenger traffic has held up over the period but local long-distance traffic has declined significantly, largely because of a 250% tariff increase in mid-1994 (although the published revenue suggests it was far greater). It appears there was a further tariff increase of around 80% in 1997. Freight tonne-kilometres remained stable until 1996 but have since declined by 16%, at least in part because of the continuing civil war in Tajikistan. The current UTY forecast is for 1999 to show a small increase of 2%. Freight rates increased sharply in 1995 and 1996; rates for ‘pure’ transit traffic are denominated in Swiss Francs and hence are effectively inflation-indexed but rates for local traffic have remained unchanged for over two years. In May 1996, the Governments of Georgia, Azerbaijan, Turkmenistan and Uzbekistan made a number of agreements to co-ordinate and co-operate in developing rail transit traffics. These have since included an agreement which reduced the rail and ferry tariffs for traffic between the Black Sea ports of Batumi/Poti and Central Asia by 50%. 2.3.3 Freight traffic analysis Table 2.6 gives the volume by commodity carried over the last four years. The figures should be interpreted with some care, as there have clearly been classification problems (e.g. construction materials in 1996). In addition, some tonnage from the end of 1995 was not processed until early- 1996, and included in that years statistics, thus distorting the results for both years. Although oil volumes have decreased with the opening of the Bokhara refinery, reducing the haulage of crude oil, other commodities have remained reasonably stable in total, only decreasing from 10.1 billion ntkm in 1995 to 9.2 billion ntkm in 1998.

Table 2.6 UTY freight traffic by commodity 1995 - 1998 (million ntkm)

1995 1996 1997 1998 % (1998) Coal 596 569 320 320 2 Oil products 6781 7530 7374 6523 42 Ferrous products 427 463 442 386 3 Timber 192 105 128 112 1 Cement 506 711 536 683 4 Chemical/mineral fertilisers 768 1207 1384 1139 7 Grains 2031 1733 1464 1293 8 Construction materials 1423 3379 1363 1695 11 Cotton 463 693 4 Other 4107 3009 2723 2828 18 Total 16831 18606 16498 15672 100 Source : UTY Table 2.7 gives a detailed breakdown of freight traffic for 1998 by commodity, into local, import/export and transit traffic, based on the new definitions. Table 2.7 UTY freight traffic by commodity 1998 (000 tonnes, million ntkm)

Local Import Export Transit Total Tonnes Ntkm Tonnes Ntkm Tonnes Ntkm Tonnes Ntkm Tonnes Ntkm Coal and coke 2086 288 90 27 7 1 60 39 2243 355 Oil products 13054 5844 84 17 955 346 768 316 14862 6523 Ferrous prods/steel 846 253 448 132 45 15 251 167 1582 567 Timber 28 6 360 62 0 0 72 44 460 112 Cement 2464 624 0 0 302 41 51 18 2817 683 Chem/min ferts 2605 791 692 134 282 142 480 72 4060 1139 Grains 2923 576 940 315 6 2 758 400 4627 1293 Const materials 13518 1560 125 22 24 12 211 100 13878 1695 Cotton 10 5 0 0 1220 570 189 118 1419 693 Other 3424 940 1572 630 312 141 1260 991 6568 2702 Total 40954 10888 4310 1338 3154 1270 4098 2266 52515 15762 Source : Consultant estimate based on patterns of July- December 1998 Average hauls calculated from these statistics for these traffics should be treated with caution; whilst these correctly reflect the average distance travelled by a consignment on UTY, the actual difference between origin and destination is generally rather longer because of the additional distance travelled on adjoining systems in passing from one part of the UTY network to another. Thus all traffic to and from Fergana travels around 100 km on the Tajik system and all traffic to Termes and western Uzbekistan travels about 100 km and 200 km respectively on the Turkmen system. In 1998, local UTY traffic travelled around 2.1 billion ntkm on these non-UTY sections, giving an average haul from origin to destination for ‘local’ UTY traffic of around 320 km; this increases to over 410 km when construction material is excluded. Traffic originating/terminating in Uzbekistan Table 2.8 summarises traffic loading and receival patterns for a typical month (November 1998), for the six main traffic districts into which UTY is divided.

Table 2.8 Traffic loaded and received by district - November 1998 (000 tonnes) District Tashkent Khokand Bokhara Priaralska Karshi Urgench Total Despatched Coal and coke 191 7 200 Oil products 12 447 440 24 269 1 1193 Ores 5 46 52 Ferrous metals 23 1 4 1 30 Timber 1 1 2 4 Construction materials 408 183 148 62 97 23 951 Cement 74 14 69 2 2 161 Chemical fertilisers 101 27 113 2 5 248 Grains 27 34 16 10 28 8 123 Other 79 41 73 5 75 13 286 Cotton/textiles? 35 27 25 7 34 11 139 Total 970 779 950 113 520 55 3387 Received Coal and coke 185 10 8 50 13 2 218 Oil products 343 718 136 96 63 1416 Ores 19 41 40 3 100 Ferrous metals 28 8 34 1 6 1 80 Timber 20 3 2 7 35 Construction materials 536 136 150 54 108 48 1078 Cement 59 17 37 5 41 7 176 Chemical fertilisers 40 32 76 28 34 33 244 Grains 59 46 28 15 40 31 218 Other 179 45 117 43 46 19 448 Cotton/textiles? 60 56 47 6 169 Total 1562 1039 694 243 431 213 4182 Source : UTY monthly traffic statistics Most coal carried by the railway is mined at Angren and transported to the Tashkent region for industrial use and electricity generation. Smaller quantities are distributed to the rest of Uzbekistan (including the steel plant at Bekabad) and some specialised coals (e.g. for steel-making) are imported from Kazakhstan. There are three oil refineries in Uzbekistan, two at Fergana and one at Bokhara, now in its second year of operation. Crude oil is transported from both Bokhara and Karshi to Fergana, with refined product being carried in the reverse direction. Since the opening of the Bokhara refinery, the volume of crude oil transported to Fergana has reduced by about 30% but has been largely compensated by flows of refined product from Bokhara to Tashkent. Uzbekistan exports some oil products to Turkmenistan and there is also transit traffic between the disconnected sections of Turkmenistan and Tajikistan. Metallic ores are mined in the Samarkand/Navoi region and transported locally for processing. Iron and steel is split between imports from Kazakhstan and Russia and local production at the Bekabad plant. Steel fabrications are centred in Tashkent. Timber is mostly imported from Russia to Tashkent. Construction materials (sand, gravel etc) are carried throughout the network but are relatively short-distance traffics which remain within their own region. There are four main cement works, at Bekabad and Angren (both in Tashkent region), Navoi (Bokhara) and Kuvasai (Khokand). There are also four major fertiliser plants, at Tashkent (nitrogenous), Khokand (nitrogeneous and phosphate) and Bokhara (nitrogenous). Both products are distributed on a regional basis. Although Uzbekistan is planning to become self-sufficient in cereal production, it is currently still importing some of its requirements, mostly from Kazakhstan. It also handles transit grain to Tajikistan. Cotton is a major export, transitting either via Russia or the Black Sea. In 1996, exports were split about 60% through western Russia (predominantly through Riga), 20% through Georgia and Turkmenistan and 20% through Kazakhstan/China and eastern Russia. ‘Other’ traffic carried by UTY primarily consists of semi-manufactured and manufactured goods. Textiles are a major traffic, together with animal feeds, chemicals and metal alloys.

International and transit traffic Although UTY do not have detailed figures of import, export and transit tonnage by border crossing point, estimates can be derived from operational statistics of the loaded wagons despatched and received at each point. Table 2.9 gives the tonnage handled at each border point, together with estimates of how much is local traffic transitting between different sections of the UTY network.

Table 2.9 Tonnage by border crossing 1998 (000 tonnes) (estimated) Crossing point Country Total traffic (000 tonnes pa) Local traffic (000 tonnes pa) Received Despatched Received Despatched Chengeldy Kazakhstan 5523 2183 - - Beineu Kazakhstan 683 778 - - Khodjadovlet Turkmenistan 1006 3227 550 1550 Takhiatash Turkmenistan 1442 740 700 100 Gazachak Turkmenistan 2828 778 1550 550 Raziezd 449 Turkmenistan 968 2088 347 738 Kubadag Turkmenistan 38 247 38 247 Talimardjan Turkmenistan 892 1974 450 800 Raziezd 161 Turkmenistan 1841 797 800 450 Sariasiya Tajikistan 285 1044 - - Amuzang Tajikistan 57 190 - - Bekabad Tajikistan 4479 5960 4441 5770 Kanibadan Tajikistan 5770 4441 5770 4441 Uch-kurgan Kyrgyzstan 38 19 - - Karazy - Uzb Kyrgyzstan 247 456 - - Kizil-kiyd Kyrgyzstan 38 5 - - Djululabad Kyrgyzstan 76 114 - - 26211 25040 14626 13846 Source: UTY The non-local traffic consists of imports and exports to Uzbekistan, together with transit traffic. Some of these traffics may be counted several times as they cross borders e.g. transit traffic from Kazakhstan to Dushanbe via Beinau will cross eight Uzbekistan borders and will be included in the tonnage at each border. In 1998, Tajikistan received 1.4 million tonnes of imports and despatched 0.3 million tonnes of exports by rail. The corresponding figures for Kyrgyzstan (excluding the Bishkek line connected directly to the Kazakhstan network) totalled 0.6 million tonnes of imports and 0.4 million tonnes of exports. No detailed figures are available for transit traffic but estimated volumes are around 0.4 million tonnes to Kyrgyzstan and 0.5 million tonnes to Tajikistan (mostly via Chengeldy), with the remaining 2.9 million tonnes to and from Turkmenistan, split about 50:50 between Chengeldy and Beinau. UTY imports and exports are predominantly with Kazakhstan and Russia through Chengeldy; which is estimated to handle over 80% of the imported freight and about 40% of the exports. Regional imports and exports are estimated at 0.3 million tonnes (imports) and 1.5 million tonnes (exports). The remaining flows are traffic through Beinau (mostly cotton exports) and about 0.4 million tonnes p.a. along the Traceca corridor transitting Turkmenistan. 2.3.4 Freight revenue analysis No detailed breakdown of freight revenue by commodity is available within UTY. Table 2.10 provides consultant estimates, based on the 1998 breakdown of revenue into that earned from local traffic (including imports and exports) and that earned in hard currency from transit traffic. The revenues from local traffic have been derived by applying the published rates on a tonne-km basis. The transit revenues have been estimated by distributing the total revenue across all commodities on a net tonne-km basis; in practice, rates differ between traffics and some traffics

(e.g. the Traceca traffics) have special rates but the procedure enables a general picture to be developed.

Table 2.10 Estimated revenue by commodity 1998 Rate Local Transit Total Total Transit Transit as (soum/ntkm (soum mill) (soum mill) (soum mill) ($US ($US mill) % of total ) Coal 0.96 299 46 344 1.3 0.4 13 Coke 1.02 5 151 157 1.5 1.5 96 Oil products 1.76 10912 1608 12520 121.6 15.6 13 Ferrous products 0.66 85 273 358 3.5 2.7 76 Steel 0.66 181 574 756 7.3 5.6 76 Timber 0.78 53 224 277 2.7 2.2 81 Cement 0.66 442 93 535 5.2 0.9 17 Chemical/ mineral ferts 0.71 757 366 1123 10.9 3.6 33 Grains 1.00 897 2035 2932 28.5 19.8 69 Construction material 0.44 707 510 1217 11.8 5.0 42 Cotton 1.14 655 598 1252 12.2 5.8 48 Other 1.14 1946 5037 6984 67.8 48.9 73 Total 1.26 16939 11515 28454 276.3 111.8 40 Source: Consultant estimates, based on conversion rate of $1 = 103 soum. An estimated 40% of freight revenue is currently earned from transit traffic, which represents only about 15% of the traffic task; the average tariff charged is just under $US 0.05/ntkm, compared to an average of around $US 0.012/ntkm for local traffic and significantly less for traffics such as construction materials. The transit tariffs are denominated in Swiss Francs and hence are automatically linked to exchange rate movements and (indirectly) are inflation-indexed. UTY similarly pays neighbouring railways for transit traffic over their networks (e.g. Tashkent - Fergana passing through Tajikistan or exports passing through Turkmenistan) but this is a smaller volume and UTY has a net gain of around $US 50 million p.a. Because of the railway geography of the region, for most of the traffics there are no practical alternative routes which avoid Uzbekistan. In addition, most transit traffics are travelling substantial distances for which road will generally not be a viable competitor for at least the medium term.

2.4CURRENT FINANCIAL PERFORMANCE 2.4.1 Scope of Accounts UTY is divided into four broad sectors:  main activity; this consists of 119 units, which are directly connected with transport services;  industry; consisting of 5-6 industrial enterprises  construction, comprising 10-15 enterprises dealing with houses and buildings (but not track construction)  social development, comprising the railway-operated education system and health service. Each of these units and enterprises is a separate legal entity with its own accounts, which are then consolidated to create those for UTY as a whole. What are generally termed the ‘railway accounts’ are the consolidated accounts for the 119 units which constitute the ‘main activity’. Under the CIS accounting framework, the operations of these units are split into those directly associated with transport and those related to ancillary (or support) activities. Although the operations of any particular unit can include both types of activity, in practice most units undertake either one or the other. The units are summarised in Table 2.11, grouped according to the nature of their predominant activity.

Table 2.11 UTY operating units 1997(1) Predominantly production Predominantly ancillary Unit Number Unit Number Passenger stations 1 Timber units 2 Freight stations 11 Mechanised freight units 4 Loco depots 11 Track machines 6 Refrigerated car depot 1 Road vehicles 1 Wagon/carriage depots 9 Logistics (i.e. supply) 4 Track districts 16 Tank washing station 1 Signal districts 10 Track recording car 1 Electrical districts 9 Machine calculating unit 1 Civil works districts 8 Environmental centre 1 Housing units 7 Recreation centres 1 Other enterprise 1 Fuel storage depots 5 Electro-mechanical workshop 1 Tourism 1 Privatisation centre 1 Railway freight forwarding 1 Directorate 1 Security 1 Computing centre 1 Building services 1 Total 76 Total 43 (1) The current structure is slightly different, most notably because of the creation of a separate Passenger enterprise. The services that the ‘ancillary’ units perform for the ‘production’ units are charged at various rates (normally designed on a cost-plus basis). These cross-charges then become income for the unit supplying the service and expenditure for the unit receiving the service. These various cross- charges are not netted out during the consolidation process and the UTY-wide income statements thus include such internal cross-charges in both revenue and expenditure. Although no exact estimates are possible without special analyses, supplementary statements provide information which enable estimates to be made of this double-counting. 2.4.2 Profit and Loss Table 2.12 gives the UTY income statement for 1997 and the first half of 1998. Until 1995 this was prepared on an accruals basis. In 1996 and 1997 it was prepared on a cash basis and for 1998 it has reverted to accruals. There are some fluctuations in annual performance because of this transition and also some complexities in reconciling the various financial statements in 1996 and 1997.

Table 2.12 UTY Income Statement 1997 - 1998 S1 (soum million) 1997 1998S1 Revenue Sales 37023 33924 VAT 701 3972 Excise Net revenue 36322 29952 Expenditure Production costs 21756 17989 Gross financial result 14566 11963 Expenditure on sales Administrative costs 950 625 Other operating revenues 2530 1408 Other operating costs 5815 3249 Profit from main activity 10331 9497 Dividends 339 186 Interest paid/received Foreign exchange differences (net) -183 -214 Other financial income (net) 341 28 Financial result from public activity 10828 9497 Extraordinary income (net) Total financial result 10828 9497 Profit tax 4128 3437 Other taxes not included above 2741 3218 Net profit 3959 2842 Source: UTY Although revenue for 1998 I is close to that for 1997 as a whole, this is misleading; 3.9 billion soum of freight revenue relating to 1997 was paid in 1998 I and the passenger service was also set up as an internal profit centre, with internal transfer costs from the various operating departments (track, locomotives etc). As these internal transfers are not netted out, both cost and revenue have been artificially inflated by these transfer payments. The analysis of revenue and expenditure since 1994 given in Table 2.13 demonstrates this more clearly.

Table 2.13 UTY Analysis of Income and Expenditure 1994 -98 (million soum) 1994 1995 1996 1997 1998 I Accruals Accruals Cash Cash Accruals Revenue Passenger 137 1063 1392 2411 1284 Freight 1975 8339 13913 24430 14227 Ancillary Industrial production 110 1025 2162 2637 1746 Services 173 667 1897 3232 1351 Passenger operations 2680 Capital repairs 33 296 652 1267 801 Material and fuel sales 128 2113 4202 6196 3680 Subtotal 444 4101 8913 13332 10258 Cash adjustment -1733 -3852 4183 Total 2556 13503 22485 36321 29952 Production costs Transport Direct 797 4838 9476 13129 9439 Period 1097 2344 4891 2700 Subtotal 797 5935 11820 18020 12139 Ancillary Industrial production 80 716 1483 1774 1175 Services 110 506 905 1262 528 Passenger operations 1046 Capital repairs 28 249 571 1079 682 Material and fuel sales 117 2018 3919 5849 3474 Subtotal 335 3489 6878 9964 6905 Period costs 421 865 1874 1174 Subtotal 335 3910 7743 11838 8079 Cash adjustment 917 -1337 1645 Total 1132 9845 20480 28521 21863 Other operating revenues 15 1653 1985 2530 1408 Financial activities Dividends 1 13 339 186 Interest 5 2 0 0 Exchange rate differences -536 -3646 -183 -214 Other 1 253 341 28 Subtotal 54 -529 -3378 497 0 Profit before tax(cash basis) 612 10827 9497 Profit before tax(accruals basis) 1493 4782 3262 13342 6959 Profits tax 538 1167 220 4128 3437 Other taxes n.a.(1) n.a.(1) n.a.(1) 2741 1500(2) Profit after tax 955(3) 3615(3) 392(3) 3958 4560 Exchange rate ($US) 11.4 30.2 41.1 66.7 85.0 Profit before tax ($US mill) 131 158 79 200 82 Source: UTY (1) Not avavilable (2) Consultant estimate (3) Profit before taxes other than profits tax Profits before tax have fluctuated between US$130 million and US$200 million since 1994, other than in 1996, when there were extraordinary exchange losses of 3646 million soum (US$82 million) mostly associated with the one-off repayment of debts to Russian Railways dating back several years. However, as these reported profits only include very small depreciation allowances, they thus over-state the true position of UTY. UTY is subject to a range of taxes; profits tax is the largest but there are a range of others, amounting to a further 2.7 billion soum in 1997. Comparable figures are not available for previous years. Profits tax is levied at a nominal rate of 36%; the actual rate fluctuates slightly from year to year as some minor deductions are allowed. The other taxes include land tax, income tax, environmental and water taxes and payments to local authorities, which in 1997 totalled a further

26% of profits. Some of these are similar to the rates charged in western countries; others are charged on net income8. The analysis of expenditure subdivides production costs into direct costs and ‘period’ costs. ‘Period’ costs are general costs not directly linked to the production process, covering general management, social insurance, contributions to social facilities, training etc. They include what would be classified as corporate costs in a Western railway, (e.g. they also include audit and consultants) and also include expenditures of a random nature which are charged centrally rather than to a specific operating unit (e.g. loss and damage, bad debts, product development and accidents and natural disasters). A component of these costs should be treated as a labour on-cost but the remainder is a corporate overhead. These costs are allocated by UTY between transport and ancillary expenditure on an enterprise by enterprise basis and are separately identified in the Income Statement proper, divided into ‘Administrative costs’ and ‘Other operating costs’. The ancillary businesses form four groups:  industrial production (e.g. manufacture of spare parts)  services (e.g. passenger and freight terminal activities, freight forwarding) and, from 1998 I, internal cross-charges to the passenger business from operating units such as locomotives, track etc  capital repairs; these only cover those repairs done by internal contract; capital repairs are also undertaken directly by production units (e.g. wagon and loco depots) and by external contractors. In 1997, capital repairs were evenly divided between these groups.  internal and external material and fuel sales by the logistics units to the operating units and third parties. These are cross-charged at prices with various mark-ups on production cost; industrial production and services are typically a 50% mark-up (although services appear to have a much larger mark-up in recent years), capital repairs have a 15% mark-up and material/fuel around a 5% mark-up (Table 2.13). Table 2.14 gives financial results by business segment since 1994. The passenger business has typically covered around 50% of its allocated costs9. Freight has returned surpluses of US$120+ million throughout the period, increasing to nearly US$170 million in 1997. The ancillary businesses have made small surpluses of $10-30 million, depending on the turnover mix. Other revenue (revenue earned from non-physical activities, such as fines, penalties, demurrage and rents, together with previous years’ income and other revenue from operations not connected with industry or the manufacture of products) has been the equivalent of around $40 million since 1995. Net financial revenue fluctuates, depending on foreign exchange losses, which were particularly high in 1996, when the outstanding debts with MPS were settled.

8 There is also a ‘property tax’ charged on written-down asset value. Although this is currently quite minor, it has the potential to become a major cost as future investment is made. Its potential impact is discussed further in Chapter 6. 9 This looks set to continue in 1998. The total of direct costs and cross-charges for the first six months was 2765 million soum, compared to revenues of 1284 million soum. A share of period costs would also need to be attributed to calculate the full cost of the passenger services.

Table 2.14 Revenue and Expenditure by Segment (million soum) 1994 1995 1996 1997 Passenger Revenue 137 1063 1392 2411 Cost 221 1616 2972 4844 Profit/Loss -84 -553 -1580 -2433 Freight Revenue 1975 8339 13913 24430 Cost 576 4319 8848 13176 Profit/Loss 1399 4020 5065 11254 Ancillary Revenue 444 4101 8913 13332 Cost 335 3910 7743 11838 Profit/Loss 109 191 1170 1494 Other revenue 15 1653 1985 2530 Financial revenue (net) 54 -529 -3378 497 Total profit before tax 1493 4782 3262 13342 Exchange rate ($US) 11.4 30.2 41.1 66.7 Net revenue ($US million) Passenger -7 -18 -38 -36 Freight 123 133 123 169 Ancillary 10 6 28 22 Financial/other revenue 5 37 -34 45 Total 131 158 79 200 Source: UTY Some 60% of the ancillary revenue and expenditure represents work done for other units within UTY’s main activity and would be netted out in IAS-style consolidated accounts (Table 2.15).

Table 2.15 Analysis of ancillary revenue and expenditure 1997 Revenue Expenditure (million soum) (million soum) Internal to UTY Wagon depot repairs 513 481 Capital repair (track and r/stock) 1173 1009 Material supply 2327 2179 Water supply 233 177 Electricity supply 891 730 Fuel supply 2679 2599 Accounts processing 25 18 Motor vehicle services 32 17 Subtotal 7872 7212 External to UTY 5460 4626 Total 13332 11838

Finally, Table 2.16 gives the composition of the direct transport production costs. ‘Other’ includes various internal cross-charges, notably the cost of capital repairs undertaken using the Repair Fund. Further detail is given in Table 2.20. Depreciation charges are very small, apparently caused by a large proportion of UTY assets being life-expired. Calculating depreciation as an annual provision for asset replacement would give a much larger estimate, probably of at least US$50 million p.a (5000 million soum at the 1998 exchange rate).

Table 2.16 Composition of UTY direct operating costs 1994 - 1198 S1 (million soum) 1994 1995 1996 1997 1998 I Labour 290 1142 2140 2888 1842 Materials 42 313 771 1090 612 Fuel 195 1082 1791 1953 758 Power 41 323 627 756 338 Depreciation 22 276 352 346 170 Other 207 1702 3795 6096 3419 Passenger cross-charge 2300 Total 797 4838 9476 13129 9439 Source: UTY UTY do limited short-term financial projections and currently only forecast expenditure in detail for the next quarter (Table 2.17).

Table 2.17 Budgetted expenditure 1999 Q1 (million soum) Main activity Supplementary activities Direct Period Direct Period Salaries 1264 330 548 168 Social fund (40%) 506 132 219 67 Materials 361 9 730 9 Diesel fuel Train 542 182 Other 75 1 83 11 Electrical energy Train 313 6 313 7 Other 26 Depreciation 151 4 57 12 Capital repair funds 978 18 130 Other 1810 2750 2712 476 Total 6000 3250 5000 750 Source: UTY 2.4.3 Balance Sheet Table 2.18 gives the balance sheets for December 1996, December 1997 and June 1998. The fixed assets are clearly heavily undervalued (leading to the vary small depreciation charges in the income statement), in spite of there having been three revaluations since 1990, most recently in January 199510. The balance sheet requires some interpretation:  the bank and foreign exchange balances include some ‘other’ accounts (about 100 million soum at December 1997) which are treated as non-cash in the cash flow statement;  ‘targetted funds and allocations’ are investments funded by UTY directly from retained railway earnings  ‘other’ creditors are mostly inter-railway debts owed to MPS, dating from 1993 prior to the breakup of the Central Asian Railway. In December 1997, these represented 3163 million soum of the total balance of 3578 million soum.

10 UTY claim one problem is that many of their assets are life-expired according to the Government depreciation rules.

Table 2.18 UTY Balance sheet 1997 - 1998 (million soum)

1-Jan-97 31-Dec-97 30-Jun-98 Assets Long-term assets Major assets Initial cost 11646 12936 13871 Depreciation 4071 4370 4586 Written-down cost 7575 8566 9285 Intangibles Initial cost 3 8 8 Depreciation 1 2 2 Written-down cost 2 6 6 Capital investments (WIP) 6490 9975 11068 Shares/loans in daughter enterprises Shares/loans in associated companies Long-term investments 761 1133 952 Other borrowings Other assets Subtotal 14828 19680 21311 Short-term assets Inventories 2713 4549 4865 WIP 72 115 298 Finished production 7 12 9 Goods for resale Future costs 466 492 389 Funds (bank accounts) 1111 1248 1603 Foreign exchange 527 1218 119 Cash 1 1 Short-term investments 2 51 2 Own shares purchased Debtors Accounts receivable 6154 12284 13714 Advance payments 408 142 702 Payments to 'budget' 87 88 46 Personnel 5 12 18 Daughter companies 5501 Associated companies 131 360 1101 Founders Other 127 328 346 Subtotal 11811 20900 28713 Total assets 26639 40580 50024 Equity Initial capital 8530 12297 14413 Additional capital Reserve capital Retained profits -1345 526 3377 Target funds and allocations 6056 9399 11280 Reserves for future payments 52 Income in future periods 4542 6940 3961 Subtotal 17783 29162 33083 Liabilities Long-term borrowings 0 0 0 Long-term credits 84 Short-term borrowings Short-term credits Advance payments 29 779 1378 Creditors Suppliers 2616 4121 3300 Budget 925 1791 5050 Wages 525 478 1277 Social security 279 386 973 Insurance 1 Non-budget payments 19 52 148 Daughter companies Associated companies 394 231 1726 Other 4071 3578 3003 Subtotal 8858 11416 16940

Total equity and liabilities 26641 40578 50023 Accounts receivable and payable increased sharply in soum (but not greatly in US$) during 1997. In the first half of 1998, accounts receivable increased slightly in soum (but declined in $US) whilst accounts payable reduced (Table 2.19). Table 2.19 Accounts Receivable and Payable 1997 and 1998 (million soum)

Main activity Total UTY 31-Dec-1997 30-June-1998 31-Dec-1997 31-Dec-1998 31-Jan-99 Accounts receivable Within Uzbekistan 11863 13056 Outside Uzbekistan 421 658 Total 12284 13714 17047 17898 17516 Of which overdue(2) Within Uzbekistan 5464 10364 Outside Uzbekistan 90 23 Total 5554 10387 5567 5523 4774 Accounts payable(1) Within Uzbekistan 3470 3121 Outside Uzbekistan 3814 3050 Total 7284 6171 Of which overdue (> 60 days) Within Uzbekistan 197 46 Outside Uzbekistan 70 21 Total 267 67 Source: UTY (1) Excluding MPS debt (2) Over 60 days Of the total accounts receivable at December 1997 for the main activity, 9350 million soum were for freight, of which 5412 million was overdue. The biggest single debtor was the Uzbek Oil and Gas Corporation, owing 6877 million soum, followed by the chemical company, owing 904 million soum. A further 8 state companies owe 1683 million soum. The increase in overdue accounts during the first half of 1998 was largely associated with the Uzbek Oil and Gas Corporation. Detailed figures for the main activity as at December 1998 are not yet available; however, for UTY as a whole, both total accounts receivable and overdue debts were almost the same as at December 1997, indicating a recovery in the second half of the year. During January 1999, there was a further improvement in the collection of overdue accounts. Freight has to be prepaid, unless the customer is authorised as an account customer by Government edict; in practice this covers the State corporations together with some other favoured enterprises. The practical effect is that most transit traffic and some of the remaining traffic is prepaid whilst much of the local traffic is carried on account. In general, accounts with other departments are settled periodically, although this may require lobbying within the Government; there is a specific organisation with the Cabinet of Ministers which deals with the mutual cancellation of debts between State enterprises. Payment by barter is negligible; the only instances are on the rare occasions a debtor can supply material required by UTY for its internal use11. 2.4.4 Operating Cost Structure Table 2.20 give the structure of operating costs for 1997, prior to the establishment of the passenger enterprise. This table summarises the costs by type for functionally-similar groups of cost centres. Since 1997, the costs attributed to ‘Passenger’ have increased ten-fold because of cross-charges from other units whereas, prior to 1998, ‘Passenger’ costs only included the direct costs associated with passenger-handling.

11 One example given by UTY was a debtor who settled his debt with the provision of linen for the passenger trains.

Table 2.20 Expenditure by Type and Function 1997 (million soum) Salaries Material Diesel Electricity Capital Other(1) Total & social Traction Other Traction Other repair Passengers 52 3 23 161 (35) 204 Freight 160 7 2 37 179 385 Traffic 332 28 6 79 431 876 Locomotives 581 360 1735 55 372 32 494 415 4044 Wagons 755 306 110 43 964(2) 857 3035 Track 501 259 24 19 1784 361 2948 Buildings 19 19 6 3 289 10 346 Signalling 234 57 7 110 243 8 659 Electricity 65 29 4 33 127 4 262 Admin 189 22 4 5 150 370 Subtotal 2888 1090 1735 218 372 384 4062 2380 13129 Period costs 1286 18 2 11 3575 4891 Total 4174 1108 1735 220 372 395 4062 5955 18020 Source: UTY (1) Includes depreciation of 346 million soum. (2) Includes depot repair Table 2.20 provides a breakdown of ‘Other’ expenditure into expenditure on capital and depot repairs of rollingstock and infrastructure and that on other goods and services. In 1997, 1.4 million soum of this expenditure was for work done by ‘external’ contractors i.e. enterprises not classified as UTY main activity; the remainder was done either by depots themselves or by ‘internal’ contract with one of the specialised ancillary units such as the track machine units (Table 2.11). The remaining expenditure classified as ‘Other’ includes other cross-charges with ancillary units (e.g. the carriage and wagon units include cross-charges from the tank washing plant and freight will include cross-charges from the mechanised freight handling units) and services from third parties, as well as depreciation. Major elements of the ‘other’ component of ‘period’ costs include the maintenance of staff social and training facilities, fines and local taxes and general administration; of period costs in total, around 65% can be regarded as staff on-costs of one sort or another (e.g. bonuses, leave allowances, social facilities etc) which are accounted for centrally with the remaining 35% representing true corporate administration costs12. 2.4.5 Investment Plans UTY investment is based on a ten-year development plan, due to be revised in 1999. One of the key elements of the plan is the construction of two new railways to connect the various sections of the UTY network currently only accessible through Turkmenistan:  from Navoi to Urgench via an upgrade of the current line to Uchkuduk (started 1995); and  a direct line from Karshi to Kumkurgan and thence to Termes (started 1994) Both lines are being grant-funded by the Government, who provided 1.65 million soum in 1998; at this rate the lines will probably take several years to complete. In addition to this line, the Government is also promoting the construction of a direct link from Angren to Pap in the Fergana Valley; this would provide a direct link avoiding the current transit of northern Tajikistan. This line requires around 70 km of new construction, involving a major tunnel and would take several years to be completed. In the meantime, the Government is constructing a pipeline along this route, which will feed into the rail network at each end. UTY itself funded an additional 2.4 billion soum of investment in 1998 (as given in ‘Target funds and Allocations’ in Table 2.18); of which 550 million soum was for electrification and 1.85 `million soum for upgrading facilities. In 1999, UTY will invest 3 billion soum; of which 1 billion soum represents its local contribution to the ADB track project and 2 billion soum will be spent on electrification and facilities.

12 The central administrative costs represent 9.5% of total UTY costs in 1997. This is comparable with the 8-10% generally experienced in efficient Western railways.

The electrification projects have been under construction since 1993. The section from Djizak to Djambay was completed in 1998 and is currently being extended to Marakand. UTY are also undertaking feasibility studies to establish if electrification should then be extended to Bokhara. However, they are planning to first electrify the 120 km Tashkent to Angren line, serving the new pipeline to Fergana, for which they are seeking private-sector participation. This project is budgetted at US$90 million, of which US$20 million would be funded by UTY and the remainder by the private investor. UTY is currently disbursing an ADB loan for US$70 million for track rehabilitation as part of an overall project of $126 million. This loan is due to be disbursed over five years to 2003. UTY are also in process of negotiating an OECF loan of Yen 6120 million for a passenger carriage workshop. Although UTY has a surplus of wagons, carriages and diesel locomotives, a large proportion of its electric locomotive fleet is life-expired and will need to be replaced in the short/medium term. UTY have been considering proposals from a number of manufacturers in addition to the current project proposed for funding by EBRD. This is discussed further in Chapter 4, which concludes that only one of the two manufacturers’ proposals is required in addition to the EBRD project.

Table 2.21 Indicative UTY medium/long -term investment program 1998 - 2015 Project Period Total cost Local funding External funding $US million Source $US million Source $US million New lines Uchkuduk 1994 - 2015 200 GOU 200 Termes 1995 - 2015 100 GOU 100 Angren - Pap 2000 - 2015 200 GOU 200 Electrification Stage 1 - 2001 60 UTY 60 Stage 2 2007 - 2017 100 UTY 100 Angren 2000 - 2001 90 GOU 20 Private BOT 70(3) Infrastructure(1) Rehabilitation/machinery 1998 - 2002 126 UTY 56 ADB 70 Rehabilitation 2003 - 2005 80 UTY 20 ADB 60 Other 1998-2013 123 UTY 123 New locos Electric passenger(2) 2000 - 2001 45 Alsthom 45 Electric freight(2) 2001 - 2005 99 Skoda 99 Electric freight 2000 - 2002 49 UTY 9 EBRD 40 Diesel 2004 - 2013 117 UTY 117 Pass carriages Workshop and new carriages 1998 - 2002 50 OECF 50 Wagons Wagons 2004 - 2008 20 OECF 20 Facilities Other 1998 - 2013 18 UTY 18 Total 1477 1023 454 (1) Routine renewal of infrastructure is funded through capital repairs as part of operating expenditure (Table 2.20) (2) Only one of these two projects is required in addition to the EBRD project (see Section 4.8). The total investment in electric locomotives assumed in the financial projections is $123 million, with $114 million of overseas borrowing. (3) Assumed to be GOU responsibility

3. EVALUATION FRAMEWORK

3.1INTRODUCTION This chapter provides the framework within which the evaluation of the two projects has been undertaken. It first discusses the economic outlook for Uzbekistan in general, and for the energy sector in particular, and uses this as background for the traffic forecasts. It then gives the general parameters adopted for the evaluations.

3.2ECONOMIC OUTLOOK Uzbekistan’s economy declined until 1995 but since then has been registering steady growth at around 3% p.a. Growth has been underpinned by steady increases in industrial production (Table 3.1), particularly from oil production and food processing. Agriculture has also shown steady gains.

Table 3.1 Industrial and economic production and trends 1994 1995 1996 1997 1998 (est) % changes Real GDP -0.9 1.7 3.0 2.0 Industrial production 0.2 6.3 6.5 6.5 Agriculture 2.3 -6.5 5.8 5.0 Retail trade -7.8 22.2 12.7 13.0 CPI 117 64 59 34 Wages (nominal) 287 108 69 38

Annual production (million tonnes) Cotton 3.938 3.934 3.350 3.641 n.a Wheat 1.363 2.347 2.742 3.073 3.117 Other grain 1.104 0.868 0.820 0.715 n.a. Crude oil 7.663 8.268 Petrol 1.360 1.573 Gas (billion cu m) 51.3 49.6 Coal 2.9 2.9 Steel 0.384 0.361 Mineral fertilisers 0.949 0.899 Cement 3290 3356 Source: EBRD and Economic Trends (Uzbekistan) In 1998, there was a sharp fall in foreign trade, triggered partly by the Russian crisis and partly by the fall in cotton exports caused by a poor harvest. Exports by value currently comprise about 40% from cotton, 8% from services, 7% from energy and the remainder from gold and other metals, manufactured and industrial products. In 1998, 17% of exports went to Russia, about 10% to neighbouring CIS countries and about 35% to EU (presumably including the gold). About 45% of imports by value are machinery and equipment, with metals and chemicals representing a further 20%. Russia supplies 17%, with 6% from neighbouring countries, 6% from the remainder of CIS and 30% from EU. UTY is relatively insulated from fluctuations in import and export volumes to and from Russia; almost all this traffic passes through the Chengeldy crossing point and the majority only travels to and from Tashkent, some 30 km to the south. Uzbekistan has been steadily re-orienting its foreign trade away from Russia and the Traceca route now carries nearly 300,000 tonnes of foreign trade; this has been encouraged by competitive tariffs, with the cost of shipping to the Ukraine via Traceca being reported as 55% of the cost of shipping through Russia. The economic outlook for Uzbekistan hinges on the ability of the authorities to implement structural reforms, liberalise both internal and external trade and reintroduce convertibility of the soum. Available ‘most likely’ forecasts predict real economic growth over the next four years of about 2% p.a., increasing to 3% p.a. in the medium term. Inflation (as measured by the Consumer Price Index) is expected to remain at around 30% pa, decreasing to 20% pa in the medium-term.

Real wages are expected to increase by around 3-4% pa. Under these forecasts, the official exchange rate is expected to converge (in real terms) towards the 1998 unofficial rate of around 150 soum per US$ over the next 4 years.

3.3THE ENERGY SECTOR The energy sector, particularly petroleum, provides a substantial share of UTY’s traffic. This section briefly summarises the outlook for the sector as background to the traffic forecasts developed in the next section. 3.3.1 Outlook for the oil industry Uzbekistan is the eighth largest producer of natural gas in the world (1.7 trillion cu ft p.a.), mostly concentrated in south-east Uzbekistan at Shurtan and Kokdumalak. It exports about 5% of its total production, mostly to its neighbouring countries. Since independence, Uzbekistan has increased oil production substantially from 66,000 barrels/day to its current level of 183,000 barrels/day and is now no longer a net importer of petroleum, although it still needs to import some refined products because of the characteristics of its crude oil. Production is concentrated in the Fergana basin, together with Bokhara and the Mingbulok/Kokdumalok fields. Uzbekistan has three refineries, at Fergana (108,000 b/d), Altyaryk (66,000 b/d) and at Bokhara (50,000 b/d), the latter commissioned in November 1997. Fergana is currently being upgraded with the assistance of an EBRD loan and it is expected that Fergana and Bokhara would then expand production at expense of the older and more inefficient Altyaryk refinery. Although Uzbekistan is aiming to become a net exporter of petroleum products, its remoteness from world markets and the need to pass through at least two countries to reach the sea mean that this can only be achieved in the long-term and requires the construction of one of the several long-distance pipelines that have been proposed to China or the Arabian Sea. 3.3.2 Coal Uzbekistan’s principal coal reserves are at Angren, Baisun and Shargun. Angren produced 2.4 million tonnes of (mostly) brown coal in 1996, around 80% of the total production. (It also produces gas for the Angren power station), with Shargun and Baisun contributing 0.2 million and 0.1 million tonnes respectively. Production at all three locations is planned to be increased through upgrading and new mines. 3.3.3 Electricity Uzbekistan’s electricity is mostly generated from natural-gas powered thermal plants, with smaller amounts from coal and hydro-electric facilities. The largest gas-fired plants are at Syr Darya (Gulistan) and Navoi; the coal-powered capacity is mostly at Angren. Hydro-electricity accounts for 15% of total production.

3.4FORECAST FREIGHT TRAFFIC Freight traffic forecasts have been prepared for the 13-year term of the EBRD loan, from 2000 to 2012, for each of the main segments (Table 3.2).

Table 3.2 Forecast traffic 1999-2010 (million ntk) 1998 1999 2000 2001 2002 2003 2010 % pa(1) Local Oil and oil products 5844 5844 6019 6200 6076 6258 8235 2.9 Other 5044 5094 5145 5197 5249 5301 6089 1.6 Subtotal 10888 10938 11164 11397 11325 11559 14324 2.3 Import/export Cotton 570 579 587 596 605 614 705 1.8 Steel 147 151 156 161 165 170 224 3.6 Other long-distance 335 345 355 366 377 388 511 3.6 Local 1556 1579 1603 1627 1651 1676 1925 1.8 Subtotal 2608 2654 2701 2750 2798 2848 3365 2.2 Transit 2266 2311 2358 2405 2453 2502 2874 2.0 Total 15762 15903 16223 16552 16576 16909 20563 2.2 (1) Average over period 1998 -2010 The forecasts assume continuing pressure on all rates denominated in soum, with real rates decreasing by 3% p.a. for the next five years and by 2% p.a. for the rest of the period. However, international transit traffic is priced in Swiss francs and, as the soum is forecast to depreciate against the dollar, the relevant yield in soum is assumed to increase in proportion13. Total traffic on the network is forecast to increase by 30 percent over the period from 1998 to 2010. By comparison, the recently completed Tacis study forecast an increase in freight traffic of about 2.5% pa to 2005, whilst internal UTY forecasts assume a growth of 2% pa. 3.4.1 Oil and oil-related traffic Uzbekistan is likely to remain self-sufficient in petroleum and production and consumption are thus likely to rise in line (or rather faster than) GDP for the foreseeable future. The major factor that will affect the railway task is changes in the pattern of transport caused by alterations to the pattern of refining and/or supply. The Bokhara refinery began operation in late 1997 and the bulk of its impact on rail transport volumes had been felt by early 1998. Although the transport of crude oil to Fergana reduced, this was at least partially compensated by the increased carriage of refined products to Tashkent. Further planned investment is aimed at upgrading refineries to handle its high-sulphur crude oil and is unlikely to greatly affect refining patterns. The construction of the Angren - Pap pipeline, which is reportedly in progress, however, will cause a major reorientation of rail flows, with refined product being loaded into rail at Angren rather than transitting Tajikistan and entering the main UTY network at Bekabad. Its impact on the UTY transport task, however, will be relatively minor; the current haul from Bekabad to the Tashkent area is about 209 km compared to 114 km from Angren. Around 3 million tonnes of product would be affected, causing an annual reduction in volume of 300 million ntkm, or about 5% of the current task. The traffic forecasts assume that oil traffic grows at 1% faster than GDP, or 3% p.a. to 2003, followed by 4% p.a. for the remainder of the period. The Angren traffic is assumed to begin in 2002, giving a net reduction in traffic of 2% in that year. Growth for 1999 is set at 0% to allow for the residual impact of the opening of the Bokhara refinery. 3.4.2 Other local traffic Other local traffic is expected to parallel the forecast growth in GDP over the period of 3 to 4 percent annually, albeit at a lower rate. Although some short distance general freight will be lost to road as the road network is improved and the trucking sector developed, such traffics are probably only about 10% of the total task. Traffic is forecast to grow at 2% pa slower than the economy as a whole, reflecting the bulk nature of many of the traffics, the probable development of regional processing centres and allowing for some erosion of market share by road; the assumed growth rate is thus 1% p.a. to 2003 and 2% p.a. thereon.

13 This is a conservative assumption as the Swiss franc will probably appreciate against the dollar in the medium-term.

3.4.3 Import/export and transit traffics This traffic represents about 35% of UTY’s transport task, much of it bulk traffics to and from neighbouring countries. The civil unrest in Tajikistan has been assumed to continue indefinitely but the economies of the other neighbouring countries are assumed to continue to grow. Imports and exports to and from local countries are forecast to grow at 50% of the Uzbekistan growth in GDP. For forecasting purposes these are assumed to be the bulk traffics and 50% of ‘other’. The remaining traffic, primarily cotton and ferrous products, is assumed to be more closely linked to the Uzbek economy and to grow at the same rate; However, the rate for cotton is discounted by 50% to allow for possible leakage to road operators backloading to such countries as Turkey. The pure transit traffic is assumed to grow at 2% p.a. in line with regional economies.

3.5FORECAST PASSENGER TRAFFIC Uzbekistan car ownership levels, although increasing rapidly, remain relatively low. Passenger traffic in the medium-term is already facing strong competition from buses and, given the financial performance of the segment, should probably withdraw from a number of its ‘suburban’ and branch-line services. However, the main-line serves a number of relatively large centres and should have the potential to compete effectively against bus competition for the longer-distance services. This will be helped by the establishment of the passenger service as a separate enterprise. Underlying demand is likely to grow in more or less in line with the economy, although this will be dampened by any further fare increases which the Government may introduce to improve the cost recovery. For the purposes of this evaluation, long-distance passenger services on the main-line (many of which are jointly operated with neighbouring countries) have been assumed to remain constant. Suburban services have recorded an increase in reported patronage in recent years; this may be genuine or merely the result of reduced fare evasion. As with main-line passengers, suburban passengers have been assumed to remain constant.

3.6EVALUATION FRAMEWORK 3.6.1 Financial Structure of Project The project is assumed to be funded from three sources:  a loan from EBRD of $40 million, repayable over a 13-year period. There would be a grace period of 3 years (during loan disbursement), following which repayments would be made semi-annually at an interest rate of LIBOR plus 1%. For the purposes of this report, LIBOR has been assumed as 7% p.a., giving an interest rate for the loan of 8% p.a. EBRD would also charge an initial commission of 1% and a commitment fee of 0.5% on the unspent component of the loan.  local funding estimated at $9 million. This includes payment of local taxes and charges, as well as project preparation. 3.6.2 Valuation of Costs and Benefits For the financial evaluation, all costs and benefits are valued in constant 1998 soum, as incurred by UTY. Project costs and benefits are derived as required in Sections 4.3 and 5.3. Internal rates of return have generally been calculated over a 30-year project period (the expected operating life of the locomotives), beginning in 2000. The economic evaluation, in principle, adjusts the financial costs and benefits for taxes and subsidies and also includes costs and benefits which are external to UTY. The economic evaluation thus also includes benefits such as those which arise to users arising from the reduced transit times and to non-users from the reduction in road traffic that would otherwise arise.

3.6.3 Future Operating Costs The evaluations use a set of operating costs based on 1997 actual costs, adjusted to 1998 levels and modified to allow for changes in the age of rollingstock. Table 3.3 analyses the 1997 actual expenditure and estimates unit operating costs for the subset of railway activities relevant to the evaluations. The 1997 expenditure data is as given in Table 2.20; some costs have been further subdivided based on staffing levels and more detailed cost breakdowns. The labour-related component of ‘period’ costs, estimated at 63% in 1997, was then distributed in proportion to labour costs to produce ‘augmented’ costs by function. These were then associated with the relevant cost driver to produce a set of unit costs. In some cases, where the function covered more than one activity, only a proportion of the total costs was taken (e.g. traffic costs were discounted to derive a train dispatching cost etc).

Table 3.3 Derivation of 1997 UTY unit operating costs Expenditure (soum million) Variable with Units Unit cost Labour Total Period Total (000) (soum) costs Passenger 52 205 56 261 Freight handling etc 160 384 172 556 Traffic 332 876 356 1232 Train-km (1) 19189 42 Fuel Diesel fuel 1735 0 1735 Ttkm (000) 25688 68 Electricity (locos) 352 0 352 Ttkm (000) 10059 35 Electricity (EMU) 20 0 20 Ttkm (000) 427 47 Train crew 260 279 549 Train-hrs 739 729 Locomotive/EMU maint Electric locos 79 253 85 338 Loco-km 4919 69 EMU 16 58 17 75 Loco-km 3489 21 Diesel locos 226 1626 242 1868 Loco-km 16913 110 Wagons 485 2130 520 2650 Wagon-km 545778 4.9 Carriages 270 905 290 1195 Car-km 97964 12.2 Track 501 2947 537 697 20% ttkm (000) 36174 19 2787 80% equivt track-km 5570 500400 Buildings/structures 19 345 20 365 Signalling 234 659 251 910 Train-km 19189 47 Electrical 65 262 70 332 Elec track-km(2) 736 329200 Regional management 38 110 41 151 % overhead excl fuel 1.1% Railway management 151 261 162 423 % overhead excl fuel 3.1% Period costs 1286 4891 -3098 1793 % overhead excl fuel 13.2% Total 4174 18019 18019 (1) 65% of cost taken as representing train dispatching (2) 73% of cost taken as representing maintenance of traction power These costs are similar to general experience, both in absolute level and in terms of their relativity with each other, after allowing for some of the low input costs, especially for fuel. For the purposes of the project evaluations, they have been factored by 50% to bring them to mid-1998 price levels. Certain of the important unit costs, particularly fuel costs, have been replaced by more direct calculations using the actual input prices for mid-1998, and Russian data on the improvement obtained from re-engining the 2TE10M, based on the results of their experience with around 700 locomotives. The current fleet average maintenance costs are biassed by the high costs of the older locomotives and the relativities for the unit locomotive maintenance costs have been derived from general experience.

Table 3.4 Unit operating costs used for project evaluation (mid-1998 prices) Item Unit cost Per Comment (soum) Locomotive maintenance Current diesel 125 Loco-km 75% of fleet average updated to 1998 Rehabilitated diesel 94 Loco-km 75% of current diesel New diesel 85 Loco-km 90% of rehabilitated diesel New electric 42 Loco-km 50% of new diesel Fuel Diesel loco Diesel @ 22.5 soum/l Current 129 000 ttk 5.65 l/000 ttk Rehabilitated 112 000 ttk 5.0 l/000 ttk New 101 000 ttk 4.5 l/000 ttk New electric loco 75 000 ttk 15 kWh/000 ttk @ 5 soum/kWh Oil Diesel loco Oil @ 67.4/l Current 12 000 ttk 0.17 l/000 ttk Rehabilitated 7 000 ttk 0.10 l/000 ttk New 6 000 ttk 0.09 l/000 ttk New electric loco - Rollingstock maintenance Wagon 7.4 Wagon-km 1997 cost updated to 1998 Carriage 18.3 Car-km 1997 cost updated to 1998 Train-dispatch 63 Train-km 1997 cost updated to 1998 Track maintenance 29 000 ttk 1997 cost updated to 1998 Traction power maintenance 494000 Elect track-km 1997 cost updated to 1998 Train crew 1094 Train-hr 1997 cost updated to 1998

Table 3.5 gives unit capital costs used in the evaluation. These are based on the estimated current costs of purchasing new rollingstock in Uzbekistan; they have been converted into costs per hour of utilisation using assumed asset lives and utilisations, with a discount rate of 7%.

Table 3.5 Unit capital costs used for project evaluation (mid-1998 prices) Item Unit cost Life Utilisation Cost/hr ($US mill) (years) (hrs p.a.) $US Soum(1) Rehabilitated diesel loco 2.0 12 4000 63 6500 New diesel loco 4.0 18 4500 88 9100 New electric locomotive 4.5 30 5000 73 7500 Carriage 0.1 25 4000 2.15 220 Wagon 0.025 25 2000 1.07 110 (1) Exchange rate of $US = 103 soum

4. PURCHASE OF ELECTRIC LOCOMOTIVES

4.1INTRODUCTION This section first describes the proposed component involving the purchase of new electric locomotives. It then undertakes financial and economic evaluations of the proposal, while a final section summarises the environmental review contained in Appendix 2.

4.2DESCRIPTION OF THE PROJECT Since 1990, UTY have been electrifying the most heavily-trafficked sections of the network as summarised in Section 2.2.2. Their current electric loco fleet consists of a mixture of life-expired and relatively modern locomotives (Table 2.1) and when the current projects are completed there will be a shortage of electric traction power. At the same time, much of the existing diesel fleet will become life-expired and will either need to be refurbished or replaced. The objective of the current project is to purchase new electric locomotives to provide sufficient traction capacity for all freight operations on the electrified sections (currently operated by a mixture of the 3VL80 and the life-expired 2VL60 fleets) to be loco-hauled.

4.3OPERATIONAL ANALYSIS UTY are currently operating electric-hauled passenger services with a fleet of 28 life-expired VL60 locomotives built between 1962 and 1966. These locomotives were designed for an operating life of 30 years and have been suffering for some 5 years from cracks in the frames caused by metal fatigue. To date, this has been addressed on a stop-gap basis by welding but it is inevitable an increasing number of locomotives will have to be condemned as these problems intensify. The locomotives cannot be repaired in Russia as the repair plants refuse to provide a warranty for such old locomotives. Similar problems are arising in Russia but the railways there have ample reserves of the newer VL80 locomotive as a substitute. In summary, within 2-3 years, UTY will either have to purchase new locomotives or revert to diesel-hauled services. The UTY electric freight loco fleet consists of two groups:  a fleet of 18 sets of 2VL60 locomotives. These consist of two VL60 units which are semi- permanently coupled, built in 1961-67. These sets can be split to form two individual units, requiring a few days work in the depot to refurbish the centre cabs. However, 14 of the 18 sets have safety problems and are currently operating on six-month permits. As with the single VL60 units used for passenger work, the 2VL60 fleet is unlikely to be in service for more than a further 2-3 years;  a fleet of 32 3VL80 locomotives, built between 1988 and 1993. Although these locomotives are sets of three units, they are four-axled as opposed to the six-axled VL60 and can be taken as being of equivalent HP for operational planning purposes. Of the 32 locomotives, 22 are required for traffic on a daily basis, 1 is used for maintenance and driver training, 4-5 are undergoing repairs and 5 are currently held as reserve14. The traffic forecasts developed in Section 3.4 project UTY passenger services to remain constant with freight traffic growing at a rate of 2.2% p.a. In addition, UTY is currently implementing the following electrification program:  1999 Djambay - Marakand (under construction)  2000 Mekhnat - Djizak (under construction)  2001 Tashkent - Angren (project approved, see Section 2.4.5)

14 As the fleet rotates through a roster, the ‘reserve’ locos are those that are assigned to a ‘spare’ roster on any one day rather than being specific locomotives that have been mothballed.

They are also undertaking planning studies examining the extension of the Marakand electrification further south towards Bokhara, with the following indicative opening dates.  2002 Marakand - Ziadin  2005 Ziadin - Bokhara When electrification is completed to Marakand and Angren, the passenger services will require a total of 16 locomotives, together with 2 for reserve/repair. The fleet required for the freight services is derived in Table 4.1, based on 1998 traffic volumes projected at 2.2% pa. The traffic volumes for the Angren line and the remainder of the Tashkent district have been adjusted to allow for the redirected oil traffic from 2002 onwards. The required fleet calculations allow for the different terrain in each of the three parts of the network and the different hauling capacity resulting from that. They assume a fleet availability of 85%, consisting of a higher figure (probably over 90%) for the new locos and a lower figure closer to 80% for the 3VL80 fleet, which will be approaching 15 years of age by 2005. They also include two locomotives for service trains and a reserve of 12% for traffic peaks (the standard UTY allowance).

Table 4.1 UTY electric freight linehaul loco requirements 1998-2005 Year Electric-hauled ttk (mill) Electric locos required (1) Locos available (2) New locos required Tashkent Bokhara Angren Tashkent Bokhara Angren 1998 7833 2106 28 5 - 50 - 1999 8006 3739 29 9 - 44 - 2000 7512 3821 27 9 - 38 - 2001 7768 3903 28 9 - 32 5 2002 6118 3985 1836 23 9 8 32 8 2003 6252 4072 1876 23 9 8 32 8 2004 6367 4162 1918 23 9 9 32 9 2005 6510 4254 1960 24 9 9 32 10 (1) Based on annual productivities of 390 million ttk and 570 million ttk for Tashkent and Bokhara electric locos respectively and 300 million ttk for locomotives on the steeply-graded Angren line (excluding locos under repair/reserve). Tashkent electric fleet includes 2 locos for service trains. Assumes average electric fleet availability of 85% and reserve of 12%. (2) Allowing for progressive scrapping of 2VL60 fleet in 1999-2001 UTY will require additional electric locomotives from 2003 onwards. Although it has surplus diesel locomotives in the medium-term, many are approaching the end of their useful life and will need to be refurbished (probably with a new engine as well as new auxiliary components such as the generator and compressor), giving around another 12-15 years life. This conclusion is relatively robust. Even if there is no traffic growth, UTY will still be short by about 5 locomotives after completion of the Marakand extension and the retirement of the 2VL60 fleet. If the Angren project is postponed or delayed, there will be only a small effect on the overall fleet requirements as the combined haulage task for the existing general traffic and diverted oil traffic on that line is comparable to the task reduction on the rest of the network because of the traffic diversion.

4.4CASES FOR EVALUATION 4.4.1 Base Case The 2VL60 locomotives are over 30 years old and, besides being technologically obsolete, are in many cases suffering from cracked frames. At present, the fleet is effectively in reserve and its useful life in full-time operations will be very limited. If no additional electric locomotives are purchased, UTY will have to use diesel locomotives on the newly-electrified sections (probably 3TE10M); this would require diesel locos to be refurbished in 2004 and 2005, which would then operate to around 2017. During the period to refurbishment, the unit maintenance costs of the current diesel fleet are assumed to increase at 5% p.a.

Because of its ability to operate at higher than its continuous rating for limited periods of time, electric locos can pull heavier loads than a diesel, of equivalent horsepower, at a higher average speed. Combined with their generally greater availability, this means the annual productivity of a new electric locomotive in terms of trailing-tonne-km p.a. is significantly higher than for a comparable diesel (estimated at 73% compared to the existing fleet, 42% compared to a refurbished diesel and 18% compared to a new diesel). At the same time, electric locomotives generate savings in fuel and maintenance costs compared to diesels. Table 4.2 summarises the comparative operating costs of the three locos considered in the analysis, based on the unit costs given in Table 3.4 and Table 3.5. The costs given are those for hauling 450 million trailing tonne-km, the estimated annual capacity of a new electric locomotive.

Table 4.2 Comparative operating cost for hauling 450 million ttk p.a. New electric Current diesel Refurbished New diesel diesel Task (million ttk) 450 450 450 450 Average trailing load (tonnes) (Table 2.4) 2500 2200 2350 2350 Loco-km (000) 180 205 191 191 Average commercial speed (km/hr) 32 30 30 32 Loco-hrs 5625 6830 6370 5970 Unit costs (Table 3.4) Fuel and oil (soum/000 ttk) 75 141 119 107 Maintenance cost (soum/loco km) 42 125 94 85 Crew (soum/loco-hr)(1) 450 450 450 450 Cost for hauling 450 million ttk (000 soum) Fuel and oil 33750 63450 53550 48150 Maintenance 7560 25625 17950 16235 Crew 2530 3070 2870 2690 Total 43840 92145 75890 68105 (1) Assumed 1.25 locos/train (Table 2.4). 4.4.2 Option Case The Option Case assumes new electric locomotives are bought as required, with an operating life of 30 years. 4.4.3 Alternative Base Case The option of purchasing new electric locomotives was also evaluated against an Alternative Base case in which the diesel locomotives are replaced by new diesel locomotives in 2005, which then operate until 2023, when they are again replaced.

4.5FINANCIAL EVALUATION The results of the financial evaluation are given in Table 4.3 and Table 4.4. For clarity, these give details of the purchase of a single electric locomotive purchased in 2000, but the results for the total purchase program will be almost identical. Using the parameters of Table 4.2, the purchase of new electric locomotives has an IRR over the 30-year evaluation period to 2029 of 17% against the Base Case and of 20% against the Alternative Base Case.

Table 4.3 Base Case (current diesel with later refurbishment) versus new electric locomotives (million soum) Maint Refurbished diesel Electric Cash factor Capital Fuel Mtce Capital Fuel Mtce R/s flow 2000 1.00 63 26 464 34 8 capital-1 -415 2001 1.05 63 27 34 8 -1 50 2002 1.10 63 28 34 8 -1 51 2003 1.16 63 30 34 8 -1 52 2004 1.22 293 54 18 34 8 0 323 2005 1.00 54 18 34 8 0 31 2006 1.00 54 18 34 8 0 31 2007 1.00 54 18 34 8 0 31 2008 1.00 54 18 34 8 0 31 2009 1.00 54 18 34 8 0 31 2010 1.00 54 18 34 8 0 31 2011 1.00 54 18 34 8 0 31 2012 1.00 54 18 34 8 0 31 2013 1.00 54 18 34 8 0 31 2014 1.00 54 18 34 8 0 31 2015 1.05 54 19 34 8 0 31 2016 1.10 486 48 16 34 8 0 509 2017 1.00 48 16 34 8 0 23 2018 1.00 48 16 34 8 0 23 2019 1.00 48 16 34 8 0 23 2020 1.00 48 16 34 8 0 23 2021 1.00 48 16 34 8 0 23 2022 1.00 48 16 34 8 0 23 2023 1.00 48 16 34 8 0 23 2024 1.00 48 16 34 8 0 23 2025 1.00 48 16 34 8 0 23 2026 1.00 48 16 34 8 0 23 2027 1.00 48 16 34 8 0 23 2028 1.00 48 16 34 8 0 23 2029 1.00 -108 48 16 34 8 0 -85

Table 4.4 Alternative Base Case (current diesel with new diesels) versus new electric locomotives (million soum) Maint New diesel Electric Cash factor Capital Fuel Mtce Capital Fuel Mtce R/s flow 2000 1.00 63 26 464 34 8 capital-1 -415 2001 1.00 63 27 34 8 -1 50 2002 1.00 63 28 34 8 -1 51 2003 1.00 63 30 34 8 -1 52 2004 1.00 486 48 16 34 8 0 509 2005 1.00 48 16 34 8 0 23 2006 1.00 48 16 34 8 0 23 2007 1.00 48 16 34 8 0 23 2008 1.00 48 16 34 8 0 23 2009 1.00 48 16 34 8 0 23 2010 1.00 48 16 34 8 0 23 2011 1.00 48 16 34 8 0 23 2012 1.00 48 16 34 8 0 23 2013 1.00 48 16 34 8 0 23 2014 1.00 48 16 34 8 0 23 2015 1.00 48 16 34 8 0 23 2016 1.00 48 16 34 8 0 23 2017 1.00 48 16 34 8 0 23 2018 1.00 48 16 34 8 0 23 2019 1.00 48 16 34 8 0 23 2020 1.00 48 16 34 8 0 23 2021 1.00 48 16 34 8 0 23 2022 1.00 486 48 16 34 8 0 509 2023 1.00 48 16 34 8 0 23 2024 1.00 48 16 34 8 0 23 2025 1.00 48 16 34 8 0 23 2026 1.00 48 16 34 8 0 23 2027 1.00 48 16 34 8 0 23 2028 1.00 48 16 34 8 0 23 2029 1.00 -270 48 16 0 34 8 0 -247

The results are relatively robust, although naturally sensitive to the assumed price of electricity. The current price is double that of six months ago, at about $US 0.04 at the current exchange rate, somewhat below world prices. Diesel fuel prices are also low, at around $US 0.19/litre. Table 4.5 gives a range of sensitivity tests for the various parameters.

Table 4.5 Sensitivity tests on financial evaluation Variable Value IRR (%) of Option versus Base Alternative Base Default values 17 20 Price of electricity (soum/kwh) 6 15 17 7 12 15 8 10 12 9 9 8 Price of diesel fuel (soum/l) 20 15 18 25 19 22 30 23 27 Cost of diesel refurbishment ($US 000) 750 12 - 1000 15 - Cost of new diesel ($US 000) 2500 16 14 3000 16 16 Equivalence factor for rehab diesel 1.2 16 - Equivalence factor for new diesel 1.1 17 19

The key sensitivity is the relative fuel price; the project retains an IRR of over 10% as long as the relativity between electricity and diesel prices remains above 1:2.5. It is relatively insensitive to assumptions about the cost of refurbishment or of new diesels, as these are generally only incurred later in the evaluation period whilst the maintenance and fuel cost savings are obtained from the start.

4.6ECONOMIC EVALUATION The key parameters in the economic evaluation are the assumed economic prices for electricity and diesel fuel. For the purposes of this evaluation, these have been taken as $US 0.07/kwh and $US 0.25/litre respectively,. Although the evaluation has been undertaken in soum, the capital costs and the spare parts component of loco maintenance are effectively dollar costs and the economic evaluation is thus relatively insensitive to the exchange rate assumption. With the assumed economic energy prices above, the project shows an IRR of 15% against the Base Case and 17% against the Alternative Base Case. These are less than the financial IRR’s as the Uzbekistan price of electricity has a greater discount than diesel to the assumed economic price. However, it could be argued that as so much of Uzbekistans’s electricity is generated from natural gas, of which it has a surplus, the opportunity cost of electricity is rather less than the world price and this would increase the economic IRR by about 4-5% above these figures. There will be minimal transport-related benefits to rail users arising from the project, as long as the service continues to be provided by one form of traction or another, as assumed in the evaluation. However, taking a broader view, the use of electric rather than diesel locomotives will provide benefits from reduced emissions, including greenhouse gases. The benefits of such reductions have been shown to be substantial in studies in Europe and North America; although difficult to quantify in Uzbekistan, when taken in combination with the adjusted fuel prices, they would further increase the economic IRR to above 20% for both cases.

4.7ENVIRONMENTAL EVALUATION Appendix 2 gives a detailed environmental review of the proposed project, including a Draft Environmental Action Plan. Table 4.1 of the appendix gives a detailed comparison of the old and new electric locomotives from an environmental viewpoint, demonstrating improvements in almost all components of the locomotive. The proposed electric locomotives also have significant benefits compared to the alternative of diesel haulage but there will be significant environmental benefits from reduced pollution and oil spillage and leakage.

4.8OPTIONS FOR UTY This chapter has demonstrated:  within the next 3-4 years UTY will need to replace all the existing electric passenger locomotives as well as a substantial part of the electric freight locomotive fleet.  the best solution will be to purchase new electric locomotives, compared to the options of rehabilitating the existing diesel fleet or purchasing new diesel locomotives. UTY will require 19 passenger locomotives to operate the planned timetable together with, following the electrifications which are either in progress or approved, about 40 two-vehicle sets. They thus need to purchase 19 single-vehicle locomotives for passenger services and about 8-10 two-vehicle sets for freight. There are three possible sources of these locomotives:  a proposed loan for 15 passenger locomotives to be supplied by GEC-Alsthom, to be delivered in 2001-2002  a proposed loan for 15 two-vehicle locomotives to be supplied by Skoda, being delivered over a five-year period between 2001 and 2005;

 the proposed EBRD loan for 8 two-vehicle locomotives, to be procured by open international tender by 2002. It is understood both the two-vehicle sets can be readily converted to two single-vehicle locomotives for passenger purposes15 and the Skoda locomotives could thus be used for either freight or passenger services if required. The consequences of pursuing the various combinations of suppliers are summarised in Table 4.6.

Table 4.6 Electric locomotive procurement options Option Locos supplied from # locos(1) procured by Alsthom Skoda EBRD 2003 2005 1 Yes Yes No 16.5 22.5 2 Yes No Yes 15.5 15.5 3 No Yes Yes 17.0 23.0 4 Yes Yes Yes 24.5 30.5 Locos(1) required 17.5 19.5 : (1) Expressed as two-vehicle sets i.e. 1 passenger loco = 0.5 sets Any two of the potential suppliers will just about provide sufficient locomotives for 2003 but the Skoda contract (or similar) is needed to provide sufficient capacity by 2005. However, if the Skoda contract is agreed, there is a possible surplus of electric locomotives, whoever is the other supplier, by 2005. Table 4.6 also clearly shows that, if all three options are pursued, UTY will have a substantial surplus of electric locomotives throughout the first half of the next decade. There is also the possibility that, if passenger traffic were to fall away over this period, UTY would be left with surplus passenger locomotives. These could possibly be disposed of to other railways but the best option for UTY is probably to opt for locomotives that can be used for freight should the demand for loco-hauled passenger services reduce. Whilst the evaluation in this chapter has shown that the replacement of electric locomotives has a high IRR, this is only true for the proposed EBRD project if there is only one additional supplier for at least the next three years; in particular, if the Alsthom and Skoda contracts are both pursued, it is unlikely that the proposed EBRD locos would be required until after 2005.

15 The average speed of UTY passenger services is unlikely to require specialist passenger locomotives.

5. ELECTRIFICATION OF MEKHNAT - DJIZAK

5.1INTRODUCTION This section evaluates the proposed electrification of the Mekhnat - Djizak section of the main UTY line between Tashkent and Samarkand.

5.2DESCRIPTION OF THE PROJECT The section of track proposed for electrification is a 120 km double-track section, south of Tashkent. It passes across the southern tip of Kazakhstan but is operated throughout by UTY who have negotiated a 75-year lease. There is an longer alternative route via Khavast, consisting of the 82 km double-track section from Mekhnat - Khavast and a 89 km single-track section from Khavast-Djizak, which is electrified throughout. Passenger trains are currently hauled by diesels on the direct route but through freight has been diverted to the alternative electrified route, because of the lower cost of fuel, and there are currently only a very few local freights hauled by diesels on the direct line. The fuel savings arising from this strategy are offset to some extent by the increased rollingstock maintenance costs caused by the longer distance (51 km) as well as time-related costs from the extra 2 hour transit time. UTY provided estimates of the project cost in February 1998 (Table 5.1). It is understood these are relatively unchanged at the present time. A component of the work is probably independent of electrification per se and associated with more general benefits which have not been identified in this analysis. There are also some questions as to whether some of the costs could be reduced, particularly the substations. Resolution of these issues would be required if this component were to proceed but at this stage an allowance of $15 million has been made for evaluation purposes.

Table 5.1 Mekhnat - Djizak electrification - construction cost estimates ($US mill) (Feb 1998) Completed Remaining Total Local Foreign Total Local Foreign Total Local Foreign Total Preparatory works 1.45 1.45 0.55 0.55 1.98 1.98 Signalling and telecoms 1.21 1.21 5.31 10.50 15.81 6.5 10.50 17.02 Catenary and contact wire 1.95 1.95 5.26 11.39 17.65 8.21 11.38 19.60 Substations 2.50 10.32 12.82 2.50 10.32 12.82 Distribution stations 1.75 1.75 1.75 1.75 Installation 3.45 3.45 3.45 3.45 Tools, spares etc 2.37 2.37 8.12 8.12 10.49 10.49 Total 6.96 6.96 27.84 32.24 60.15 34.90 32.21 67.11

Approximately 10% of the expenditure had been made as at February 1998, leaving approximately $60 million to complete the project, split 50:50 between local and foreign costs.

5.3OPERATIONAL ANALYSIS 5.3.1 Traffic volumes In 1996, the traffic volumes on the three links were as given in Table 5.2. The table also gives the volumes of through traffic travelling by the direct and indirect routes as given by UTY in early 1998. The total October 1998 volumes on the indirect route is also given. The total volume on the system has declined by about 10% between 1996 and 1998,

Table 5.2 Trailing tonnes by line section - 1996 - 1998 (000 pa) 1996(1) Oct 1998(2) Freight Passenger Freight Passenger Mekhnat - Djizak (direct) 1360 3496 - 5840(3) Mekhnat - Khavast (indirect) 24298 2482 20516 2479 Khavast - Djizak (indirect) 32426 1301 25235 1336 (1) Padeco report p4. Mekhnat-Djizak volumes quoted in the Padeco diagram have been corrected to remove the Mekhnat - Uzbekistan traffic (Djizak-Uzbekistan forms a single section for statistical purposes). (2) October 1998 traffic statistics (electric-hauled only) (3) February 1998 estimate No direct estimate of the proportion of Mekhnat - Khavast - Djizak traffic that is through, and hence would divert to the direct line when electrified, is available. However, in February 1998 UTY estimated through traffic at 10.9 million tonnes and this has been adopted for the analysis. This could be expected to increase as petroleum products distribution patterns change following the commissioning of the new Bokhara refinery. The estimated 1998 passenger tonnage seems high, with an average trailing load of 1000 tonnes (16-17 carriages) compared to the system average of 680 tonnes (diesel) and 820 tonnes (electric). The 1996 tonnage, with the estimated 1998 train volume of 5840 p.a., would give a more consistent average train size of 600 tonnes. For the purposes of evaluation, the base 2001 volumes have been taken as 12.0 million trailing tonnes for freight and 4.0 million trailing tonnes for passenger traffic. These are assumed to increase at 2% p.a. 5.3.2 Base Case Although at present the through traffic is being hauled by electric locomotives via Khavast, this is unlikely to be feasible as a long-term solution. As other sections are electrified, the present surplus of electric locomotives will disappear. At the same time, any increase in traffic will lead to increased congestion on the indirect route, particularly on the single-track section. The long-term Base Case will therefore almost certainly see the through traffic reverting to diesel haulage via the shortest route16. The analysis assumes that after five years, the existing diesel fleet is progressively refurbished as described in Chapter 4. This is assumed to be undertaken during 2005-2007. 5.3.3 Option Case Under the Option Case, the electrification work on the line continues, being completed in mid- 2001. Both passenger and freight trains are then hauled by electric locos throughout. This is assumed to produce an improvement of 10% in technical speed, as well as a 10% increase in average freight load. In addition, an allowance of 15 minutes per passenger train and 30 minutes per freight train is assumed for loco-changing at each end of the section17. Table 5.3 summarises the base year (2001 benefits); the unit costs adopted in the analysis are as derived in Table 3.4 and Table 3.5.

16 A supplementary analysis has confirmed that while it is better to run via Khavast at the current time, as soon as the cost of new electric locomotives is included it is more economical to adopt the proposed Base Case strategy of direct diesel haulage. 17 Many of the passenger trains are currently diesel-hauled beyond Mekhnat and Djizak for operational convenience. This has been ignored in the analysis and these benefits subsumed in the 30 minute allowance.

Table 5.3 Base Year operating costs and benefits - electrification (soum 000 pa)) Operating resources Costs (soum million) Benefits (soum mill) Base Option Base(1) Base(2) Option Base(1) Base(2) Distance (km) 120 120 Passenger Trains p.a. 5840 5840 Cars/train 11.5 11.5 Average speed 41 55 Average tonnes/car 61 61 Ttkm (mill p.a.) 492 492 77 69 51 -27 -18 Train-hrs p.a. 17093 12742 94 162 134 40 -29 Car-hrs p.a. 196566 146531 43 43 32 -11 -11 Loco-km p.a. 700800 700800 88 66 29 -58 -36 Freight Tonnes p.a. 12000 12000 Tonnes/train 2100 2300 Trains p.a. 5714 5217 Wagons/train 35 38 Average speed 24 35 Ttkm (mill p.a.) 1440 1440 227 202 149 -78 -53 Train-hrs p.a. 28571 17888 103 217 154 51 -63 Wagon-hrs (000 p.a). 1000 686 110 110 76 -34 -35 Loco-km p.a. 685714 626087 86 64 26 -59 -38 Total 813 919 642 -177 -284 Unit costs (Table 3.4 and Table 3.5) Fuel 129 112 75 soum/ttk Track 29 29 29 soum/000 ttk Freight crew 1094 1094 1094 soum/hr Pax crew 3000 3000 3000 soum/hr Loco maintenance 125 94 42 soum/km Carriage-hr 220 220 220 soum/hr Wagon-hr 110 110 110 soum/hr Loco-hr 2500 6500 7500 soum/hr (1) Assuming existing diesel locomotives (2) Assuming refurbished diesel locomotives

5.4FINANCIAL EVALUATION Table 5.4 summarises the financial evaluation.

Table 5.4 Financial Evaluation of Electrification (soum million) Growth Capital Maintenance Benefits Cashflow factor 2000 -3090 -3090 2001 1.00 -1545 -30 88 -1489 2002 1.02 -59 180 115 2003 1.04 -59 184 119 2004 1.06 -59 188 122 2005 1.08 -59 230 164 2006 1.10 -59 274 208 2007 1.13 -59 319 254 2008 1.15 -59 326 266 2009 1.17 -59 332 273 2010 1.20 -59 339 280 2011 1.22 -59 346 286 2012 1.24 -59 352 293 2013 1.27 -59 360 300 2014 1.29 -59 367 307 2015 1.32 -59 374 315 2016 1.35 -59 382 322 2017 1.37 -59 389 330 2018 1.40 -59 397 338 2019 1.43 -59 405 346 2020 1.46 -59 413 354 2021 1.49 -59 421 362 2022 1.52 -59 430 370 2023 1.55 -59 438 379 2024 1.58 -59 447 388 2025 1.61 -59 456 397 2026 1.64 -59 465 406 2027 1.67 -59 474 415 2028 1.71 -59 484 425 2029 1.74 -59 494 435 2030 1.78 -59 504 445 2031 1.81 -59 514 455

The IRR of the Base Case is 4.3%. Table 5.5 gives a range of sensitivity tests for the various parameters. The project is generally viable but the IRR remains firmly below 10%.

Table 5.5 Sensitivity tests on financial evaluation Variable Value IRR (%) Default values 4 Price of electricity (soum/kwh) 6 3 7 2 8 1 9 0 Price of diesel fuel (soum/l) 20 3 25 5 30 6 Cost of project ($US million) 25 9 35 6 55 3 Traffic growth rate (% pa) 0 2 4 6 6 7

5.5ECONOMIC EVALUATION The financial evaluation demonstrates that the project is financially reasonably robust but only marginally viable. against a range of assumptions. As with the locomotive evaluation, there are few external transport-related benefits, assuming the transport service is maintained, but the project will

SCOTT WILSON KIRKPATRICK 41 29-Apr-18 D:\Docs\2018-04-06\030fccebbc486a04896f81a63450f042.doc UZBEKISTAN RAILWAYS RESTRUCTURING PROJECT FINAL REPORT TECHNICAL ASSISTANCE FOR DUE DILIGENCE reduce the pollution and greenhouse gas impacts associated with diesel rather than electric traction. A formal economic evaluation has not been undertaken, but the economic IRR which took these factors into account could be expected to be somewhat higher than the financial IRR, parallelling the result for the locomotives.

6. FINANCIAL PROJECTIONS

6.1INTRODUCTION This chapter presents projections of UTY’s finances over the 13-year period of the proposed EBRD loan to 2013. The projections, based on a series of assumptions given in the next section, demonstrate UTY’s ability to repay the EBRD loan but also show its sensitivity to the maintenance of passenger and (particularly) freight tariffs as well as the size and source of the proposed investment program.

6.2BASE ASSUMPTIONS The base assumptions follow the discussion in earlier chapters:  general economic conditions as discussed in Chapter 3. In particular, most external economic commentators are forecasting inflation of 20-40% pa for the short-medium term and also expect increases in real wages of 1-2% pa. Wage increases in UTY are assumed to be significantly higher, with the added effect of increases in the effective average wage if there is a major reduction in the workforce;  demand and tariffs  passenger demand constant over the period. Passenger tariffs constant in real terms, except for 1999, which assumes a 15% reduction in real terms (i.e. the increase in fares is 15% below the increase in CPI)  freight demand as derived in Chapter 3. Freight rates for local and import/export traffic reduce at 3% in real terms to 2003 and at 2% p.a. thereafter, except in 1999, when they reduce by 15% in real terms. Rates for local non-oil traffic are assumed to stabilise after 2010. Freight rates for transit traffic are denominated in Swiss francs and are assumed constant over the period; revenue in soum thus varies in line with the exchange rate.  other business is assumed to increase at 10% in 1999 and be constant in real terms thereafter. The projections omit ancillary activities, which have been netted out of both revenue and expenditure.  operations  passenger occupancies are assumed to increase for long-distance traffic by about 30% over the period, enabling average train size to be reduced. Rollingstock utilisations are assumed to increase substantially, as new locomotives are introduced.  freight operations are assumed to continue unchanged other than moderate increases in utilisation.  operating costs  the base operating costs are estimated for 1998 by doubling the half-year expenditure and increasing by 40% for all costs except fuel, for which an 80% mark-up was used to reflect the fuel price rises which occurred in mid-year.  labour inputs are assumed to achieve 30% productivity per unit of output by 2003 and to then reduce by 3% p.a. for the remainder of the period.  fuel costs are assumed to reduce at 2% p.a. after 2003 as the newer, more fuel-efficient locos join the fleet.  non-labour costs are either constant or increase by up to 10% by 2003; the increases reflect the need for more spare parts for rollingstock and infrastructure repairs. After 2003, unit costs are assumed to reduce at 3% p.a., reflecting improved procedures and equipment.  balance sheet  the opening balance sheet is at January 1998. Between 1998 and 2003, receivables and payables are assumed to be reduced to 90 days each. Inventories are assumed to reduce to 120 days and cash is maintained at 30 days.

Table 6.1 Assumed UTY investment program 1998 - 2013 ($US million)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Investment New lines Uchkuduk 12 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 Termes 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 Angren - Pap 20 20 20 20 20 20 20 20 20 20 Electrification Stage 1 7 15 25 13 Stage 2 10 15 15 10 5 5 5 Angren 10 40 40 Infrastructure ADB I 22 35 40 23 6 ADB II 10 15 25 20 10 Other 20 4 4 4 4 4 4 4 10 10 15 15 10 5 5 5 New locos Alsthom/Skoda 20 25 9 8 3 3 3 3 Freigh (EBRD)t 4 25 20 Diesel 10 10 10 10 18 17 14 14 14 Pass cars OECF 6 15 4 Wagons Wagons 5 5 5 5 Facilities Passenger car workshop 5 15 5 Other 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Funding Government New lines 17 15 25 55 55 15 35 35 35 35 35 35 35 35 35 35 Other OECF 6 20 19 5 5 5 5 5 ADB I 12 20 22 13 3 ADB II 5 10 20 17 8 EBRD 4 20 16 Alsthom/Skoda 20 25 9 8 3 3 3 3

Total investment ($US m) 47 63 134 182 108 45 63 83 84 84 84 84 73 60 60 60 Total non-UTY funding 17 33 89 141 89 32 53 63 60 51 43 35 35 35 35 35

Table 6.2 UTY investment summary 1998 - 2013 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 EBRD project ($US million) 4 25 20

Other ($US million) Buildings and facilities 44 56 92 120 85 35 54 64 65 65 65 65 55 45 45 45 Other 3 1 4 9 4 1 1 1 1 1 1 1 1 1 1 1 Rollingstock 0 6 35 29 9 8 18 18 18 18 18 17 14 14 14 Total 47 63 130 157 88 45 63 83 84 84 84 84 73 60 60 60 Other (soum million) Buildings and facilities 4532 5768 9425 12309 8704 3605 5562 6592 6695 6695 6695 6695 5665 4635 4635 4635 Other 309 103 361 876 361 103 103 103 103 103 103 103 103 103 103 103 Rollingstock 0 618 3605 2987 0 927 824 1854 1854 1854 1854 1854 1751 1442 1442 1442 Total 4841 6489 13390 16171 9064 4635 6489 8549 8652 8652 8652 8652 7519 6180 6180 6180 Exchange rate 103 Government contribution 1751 1545 2575 5665 5665 1545 3605 3605 3605 3605 3605 3605 3605 3605 3605 3605

 investment  an indicative investment program has been developed (Table 6.1)  sources of overseas funding have been identified to around 2006, at which point UTY is assumed to become largely self-funding. Loans are assumed during this period as given in Table 6.1.  the EBRD project is assumed to become effective in late-2000 and disburse until 2002. The UTY contribution of US$9 million represents 20% VAT and 3% customs duty.  the Government is assumed to fund the two new lines currently being constructed, together with the proposed Angren - Pap line. UTY is assumed to fund the electrification program, excluding the Tashkent - Angren line, which is assumed to be effectively funded by the Government through a private-sector BOT scheme.  the Government is assumed to make a contribution towards passenger services, commencing in 2006; it is also assumed to fund the debt service charges associated from the OECF loans for passenger carriages and workshop.  taxes and use of profits  62% of net revenue is assumed to be paid in taxes, based on the 1997 income statement. 10% is set aside for social development and other expenditure, with the remainder available for investment.  the projections assume the current property tax (nominally 4% of written-down assets) continues to apply to UTY’s new investment. The tax paid in 1997 and 1998 S1 is approximately 3% of the values given in UTY’s balance sheet and this rate is assumed for the duration of the period. The model applies the projected growth rates to the base traffic levels to produce forecasts of the traffic task by year. These are then used as the base to forecast operating resources and , through a series of functional relationships, operating costs. The model thus has a direct link between the forecast changes in traffic volumes, the operational parameters of the network and the projected financial results of UTY. The model specifically includes the following operating resources:  car-km measure annual passenger rollingstock usage and determine the maintenance and operating costs (on-train staff and station staff) included under the ‘Passenger’ cost category  wagon-km measure annual freight rollingstock usage and determine its annual maintenance costs  train-km is used as a proxy variable to determine (a) shunting costs for freight trains and (b) signalling cost;  loco-km determines the maintenance cost for locomotives;  trailing ton-km, which measures the gross tonnes being hauled by the locomotive (i.e. excluding the locomotive weight) is an intermediate step in the calculation of the gross-km;  gross ton-km measures the total tonnage (covering net freight, the tare of the rollingstock and the tare of the locomotives) being carried by the network; this is a direct determinant of fuel and other energy costs, as well as the variable element of track maintenance costs;  utilisation rates for the rolling stock are measured as annual km operated for each category of rolling stock. The forecasts are consistent with normal railway practice (e.g. for 2003: the forecast freight locomotive utilisation rate is 110,000 km per annum);  track-km measure the size of the network and determine the fixed element of track maintenance costs, civil works costs, signalling costs and (using electrified track-km) the maintenance of electrical infrastructure. Table 6.3 summarise the relevant operating statistics for the initial part of the forecast period, from 1998-2003.

Table 6.3: Forecast Operating Statistics 1998-2003 1998 1999 2000 2001 2002 2003 Growth (%pa) Freight Net tonne-km (mill) 15762 16079 16402 16733 16758 17095 1.6 Trailing:net 1.81 1.80 1.80 1.80 1.80 1.80 -0.1 Gross tonne-km (mill)(1) 31050 31554 32142 32745 32670 33282 1.4 Tonnes/train 3251 3236 3214 3192 3178 3157 -0.6 Train-km (000) 9551 9750 10001 10259 10279 10544 2.0 Vehicles\train 53.3 53.0 5.8 52.5 52.3 52.0 -0.5 Vehicle-km (mill) 509 517 528 539 537 548 1.5 Locos\train 1.4 1.3 1.3 1.3 1.2 1.2 -2.6 Loco-km (000) 13077 13002 12989 12977 12665 12652 -0.7 Passenger Train-km (000) 8493 8808 8794 8783 8775 8769 0.6 Tonnes/train(2) 850 835 816 797 778 760 -2.2 Gross tonne-km (mill) (1) 7222 7355 7173 6997 6826 6660 -1.6 Vehicles\train 11.2 11.0 10.8 10.6 10.4 10.2 -1.8 Vehicle-km (mill) 95 97 95 93 91 89 -1.3 Locos/train 1.1 1.1 1.1 1.1 1.1 1.1 0.0 Loco-km (000) 8148 8292 8037 7789 7549 7317 -2.1 Total Gross tonne-km (mill) (1) 38272 38909 39315 39742 39496 39942 0.9 Vehicle-km (mill) 604 614 623 632 628 637 1.1 Loco-km (000) 21225 21294 21026 20766 20214 19969 -1.2 Train-km (000) 18044 18558 18795 19042 19054 19313 1.4 Track-km 7006 7006 7006 7006 7006 7006 - (1) Includes loco (2) Only applies to non-EMU (approximately 87% of passenger train-km)

6.3PROJECTIONS The projections using the above assumptions are given in Table 6.4 - Table 6.6. They show:  UTY is able to maintain a modest operating surplus throughout the period and maintain its cover ratio around 1.5 but only through:  ensuring tariffs fall below inflation by no more than 3% pa (except for 1999 when a real fall of 15% is assumed)  implementing significant and continuing labour productivity gains throughout the period. The railway operating workforce is forecast to fall from the current 35,000 to around 20,000 by 2013, and the total ‘main activity’ workforce from 52,000 to 29,000, even though the transport task has increased by around 30%.  the combined effects of income tax to 2001, and interest payments from around 2002 onwards, combine to ensure that UTY has limited net income after tax. Until around 2004/2005, there are still sufficient funds for investment using reserves and depreciation but from 2007 onwards UTY has to reduce its investment program to avoid short-term borrowings, even though the Government is contributing 2 billion soum annually as a passenger PSO payment18. The UTY Business Plan must therefore have the following elements to ensure financial stability through the period of the EBRD loan:  growth in tariffs that almost matches inflation  major long-term productivity gains  a tax regime which enables it to generate a substantial proportion of its own investment requirements. This includes the revaluation of assets to ensure a realistic depreciation allowance as well as consideration of the tax regime itself, especially the property tax which is a substantial burden on UTY in later years, when it is approximately equal to the annual funding shortfall.  a funding and investment plan which is consistent with UTY’s repayment capacity from the mid-2000’s on.

18 However, this is only about 65% of the property tax paid by UTY at this time.

Under the current tax regime and tariff policies, UTY probably has a capacity to pay debt interest and repayments of around 2 billion soum annually. With the proposed mix of loans, this is equivalent to a borrowing capacity of about US$150 - 200 million, and even this would probably require some bridging arrangements around 2005.

Table 6.4 Consolidated income statement 1998 - 2013 (soum million)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Volume (billion) Passenger (pass-km) 2,189 2,266 2,266 2,266 2,266 2,266 2,266 2,266 2,266 2,266 2,266 2,266 2,266 2,266 2,266 2,266 Freight (ton-km) 15,762 16,079 16,402 16,733 16,758 17,095 17,579 18,069 18,575 19,096 19,634 20,189 20,725 21,278 21,849 22,438 Total converted ton-km (1:1) 17,951 18,344 18,668 18,999 19,024 19,361 19,844 20,335 20,840 21,362 21,900 22,455 22,991 23,544 24,115 24,703 Revenue Transport Passenger 2,568 2,402 2,402 2,402 2,402 2,402 2,402 2,402 2,402 2,402 2,402 2,402 2,402 2,402 2,402 2,402 Freight 28,454 27,364 29,653 30,066 29,724 29,889 30,370 30,855 31,349 31,853 32,367 32,891 33,517 34,156 34,806 35,469 GOU: PSO Compensation 0 14 121 266 337 351 790 782 1,764 2,746 2,729 2,711 2,694 2,676 2,659 2,641 Subtotal 31,022 29,781 32,176 32,735 32,463 32,643 33,562 34,039 35,515 37,001 37,498 38,005 38,614 39,234 39,868 40,513 Ancillary/other 2,816 3,098 3,098 3,098 3,098 3,098 3,098 3,098 3,098 3,098 3,098 3,098 3,098 3,098 3,098 3,098 Total Revenue 33,838 32,878 35,274 35,832 35,561 35,740 36,660 37,137 38,613 40,099 40,596 41,102 41,712 42,332 42,965 43,610 Expenditure Transport Staff cost 6,980 6,940 6,842 6,699 6,490 6,314 6,402 6,494 6,590 6,691 6,798 6,909 6,966 7,026 7,090 7,157 Materials/other 12,020 12,271 12,490 12,719 12,805 13,049 12,856 12,667 12,484 12,307 12,136 11,971 11,801 11,636 11,477 11,324 Fuel and energy 2,984 3,034 3,066 3,099 3,080 3,115 3,123 3,132 3,141 3,151 3,161 3,173 3,181 3,189 3,199 3,209 Admin 5,819 5,987 6,399 6,978 7,178 7,149 7,241 7,406 7,569 7,725 7,876 8,021 8,100 8,125 8,151 8,180 Subtotal 27,804 28,232 28,797 29,496 29,552 29,627 29,622 29,698 29,783 29,874 29,971 30,074 30,047 29,977 29,917 29,870 Ancillary/other 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Working Cost 27,804 28,232 28,797 29,496 29,552 29,627 29,622 29,698 29,783 29,874 29,971 30,074 30,047 29,977 29,917 29,870 Depreciation 597 808 1,084 1,783 2,774 3,241 3,295 3,438 3,691 3,937 4,172 4,395 4,607 4,752 4,820 4,885 Total Operating Cost 28,402 29,040 29,880 31,279 32,326 32,869 32,918 33,136 33,474 33,811 34,142 34,469 34,654 34,729 34,737 34,754 Net Operating Income 5,436 3,838 5,393 4,553 3,235 2,872 3,742 4,001 5,139 6,288 6,454 6,633 7,057 7,602 8,228 8,856 Interest charges 31 184 528 1,147 1,625 1,798 1,862 1,926 2,016 2,004 1,873 1,718 1,526 1,291 1,025 768 Net Income before Tax 5,406 3,654 4,865 3,406 1,610 1,074 1,880 2,074 3,123 4,284 4,581 4,916 5,531 6,311 7,203 8,087 Income tax 3,351 2,266 3,016 2,111 998 666 1,166 1,286 1,936 2,656 2,840 3,048 3,429 3,913 4,466 5,014 Net Income after Tax 2,054 1,389 1,849 1,294 612 408 714 788 1,187 1,628 1,741 1,868 2,102 2,398 2,737 3,073 Distribution of net revenue: Reserves 1,514 1,023 1,362 954 451 301 526 581 874 1,200 1,283 1,376 1,549 1,767 2,017 2,264 General use 270 183 243 170 80 54 94 104 156 214 229 246 277 316 360 404 Social benefits 270 183 243 170 80 54 94 104 156 214 229 246 277 316 360 404 Performance Ratios Working ratio (%) 82% 86% 82% 82% 83% 83% 81% 80% 77% 75% 74% 73% 72% 71% 70% 68% Operating ratio (%) 84% 88% 85% 87% 91% 92% 90% 89% 87% 84% 84% 84% 83% 82% 81% 80% Productivity (000 traffic units/staff) Operating 500 544 596 650 706 767 807 848 890 935 981 1,029 1,077 1,126 1,177 1,230 Main activity 344 374 410 447 485 528 555 583 613 643 675 708 741 775 810 846

Scott Wilson Kirkpatrick 50 29-Apr-18 D:\Docs\2018-04-06\030fccebbc486a04896f81a63450f042.doc UZBEKISTAN RAILWAYS RESTRUCTURING PROJECT FINAL REPORT TECHNICAL ASSISTANCE FOR DUE DILIGENCE

Table 6.5 UTY Balance Sheet 1998 - 2013 (soum million)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Assets Current Assets Cash 1,539 1,860 1,916 4,072 6,956 9,819 11,828 11,679 12,703 9,904 7,419 4,517 3,107 2,957 3,121 4,104 Receivables 13,712 11,533 10,930 9,692 8,380 7,370 7,488 7,608 7,730 7,854 7,981 8,110 8,265 8,422 8,582 8,746 Inventories 4,676 4,615 4,542 4,473 4,354 4,290 4,227 4,164 4,104 4,046 3,990 3,936 3,880 3,826 3,773 3,723 Subtotal 19,927 18,009 17,389 18,237 19,690 21,479 23,543 23,451 24,537 21,804 19,390 16,563 15,251 15,204 15,477 16,573 Fixed Assets Book Values 27,752 34,241 48,205 67,597 79,296 83,931 90,420 98,969 107,621 116,273 124,925 133,577 141,096 147,276 153,456 159,711 Less: Accum Dep 5,178 6,262 8,045 10,819 14,060 14,060 14,060 14,060 14,060 14,060 14,060 14,060 14,060 14,060 14,060 14,060 Net Book Value 22,574 27,979 40,160 56,778 65,236 69,871 76,360 84,909 93,561 102,213 110,865 119,517 127,036 133,216 139,396 145,651 Other 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 Total Assets 42,501 45,988 57,549 75,015 84,925 91,350 99,902 108,360 118,097 124,016 130,255 136,080 142,287 148,420 154,872 162,224 Liabilities Current Liabilities Short Term Debts 747 460 450 0 0 0 0 0 0 0 0 0 0 0 0 0 Payables 7838 6880 6018 5266 4551 3986 3940 3895 3853 3811 3772 3734 3694 3656 3619 3583 Other 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 3,580 Subtotal 12,165 10,920 10,048 8,846 8,131 7,566 7,520 7,475 7,433 7,391 7,352 7,314 7,274 7,236 7,199 7,163 Long Term Debts GOU EBRD 0 0 574 3,513 5,856 5,270 4,684 4,099 3,513 2,928 2,342 1,757 1,171 586 0 0 Other 0 2,153 11,195 21,080 23,715 26,204 27,961 29,424 31,620 29,424 27,229 24,301 21,373 18,006 14,639 11,272 Equity (incl retained earnings) 30,336 32,915 35,732 41,575 47,223 52,310 59,737 67,361 75,531 84,273 93,332 102,708 112,469 122,593 133,034 143,788 Total Liabilities 42,501 45,988 57,549 75,015 84,925 91,350 99,902 108,360 118,097 124,016 130,255 136,080 142,287 148,420 154,872 162,224 Current Ratio 1.6 1.6 1.7 2.1 2.4 2.8 3.1 3.1 3.3 2.9 2.6 2.3 2.1 2.1 2.1 2.3 Acid Test Ratio 1.3 1.2 1.3 1.6 1.9 2.3 2.6 2.6 2.7 2.4 2.1 1.7 1.6 1.6 1.6 1.8 Cash Ratio 0.1 0.2 0.2 0.5 0.9 1.3 1.6 1.6 1.7 1.3 1.0 0.6 0.4 0.4 0.4 0.6 Debt/Equity Ratio 0% 7% 33% 59% 63% 60% 55% 50% 47% 38% 32% 25% 20% 15% 11% 8%

Scott Wilson Kirkpatrick 51 29-Apr-18 D:\Docs\2018-04-06\030fccebbc486a04896f81a63450f042.doc UZBEKISTAN RAILWAYS RESTRUCTURING PROJECT FINAL REPORT TECHNICAL ASSISTANCE FOR DUE DILIGENCE

Table 6.6 Consolidated Funds Flow Statement 1998 - 2013 (soum million)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources of Funds Internally Generated Net Rev 5462 3838 5393 4569 3297 2991 3910 4187 5334 6465 6578 6703 7084 7614 8240 8879 Depreciation 597 808 1084 1783 2774 3241 3295 3438 3691 3937 4172 4395 4607 4752 4820 4885 Govern't Equity Contribution 1751 1545 2575 5665 5665 1545 3605 3605 3605 3605 3605 3605 3605 3605 3605 3605 EBRD Loan 0 0 574 2928 2342 0 0 0 0 0 0 0 0 0 0 0 Foreign Loans 0 2153 8611 9662 2635 2489 2635 4831 5563 1171 1171 439 439 0 0 0 Local Bank Loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Change in Working Capital 0 1282 -186 556 716 508 -101 -102 -105 -107 -110 -113 -139 -142 -145 -148 Short-term loans 747 -286 -10 -450 0 0 0 0 0 0 0 0 0 0 0 0 Total Sources 8,556 9,339 18,042 24,713 17,429 10,774 13,345 15,959 18,088 15,071 15,415 15,029 15,597 15,829 16,520 17,220 Applications of Funds Investments 4,841 6,489 13,964 19,392 11,699 4,635 6,489 8,549 8,652 8,652 8,652 8,652 7,519 6,180 6,180 6,256 Tax to Government 3,351 2,266 3,016 2,111 998 666 1,166 1,286 1,936 2,656 2,840 3,048 3,429 3,913 4,466 5,014 Social and other uses 541 365 487 341 161 107 188 207 312 428 458 492 553 631 720 809 Debt Service Charges EBRD Loan Interest 0 29 46 155 328 389 348 307 266 225 184 143 102 61 20 0 EBRD Loan Repayment 0 0 0 0 0 586 586 586 586 586 586 586 586 586 586 0 Other Loan Interest 56 155 482 1,009 1,359 1,528 1,682 1,805 1,944 1,955 1,813 1,644 1,450 1,241 1,016 792 Other Loan Repayment 0 0 0 0 0 0 878 3,367 3,367 3,367 3,367 3,367 3,367 3,367 3,367 3,367 Change in cash reserves (233) 35 46 1,705 2,884 2,863 2,008 (149) 1,024 (2,799) (2,484) (2,902) (1,410) (150) 164 983 Total Applications 8,556 9,339 18,042 24,713 17,429 10,774 13,345 15,959 18,088 15,071 15,415 15,029 15,597 15,829 16,520 17,220 Cash at Beginning of Year 2,518 2,285 2,320 2,367 4,072 6,956 9,819 11,828 11,679 12,703 9,904 7,419 4,517 3,107 2,957 3,121 Cash from Current Year (233) 35 46 1,705 2,884 2,863 2,008 (149) 1,024 (2,799) (2,484) (2,902) (1,410) (150) 164 983 Cash at End of Year 2,285 2,320 2,367 4,072 6,956 9,819 11,828 11,679 12,703 9,904 7,419 4,517 3,107 2,957 3,121 4,104 Debt Service Coverage Ratio 108.2 25.3 12.3 5.5 3.6 2.5 2.1 1.3 1.5 1.7 1.8 1.9 2.1 2.4 2.6 3.3 Self-Financing Ratio 37% 22% 18% 18% 27% 36% 42% 1% 7% 14% 17% 21% 27% 37% 47% 61% Funds from UTY to GOU Corporate Taxes 3,671 2,798 4,030 3,783 3,003 2,723 3,342 3,653 4,489 5,385 5,736 6,103 6,593 7,130 7,734 8,334 Funds from GOU to UTY PSO Compensation 0 0 0 0 0 0 0 0 1,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Equity Contribution 1,445 1,275 1,275 1,275 1,275 1,275 2,975 2,975 2,975 2,975 2,975 2,975 2,975 2,975 2,975 2,975 Subtotal 1,445 1,275 1,275 1,275 1,275 1,275 2,975 2,975 3,975 4,975 4,975 4,975 4,975 4,975 4,975 4,975 Net Funds from UTY to GOU 2,312 1,215 2,089 1,348 504 665 (877) (705) (1,558) (2,418) (2,285) (2,175) (2,070) (1,980) (1,895) (1,811)

Scott Wilson Kirkpatrick 52 29-Apr-18 D:\Docs\2018-04-06\030fccebbc486a04896f81a63450f042.doc