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World Bank Document ReportNo. 16625-AM Republicof Armenia TransportSector Review (In Three Volumes) Volume II: Technical Report Public Disclosure Authorized May30, 1997 InfrastructureOperations Division Country Department IV Europeand Central Asia Region Public Disclosure Authorized Public Disclosure Authorized Documentof OmWorld Bank Public Disclosure Authorized CURRENCY UNITS and EQUIVALENTS Dr Dram - Introduced Nov. 22, 1993 US$1 = 14 Dr (November, 1993) US$1 = 425 Dr (October, 1996) Rbl Ruble US$1 = 2,600 Rbl (October 1993) US$ US Dollar USc US cent WEIGHTS, MEASURES and OTHER UNITS bln billion inh inhabitant kg kilogram km kilometer mln million pass passenger sq km, km square kilometer t ton (metric, 1,000 kg) th thousand toe ton oil equivalent vpd vehicles per day CONVERSION FACTORS 1 mile = 1.609 meters 1 kg = 2.205 lbs i US gallon= 3.785 liters 1 sq km = 0.386 square miles CHEMICAL COMPOUNDS CXHY5HC Hydrocarbons CO Carbon Monoxide CO2 Carbon Dioxide NOX Nitrogen Oxides SO2 Sulfur Dioxide FISCAL YEAR January 1 - December 31 Vice President: Johannes Linn, ECAVP Director: Basil G. Kavaksly, EC4DR Division Chief: Dominique Lallement, EC4IN Task Manager: Pedro N. Taborga, EC41N GLOSSARY OF ACRONYMS AND ABBREVIATIONS ATC Air Traffic Control ARD Armenian Road Directorate CIF Cost-Insurance-Freight CIS Commonwealth of Independent States CLAU Caucasus Logistics Advisory Unit CMEA Council for Mutual Economic Assistance COTIF Bern Convention of May 9, 1980 EBRD European Bank for Reconstruction and Development ECAC European Civil Aviation Conference EDI Electronic Data Interchanges ESAF Extended Structural Adjustment Facility EU European Union FIATA Federation Internationale des Associations des Transitaires et Assimiles FOB Free-On-Board FSU Former Soviet Union GATT General Agreement on Tariffs and Trade GDCA General Department of Civil Aviation GDI Gross Domestic Investment GDP Gross Domestic Product GNP Gross National Product IATA International Air Transport Association ICAO International Civil Aviation Organization IMF International Monetary Fund L/C Letter of Credit MNEP Ministry of Nature and Environment MOT Ministry of Transport NEAP National Environmental Action Plan OECD Organization for Economic Cooperation and Development PIP Public Investment Plan SAC Structural Adjustment Credit SEPA State Enterprise of Special Assignment SGS FSU Railway Association SMGS USSR Rail Waybill SOE State Organizations and Enterprises STF Systemic Transformation Facility SZD FSU's Soviet Union Railways TACIS Technical Assistance for Commonwealth of Independent States TIR International Road Transport VAT Value Added Tax WTO World Trade Organization ACKNOWLEDGEMENTS The Review is based on findings of a World Bank mission which visited Armenia in October, 1996. The members of the mission were P. N. Taborga (mission leader); Anders Bonde (Highway Specialist); Alexis Bonnel (Financial Analyst); Jean-Paul Desgranges (Aviation Specialist); Parbo Juchnewitsch (Railway Reform Specialist); Paul van der Lande (Environmentalist); Rene Meews (Containerization Specialist); Cyril Muller (Regional Issues); Robert Nooter (Transport Economist) and Ovadia Salama (Transport and Trade Facilitation). M. Henry Kochinian, Minister of Transport, was the main counterpart of the mission on the Armenian side. The study has relied heavily on official sources of information and statistics as well as interviews and meetings with Government ministries and agencies. It also draws on the Armenia Structural Adjustment Credit operation, on-going World Bank and IMF work on the macro-economic conditions of the country, other sector work, studies supported by EBRD, EU and UN-WFP, and findings from various World Bank missions. ARMENIA TRANSPORT SECTOR REVIEW TABLE OF CONTENTS I. INTRODUCTION A. Purpose of the Study ........................................................... 2 B. Organization of the Study ...................... ..................................... 3 II. TRANSPORT AND ECONOMIC ADJUSTMENT A. Structure of the Economy ...................... ..................................... 5 B. Macro-economic Performance........................................................... 6 C. Role of the Transport Sector ........................... ............................... 11 III. THE REGIONAL CONTEXT OF TRANSPORT DEMAND A. The Transport Sector in the Regional Context ............................... ............... 15 B. The Transport Sector in a Changing Economic Situation .............. ............... 17 C. Growth Scenarios.......................................................... 19 D. Historic and Projected Traffic.......................................................... 21 IV. TRANSPORT AND TRADE FACILITATION A. Overview.......................................................... 25 B. Excess Costs and Corrective Actions by Physical Source............................. 26 C. Further Benefits - Trade and Welfare Gains.................................................. 40 V. ROADS AND ROAD TRANSPORT A. Road Infrastructure .......................................................... 42 B. Road Transport Services .......................................................... 55 VI. ARMENIAN RAILWAYS A. Organization and Staff .64 B. Physical Description .66 C. Traffic Levels.68 D. Railway Operations.73 E. Legal Framework of Labor Relations .76 F. Financial Issues and the Need for Restructuring .77 VII. CIVIL AVIATION A. Overview..................................................... 84 B. Institutional Organization of the Sub-Sector .................................................. 86 C. Airline Operations..................................................... 89 D. Airport Infrastructure and Facilities ..................................................... 92 E. Air Traffic Control ..................................................... 94 F. Financial Issues and the Need to Restructure ................................................ 94 VIII. TRANSPORT, ENVIRONMENT AND RESETTLEMENT A. Transport and the Environment .. 106 B. Involuntary Resettlement .111 IX. RECOMMENDATIONS A. Overview..................................................... 113 B. Sector Adjustment ..................................................... 114 C. Investment Priorities and Possible Bank Assistance ...................... ............... 124 ANNEX 1 Multimodal Transport and Containerization in Armenia ANNEX 2 Proposed Investment Plan for the Armenian Railways MAP 1 STATISTICAL APPENDIX I. INTRODUCTION 1.1 Armenia is a small landlocked country in the southern part of the Caucasus with a land area of 29,800 square kilometers. Turkey lies to the west, Georgia to the north, Iran to the south and Azerbaijan to the east. It became independent on September 23, 1991, as the Soviet Union disintegrated. Since then, Armenia has faced several political and economic challenges. Despite few resources and stony land, its ethnically homogenous 3.7 million people (including about 400,000 refugees from Azerbaijan and Karabakh) have survived through a high level of education, strong entrepreneurial traditions and trade with those around them. Armenia is the second most densely populated country of the FSU. About 67 percent of its population is classified as urban, and its capital, Yerevan, has about 1.4 million inhabitants. Armenia's GNP per capita was $570 in 1995, making it one of the poorest countries of the FSU. 1.2 Under the Soviet system, Armenia's production structure was highly dependent on trade with the rest of the FSU (exports and imports represented more than 50 percent of GDP during the 1980s) and on industry (60 percent of GNP). Armenia was producing large volumes of light industrial goods (40 percent of total exports in 1991), but also exporting substantial quantities of heavy industrial products as well as food-stuffs and semi-finished goods, mainly for the Soviet market. In the absence of raw materials and primary processing facilities, Armenia had to rely heavily on imports of semi-finished goods and critical inputs, particularly primary energy resources. 1.3 The economic situation in Armenia, already altered by the effects of the 1988 earthquake, which killed more than 25,000 people and made 500,000 homeless, deteriorated sharply after Independence. First, the collapse of regional trade, payment and financial agreements with other states of the FSU and the resulting terms of trade shock dealt a severe blow to the economy. The high degree of Armenia's integration into the FSU economy, the elimination of non-market pricing in trade between FSU states, the subsequent rise in energy import prices and the lack of comparative advantage of significant parts of Armenia's productive base further aggravated the economic downturn. Second, the conflict in the Nagomo-Karabakh region as well as other regional conflicts led to a transport blockade with Azerbaijan (traditionally Armenia's principal transit route for oil, gas and other products), the closure of the Turkish border and serious obstacles for transport to and through Georgia. Last but not least, the task of dismantling the central planning system and replacing it with a market economy proved more difficult than anticipated. This situation induced a dramatic decline in output (between 1991 and 1993, GDP dropped by about 60 percent) accompanied by hyperinflation, falling real wages and drastic energy shortages, causing hardship to the population despite the Government's efforts to maintain a social safety net. 1.4 Since 1994, the situation has improved markedly. On the political front, a
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