PUBLIC DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT Approved by the Board on 7 April 20201 UKRAINE UKRAINE PUBLIC TRANSPORT FRAMWORK II KYIV CITY TRANSPORT II - METRO [Redacted in line with the EBRD’s Access to Information Policy] [Information considered confidential has been removed from this document in accordance with the EBRD’s Access to Information Policy (AIP). Such removed information is considered confidential because it falls under one of the provisions of Section III, paragraph 2 of the AIP 1 As per section 1.4.8 of EBRD’s Directive on Access to Information (2019), the Bank shall disclose Board reports for State Sector Projects within 30 calendar days of approval of the relevant Project by the Board of Directors. Confidential information has been removed from the Board report. 33 PUBLIC PUBLIC TABLE OF CONTENTS Page TABLE OF CONTENTS ........................................................................................... 2 ABBREVIATIONS / CURRENCY CONVERSIONS ............................................. 3 PRESIDENT'S RECOMMENDATION ................................................................... 4 BOARD DECISION SHEET ..................................................................................... 5 ADDITIONAL SUMMARY TERMS FACTSHEET .............................................. 6 1. STRATEGIC FIT AND KEY ISSUES ............................................................ 7 1.1 STRATEGIC CONTEXT................................................................................ 7 1.2 TRANSITION IMPACT ................................................................................. 8 1.3 ADDITIONALITY ......................................................................................... 8 1.4 SOUND BANKING - KEY RISKS .................................................................. 9 2. MEASURING / MONITORING SUCCESS ................................................. 11 3. KEY PARTIES ................................................................................................ 12 3.1 SPONSOR/GUARANTOR ............................................................................ 12 3.2 BORROWER............................................................................................... 12 4. MARKET CONTEXT .................................................................................... 14 5. FINANCIAL / ECONOMIC ANALYSIS ..................................................... 15 6. OTHER KEY CONSIDERATIONS .............................................................. 15 6.1 ENVIRONMENT ......................................................................................... 15 6.2 INTEGRITY ................................................................................................ 15 6.3 ECONOMIC ANALYSIS ............................................................................... 16 ANNEX I – UPTF2 OVERVIEW ............................................................................ 18 ANNEX III – PROJECT IMPLEMENTATION ................................................... 18 ANNEX IV – LESSONS LEARNED ...................................................................... 18 33 PUBLIC PUBLIC ABBREVIATIONS / CURRENCY CONVERSIONS CDP Corporate Development Programme City City of Kyiv Company Communal Enterprise “Kyivsky Metropolitan” or Metro DSCR Debt Service Coverage Ratio EBIT Earnings before Interest and Taxes EBITDA Earnings before Interest and Taxes, Depreciation and Amortisation ESAP Environmental and Social Action Plan ESDD Environmental and Social Due Diligence EUR Euro GDP Gross Domestic Product GHG Green House Gases IFI International Financial Institutions IFRS International Financial Reporting Standards IRR Internal Rate of Return MPSF Municipal Project Support Facility NOx Nitrous Oxides PIP Priority Investment Programme PIU Project Implementation Unit PP&R Procurement Policies and Rules PM Particulate Matter PR Performance Requirements PSC Public Service Contract PT Public Transport SPP Stakeholder Participation Programme TC Technical Cooperation UAH Ukrainian Hryvnia UPTF2 Ukraine Public Transport Framework 2 VAT Value Added Tax CURRENCY CONVERSION (year to date average based on the National Bank data) EUR 1 = UAH 26.8 33 PUBLIC PUBLIC PRESIDENT'S RECOMMENDATION This recommendation and the attached Report concerning an operation in favour of Communal Enterprise “Kyivsky Metropolitan” (the “Company”), a municipal company incorporated in Ukraine, are submitted for consideration by the Board of Directors. The facility is part of the EUR 250 million Ukraine Public Transport Framework 2 (the “UPTF2” or “Framework”) and will consist of a loan to the Company in the amount of up to EUR 50 million. The loan will be guaranteed by the City of Kyiv (the “City”). The operation will enable the Company to modernise the metro car fleet and procure metro cars for the new metro line to Vynohradar district in the City of Kyiv in Ukraine. The Project primarily targets the Green Transition Quality and is 100 per cent GET. A modal shift to clean public transport as opposed to private cars and minibuses in the City will reduce the amount of polluting air emissions, especially particulate matter (“PM”), including black carbon, and nitrous oxides (“NOx”). The Project will also support Well-governed objectives through the implementation of an updated Corporate Development Programme (“CDP”) and Public Service Contract (“PSC”). Technical Cooperation (“TC”) support for project implementation, update of the CDP and PSC, [REDACTED]is proposed to be financed from the existing TC Frameworks, funded by the EU Municipal Project Support Facility (“EU MPSF”). I am satisfied that the operation is consistent with the Bank’s Country Strategy for Ukraine, the Municipal and Environmental Infrastructure Sector Strategy 2019 - 2024 and the Agreement Establishing the Bank. I recommend that the Board approve the proposed loan substantially on the terms of the attached Report. Suma Chakrabarti 33 PUBLIC PUBLIC BOARD DECISION SHEET UKRAINE – Kyiv Metro Sub-Project - 50836 Framework: Ukraine Public Transport Framework 2 - 51107 Transaction / Board Board approval2 is sought for a senior loan of up to EUR 50 million in favour of Decision “Kyivsky Metropolitan” (the “Company” or “Metro”). This is the fourth sub- project under the UPTF2 Framework. Client Municipal Enterprise “Kyivsky Metropolitan”, a municipal public transport operator wholly owned by the City of Kyiv (“City”). Main Elements of the Transition impact: Proposal Green through improving local air quality and reducing polluting air emissions, especially particulate matter (“PM”), including black carbon, and nitrous oxides (“NOx”) in the City. Well-governed through implementation of an updated Corporate Development Programme and Public Service Contract (“PSC”) that will enable service support payments based on a price per vehicle –kilometre or passenger kilometre and the implementation of an agreed service plan. Additionality: Financing Structure. [REDACTED] Policy, Sector, Institutional or Regulatory change. The Bank is uniquely positioned for policy dialogue with the Government and the local authorities [REDACTED]. The Bank has accumulated substantial experience across Ukraine with public transport operations. Knowledge, innovation and capacity-building. The Bank provides support to strengthen capacity of the clients with respect to procurement and implementation, corporate development. Sound banking: The Project is designed to improve the creditworthiness of Metro. The financial structure benefits from a full municipal guarantee by a financially strong guarantor with strong operating performance and local economy base, moderate direct and guaranteed debt. Key Risks - Credit risk of the Company and the City. Good financial performance of the City over the years under review [REDACTED]. - FX and interest rate risks. [REDACTED]. - Implementation/ Operating risk. The risk will be mitigated through the appointment of international procurement and implementation consultants. Strategic Fit Summary Country Strategy for Ukraine underlines promoting privatisation and commercialisation in the public sector to increase competitiveness and foster good governance. Municipal and Environmental Infrastructure Sector Strategy 2019 - 2024 lists as strategic priority scaling up high GET-impact investments in urban transport. 2 Article 27 of the AEB provides the basis for this decision. 33 PUBLIC PUBLIC ADDITIONAL SUMMARY TERMS FACTSHEET EBRD A senior loan of up to EUR 50 million (the “Loan”) to be provided to the Company. The Transaction Loan will be guaranteed in full by the City. The transaction is a sub-project under the Ukraine Public Transport Framework 2 (“UPTF2”), approved by the Board on 24 July 2019. Existing Total amount debt: EUR 23.1 million guaranteed by Kyiv City (under 2008 fully Exposure disbursed EUR 100 million loans that have been mostly repaid): (i) EUR 10.3 million under Kyiv Metro loan (OpId 37599); (ii) EUR 12.8 million under KyivPastrans loan (OpId 38087) [REDACTED] Maturity / Exit / Up to 13-year maturity[REDACTED]. Repayment AMI eligible None financing Use of Proceeds The Loan proceeds will be used for the acquisition of up to 50 metro cars (including spare parts and tools), maintenance and diagnostic equipment. [REDACTED] Investment Plan The Project total investment of up to EUR 60 million will cover the acquisition of up to 50 metro cars (including spare parts and tools), maintenance and diagnostic equipment. Financing Plan [REDACTED]