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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 41755 - AZ PROJECT APPRAISAL DOCUMENT Public Disclosure Authorized ON A PROPOSED LOAN IN THE AMOUNT OF US$450 MILLION TO THE REPUBLIC OF AZERBAIJAN FOR A Public Disclosure Authorized RAIL TRADE AND TRANSPORT FACILITATION PROJECT February 28,2008 Sustainable Development Department South Caucasus Country Unit Europe and Central Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUJYALENTS (Exchange Rate Effective October 1, 2007) Currency Unit = AZN (Azeri New Manats) AZN0.8531 = US$1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRl NYMS ACG Azeri-C hirag-Gunashli I IAS International Accounting Standards AC Alternating Current I IBRD International Bank for Reconstruction and Development ADB Asian Development Bank ICB International Competitive Bidding ADDY Azerbaijan Railway IDA International Development Association AZN Azerbaijan New Manat IF1 International Financial Institution BTC Baku-Tbilisi-Ceyhan IFRS International Financial Reporting Standards CAPSAP Corporate and Public Sector IRR Internal Rate of Return Accountability Project CFAA Country Financial Accountability kPh Kilometer per hour Assessment CIS Commonwealth of Independent States LCS Least Cost Selection CPAR Country Procurement Assessment MED Ministry of Economic Development CPS Country Partnership Strategy MoE Ministry of Ecology and Natural Resources CQS Consultant’s Qualifications Selection MOF Ministry of Finance DC Direct Current MOT Ministry of Transport EA Environmental Assessment NCB National Competitive Bidding EBRD European Bank for Reconstruction and Development ECA Europe and Central Asia NGO Non-Governmental Organization EIRR Economic Internal Rate of Return NPV Net Present Value EMP Environmental Management Plan PHRD Policy and Human Resources Development Fund EMU Electric Motorized Unit PIU Project Implementation Unit EO1 Expression of Interest PPL Public Procurement Law EU European Union QCBS Quality and Cost-Based Selection FBS Fixed Budget Selection SBD Standard Bidding Documents FEX Foreign Exchange SIL Specific Investment Loan FRR Financial Internal Rate of Return SOCAR State Oil Company ofthe Azerbaijan Republic FSL Fixed-spread Loan SPPRED State Program on Poverty Reduction and Sustainable Development FY Fiscal Year TRACECA Transport Corridor Europe Caucasus Asia GDP Gross Domestic Product UNCITRAL United Nations Commission on International Trade Law GR Georgian Railways I VAT Value-Added Tax Vice President: Shigeo Katsu, ECAVP Country Managermirector: Donna M. Dowsett-Coirolo, ECCU3 Sector Director: Peter D. Thomson, ECSSD Sector Manager: Motoo Konishi, ECSSD Task Team Leader: Gerald P. Ollivier, ECSSD Co-Task Team Leader: Martha Lawrence, ECSSD FOR OFFICIAL USE ONLY AZERBAIJAN RAIL TRADE AND TRANSPORT FACILITATION PROJECT CONTENTS Page I. STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 A . Country and sector issues .................................................................................................... 1 B. Rationale for Bank involvement .......................................................................................... 4 C . Higher level objectives to which the project contributes .................................................... 4 I1. PROJECT DESCRIPTION .................................................................................................. 4 A . Lending instrument.............................................................................................................. 4 B. Project development objective and key indicators .............................................................. 5 C . Project components .............................................................................................................. 6 D. Lessons learned and reflected in the project design ............................................................ 7 E. Alternatives considered and reasons for rejection ............................................................... 8 I11. IMPLEMENTATION ........................................................................................................... 9 A . Partnership arrangements .................................................................................................... 9 B. Institutional and implementation arrangements .................................................................. 9 C . Monitoring and evaluation ofoutcomes/results ................................................................ 10 D. Sustainability ..................................................................................................................... 10 E. Critical risks and possible controversial aspects ............................................................... 10 F. Loadcredit conditions and covenants ............................................................................... 11 IV. APPRAISAL SUMMARY .................................................................................................. 12 A . Economic and financial analyses ....................................................................................... 12 B. Technical ........................................................................................................................... 14 C . Fiduciary ............................................................................................................................ 15 D. Social ................................................................................................................................. 16 E. Environment ..................................................................................................................... -17 F. Safeguard policies .............................................................................................................. 17 G . Policy Exceptions and Readiness ...................................................................................... 18 This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not otherwise be disclosed without World I Bank authorization . J Annex 1: Country and Sector Background ............................................................................... 19 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ..................31 Annex 3: Results Framework and Monitoring ......................................................................... 32 Annex 4: Detailed Project Description ...................................................................................... 35 Annex 5: Project Costs ................................................................................................................ 38 Annex 6: Implementation Arrangements.................................................................................. 39 Annex 7: Financial Management and Disbursement Arrangements ..................................... 40 Annex 8: Procurement Arrangements....................................................................................... 51 Annex 9: Economic and Financial Analysis .............................................................................. 60 Annex 10: Safeguard Policy Issues ............................................................................................. 79 Annex 11: Project Preparation and Supervision ...................................................................... 81 Annex 12: Documents in the Project File .................................................................................. 82 Annex 13: Statement of Loans and Credits............................................................................... 83 Annex 14: Country at a Glance .................................................................................................. 85 Annex 15: Map (IBRD No. 35177R) .......................................................................................... 87 AZERBAIJAN RAIL TRADE AND TRANSPORT FACILITATION PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: February 28, 2008 Team Leader: Gerald Paul Ollivier Country Director: D-M Dowsett-Coirolo Sectors: Railways (90%); Other domestic and Sector ManagerDirector: Motoo Konishi international trade (1 0%) Themes: Corporate governance (P);Infrastructure services for private sector development (P);Trade facilitation and market access (S) Project ID: PO83 108 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan ~ ~ ~ ~~~~ ~ ~~ Project Financing Data [XI Loan [ 3 Credit [ ] Grant [ 3 Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (US$m.): 450.00 Proposed terms: US Dollars Fixed Spread variable rate loan with 17 year maturity, including a four yearsvears "gracemace period.Deriod. Financing Plan (US$m) Source Local Foreign Total Borrower 226 117 345 International Bank for Reconstruction and 0 450 450 Development Total: 226 568 795 Borrower: Republic of Azerbaijan Responsible Agency: Azerbaijan Railways (ADDY) Azerbaijan Cumulative] 1.00 I 36.00 I 136.00 I 306.00 I 450.00 I Project implementation period: Start April 15,2008 End: March 30,2012 Expected effectiveness date: June 20, 2008 Expected closing date: June 30, 20 12