PUBLIC

DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

Approved by the Board on 7 April 20201

UKRAINE

UKRAINE FRAMWORK II

KYIV TRANSPORT II -

[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

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ABBREVIATIONS / CURRENCY CONVERSIONS

CDP Corporate Development Programme City City of 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 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

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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

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BOARD DECISION SHEET

UKRAINE – 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.

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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] Key Parties  The Company as the Borrower and operator Involved  The City as the Guarantor of the Loan Conditions to Conditions to effectiveness of the Loan Agreement: subscription /  Execution and effectiveness of the Guarantee and Project Support Agreement with the disbursement City;  [REDACTED] Conditions to disbursement of the Loan:  Guarantee and Project Support Agreement with the City is effective;  Financing and Project agreements are in full force and valid; [REDACTED] Key Covenants [REDACTED] City covenants:  Guarantee properly authorised and registered as per statutory requirements of the local legislation [REDACTED] Security / Municipal guarantee by the City. Guarantees Other material  Guarantee Agreement agreements Associated Donor Post-signing: Funded TC and  TC1: Project Implementation Support. [REDACTED] co-investment grants/concession  TC2: Corporate Development Program (“CDP”) and Stakeholder Participation al finance Programme (“SPP”). [REDACTED] Cost sharing:  The Company will be responsible for paying all VAT and other indirect taxes that are applied to the post-signing TC assignments as a parallel cost sharing contribution to the project (VAT is levied at 20% in Ukraine). Additionally, the Company will also provide in-kind support in the form of office space, communication connections, etc., for the consultants to work [REDACTED]. [REDACTED] 33 PUBLIC PUBLIC

INVESTMENT PROPOSAL SUMMARY

1. STRATEGIC FIT AND KEY ISSUES

1.1 STRATEGIC CONTEXT

The Project is the fourth sub-project under the Ukraine Public Transport Framework II (the “UPTF2” or the “Framework”) aimed to continue to serve as a sector-wide catalyst in addressing key challenges in public transport in Ukrainian municipalities – improvement in regulation and funding through the introduction of PSCs, support for private sector involvement in urban transport service provision and cost restructuring of incumbent public transport operators. [REDACTED]

The proposed investment is one of the key priorities for the City and its public transport sector. Kyiv faces a major challenge in its efforts in expanding metro services to densely populated and so far uncovered areas; as well as modernising the Company’s fleet to ensure secure and regular metro services as the key public transport mode in the capital of Ukraine. The proposed Project will focus on delivering metro cars for the new metro line to Vynohradar district, supported by private minibuses on feeder routes. In this way, the City will promote higher capacity transport and cleaner modes of transport on main City arteries.

The Project will address key challenges in public transport infrastructure development in the City of Kyiv, relating to improving access to clean urban transport, and improving capacity and efficiency of public transport services. The Project is expected to result in significant economic and environmental benefits (reducing local air pollution (PM, NOx) [REDACTED] in the project area) by promoting clean, zero-emission urban rail mass transit as the backbone of Kyiv public transport system to ensure sustainable mobility in Ukraine’s capital and a major industrial centre. A modal shift from the City’s less efficient network, pollution intense minibus network and private vehicular transport is expected, resulting in the reduction in the emissions and pollution and intensity of passenger trips. The development of sustainable urban public transport is particularly critical for the City of Kyiv that hosts a significant number of internally displaced people.

The Project is in line with the Bank's Country Strategy for Ukraine [REDACTED].

The operation is also in line with the Municipal and Environmental Infrastructure Sector Strategy 2019-2024 [REDACTED].

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1.2 TRANSITION IMPACT

The Framework aims to address key transition challenges in public transport in Ukrainian . Transition qualities of the Framework are presented below:

Details Obj. No. Objective

Primary TI Quality: Green 1.1 Transition impact will be derived Improved access to clean urban transport and capacity and from the green quality through efficiency of public transport services and associated improvement of air quality, GHG modal shift to clean public transport as opposed to private and air pollution reduction in cars and is expected to significantly reduce the amount of polluting air emissions, especially PM, Ukrainian cities. including black carbon, and NOx, as well as GHG emissions. Primary TI Quality: Well-governed 2.1 Transition impact will be derived The implementation of an updated PSC will ensure service from the well-governed quality support payments based on a price per vehicle-kilometre or through the implementation of passenger-kilometre on the basis of an agreed service plan. updated CDP and PSC. The PSC will increase transparency and accountability in the relationship between the City and the public transport Company by establishing clear rights and obligations, incentives for greater efficiency and higher quality of services. The implementation of updated CDP will ensure improved financial and operational performance of the Company.

Transition impact will be monitored at both sub-project and the Framework level based on the Framework objectives.

1.3 ADDITIONALITY

Identified triggers Description

A subsequent/consecutive transaction with the same Kyiv Metro has significant investment needs to renew client/group with the same use of proceeds or in the same its rolling stock [REDACTED] as confirmed by the country (repeat transaction). Bank’s independent due diligence consultant. This need is acute if it is to maintain service levels and recent extension of the metro. The previous transaction was approved by the Board and signed in 2007 [REDACTED].

Additionality sources

Financing structure – EBRD offers a tenor above the market The Bank’s investment is needed to close the funding average, which is necessary to structure the project. gap. At the same time, EBRD does not crowd out other sources, such as from IFIs, government, commercial banks and/or complements them.

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Policy, sector, Institutional or regulatory change – EBRD’s The Bank is uniquely positioned for policy involvement in a project is considered additional when it is dialogue with the Government and the local designed to trigger a change in the policy, sector, institutional authorities [REDACTED] and associated or regulatory framework, or enhance practices at the sector or reforms. The Bank has accumulated substantial country level (e.g., an introduction of cost-reflective pricing of experience across Ukraine with public transport energy, water etc.). operations.

Knowledge, innovation and capacity building- EBRD The Bank through relevant TCs provides support provides expertise, innovation, knowledge and/or capabilities to strengthen capacity of the clients with respect that are material to the timely realisation of the project’s to procurement and implementation as well as objectives, including support to strengthen the capacity of the corporate development. client.

1.4 SOUND BANKING - KEY RISKS

The City of Kyiv is the wealthiest Ukrainian municipality with the most diversified local economy and has an acceptable credit given limited direct and guaranteed debt levels (long- term solely with IFIs) and good operating performance.

Risks Probability / Comments Effect Risk of Borrower Tariff risk Medium/  As the Project will improve the sustainability and quality of operations of City’s High public transport system, there is support to [implement measures to support the Company] once service levels are improved. [REDACTED] Dependence Medium/  The guarantee will covenant [measures to support the Company]. [REDACTED] on subsidies High Demand Medium/  The public transportation infrastructure already exists but is in need of investments risk Medium and upgrading [REDACTED]. Financial High/  The Company is sustainable on an operating level but will rely on the City’s support risk High to repay the loan[REDACTED]. FX and High/ High  [REDACTED]. interest rate risk Implementat Medium/  The risk mainly related to the Company’s limited capacity of international tendering ion risk Medium will be mitigated [REDACTED] […] by gained expereience as part of the first project with EBRD, as well as the inclusion of proven technical solutions. Overall High The risk is mitigated by the Guarantee from the City of Kyiv. Risk

Risks of Probability / Comments Municipal Effect Guarantor Sovereign Medium/  In September 2019, international rating agency Standard & Poor's (“S&P”) Risk High upgraded Ukraine's long-term foreign currency score to “B” Fitch Ratings upgraded Ukraine’s long-term foreign and local currency debt ratings to “B” [REDACTED] Institution- High/  The recent decentralisation reforms [REDACTED]resulted in a markedly improved al and High municipal budgetary performance[REDACTED] financial framework

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Economic Medium/  The City’s local economy is well diversified and is Ukraine’s most prosperous volatility Medium region. [REDACTED] Financial Medium/  [REDACTED] management Medium  The risk is mitigated by the conservative financial management of the municipality as evidenced by moderate direct debt and long-term guaranteed debt solely with IFIs. Financial High/  [REDACTED] balance Medium  The City has demonstrated a good financial performance [and improved] institutional framework with the recent decentralisation reforms [REDACTED]. Liquidity Low/  [REDACTED] Medium FX and High/  The City’s financial forecasts demonstrate resilience when stress-tested interest rate High [REDACTED] risk Overall Medium The municipality demonstrates strong financial performance [REDACTED]. Risk of Guarantor

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2. MEASURING / MONITORING SUCCESS

The TI objectives of the Project are in line with the Framework objectives as detailed in Table 2 below.

Transition Impact Monitoring Indicators and Benchmarks

Qual Obj. Monitoring Details Baseline Target Due date ity No. Indicator Gree 1.1. NOx Annual associated direct [REDACT [REDACT [REDAC n emissions savings resulting from ED] ED] TED] reduced the project (tonnes/yr) [REDACTED] 1.2 PM reduced Annual associated direct [REDACT [REDACT [REDAC (tonnes/yr) savings of fine ED] ED] TED] particulate matter (PM) resulting from the project [REDACTED] 1.3 CO2 GHG reduction resulting [REDACT [REDACT [REDAC emissions from improved public ED] ED] TED] reduced transport operations (increased efficiency, switch from private to public transport, higher usage of electric transport) 2.1 Public Updated Public Service [REDACT [REDACT [REDAC Well Service Contract between public ED] ED] TED] - Contract transport company and gove signed and the city adopted and rned implemente implemented d 2.2 Recommen Route tendering to the [REDACT [REDACT [REDAC ded policy private sector on the ED] ED] TED] agreed by basis relevant of the newly adopted stakeholder tendering s documentation (on the basis of the PSC) is implemented (Number of projects: 6) 2.3 Performanc Updated CDP adopted [REDACT [REDACT [REDAC e or Action and implemented ED] ED] TED] Plan resulting in improved implemente financial and operational d performance 2.4 Recommen Adoption of one or more [REDACT [REDACT [REDAC ded strategy strategies (AFC, TM, ED] ED] TED] agreed by Parking, SUMP) by relevant selected stakeholder municipalities (repeat s clients, 6 total)

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3. KEY PARTIES

3.1 SPONSOR/GUARANTOR

City of Kyiv is the capital of Ukraine and the seventh largest city in . The City benefits from the Central governmental support and is the wealthiest and most populated Ukrainian municipality with the most diversified local economy and tax base. Kyiv City’s credit rating was upgraded to B by S&P and Fitch, as well as Moody’s to Caa1 and it is currently rated on par with sovereign. The City is an existing client and the Guarantor on the two sub-sovereign loans (OpId 37599: Metro loan and 38087: Pastrans loan), fully disbursed and repaying.

Kyiv is the capital of Ukraine and the country's economic hub. It has a registered population of 2.9 million, which is around 7.0% of the national population, while the city's gross regional product (“GRP”) accounts for approximately 20% of national GDP. The city boasts a diversified economy, with the tertiary sector accounting for approximately 90% of GRP. The main sectors are trade, financial, telecommunications and other services. The city is the focal point for domestic and foreign investment and a home for almost all of Ukraine's largest banks.

[REDACTED] The proposed project is a priority for the City which has agreed to advanced procurement to ensure efficient implementation.

The City is governed by the Mayor/Head of City Administration. The City has its own budget and is financially independent (albeit within the constraints of Ukraine’s inter-budgetary relations). However, when issuing a municipal guarantee the City requires consent from the Ministry of Finance of Ukraine and the clearance from the Antimonopoly Committee.

[REDACTED] In Sep 2019, Fitch upgraded the City’s credit rating to “B” from “B-“ with positive outlook. On Nov. 15, 2019, S&P Global Ratings raised its long-term issuer credit rating on the Ukrainian City of Kyiv to “B” from “B-“, with stable outlook. [REDACTED]

3.2 BORROWER

Communal Enterprise “Kyivsky Metropolitan” (“Metro”), a public transport company wholly- owned by the City, responsible for the provision of underground (metro) services. The underground infrastructure includes 3 lines (67.6 km long) with 52 stations, 122 escalators, 3 depots and 821 metro cars. The Company employs around 8,000 people.

The Company operates the underground of Kyiv with the fleet of 821 wagons. [REDACTED]

The Company carried circa 496 million passengers in 2018, 123 million or ca. 25% of which represent the concessionary passengers (free and reduced fares) that are compensated from the City’s budget. The Company’s passenger turnover statistics is presented in the table below:

Table 3.2.2: Company’s passenger turnover Passenger volumes, million 2018 Paying (full fare) 373 Concessionary 123 Total 496 Key ratios Concessionary users 25% Ratio of concessionary to paying passengers 0.3

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There is currently no integrated electronic ticketing system in place in the City operated by the whole public transport sector and a transfer from one mean of public transport to another requires the purchase of a second ticket. This policy is limiting the ridership level of the metro, since it mostly requires a surrounding PT network feeding it in order to operate efficiently. A modern standard fare collection system is currently in use only by the Company allowing purchase either token (expected to phase out by end of the year), pre-paid cards or to charge their pre-paid banking cards.

A single metro ticket price is UAH 8 (EUR 0.25) which is the highest in Ukraine.

Table 3.2.3: Kyiv metro tariffs, in UAH Ticket prices, UAH 2016 2017 2018 Metro 4.0 5.0 8.0

[REDACTED]

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4. MARKET CONTEXT

The public transport sector in Ukraine is going through a process of substantial structural change. Change in the population travel patterns and rising private car ownership leading to air pollution and traffic congestions is one of the main challenges. The growing problem of congestion is compounded by rudimentary traffic management approaches.

At the same time, the decentralisation of the economy removes much of the central funding for public transport, which was traditionally offered virtually at no cost to the population. Accordingly, without adequate funding, the services have deteriorated both in terms of quality and market share. However, the introduction of economic reforms, including local public finance decentralisation, resulted in more stable and predictable local budget revenues allowing the country’s major cities to begin planning and budgeting for public transport improvements.

Kyiv’s public transport network is dense compared with other European cities, with 94% of the population living within 400 metres of a transit stop. The underground metro system is old but efficient, moving 45% of passengers [REDACTED]. Buses are the second most popular means of transportation, accounting for 28% of passenger transport (0.8 million passengers per day). The system is relatively modern and transported 15% of passengers. The remaining passengers were transported by (11%) and the City’s railway train (0.6%).

The public transportation set-up seeks to balance the tight budget available with essential mobility needs, focused on core corridors [REDACTED]. The bus, City’s train, tram and trolleybus routes are operated by the municipal public transport operator KyivPastrans. The subway routes are operated by a municipal operator KyivMetro with a total length of 67.56 kilometres and 52 stations. [REDACTED]

In line with the Ukrainian legislation, urban transport planning and management, is the responsibility of the local authorities. The executive body of the City council responsible for urban transport is a transport department within the City administration. The City coordinates transport service supply through licensing and tariff setting, monitors provision of services through a Central Dispatching Service with GPS technology.

There is currently no [REDACTED] integrated electronic ticketing system in place operated by the whole public transport sector and a transfer from one mean of public transport to another requires the purchase of a second ticket. This policy is limiting the ridership level of the metro, since it mostly requires a surrounding PT network feeding it in order to operate efficiently. A modern standard fare collection system is currently in use only by the Company allowing purchase either tokens (expected to phase out by year end), pre-paid cards or to charge their pre-paid banking cards. In 2019, the City piloted an integrated e-ticketing system in a test mode covering all municipal public transport (metro, busses, trolley, and ). The system is expected to be fully operational by the end of 2020.

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5. FINANCIAL / ECONOMIC ANALYSIS

5.1 FINANCIAL PROJECTIONS

[REDACTED]

5.2 SENSITIVITY ANALYSIS

[REDACTED]

5.3 PROJECTED PROFITABILITY FOR THE BANK

[REDACTED] 6. OTHER KEY CONSIDERATIONS 6.1 ENVIRONMENT

Categorised B (ESP 2014). The project will bring substantial environmental and public health benefits through modernisation of the metro car fleet. It will increase the accessibility and mobility for all user groups and improving overall quality, safety and efficiency of urban transportation. Any adverse impacts will be site specific and addressed through appropriate mitigation measures. A modal shift to clean public transport as opposed to private cars and minibuses in the City will reduce the amount of CO2, emissions, particulate matter (PM) including black carbon, and nitrous oxides .

Environmental and social due diligence (“ESDD”) for the project, which has been carried out internally included an environmental and social analysis of the proposed investment as well as a review of environmental, social, health and safety policies and procedures and the capacity of the company to manage risks associated with the proposed Project in line with the EBRD’s Performance Requirements (PRs).

The ESDD identified that the Company has the institutional capacity to implement the Project in compliance with the Bank's PRs, and is compliant with Ukrainian legislation, however it was noted that the Company needs to improve its maintenance workshops and sanitary & hygienic facilities for its workers and ensure effective operation of the washing station and treatment facilities. Project implementation is limited to the urban area within the boundaries of the existing urban development and no sensitive ecological receptors or protected zones will be affected. In addition, it is confirmed that the project will not have significant adverse social impacts to local communities or other project affected parties, nor will the project require the acquisition of lands or result in involuntary resettlement or economic displacement.

An Environmental and Social Action Plan (“ESAP”) has been developed and agreed with the Company to address the areas for improvement identified during the ESDD and carry out the necessary mitigation measures which will enable the Company to comply with national regulations and the Bank’s PRs. The ESAP covers development and implementation of the Environmental Management and Occupational Health & Safety Management Systems (including improvement of sanitary and hygienic conditions for the Company employees) as well as development and implementation of a Stakeholder Engagement Plan. The environmental and social performance of the project and implementation of the ESAP will be monitored through annual E&S reports and site visits when deemed necessary.

6.2 INTEGRITY

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In conjunction with OCCO, integrity due diligence was undertaken on all relevant counterparties [REDACTED]. The review [REDACTED] concluded that [REDACTED] this project does not pose an unacceptable reputational risk to the Bank.

6.3 ECONOMIC ANALYSIS

An Economic Internal Rate of Return (“EIRR”) was calculated for the Project as part the Bank’s external due diligence conducted by Feasibility Study consultants. The EIRR [REDACTED] is 18.07 per cent, a reasonable EIRR given size of the project and social impact. [REDACTED]

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ANNEXES TO OPERATION REPORT

ANNEX I UPTF2

ANNEX II FINANCIAL ANALYSIS SUMMARY

ANNEX III PROJECT IMPLEMENTATION

ANNEX IV LESSONS LEARNED

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ANNEX I – UPTF2 OVERVIEW AND INDICATIVE SUB- PROJECTS

The UPTF2 was approved by the Board in July 2019 setting out an ambitious agenda for the Bank’s municipal business in urban transport sector in Ukraine. Following the success of the original Framework [REDACTED] , the over-arching aim of the UPTF2 has been to expand and deepen the Bank’s engagement in the public transport sector in Ukraine and continue to serve as a sector-wide catalyst in addressing key challenges in public transport in Ukrainian municipalities.

Under the Green quality the Framework is expected to have positive impact on carbon emissions and air quality by improving access to clean urban transport and capacity and efficiency of public transport services. Under the Well-governed quality the Framework enables the pursuit of reform objectives in the public transport sector - improvement in regulation, accountability and funding through the introduction of Public Service Contracts and cost restructuring of incumbent public transport operators.

In terms of finance, the Board approved a funding envelope of EUR 250 million for a period of four years. [REDACTED]

ANNEX II – FINANCIAL ANALYSIS SUMMARY [REDACTED]

ANNEX III – PROJECT IMPLEMENTATION Procurement classification – Public (sub-sovereign)

[REDACTED]

Project implementation arrangements A PIU has been established within the Company and will have overall responsibility for the implementation of the Project. [REDACTED]

Procurement arrangements The Project is classified as public sector for procurement purposes. Goods, works and services financed from the Bank’s loan and local contribution will be procured through open tendering in accordance with Section III of the PP&R (Rev. November 2017). [REDACTED]

ANNEX IV – LESSONS LEARNED

The first Kyiv City Transport project provided a total of €100 million in loans to two Kyiv municipal owned transport companies, Kyiv Metropolitan (€40 million) and Kyiv Pastrans

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(€60 million), to finance new metro cars, buses and , together with associated maintenance equipment and spare parts. [REDACTED]

Issue Lessons Learned Application

Project implementation Under the proposed project the Bank plans to link the project delay implementation support consultant payments to deliverables instead of time-based inputs (where relevant and applicable). [REDACTED]

Public Service Contract Under the proposed project, the Bank plans to update the PSC taking into account regulatory changes introduced in the budgetary framework allowing multi-year planning and budgeting. Furthermore an updated PSC will ensure service support payments based on a price per vehicle- kilometre or passenger-kilometre on the basis of an agreed service plan. The implementation of an updated PSC will ensure improved financial and operational performance of the Company on a sustainable basis.

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