Khujand Airport Modernisation – Project Due Diligence Assistance

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Khujand Airport Modernisation – Project Due Diligence Assistance OFFICIAL USE TERMS OF REFERENCE Tajikistan: Khujand 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 Tajikistan (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. OFFICIAL USE OFFICIAL USE 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 Khujand Airport: 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” (Kazakhstan). 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, Russia, Kazakhstan, Kyrgyzstan, 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. OFFICIAL USE OFFICIAL USE 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
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