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TERMS OF REFERENCE

Tajikistan: Airport Modernisation – Project Due Diligence Assistance

1. BACKGROUND The European Bank for Reconstruction and Development (the “Bank” or “EBRD”) is considering a new loan of up to EUR 5.0 million to the OJSC Khujand International Airport (the “Company”) for modernisation of the Company’s main passenger terminal (the “Project”).

The Company is 100 per cent state-owned by the State Committee for Investments and State Property Management of the Government of (the “GoT”). The Company manages and operates the city of Khujand’s regional airport. Khujand is Tajikistan’s second largest city with more than 200,000 inhabitants.

The Company is an existing EBRD client and the proposed Project is a continuation of the Company’s long-term development programme started back in 2013. The proposed Project will be the Bank’s second loan to the Company. Financing under the previous loan was provided for: i) emergency runway rehabilitation; ii) installation of high intensity lights; iii) modernisation of radio and ground control safety equipment; and iv) modernisation of instrument landing system.

The proposed loan would be used to improve the passenger terminal’s services via: (i) procuring a new passenger and luggage registration system, (ii) introducing an automated airport management and flight information system, and (iii) installing a modern, energy efficient, climate control system. Upon the Project’s completion, the terminal’s capacity would increase from 150 to 400 passengers per hour.

2. OBJECTIVES The overall objective of the proposed assignment is to assist with confirming the feasibility of the proposed investment in line with the EBRD requirements, including:

 Technical evaluation  Financial and economic evaluation, and market review  Preparation of financial model  Environmental and social assessment  Assessment of current operations of the terminal and recommendations for improvements

3. SCOPE OF WORK As part of this assignment, the consultant shall perform the following tasks:

Technical Evaluation:

1. Analyse and review technical design, specifications and compatibility of the proposed investment programme prepared by the Company. Provide and independent review of the technical specifications provided by the Company (available only in Russian language) and finalise them in English language, with the detailed description of the physical components to be included in the EBRD financed project. Consider how the investment project aligns with future industry requirements, including current and upcoming ICAO/IATA/national requirements and the results of the recent relevant regulatory compliance audits. 2. Review cost estimates for each proposed component prepared by the Company, broken down to (i) main cost categories including procurement costs of the systems and equipment, its testing and commissioning, civil work (if relevant), training, subsequent maintenance etc., (ii) contingency levels. Breakdown the costs into domestic and foreign currency, and separate out applicable taxes and duties. Cost estimate shall be supported by the list of the potential manufactures for the equipment and systems under all components confirming or otherwise that an open international tender is applicable.

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3. Prepare a breakdown of the proposed equipment and systems upgrade across the Company’s areas – consider/propose if phasing would be an appropriate approach. Opine on the proposed timeline of the procurement and project implementation, and identify possible issues that may lead to delays. 4. Assess of opportunities for green investments and benefits of cost effective energy efficiency solutions. Technical specifications provided by the Company shall be reviewed in the context of possible energy efficiency improvements, better climate resilience, better and more reliable technical systems leading to cost optimisation during operation stage. Such assessment shall be carried out with presentation of quantifiable benefits. 5. Assess the opportunities for renewable energy integration such as solar PV Installations, EV charging in parking lots, and use of EVs in apron operations and advise of economic and environmental benefits of their integration. 6. Undertake an economic feasibility assessment of digital technologies for : Assess the economic feasibility of various technologies, including digital ones, to support in airports and PTBs, the following increases: (i) aeronautical and non-aeronautical revenues, (ii) passenger level of service and satisfaction, (iii) operational efficiency and automation, (iv) cyber and terminal security, (v) green investment and decarbonisation. For each suitable technology, prepare a quantified analysis and that should be integratable into the current technical design of the expansion prepared by “Air ANT” (). Assess and quantify where possible benefits, such as cost and time savings, automation and labour improvements, or increased safety. Provide an assessment of the wider benefits of the technology such as improved information provision and accuracy, frequency of monitoring etc. Estimate the total cost of implementing such additional and recommended technologies for the Project. Undertake a road map for the integration of recommended technologies for Khujand Airport into the technical design. 7. Review the proposed procurement methods and comment whether these would be appropriate for open tendering required by the EBRD Procurement Policy and Rules. Assess relevant contractual construction arrangements, and opine on the level of the proposed performance bonds and liquidated damages. 8. Technical Evaluation should reflect the findings of the Environmental and Social Impact Assessment. Measures to mitigate any anticipated environmental or social impacts (including any impacts of climate change on the project, health and safety considerations for workers and public) should be reflected in the final design and project implementation arrangements for the Project to the extent such changes would not impact negatively on the financial viability of the proposed investment.

Financial & Economic Assessment and Market Review: Financial & Economic Assessment 1 Provide an analysis of the tariff setting mechanisms (including a clear definition of Unit Rates): how operating and financing costs are dealt with, description of methodologies applied for setting various types of unit rates/tariffs, the applicable regulatory framework (e.g. local and international regulation). 2 Benchmark the unit rates, tariffs and costs to other providers in the region, including using information from the public sources independent from the Client. This is to include a comparable data of key largest neighbouring countries (Uzbekistan, , Kazakhstan, , Turkmenistan, etc.). 3 Assess the adequacy of tariff setting mechanism, including adjustment for FX and collection risks. Assess the level of the discounts provided to various users. 4 Assess operational efficiency of the Company and benchmark against industry best practice and regional peers, highlighting areas of potential improvement. 5 Discuss the affordability concerns that could arise after tariff increase following implementation of the Project (if any), and the ways that they could be mitigated. 6 Compare the Company’s labour productivity with that of airports in neighbouring cities, countries and best practices; assess the need for institutional/labour restructuring at the company level, providing information of the level of unionisation. Provide an assessment of the Human Resources strategy; include length of service for the key staff sectors; typical training periods.

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7 Provide an overview of the collection practices of the clients (direct collection, use of specialised agencies), review payment dynamics form the largest clients and most notably two national carriers in Tajikistan at least in the last 3 years. Assess creditworthiness of the national carriers to honour their liabilities for the Borrower moving forward (specifically plans for the historic debt of Tajik Air, taking into account its insolvency). Review receivables dynamics from them, and adequacy of impairments (if any). 8 Review of the Company’s infrastructure and assets, assess the state of the infrastructure and other assets in place and understand future requirements for capital expenditure, hiring and training. Comparison of future requirements with the scope of the proposed investment programme. 9 Discuss the cash sources of the Company’s co-financing the Project (i.e. capacity to generate sufficient amount of internally generated cash or potential cash gap to be financed by fresh equity in addition to Company’s own contribution envisaged under the Project). 10 Analysis of the financial statements, EBIDTA and its main components including (i) analysis of the revenues, (ii) cost structure of the Company, (iii) propose key sensitivity test scenarios on operational and financial factors most relevant for Company. 11 Operating cost efficiency. Provide a summary on what types of operating cost control could be put in place including a review of staff costs and opportunities to reduce these. 12 Calculate and provide an EIRR for the investment programme. 13 Provide an analysis of the non-aeronautical revenues of the Company, including relevant contractual arrangements with third party providers (i.e. food and beverage, duty free, parking etc). Benchmark the level of the non-aeronautical revenues with the similar airports. 14 Opine on the quality of the financial reporting of the Company, and ways to improve it, including better compliance with IFRS requirements (if needed).

Market Review 1 Description of Airport Sector in Tajikistan. Provide a description of the organisational set-up of the airport sector in Tajikistan and in the regional context. Consider current and planned industry strategies pursued by the national, other regional governments, international organisations and in terms of modernisation, privatisation and commercialisation. 2 Review the state of regulatory framework in Tajikistan in comparison to ICAO guidelines (including compliance with the “ICAO’s Policies Charges for Airport and Air Navigation Services”, Doc 9082) and regional peers. Identify current shortfalls and possible mitigations; consider implications for the Company. 3 Consultation with end user on tariffs. Discuss the degree of the consultation with the end users when the tariffs are set/calibrated; level of the collaboration with the IATA in managing current/proposed tariffs. Consult with local IATA representatives on the effectiveness and fairness of such mechanism. 4 Assess the current pricing model and risks stemming from the change in charging regulation. 5 Assess traffic risk and provide information on how airports in the region compete for the market. Present the Company’s competitor dynamics, peer leverage and breakdown of charges for (i) aircraft related services, (ii) crew handling services and (iii) passenger terminal services (iv) ground handling activities. 6 Analyse available historic traffic for the last [10] years and provide traffic forecasts in order to model traffic and revenues during the proposed loan duration. Provide a detailed analysis of the expected international vs domestic traffic, including (where possible) breakdown by the and route. Assess the sensitivity of the traffic to the economic situation in Russia, migrant flow to/from there and RUB/TJS exchange rate 7 Market expectations review. Present a review for market expectations for 2020-27 and beyond. Discuss the implications of the latest ICAO audit on the Company and aviation industry in general.

Preparation of the Financial Model Build and validate the financial model input assumptions and intermediate outputs (such as calculation of revenue line) for the following items:  Capital expenditure programme, including price and contingency levels. Adequacy of expenditure budgets for the Project and future capex plans of the Borrower needs to be checked

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against the current and upcoming ICAO/IATA requirements. Review the capex programme of the Borrower over the tenor of the loan that is not covered by the Project; assess the need/adequacy for the maintenance capex over that period.  Operating expenditure: including operating charges, inflation assumptions, regulator costs, taxes in order to comprehensively capture all of its costs. Main drivers of costs should be indicated, including assumptions on changes that would result after implementation of the proposed loan.  Revenue: (i) confirm calculation of unit rates and traffic assumptions, together with any other income items, to generate Company’s overall revenue line (breakdown of revenue to types of services and further breakdown of sources into international and domestic airlines). The adequacy of the tariff setting mechanism needs to be assessed in light of the current (and upcoming) international regulations and benchmarked against alternative airports; tariff and traffic forecasts in the model need to be validated and stress-tested; (ii) evaluate the collection risks (i.e. overreliance on a single airline or airlines with poor credit quality). Payment/collection mechanics from airlines should be further clarified.  Cash flow assessment. Provide a detailed analysis of the Company’s debt service capacity, against which EBRD’s loan size needs to be measured. The ability to service the proposed debt and the robustness of operating cash flows are key due diligence points.  Dividend and tax payment policy to understand how much cash will be available for the debt service.  FX exposure of the Borrower against major currencies.

The financial model for the transaction will propose key sensitivity test scenarios (including FX) on operational and financial factors most relevant for the Company, expected to include: traffic, tariff, cost overrun, collection delays, opex and interest rate. The analysis to include:  To provide an overview of the historical tariffs over the last 3-5 years for various segments (domestic and international) and to provide analysis of how the regulatory environment (i.e. national legislation, bilateral agreements, and internarial regulation) affected the tariffs in the past (comparing to what they expect in the future).  Financial model should include reconciliation of the historical IFRS audited financials of the Company over the last 3 years (as well as preliminary results for FY2019 in format consistent with the IFRS), i.e. Revenues, OPEX, reconciliation of the EBITDA to Operating CF, analysis of the non-cash items/expenses, and WC movements (if any). The proposed assumptions in the forecast (i.e. traffic, costs, collection, etc.) should be compared with the actually achieved numbers in the last 3 years.  Review the obligation of the Client in terms of the dividend and tax payment: provide analysis of the historical payments in the last 3 years, and clarify what payment the Client is obligated to make moving forward as per local legislation and the Company policy.  Historical traffic for the last 5 years should be analysed (i.e. domestic and international), and key historical drivers need to be compared with the proposed market development. Seasonality factors need to be understood (if any).

The prepared model should be based on the FAST template and principles (template is to be provided by the Bank) and should incorporate actual FY2019 IFRS financials and traffic data.

Environmental & Social Assessment The environmental and social (“E&S”) issues are associated with the modernisation and expansion of the passenger terminal include occupational and community health and safety, labour construction risks, contractor management, land acquisition, waste management, noise, dust, supply chain risks, terminal design specifications for accessibility of people with disabilities, emergency response planning, stakeholder engagement and grievance mechanism. Environmental and Social due diligence shall be undertaken (per the EBRD 2019 Environmental and Social Policy) under the assessment and shall include a review of the Company’s past annual E&S monitoring reports and past implementation of the existing Environmental and Social Action Plan (“ESAP”), Airport Master Plan and review of the current

OFFICIAL USE OFFICIAL USE level of compliance with the ICAO and EU operational safety requirements. The construction works may cause some temporary and localised impacts which need to be efficiently addressed through mitigation measures. An updated ESAP and a Stakeholder Engagement Plan shall be developed to mitigate the E&S issues and impacts during construction works and operation of the terminal, and to bring the Company's operations into compliance with the EBRD's Performance Requirements (“PR”). Noise monitoring is required to be conducted for the next annual report. The Company's method for selecting contractors should be reviewed in addition to their capacity to manage their activities to ensure they comply with the Bank's PRs. The Company's ability to maintain a safe level of service throughout the upgrade period should also be confirmed.

The Consultant will:  Review the management of E&S arrangements with particular focus on Company’s method for selecting contractors to ensure their capacity to manage the E&S risks and comply with the EBRD Performance Requirements (PRs).  Confirm that the equipment and systems to be procured meet international and ICAO standards.  Prepare the EBRD Performance Requirements (PRs) compliance table, an Environmental and Social Action Plan (ESAP) - for construction and operation phases, Stakeholder Engagement Plan (SEP) and Non-Technical Summary (NTS). The final and approved NTS and SEP would need to be disclosed by the Client on their website and attached to Project Summary Document (PSD) on the Bank’s website.  Identify any potential Green Economy Transition benefits of this project.

Assessment of current operations and recommendations for improvement  Identify the existing and potential operational bottlenecks. Provide detailed description of shortcomings holding the Company from growing and provide possible solutions to overcome them. Identify airport-related (ground-based) sources of delays and discuss actions that can reduce delays. Examine airport practices to improve services to passengers.  Review and analyse day-to-day operational activities and exchange of information between various internal departments of the Company. Propose recommendations on improving the intra- departmental collaboration to facilitate consistent communications and achieve a synergy. Describe intra-industry collaboration techniques, with and without technology, available to airports. Identify where the human factor risk exists and propose recommendations to eliminate it.  Identify processes that should or can be measured industrywide. Evaluate and recommend best practices that support industrywide performance measurement. Provide industrywide performance criteria and benchmarks.  Identify revenue sources derived from advertising at airports and from other industries that can be adapted to the Company. Evaluate and recommend best practices for implementing advertising programs.

4. IMPLEMENTATION ARRANGEMENTS The assignment will be managed and supervised by E BRD Operation Leader (OL) of the Project.

The assignment is expected to be undertaken in April - June 2020 with a duration of 14 weeks.

The assignment will involve a visit to the Company (Khujand, Tajikistan). The consultant should liaise beforehand with the Company (through the OL) to ensure suitable access is available to the facilities and to the Company’s staff. The consultant should also seek to discuss the Company’s performance and Project with IATA or ICAO representative (i.e. end users).

The consultant will supply all necessary computer hardware and software, required for the assignment. They will also be responsible for the cost and organisation of all interpretation and translation.

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5. DELIVERABLES The Consultants shall commence field work no later than fifteen calendar days of the Starting Date. In addition to punctual inputs to EBRD documentation and updating of briefing notes, they shall submit the following reports within the time periods and in quantities indicated overleaf.

Draft report A Draft Report should be submitted within two weeks of concluding the field visit. It should be a short document in English and Russian addressing the key issues, supported by appendices, write up for procurement arrangements and the cost estimate analysis with the forecasts. All data sourced from other studies should be referenced. The report should be provided electronically in English and Russian in both Word and PDF formats.

Final Report Final Report should be provided within one week of receiving the Bank’s and Company’s comments on the Draft Report.

Technical assumption book The Consultant should provide, upon the Bank’s request, all necessary inputs for the Financial Model related to traffic/volumes projections, capital expenditure programs and tariffs. The Consultant should maintain integrity of the provided data on the “best efforts” basis.

Financial Model Financial Model prepared according to FAST standards shall be provided in Excel file.

Environment and Social Assessment  E&S Assessment Report including EBRD PR compliance table/matrix;  Environmental and Social Action Plan (ESAP)  Land acquisition and livelihood restoration plan LALRP/RAP (if land-related impacts and/or any resettlement is likely to take place)Stakeholder Engagement Plan (SEP)  Non-Technical Summary (NTS)  GET impacts/benefits assessment;

The consultant will also remain reasonably available for any questions or clarifications until after the project is approved by the Board.

Table with reporting documents and timing Reporting documents Timing (weeks from Starting Date) Draft Report 2 Draft Financial Model 3 Final Report including the finalised technical specifications 3 Final Financial Model, including the Technical assumption 4 book with inputs for the financial model E&S Assessment: ESAP, SEP, NTS etc. 4

6. CONSULTANT PROFILE This assignment will be for the benefit of the EBRD. The Consultant will report directly to the Bank. The Consultant will ensure that appropriately qualified experts are available, as required, for each of the different tasks outlined above. The composition of the team should take into account that the all the information from the Company and the interaction with the Company will be in Russian.

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The Consultant will ensure that appropriately qualified experts are available, as required, for each of the different tasks outlined above. It is expected that the assignment will be led by an appropriately qualified project manager, accompanied by both key and supporting experts.

It is expected that the team will include a resident team leader, who will spend a sufficient portion of the assignment working on site. The team should have extensive experience working on similar assignments in the region. Experience preparing projects for international financial institutions would be an advantage.

The team is expected to include the following experts:  Team Leader - Project Management specialist, with technical or transport planner background;  Senior Airport expert with international experience including CIS;  Financial expert with background in building financial models;  Environmental and social experts.

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